Herman Hidayat (Auth.) - Forest Resources Management in Indonesia (1968-2004) - A Political Ecology Approach-Springer Singapore (2016)

Herman
Hidayat
Forest Resources
Management in
Indonesia (1968-
2004)
A Political Ecology Approach
Forest Resources Management in Indonesia
(1968–2004)
Herman Hidayat
Forest Resources
Management in Indonesia
(1968–2004)
A Political Ecology Approach
Herman Hidayat
Indonesian Institute of Sciences (LIPI)
Jakarta, Indonesia
The English Translation of this book is a result of a grant subsidy in 2015 by the Development
Agent of Language Training, Ministry of Education and Culture of The Republic of Indonesia.
ISBN 978-981-287-744-4 ISBN 978-981-287-745-1 (eBook)

DOI 10.1007/978-981-287-745-1
Library of Congress Control Number: 2015958790
Springer Singapore Heidelberg New York Dordrecht London

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Foreword
There is no royal road to learning. My reliable friend, Dr. Herman Hidayat, put this
English proverb into practice. He is such a hard worker that he successfully attained
a doctorate under the ROMPAKU Program supported by the Japan Society for the
Promotion of Science (JSPS). He stayed at the University of Tokyo for 3 months of
every year for 5 years, conducted literature surveys till midnight at our office, and
gave us a series of presentations to discuss his achievements. He was also certainly
very pleasant personally. According to the information given by my students, he
enjoyed living in Tokyo, liked to joke with younger students, and was loved by
them.
The truth shall set you free. I believe, as this English proverb tells us, a person
might change their attitude and thinking gradually through the process of their
research. Herman’s evaluation of Indonesian politics seemed to change as his
research progressed, becoming more flexible than ever. This process coincided with
historical changes that set many Indonesian scholars’ ways of thinking free from the
Soeharto regime. Fortune might have favored him.
Herman completed his dissertation at the end of 2004, titled “Dynamism of
Forest Policy in Indonesia: Focusing on the Movement and Logic of Stakeholders
Under the Soeharto Government and Reformation Era.” The objectives of his dis-
sertation were to determine (1) the national policy on forest management during the
Soeharto regime, (2) the movement of direct and indirect actors related to deforesta-
tion, (3) the forest reform policies in the reformation era, and (4) the implications of
forest policies and the response to the forest management of the local people in the
provinces of East Kalimantan and Bengkulu.
The specific feature of the study was to apply the framework of “political ecol-
ogy.” It is a generic term used for the field of research connecting two types of stud-
ies by bringing the point of view of politics into the study of environmental
disruption. It includes a small-scaled study centered on local community (e.g., cul-
tural ecology, applied anthropology) and a large-scaled study from a national and
worldwide standpoint (e.g., political economy). After reviewing existing studies, he
narrowed down the framework to the movement and logic of stakeholders (actor
analysis) among other frameworks of political ecology. Such a viewpoint made him
v
vi Foreword
provide a balanced evaluation of forest policy in Indonesia. In the past, the evalua-
tion on forestry issues was performed only from the viewpoint of the expert (profes-
sional foresters). Obviously, such a view was not always fair, but often biased. So it
has been very difficult to make a fair evaluation of forest policy by Indonesian
scholars. In this regard, his study made a good contribution to the academic society
of forest policy as well as an important implication to policy reformation.
The essence of this study is summarized as follows.
In the Soeharto regime, which was authoritarian and centralistic in power, the
direct actors such as the state (especially the Ministry of Forestry), private sector,
and state forestry corporations and the indirect actors such as international financial
institutions (the World Bank, IMF, the ADB) were categorized as “winners” in the
sense of a strengthening of their authority and political power. As the direct actors
did not abide by forestry regulations and ignored academics’ and NGOs’ criticisms
on sustainable forest management principles, this eventually led to forest degrada-
tion and deforestation.
In contrast, a different approach has been taken in the reformation era. Various
stakeholders have committed to the stages of planning, implementing, monitoring,
evaluating, and forecasting for sustainable forest management. It is clearly seen that
the power of the direct actors, such as the state and private sector, has weakened and
they have become the “losers” within forest management policies in Indonesia.
Meanwhile, local people, local governments, NGOs, and academics have raised
their status, and they are now considered to be “winners.” The livelihood of local
people is currently improving from a political, economic, and social life viewpoint
compared to that in the Soeharto regime. This evidence is partly reflected in the
present situation. In May 2013, the Indonesian Constitutional Court made a deci-
sion to scrape the word state from Article 1 Point 6 of Forestry Law No. 41/1999,
which says “customary forests are state forests located in the areas of custom-based
(adat) communities, and so becoming customary forests are forests located in the
areas of: custom-based (adat) communities.” Even though the customary rights of
the people have not fully been acknowledged, the judgment can be regarded as a
turning point of Indonesian forest policy.
However, it is important to note that there might be other missing or hidden
“winners” and “losers” in the reformation era than the stakeholders mentioned in
this study. Social scientists have to admonish themselves for their excessive opti-
mism regarding their own conclusions. I think every social study should be regarded
as tentative, because the field reality is always changing. I, as a supervisor of his
dissertation, once requested him to continue researching this topic for the long term
and to modify the conclusion flexibly in accordance with field realities.
I believe that there is no end to policy research as far as it should not be a mere
theory, but practical, to improve the situations confronting people. I would like to
cooperate with Dr. Herman Hidayat for the purpose of realizing harmony between
the happiness of the people and forest conservation in Indonesia and the world.
Foreword vii
I believe this book is very appropriate to be read by policy researchers, NGOs,

politicians, and even government officials who are interested in Indonesian forest
policies.
Where there’s a will, there’s a way.
At home in rural area of Tsukuba, Japan The New Year of 2014

Professor of Global Forest Environmental Studies Inoue Makoto, Ph.D.
The University of Tokyo
Acknowledgments
The inspiration and ideas of a large part of this book have traveled a long way, while
I finished writing my PhD dissertation at the University of Tokyo (2004) and post-
doctoral fellowship (2008–2010) at the Center for Southeast Asian Studies (CSEAS)
of Kyoto University more than a decade ago. The long journey eventually ended up
in this publication. I am really indebted to many individuals and institutions. I would
like to thank Prof. Inoue Makoto and Prof. Nagata Shin for their supervision in the
Department of Forest Science, Graduate School of Agricultural and Life Sciences,
the University of Tokyo. My thanks also to the Indonesian Institute of Sciences
(LIPI), Research Center for Society and Culture, where I have spent more than three
decades as researcher. LIPI institution has given me valuable opportunities and made
work pleasurable to the writer to complete editing and writing certain papers such as
illegal logging in local autonomy and conflict of interest on natural resources (forest
resources, mining, estate plantation) between the central government and local peo-
ple. I gratefully acknowledge the senior researchers in LIPI such as Dr. Alfian, Dr.
Lie Tek Tjeng, C.P.F. Luhulima, Prof. Taufik Abdullah, Prof. A.B. Lapian, Dr.
Abdurachman Surjomihardjo, Dr. Hilman Adil, Dr. Mely G. Tan, Prof. Mochtar
Pabottingi, Dr. Ninuk Kleden, Dr. Riwanto Tirtosudarmo, Dr. Endang Turmudi,
Abdul Rachman Patji MA, Dr. Raldi Kostoer, Prof. Johanis Haba, Prof. Rusdi
Muchtar, Prof. M. Hisyam, and many other research colleagues whose names could
not be mentioned one by one here, but together we make a peer group as a research
community that has greatly contributed to my career as a researcher in LIPI.
In 2008–2010 I spent 2 years as a postdoctoral fellow at the Center for Southeast
Asian Studies (CSEAS), Kyoto University. Having this chance as a visiting fellow,
I utilized valuable time to carry out fieldwork in the ASEAN region (Thailand, the
Philippines, Vietnam, and Indonesia) and to write papers on sustainable forest man-
agement lead to pulp and paper industries. Special thanks to Prof. Kono Yasuyuki as
host scientist, Associate Prof. Okamoto Masaaki, and director of CSEAS, Prof.
Mizuno Kosuke. In November 2012 to March 2013, I had the opportunity to stay as
a visiting professor at the Kagoshima University Research Center for the Pacific
Islands (KURCPI) in Japan where I could continue working on editing this book.
ix
x Acknowledgments
I am sincerely grateful to Prof. Noda Shinichi, the director of KURCPI,

Prof. Nagashima Shunsuke, Prof. Kawai Kei, Prof. Kuwahara Sueo, and Associate
Professor Yamamoto Sota.
Special thanks to Dr. Carol J. Pierce Colfer, host scientist at Cornell University,
and other colleagues, for instance, Dr. Richard Dudley, Prof. Dr. Martin Hatch,
Dr. Audrey Kahin, and Dr. Anto Mohsin for their support in the publication of this
book. I am also thankful to Jordan Hoffmann and Kevin Sim as the English editors
of this book. Finally I am pleased to thank my family, my wife Dr. Yaniah Wardani,
MA; my daughters Ana Sabhana Azmy Msi and Kholilah Saadah ST; and my son
M. Alfatih ST, who have always accompanied me in times of sorrow and in times of
happiness. By publishing this book, I do hope it is not only meaningful for me as the
author but also a great contribution to other professionals such as lecturers, research-
ers, politicians, government bureaucrats, businessmen, forest scientists, and for
society at large.
Jakarta, LIPI
27 March 2015
Contents
Part I Introduction
1 The Political Ecology of Forest Resources Management..................... 3
The Forestry Sector in the Soeharto Regime ............................................ 4
The Forestry Sector in the Reformation Era ............................................. 6
Deforestation ............................................................................................. 8
Scientists’ Discourse on Political Ecology ............................................... 10
Putting Politics First.................................................................................. 12
Environmental Implication ....................................................................... 13
Focuses of Past Studies on Political Ecology ........................................... 14
Review of Actors’ Movements ................................................................. 17
The Role of Direct Actors ......................................................................... 17
The Role of Indirect Actors ...................................................................... 18
The Study Framework ............................................................................... 21
Brief Synopsis of Chapters ....................................................................... 23
Part II Forest Management Under the Soeharto Government

2 Political Transition from Soekarno to Soeharto ................................... 27
3 Forestry Industry (Logging, HTI, Plywood, Pulp, and Paper) ........... 35
Logging Forest Concessions (HPH) ......................................................... 36
Plywood Industries in the 1970s ............................................................... 44
The Plywood Industry in the 1980s and 1990s ......................................... 53
Industrial Timber Plantation (Hutan Tanaman Industri/HTI) ................... 63
Historical Background .......................................................................... 63
The Aim and Policy of HTI Development ............................................ 64
The Role of the Government in Planning and Projections
concerning HTI Development ............................................................... 65
Private Companies’ Views on HTI Development:
Some Constraints .................................................................................. 67
xi
xii Contents
Pulp and Paper Industries.......................................................................... 69

Government Policies and Regulations .................................................. 71
Land Dispute: ITCI Company Versus Local People ................................. 80
Concluding Remarks................................................................................. 83
Part III Environmental Impact of Forest Management

4 Analysts’ Comments on Deforestation .................................................. 97
5 NGOs’ Criticisms on Forestry Management ........................................ 109
Discourse on the Logging Forest Concession (HPH) System .................. 109
Discourse on the Industrial Forest Plantation (HTI) Fund........................ 114
Discourse on the Impact of the Plywood Industry .................................... 117
Discourses on the Impact of the Pulp and Paper Industry ........................ 118
Implications of Environmental Issues ....................................................... 120
Forest Fires................................................................................................ 120
The 1997 Forest Fires ........................................................................... 122
Water Pollution and Famines .................................................................... 124
Species Depletion...................................................................................... 126
Climate Changes ....................................................................................... 128
Part IV Forest Management in the Reformation Era

6 Decentralization on the Forestry Sector ............................................... 135
The Aim of Decentralization .................................................................... 135
The Central Government ........................................................................... 136
The Local Government ............................................................................. 137
Review of Decentralization on Act No. 22/1999 ...................................... 137
The Role of the CGI.............................................................................. 137
To Improve Regional Autonomy .......................................................... 138
Based on Act No. 25/1999 ........................................................................ 140
To Improve Fiscal Capabilities ............................................................. 140
The Constraints of Practice ................................................................... 141
Decentralization of the Forestry Sector .................................................... 142
The Role of the Central Government .................................................... 143
Impact of Decentralization on Regional Revenue .................................... 145
The Role of HPHH................................................................................ 146
The Impact of HPHH ............................................................................ 147
How to Overcome This Condition ............................................................ 148
7 Government Versus Local Indigenous People in Papua ...................... 149
Problem One ............................................................................................. 152
The Illegal Logging Crisis .................................................................... 152
To Take Action to Crush Illegal Logging.................................................. 157
Contents xiii
Government Perception of Forest Land .................................................... 158

Problem Two ............................................................................................. 161
Palm Oil and the Mega MIFEE Project: The New Threat
of Forest to Papua ................................................................................. 161
Problem Three........................................................................................... 166
Mining Activities .................................................................................. 166
8 Interpretations of Decentralization by Stakeholders ........................... 175
The Ministry of Domestic Affairs ............................................................. 175
The Role of the DPRD (Local Parliament) ........................................... 175
Role of the BPD .................................................................................... 177
Bureaucratic Capacity and Efficiency for Providing
Public Services ...................................................................................... 179
Local Government................................................................................. 179
Scholars ................................................................................................. 181
Comments on the Forestry Sector ......................................................... 185
NGOs (Nongovernmental Organizations)............................................. 187
Timber Concessionaires ........................................................................ 191
Ministry of Forestry .................................................................................. 193
9 Problems in the Decentralization Process: Illegal
Logging Practices .................................................................................... 197
Definitional Overview ............................................................................... 198
Illegal-Logging Stakeholders and Practices .............................................. 199
Model of Illegal Logging .......................................................................... 200
Empirical Analysis of Illegal Logging ...................................................... 203
Illegal Logging Activities ......................................................................... 207
Countermeasures to Stop Illegal Logging................................................. 208
Proposals Provided by NGOs ................................................................... 209
Measures Taken by the Ministry of Forestry ............................................ 211
Intergovernmental Measures ..................................................................... 213
Discussion ................................................................................................. 215
Conclusion ................................................................................................ 217
Part V Local Responses to Forest Management: A Case Study

of East Kalimantan
10 Logging, Forestry Industry, and the Regional Economy .................... 221
The Development of HPH and Forestry Industry ..................................... 221
Employment .............................................................................................. 225
Production and Timber Processing ........................................................... 226
Regional Income from Forestry Industry .................................................. 230
Regional Economic Growth and Social Welfare....................................... 232
xiv Contents
11 Livelihood of Local People in Muara Gusik Village ............................ 237

Description of Research Area ................................................................... 238
Secondary Sources of Income ................................................................... 239
Rattan .................................................................................................... 239
Rubber ................................................................................................... 241
Aloe Resin (Aquilaria malaccensis) (Kayu Gaharu) ............................ 242
The Reformation Period............................................................................ 243
Land Dispute Compensation ................................................................. 244
Socioeconomic Function of Timber and Rattan Traders ...................... 245
Function of Rattan Traders ................................................................... 257
NGO Initiatives in Developing Rattan .................................................. 267
Conception of Idea and the Project ....................................................... 269
Market Analysis .................................................................................... 270
Conclusion ................................................................................................ 271
Discussion ................................................................................................. 272
Part VI Local Responses to Forest Management: A Case

Study of Bengkulu
12 Logging, Coffee Production, Distribution,
and Markets in Bengkulu ....................................................................... 277
The Role of HPH ...................................................................................... 277
Forest Squatters ..................................................................................... 280
Reforestation Program .......................................................................... 281
Coffee Plantations ..................................................................................... 282
Types of Coffee Estates......................................................................... 283
Development of Coffee Estates ............................................................. 284
Production Systems............................................................................... 286
Livelihood of Local People in Batu Bandung Village .............................. 287
Description of Research Area ............................................................... 287
Primary Subsistence: Coffee ................................................................. 288
What About the Secondary Crops? ....................................................... 289
Rice Production..................................................................................... 290
Coffee Traders ........................................................................................... 290
Profile of Village Coffee Traders .......................................................... 290
Subdistrict-Level Coffee Traders .......................................................... 297
District Level Coffee Traders ................................................................ 301
Provincial-Level Coffee Traders ........................................................... 306
Conclusion ................................................................................................ 310
Discussion ................................................................................................. 311
Part VII Conclusions and Recommendations

13 Conclusions and Recommendations ...................................................... 315
Integrated Results...................................................................................... 323
Recommendation ...................................................................................... 325
Contents xv
Map 1................................................................................................................ 327

Map 2................................................................................................................ 329
Map 3................................................................................................................ 331
Bibliography .................................................................................................... 333
Index ................................................................................................................. 347
Abbreviations
AEKI Asosiasi Ekportir Kopi Indonesia (Coffee Exporters Association of

Indonesia)
AMAN Aliansi Masyarakat Adat Nusantara (Nusantra Communities Adat
Alliance)
APBD Anggaran Pendapatan Belanja Daerah (Regional Financial Income
Budget)
APKINDO Asosiasi Perkumpulan Kayu Lapis Indonesia (The Indonesian Wood
Panel Association)
APHI Asosiasi Pengusaha Hutan Indonesia (The Association of Indonesian
Forest Concession Holders)
AMDAL Analisa Masalah Dampak Lingkungan (Environmental Impact
Analysis)
APKI Asosiasi Pulp dan Kertas Indonesia (Association of Pulp and Paper
Indonesia)
BCA Bank Central Asia
BUMN Badan Usaha Milik Negara (State Company)
BPD Badan Pemerintahan Desa (The Village Representative Board)
BPDAS Balai Pengelolaan Daerah Aliran Sungai (Board Management of
Watershed)
BIES Bulletin of Indonesian Economy Studies
BPS Badan Pusat Statistik (Bureau of Statistics)
BRI Bank Rakyat Indonesia (Indonesian People’s Bank)
CIFOR Centre International on Forestry Research
CGI Consultative Groups on Indonesia
CITES Convention International Trade in Endangered Species
DAU Dana Alokasi Unum (General Allocation Fund)
DAK Dana Alokasi Khusus (Special Allocation Fund)
DPR Dewan Perwakilan Rakyat (National Parliament)
DPRD Dewan Perwakilan Rakyat Daerah (Local Parliament)
EIA Environmental Investigation Agency
xvii
xviii Abbreviations
ELSAM Lembaga Studi & Advokasi Masyarakat (Institute for Community

Advocating)
FKKM Forum Komunikasi Kehutanan Masyarakat (Society Forestry
Communication Forum)
GOLKAR Golongan Karya (Functional Groups)
GDP Gross Domestic Production
GNP Gross National Production
HPH Hak Pengusahaan Hutan (Logging Forest Concessionaires)
HPHH Hak Pengusahaan Hasil Hutan (Forest Product Harvesting Rights)
HKM Hutan Kemasyarakatan (Social Forestry)
HTI Hutan Tanaman Industri (Industrial Timber Plantation)
ICRAF International Center for Research in Agro-Forestry
IMF International Monetary Fund
ITTO International Tropical Timber Organization
IGGI Intergovernmental Group on Indonesia
IHPH Izin Hasil Pengusahaan Hutan (Logging Concession Rights
Contribution)
IHHT Iuran Hasil Hutan Tambahan (Additional Income of Forest
Production)
INHUTANI State Forestry Corporation
IPPK Izin Pemanfaatan Pemotongan kayu (Timber Extraction and
Utilization Rights)
ITCI International Timber Corporation of Indonesia
JPMA Japan Plywood Manufactures Association
JAPHAMA Jaringan Pembelaan Hak-Hak Masyarakat Adat (Adat Community
Rights on Advocating Networks)
JICA Japan International Cooperation Agency
KKN Korupsi, Kolusi dan Nepotisme (Corruption, Collusion, and
Népotisme)
KSDA Kantor Sumber Daya Alam (Natural Resources Office)
KOSTRAD Komando Strategis Angkatan Darat (Strategic Army Forces)
KUDETA Koalisi untuk Demokratisasi Pengelolaan Sumebrdaya Alam
(Coalition for Democratization on Natural Resources)
LIPI Lembaga Ilmu Pengetahuan Indonesia (Indonesian Institute of
Sciences)
LKMD Lembaga Ketahanan Masyarakat Desa (Village Community
Resilience Board)
LMD Lembaga Masyarakat Desa (Village Consultative Assembly)
LOL Letter of Intent
MPI Masyarakat Perkayuan Indonesia (Indonesian Forestry Society)
NGO Nongovernmental Organization
NKRI Negara Kersatuan Republik Indonesia (United Nation of Indonesia)
NU Nahdhatul Ulama (Muslim Traditionalist Groups for Ulama
Movements)
NEI Netherlands East Indies
Abbreviations xix
PAD Pendapatan Asli Daerah (Local Regional Income)

PPP Partai Pembangunan Indonesia (The United Development Party)
PDI Partai Demokrasi Indonesia (The Indonesian Democratic Party)
PDRB Produk Domestik Regional Bruto (Gross Regional Domestic
Production)
PELITA Pembangunan Lima Tahun (Five-Year Development)
PKI Partai Komunis Indonesia (Indonesian Communist Party)
PNI Partai Nasionalis Indonesia (The Indonesian Nationalist Party)
PAN Partai Amanat Nasional (National Mandate Party)
PMA Penanaman Modal Asing (Foreign Investment)
PMDN Penanaman Modal dalam Negeri (Domestic Investment)
PP Peraturan Pemerintah (Government Regulation)
PSDH Provisi Sumberdaya Hutan (Provision of Forest Resources)
RePPProt Regional Physical Planning Programme for Transmigration
RKT Rencana Kerja Tahunan (Annual Work Plan)
SMA Sekolah menengah Atas (a Senior High School)
SMEA Sekolah Menengah Ekonomi Atas (Economic Senior High School)
TGHK The Consensus Forest Land Use Plan
TPTI Tebang Pilih Tanam Indonesia (The Indonesian Selective Cutting
and Replanting System)
TNI Tentara Nasional Indonesia (Indonesian National Soldier)
UUPK Undang-undang Pokok Kehutanan (Forestry Principles Law)
VOC Vereenigde Oost-Indische Company
WALHI The Indonesian Environmental Forum
Part I
Introduction
Chapter 1
The Political Ecology of Forest Resources
Management
IN 1966, a radical systemic change1 occurred within the Indonesian government,

from the old Soekarno (1945–1966) regime to the Soeharto regime, proudly called
“The New Order” (1966–1998). When Soeharto came to power in 1966, he was
widely supported by the majority of Indonesian society: students, military groups,
bureaucrats, the Functional Group (Golkar)2 and others (Suryadinata 1992; Alfian
1989, 1990; Mas’oed 1989).
In 1978, for the first time since President Soeharto came to power in 1966,
Indonesia’s Broad Guidelines of State Policy (Garis-GarisBesarHaluan Negara,
GBHN) which was formulated by the parliament, consisted of development pro-
grams in a variety of sectors, including the forestry sector. The main goals of this
sector were “to lift up the lives of Indonesian people, focusing economically and
socially” (Ketetapan MPR RI No.IV/MPR/1978).
The Soeharto government initially set up programs in line with an economic
development paradigm in which a group of US-educated Indonesian economists,
known as “The Berkeley Mafia,” (Sjahrir 1995; Glassburner 1971; Sarbini 2004)
took immediate steps to develop Indonesia’s weak economy in the mid-1960s and
began to develop a legal framework to restore Indonesia’s economic performance
through political stabilization and rehabilitation policies (Glassburner and
Poffenberger 1983). Priority was placed on stabilization policies, in which the gov-
ernment took steps to control hyperinflation, adopt a balanced budget, open up the
economy by creating a climate conducive to foreign investments, and to establish
Inter Governmental Groups (IGGI) to support long-term Indonesian economic
development. As for rehabilitation policies, the goal was to provide basic needs for
the Indonesian people such as food, clothing, and housing through the development
1
A shift from a political paradigm to an economic development paradigm.
2
Golkar or Golongan karya in Indonesian directly translates to the English term “functional
group.” Golkar was a political machine in the Soeharto regime (1971–1997) supported by many
different groups, such as the military, government officers, businessmen, farmers, other profes-
sional groups, and most of the rural population.
© Springer Science+Business Media Singapore 2016 3

H. Hidayat, Forest Resources Management in Indonesia (1968–2004),
DOI 10.1007/978-981-287-745-1_1
4 1 The Political Ecology of Forest Resources Management
of infrastructure as well as through the implementation of fiscal schemes, such as

central grants and subsidies known as Inpres (Presidential Instructions) that
supported agricultural and educational institutions, public works, and regional
development throughout Indonesia. These policies had a clear positive impact on
restoring the economic performance of the country, resulting in a rapid increase of
economic growth. One of the key actors that contributed to this economic develop-
ment and consequently economic benefit was the “forestry sector,” where the gov-
ernment obtained foreign exchange earnings and created jobs for the people.
The Forestry Sector in the Soeharto Regime
In the forestry sector, the government permitted the private sector to harvest and
export logs. This policy was based on issuing Act no.1/1967 and no. 6/1968 on
Foreign and Domestic Investment, Forestry Act no. 5/1967 and government
regulation no. 21/1970. On the legal basis of awarding timber-harvesting and
industry rights, many large concessions of 20–25 years were granted soon after the
implementation of the policy in 1967. This act encouraged large transnational cor-
porations (TNC) from the United States of America (Weyerhaeuser, George Pacific,
etc.) and Japan (Mitsubishi, Sumitomo, Shin Asahigawa, Ataka, etc.) to invest their
capital in the forestry sector (Hurst 1990: 34) as well as domestic private sectors.
Sumatra and Kalimantan were the first targets of forest exploitation by logging
concessions. This was because both islands had the largest stock of commer-
cially valuable tree species and were closest to the Asian markets.
The logging concessions led to the rapid increase of exports of unprocessed logs
during the 1970s. With government profits from the forestry sector rising to become
the second largest source of income after the oil sector, Indonesia’s emerging busi-
ness empires took hold and greater employment opportunities were realized
(Robinson 1986). However, along with this rapid growth in the business sector came
unprecedented rates of deforestation. Huge tracts of primary forest were depleted,
adding to the inherent poverty of the local communities within and surrounding
those forests whose livelihoods depended on them. As the government did not rec-
ognize the customary forest rights of the local peoples, land disputes occurred in
various districts. For example, 14,440 ha were disputed in the 1990s between the
local Muara Gusik community of the Kutai Regency and the International Timber
Corporation of Indonesia (ITCI; Chap. 9: Livelihood of Local People in Muara
Gusik Village, East Kalimantan). This conflict eventually negatively impacted the
community economically and socially (education and health). Economically, the
buying power of the community had decreased to the point where an average person
had to eat one less meal every day.
In line with logging activities, logging concessions totaling almost 11 million ha
were granted in East Kalimantan from 1969 to 1974 (World Resources Institute
2000). This increased log exports from 5.2 million cubic meters in 1969/1970 to
more than 24.3 million m3 in 1973/1974. Throughout the 1970s, East Kalimantan
The Forestry Sector in the Soeharto Regime 5
produced one-third to one-half of Indonesia’s logs (Inoue 2000). In 1967 only

4 million m3 of logs were cut from Indonesian forests, and mostly for domestic use.
However, by 1977, the total had risen to approximately 28 million m3 with at least
75 % intended for export. The income from the forest sector rose from US$6 million
in 1968 to more than US$564 million in 1974. By 1979, Indonesia was the world’s
major tropical log producer, with a 41 % share (US$2.1 billion) of the global market
and representing a greater export volume of tropical hardwoods than all of Africa
and Latin America combined (Lash 2000). The government had planned to build an
integrated forestry industry from the logging and timber processing industries. To
do this, the government issued policies that banned logging and built facilities for
the timber industry.
The timber industry (Chap. 2: Forestry Industry) went through a consolidation
period in the early 1980s when a ban on log exports was imposed in 1985, creating
a few but huge vertically integrated timber firms that concentrated on plywood
production. This plywood industry policy resulted in an increase in plywood exports,
which were about 140,000 cubic meters in 1979 and grew approximately 23-fold
in years to cover 3.2 million m3 in 1985 and eventually 9.7 million m3 in 1993
(3.2 million m3 were exported to Japan; Inoue 2000). East Kalimantan hosts 27 of
Indonesia’s 114 plywood factories. According to the World Resources Institute,
“The number of plywood mills in the country grew from 21 in 1979 to 114 in 1989
and to more than 10 million m3 in 1993, nearly 90 % of which was exported” (Lash
2000). Throughout this growth, the industry became increasingly concentrated in
the hands of a small number of firms with connections to the elite government, a
monopolistic timber industry. By 1994, the top 10 groups controlled nearly 24 mil-
lion ha (37 %) of the 64 million ha of logging concessions in Indonesia; the share
was 64 % in timber-rich East Kalimantan. These big firms formed a cartel, made
Indonesia the world’s largest plywood producer, and succeeded in raising interna-
tional plywood market prices. As a result, Indonesia received an income of over
US$50 billion from foreign exchange during 1983–1997 from the plywood industry
alone (Tropis, no. 9, September 2000). The plywood industry’s success was based
on the Indonesian Panel Wood Association (Apkindo), which in the 1990s success-
fully integrated logging into the national plywood industries and launched price
promotions in the international market.
In the 1990s, the Indonesian government launched an ambitious plan to establish
a pulp and paper industry. In order to realize this plan, the government promoted
“Industrial Timber Plantations” (Hutan Tanaman Industri—HTI) of monocultures
of fast-growing timber plantations (eucalyptus tree, acacia mangium, etc.), particu-
larly in Sumatra and Kalimantan. The raw materials from the HTI are then used to
produce chips for pulp. Other plantations consisting of rubber, vegetables, and fruits
were also planted for the locals who lived near the HTI plantations, empowering
their socioeconomic conditions. Seemingly so, the timber estate program got off to
a slow start. In the late 1980s, the government had planned to open 1.5 million ha
annually to reach a total area between 4.4 million ha and 6 million ha by the year
2000. Unfortunately, this plan was not realized and by 1998, only 2.4 million ha had
been planted. The reason for this failure was the economic crisis that occurred in
1997 in Indonesia that resulted in conflicts for agriculture land with the local people.
These issues of customary forest rights, autonomy, and decentralization continue
today in many provinces and districts.
One example of a company from the pulp and paper industry is Riau Andalan,
one of the many holding companies of the Raja Garuda Mas company, headed by
Harvard-educated Sukanto Tanoto, the “timber king” of Northern Sumatra
(Lohmann 1996: 29). This pulp company was built in early 1993 in the little village
of Kerinci, 20 km south of Pekanbaru, the capital of Central Sumatra. This company
was a joint venture with international firms (Finland’s Kone, Sweden’s Noss, Japan’s
Mitsubishi and Nippon Sano, etc.) and serves as a fitting symbol of a boom at that
time which saw the country’s pulp production rise from 167,000 tons in 1983 to 1.3
million tons in 1993, and 1.8 million tons in 1997. Additionally, paper production
increased from 377,000 to 2.6 million tons in 1993.
By the mid-1990s, in terms of logging concessions, more than 69 million ha of
forested land had been divided into 657 concessions that were allocated to different
companies. These companies obtained their concessions in 20–25-year terms and
22 % of concessionaires whose term had been renewed operated 49 % of the distrib-
uted area. The remaining 29 % (21.2 million ha) remained mostly in limbo: 9.5
million ha allocated for “rehabilitation,” 8.3 million ha (timber and oil palm planta-
tion and transmigration sites) reserved for “other uses,” and 3.3 million ha recon-
structed as joint private sector–state forestry corporation concessions. Overall,
deforestation from logging concessions totaled some 16.6 million ha by mid-1998
World Resources Institute (WRI) (2001). The Food and Agriculture Organization
(FAO) (2000) reported that an estimated 550,000 ha were cleared annually during
1976–1980. In contrast, estimates in the 1990s, which include the conversion of
primary forest to other uses, ranged from 600,000 to 1,500,000 ha per annum. In the
1990s, the island of Kalimantan had suffered the greatest forest loss (Hurst 1990: 3).
The underlying causes of deforestation are: transmigration projects to outer islands,
logging, mining, timber plantation, oil palm plantation, agricultural expansion, ille-
gal logging practices, shifting cultivation, and population growth.
The Forestry Sector in the Reformation Era
The successor of Soeharto, President B.J. Habibie performed the agenda of “refor-
mation” in the end of 1998. This era was characterized by democratization, respect
for human rights, good governance, decentralization, and so forth (Part III: Forest
Management in the Reformation Era). The decentralization process varied sector by
sector, by the discretionary powers transferred to lower levels of governance, by the
design and implementation of financial models and other associated fiscal aspects,
and by the degree of social responsibility. In the forestry sector, decentralization
became the main focus of new policies, allowing for and actively involving local
community participation. Decentralization became one of the most visible elements
of forestry management today, adapting to the processes of sustainable forest
The Forestry Sector in the Reformation Era 7
management, which highly emphasize forest resources in all their aspects: economic,
social, and ecological (Colfer et al. 2005: 1). The decentralization of the forestry
sector was a critical issue for many developing countries, including Indonesia. In
the proposals for action in the Intergovernmental Panel on Forests (IPF, 1995–1997)
and the Intergovernmental Forum on Forests (IPF, 1997–2000), decentralization is
not explicitly mentioned, and is only indirectly referred to in the recommendations
on participation. However, the decentralization process appears to be a significant
issue for important actors of change. The roles of the United Nations on Forests
(UNFF), Food and Agriculture Organization (FAO), International Tropical Timber
Organization (ITTO), and International Forestry Research (CIFOR), in their
approaches to improve interactions between forest and people, have led to remark-
able gains in the application of good governance principles. In this case, the combi-
nation of locally driven processes combined with the international forest regime has
led to significant changes in forest governance worldwide. For example:
1. Criteria and indicators for sustainable forest management have been developed,
helping to improve the monitoring and management of forests.
2. The advantages of linking buyers and sellers through the promotion of specific
market mechanisms have been recognized.
3. The gap between environmental organizations and those focusing on poverty
reduction is, in some regard, narrowing.
4. Multistakeholder involvement, debates, and consultations have become the norm
and have helped to increase transparency and accountability.
5. Numerous countries have attempted to reorient forest management by promoting
greater decentralization and devolution to local peoples (Colfer and Capistrano
2005: 2).
In the context of decentralization in Indonesia, the government issued Act no.
22/1999 which went into effect on January 1st, 2001, which emphasizes that local
government could make their own decisions regarding natural resource
management, including forests. Act no.25/1999, which implemented a fiscal bal-
ancing system between the central and local government is proof of the attention
that the central government has given to improving the fiscal capability of local
governments. A few months after the issuance of Act no. 22 and no. 25/1999, the
government issued Forestry Act no. 41/1999. From the evaluation of both Acts no.
22/1999 and no. 41/1999, by experts in the field, the implementation of these two
acts has created problems for the parties responsible for managing the forest and
forest resources. Problems are particularly severe between the central government
(the Ministry of Forestry) and local government agencies because of different
interpretations of the term “decentralization”. This eventually led to conflict among
the parties in terms of the distribution of authority and roles. Additionally, more
problems emerged due to a lack of transparency and accountability in managing
and maintaining forest resources as a life support of the ecosystem and as a founda-
tion for the local community, as opposed to only as a source of timber.
Local government perceptions on the implementation of decentralization in

the forestry sector were mainly influenced by the forest managers’ short-term
orientation, which is correlated to the length of term of office (5 years) of the local
government administrators (head of district). As a consequence, the forest is simply
perceived solely as a source of timber that generates local revenues (PAD:
Pendapatan Asli Daerah) needed for local development. Consequently, timber-
cutting licenses were issued locally without sufficient regard for sustainable prin-
ciples, leading to rapid deforestation. Meanwhile, the central government perceived
decentralization of the forestry sector as a positive effort in bringing public services
closer to the people, creating a method of managing forest resources in a sustainable
manner for local communities, and encouraging the implementation of sustainable
forest management practices by associated stakeholders. This dissonance in percep-
tion between the local and central government exemplifies why differences should
be discussed in constructive dialogues in a transparent manner. Only then can solu-
tions be agreed upon by the relevant stakeholders. As a result, the Ministry of
Forestry launched five priority policies on the forestry program, including combat-
ing illegal logging, regulating land and forest fires, rehabilitation and conservation,
restructuring the forestry sector, and strengthening the decentralization process of
forestry.
Deforestation
Deforestation is defined as the conversion of forests to other land uses such as palm
oil (Humphreys 1996: 1). The United Nations has defined deforestation to occur
when “a forest is cleared to give way to another use of the land.” Simultaneously,
forest degradation occurs when species diversity and biomass are significantly
reduced, lowering the quality of the forest. This can be caused by a variety of things,
among them unsustainable forms of forest utilization. In the Indonesian context,
both forest degradation and deforestation have occurred at unprecedented rates. In
addition, there are numerous secondary factors, such as international debts, trade
tariffs, and the self-interests of transnational corporations that ultimately force
Indonesia to commit these acts.
Another major cause of deforestation is forest fires, which are considered to be
ecological disasters. Logging was the primary reason for the extent and severity of
the 1982–1983 fires in East Kalimantan, known as the great Kalimantan fire,
setting ablaze 210,000 square kilometers (km2) (Brookfield and Byron 1993).
Widespread fires reoccurred a number of times in the decade following the great
Kalimantan fire, burning an estimated 500,000 ha in 1991 and nearly 4.9 million ha
in 1994. The biggest fires occurred in 1997–1998, where nearly 10 million ha
burned, including parts of 17 protected forest areas in Sumatra, Kalimantan, and
Sulawesi, shrouding many towns in darkness and exposing some 20 million people
across Southeast Asia to harmful smokeborne pollutants for months on end. This
haze from the fire blanketed neighboring countries including Singapore, Malaysia,
Deforestation 9
Brunei, and the Philippines as well as large areas of Indonesia (Jacob 2001).
Independent observers (Moll 1987; Walhi 1997; Lash 2000) stated that 85 % of
these fires were caused by oil palm and industrial timber plantations using the slash
and burn method for its perceived cost efficiency. The other 15 % of these fires were
caused by shifting cultivation practices among the local people.
As a result, in 1999, “Indonesia lost at least 1.5 million ha of forest annually dur-
ing 1986–1997” (Kompas 26 August, 1997; Forum September, 1997; Gatra August,
1998). The total forest loss since the advent of the Soeharto era in the mid-1960s
was calculated to be at least 40 million ha (Lash 2000). Since then, forest resource
management in Indonesia has come under scrutiny by many scientists (Dove 1985;
Suparlan 1986; Sellato 1994; Haba 1997; Tjitradjaja 1993; Djuweng 1996; Walhi
1999; etc.) These observers have criticized its management because the policies
formed so far have disproportionately benefited private logging concessions (HPH),
industrial timber plantations (HTI), and private estate plantations (oil palm) through
banking, finance, and permit allocation services, as opposed to the local people and
society at large. The policies implemented throughout 1966–1998 have led to nega-
tive consequences of collusion, corruption, deforestation, and poverty, especially
among those who live in and around the forests of East Kalimantan (Inoue 1991;
Mubyarto 1991; Moniaga 1993) and Bengkulu, the two locations where field study
was conducted for the primary source of data explored in this book.
It is understood that deforestation in Indonesia resulted from these business-
oriented forest policies, and the fact that forest management regulations were not
enforced by tight control and hard sanctions. Therefore, the core problem of the
underlying factors of deforestation is “the mismanagement of forest exploitation,”
referring mainly to the main policies of the forestry sector.
Political ecology is an approach that combines ecological concerns with political
economy on forest management issues. This “deforestation,” from a political econ-
omy perspective is a consequence of centralized government policies. The Soeharto
regime centralized control over natural resources from the oil, mining, forestry, and
fisheries sectors, and exploited them for personal benefit and political patronage.
Meanwhile, government planners and forestry bureaucrats neglected logging con-
cession and owner regulations and did not consider the environment or associated
ecological perspectives, which led to widespread deforestation from mismanage-
ment, resulting in forest exploitation, ecological damage, the degradation of local
customary forest rights, land disputes, and marginalization of local people in forest
resource management.
The scope of this book is limited to the era of the Soeharto government regime
(1966–1998) and the reformation era (1999–2004). The Soeharto government
started in 1966 and ended when he stepped down from his presidency on May 21,
1998. There are two reasons these periods were chosen: first, to review “forest man-
agement” under the Soeharto government, as well as the reformation era from polit-
ical ecology perspectives, and second, to review “deforestation” events of large
areas that influenced the revision and reform policies of forest management in the
reformation era. The succeeding president was B. J. Habibie, formerly vice presi-
dent during the Soeharto regime (May 1998–October 1999). Habibie’s regime was
a transformative period leading to the reformation era. Afterwards, members of par-

liament elected Abdurrahman Wahid as president in this new reformation era
(October 1999) after a general election (Pemilu) in July 1999. Wahid’s regime
began implementing a revision of forest policies based on discussions that took
place in the parliament during the Habibie era. These forest reform policies were
still in effect during Megawati’s regime (2001–2004), following Abdurrahman
Wahid’s regime.
Two villages were selected for extensive field research. These two locations are
the province of East Kalimantan (Muara Gusik village, Bongan subdistrict, West
Kutai district) and the province of Bengkulu (Batu Bandung village, Kepahiang and
Bermani subdistrict, RejangLebong district). There are several rationales for choos-
ing these two locations in terms of looking at local peoples’ responses to forest
management.
The Muara Gusik village in East Kalimantan was selected for the following rea-
sons: (1) it is located on the border of a logging concession area (ITCI Company)
which allows an understanding of how far local people could utilize timber and
nontimber products (rattan, rubber, fruits) for income generation activities; (2) a
land dispute between community members and the logging concession holder had
occurred during the 1980s–1990s; and (3) to review rattan and wood trader activi-
ties and their networks from the village level to the subdistrict, district, and provin-
cial levels.
As for the Batu Bandung village in the province of Bengkulu, it was selected for
field research for these reasons: (1) farmers there predominantly cultivate coffee
plantations for subsistence farming; (2) to review coffee traders and their network
of activities from the village level to the subdistrict, district, and province levels; (3)
land dispute over protection and production forest areas had occurred in the region,
involving many migrant workers from South Bengkulu and the Lahat district, result-
ing in a few local people taking over the land for coffee plantations.
The goal of this book is to review forest management practices under the Soeharto
regime and the reformation era, along with the response of the local people toward
forest management in both periods. Additionally, it analyzes the impact of the
underlying factors of deforestation from a political ecology perspective.
Scientists’ Discourse on Political Ecology
The book uses the concept of political ecology which combines and emphasizes the
political economy and ecological approaches that highlight the direct and indirect
actors and their associated activities regarding forest management. The problem
statement that “deforestation” occurring in Indonesia is related to a mismanagement
of forest exploitation, points out a correlation among the following indicators: (1)
the neglect of sustainable forest management practices among direct actors, such as
state bureaucrats (Ministry of Forestry) at multiple levels, and business groups
(local and transnational); (2) these actors do not correlate human behavior with
Scientists’ Discourse on Political Ecology 11
ecology; (3) and they fail to integrate the interactions between human and natural
systems. It is important to recognize the differences between human and natural
systems. Humans, individually or in groups, can anticipate and prepare for the
future to a much greater degree than ecological systems (Paterson 2000). This per-
ception of the future is based on mental models of varying complexity and com-
pleteness. People have developed elaborate ways of exchanging, influencing, and
updating these models. This creates complicated dynamics based on access to infor-
mation, ability to organize, and possession of power. In contrast, the behavior of
ecological systems is based upon the past. Ecological dynamics are the product of
the mutual reinforcement of many interacting structures and processes rather than
design. Therefore, this fundamental difference between human and ecological
behavior means that understanding the role of people in ecological systems requires
not only understanding how people have acted in the past, but also what they plan
for in the future.
Many scientists (Paterson 2000; Bryant et al. 1993; Blaikie and Brookfield 1987;
Abe et al. 2003; etc.) define political ecology differently. Paterson (2000) describes
“political ecology as an approach that combines the concerns of ecology and politi-
cal economy to represent an ever-changing dynamic tension between ecological and
human change, and between diverse groups within society at scales from the local
individual to transnational as a whole.” “Other scientists define political ecology as
a framework to understand the complex interrelations between local people, national
and global political economies, and ecosystems” (Blaikie and Brookfield 1987).
The concept has been adapted in a variety of ways, such as Third-World political
ecology, where Bryant et al. 1993 notes that “political ecology may be defined as
the attempt to understand the political sources, conditions and ramifications of envi-
ronmental change.” Most current political ecologists tend to overlook ecological
dynamics and focus on the structure of human systems (Rocheleau et al. 1994). Abe
Ken-ichi defines political ecology as “a collective name for all intellectual efforts to
critically analyze the problems of natural resource appropriation and political
economic origins of resource degradation, be they for the purpose of academic
study or practical applications.”3 In other words, political ecology is concerned with
the political dimensions of natural resource use and subtleties of those politics.
Apparently, the scope of political ecology has been referred to as “a method of
analysis,” rather than a unified scientific discipline or subdiscipline, which is
usually characterized by a set of related ideas, premises, and theories.
Meanwhile, Vayda (1983) commented that “political ecology is similar to a
method applied by human ecologists analyzing policy-relevant environmental ques-
tions, that is, ‘progressive’ contextualization.” This approach starts with actors, in
this case direct resource users, and considers the contexts within which they act or
do not act in a particular way toward a resource. This approach also intends to
explain why people use the environment in particular ways, sometimes causing a
3
Abe, Kei-ichi (et.al). The Political Ecology of Tropical Forests in Southeast Asia; Historical
Perspectives, Kyoto University Press, Japan, 2003, pp. 3–4.
resource decline or degradation that is detrimental to their own and others’ uses of
the resources (Peluso 1992).
Putting Politics First
From the above definitions, Bryant’s definition, which emphasizes “putting politics
first” on the political ecology of sustainable development aspects is more appropri-
ate with regard to forest management in the case of Indonesia. There are two rea-
sons for this condition: first, “political and economic pressure” from the Soeharto
government was predominantly focused on forest management throughout his pres-
idency, and second, the implication of the political and economic pressures on the
“ecological” perspective was environmental neglect by forestry bureaucrats, which
subsequently caused forest degradation and deforestation.
Embracing different social and ecological scales, political ecology addresses at
least three different, but related research areas (Bryant et al. 1993). Research into
the contextual sources of environmental changes examines the general ecological
impacts of the state–interstate relation, and global capitalism. This topic reflects the
growing impact of national and transnational forces on the environment in a world
of increased political and economic interdependence. Also, research investigated
the location-specific aspects of ecological change. By studying conflict over access
to environmental resources, scholars gain insight on how contextual actors impinge
on specific socioecological conditions and relationships and emphasize location-
specific struggles over the environment. Taking both the historical and contempo-
rary dynamics of conflict, this research area illustrates how those poor peasants and
local people do not have the power to fight and protect the environmental founda-
tions of their livelihoods. Last, research addressed the political ramifications of
environmental change on socioeconomic and political relationships (Global Ecology
and biogeography letters1993: 101–103). To what extent are environmental costs
borne by socially disadvantaged groups, and how does this unequal burden affect
existing socioeconomic inequalities? Under what circumstances does unequal
exposure to environmental change lead to political confrontation? Examining the
vulnerability of the poor to both episodic (drought, flooding) and everyday (defor-
estation, soil erosion) forms of environmental change, this research highlights an
important theme in political ecology, namely that the impact of environmental
change is rarely neutral, and may well reinforce prevailing socioeconomic inequali-
ties. For example, the poor often cause environmental degradation, but at the same
time are the victims of that degradation. It is clear that by taking political questions
seriously, political ecology distinguishes itself from much of the contemporary sus-
tainable development literature, which typically tells us very little about the politics
of ecological change (Bryant et al. 1991; Redclift 1987). More often than not, the
latter makes sweeping assumptions about precisely those political issues that require
more investigation, for example, the activities of the state, businessmen, and politi-
cal–economic elite. Instead, superficial arguments about environmental change and
Environmental Implication 13
human welfare are made; ecological degradation, for instance, is an indicator of a

universal evil affecting the rich and the poor alike. In contrast, political ecology
explores how such change is incorporated into concrete political and economic
relationships, and the ways it may then be used to reinforce or challenge those
relationships.
Therefore, in order for sustainable forest management to obtain results, it must
be related to political ecology. This has two kinds of rationale: political ecology is
an exploration of the complex political, economic, and ecological processes that
highlight developments in the forest; and second, political ecology is concerned
with those perceptions, policies, and practices that have conditioned how the forests
are seen, used, and exploited (Bryant et al. 1993).
Environmental Implication
If the sustainable management of forests are implemented, as discussed above,

Indonesian forests could be utilized and serve human needs and interests for domes-
tic, as well as international developed countries, such as Japan, the United States,
the European Union, and others. In contrast, private business and transnational cor-
porations, and international financial institutions (the World Bank, IMF), and so on,
as indirect actors of forest management are not aware or responsible for the refores-
tation programs that seek to implement sustainable forest management concepts.
These reforestation programs promote environmental change for forest conserva-
tion in Indonesia. The environmental problems occurring in Indonesia today are
becoming political issues within the public discourse. This is because the implica-
tions of environmental problems, such as climate change, floods, soil erosion,
depletion of biological species, water conservation, air pollution, and forest fires not
only reflect but also encourage the political process at the local, national, regional,
and international levels (Bryant et al. 1991; Brookfield and Byron 1993; Hirsch and
Warren 1998). Since the 1990s, environmental issues have finally been placed at the
top of the political agenda. The United Nations Conferences on Environment and
Development held in Rio de Janeiro in 1992 and the Kyoto Protocol in 1997 and
Tokyo in 2000 with topic titles such as “The Value of the Forest” signify interna-
tional recognition of the environment as an issue that cannot be constrained by the
borders of nation states (Robinson 1992; Hirsch and Warren 1998; Palo and
Vanhanen 2000).
Environmental politics in most countries of the world are played out not only at
different levels, but also within different structural frameworks. Many intergovern-
mental institutions play important roles in such activities, such as international envi-
ronmental rule making, policy making, research, monitoring, training, project
financing, and supervision. Three intergovernmental institutions of particular sig-
nificance are the United Nations Environment Program (UNEP), the World Bank,
and the European Community.4 This positive environmental politics is needed,

because we live in an interlinked world. Some of them deal with monetary issues
(e.g., the Bretton Woods system and its successors); others govern international
trade in commodities (e.g., coffee). Some regimes serve to direct the use of natural
resources at the international level (the Kyoto protocol 1997, etc.).5 Environmental
politics within individual nation states not only reflect, but also increasingly act
upon, specific aspects of social relations and power structures within each country,
whereas interests and interdependencies of the main protagonists often transcend
national borders. These politics are an important force in their own right as well as
a window on broader aspects of political economies. From this point of view, there
is a relationship between environmental conditions, discourses, and activism on the
one hand and changing economic, social, and political relations.
Therefore, if we analyze the environmental and political discourse in the future,
the interaction between environmental problems and political forces will bring
about sustainable development in developing countries. As environmental issues
predict greater political significance, so the need for an analytical approach integrat-
ing environmental and political understanding becomes more important.
Focuses of Past Studies on Political Ecology
Although political ecology emerged in the 1980s as a research agenda in developing

countries, since the 1990s this discipline has been widely developed through public
discourse in other regions of the world. There are number of approaches for political
ecology (Bryant and Bailey 1997: 21–24).
First, it is to orient research and explanations on the political ecology of develop-
ing nations around a specific environmental problem or set of problems such as soil
erosion, tropical deforestation, river pollution, or land degradation. In parts of
Indonesia, migrants often moved in, as in line with ancient traditions of mobility.
For example, Buginese pepper farmers have deforested parts of formerly sparsely
habited East Kalimantan in the wake of the timber companies. Elsewhere in
Indonesia, local peasants have cleared forests after logging and planting cash crops
followed by rubber and coffee plantations, in order to gain ownership as dictated by
their traditional law (adat).6 In East Kalimantan, the area of land cleared for dry land
agriculture, which mainly comprised shifting cultivation, increased by 1.7 % a year
from 1963 to 1983, causing severe environmental problems. It is hardly surprising
that some authorities argue that shifting cultivation is a more serious cause of soil
4
For further information see Hurrell, Andrew and Kingsbury, Benedict (Eds.) The International
Politics of the Environment, Clarendon Press-Oxford, 1992, pp. 30–31.
5
Young, Oran R, International Cooperation: Building Regimes for Natural Resources and the
Environment, Cornell University Press, 1989, p. 11.
6
Whitmore, T.C, “Changing scientific perceptions of the eastern tropical rain forests: A personal
view,” in Global Ecology and Biogeography letters (1993), 3, p. 118.
Focuses of Past Studies on Political Ecology 15
erosion and river sedimentation than logging.7 In addition, there are growing anxiet-
ies about the possible adverse effects of tropical forest clearance on global climatic
patterns and biodiversity. It is these latter matters, and particularly the scientific
disputes surrounding the issue of global warming, that have probably attracted the
greatest attention in the West.8 On top of that, reviews of the logging industry and
palm oil plantation areas as a destroyer of tropical forests began in about the late
1980s, when criticisms were put forth about the highly advantageous conditions
under which forest companies and plantation holders were given access to forest
resources. Estate crop development and land clearing are considered a major con-
tributor in the region (such as East Kalimantan, West Kalimantan, Riau, Jambi,
south Sumatra, etc.) to those fires in Indonesia during 1997–1998 that eventually
resulted in widespread health and pollution hazards (Abe et al. 2003: 8–11). In the
1980s, a political ecology focused attention to the forests in Asia increased. During
this time, most of the tropical timber logging was carried out in Indonesia and the
Malaysian states of Sabah and Sarawak. Conditions in these two countries came
under scrutiny by the international community, especially due to their dual status as
countries with high indices of biological diversity while being the largest producers
of tropical timber in the world.
As shown in the above discussion, there is a close relationship between the prac-
tices of rainforest clearance and shifting cultivation, and environmental problems
such as soil erosion, forest fire, climate change, and sedimentation. For example, the
Blaikie and Brookfield (1987) study on the political economy of soil erosion
explained this problem in terms of a hierarchy of interlinked social, political, and
economic forces operating at local, regional, and global scales. Dauvergne (1993)
conducted research on the politics of deforestation in Indonesia, in which he said,
“Politics shape the Indonesian government’s perception of, and solution for,
deforestation.”
Second is the focus on a concept that is perceived as having important links to
political ecology questions. This approach is to understand the characteristics of
many different actors and to block the promotion of specific actor’s interests
(Escobar 1996). Meanwhile, Escobar (1996) explores the influential discourse sur-
rounding sustainable development in order to clarify “dominant assumptions about
society and nature, and the political economy that makes such assumptions
possible.”
Third is the examination of interlinked political and ecological problems within
the context of a specific geographical condition. This is related to the often-varying
nature of problems from region to region, but the shared goal is to evaluate those
problems in a geographical or regional context (Bryant and Bailey 1997).
7
Douglas, Ian et al., “Impacts of Rainforest logging on river systems and communities in Malaysia
and Kalimantan”, in Global Ecology and Biogeography Letters (1993) 3, p. 246.
8
King, Victor T, “Politik Pembangunan: the Political Economy of rainforest exploitation and
development in Sarawak, East Malaysia”, in Global Ecology and Biogeography Letters, (1993), 3,
p. 235.
Fourth is the exploration of political–ecological questions in the light of socio-

economic characteristics such as class, ethnicity, or gender. For example, Hong
(1987) and Colchester (1993) examine the impact of state-sponsored logging on
indigenous peoples in Sarawak (East Malaysia). This work shows how politically
and economically marginal ethnic minorities (often linked to shifting cultivation or
hunter-gatherer practices) are often blamed for the costs associated with environ-
mental degradation.
Fifth is the emphasis on the need to focus on the interests, characteristics, and
actions of different types of actors in understanding political–ecological conflicts. For
example, Peluso (Peluso 1992) and Bryant et al. (1993) examine how forest politics in
India, Java (Indonesia), and Burma have been conditioned by the struggle of different
actors (peasants, shifting cultivators, business) with the state as well as struggles within
the state between departments (forestry, transmigration, and agriculture) pursuing dif-
ferent interests and creating overlapping mandates. The actor-oriented approach relates
an understanding of actors in political and ecological processes (Fig. 1.1).
The sixth approach and conceptual framework of political ecology is to examine
and identify actors’ movements, as well as to identify the state and private sector as
the main actors of forest management. In order to determine how much each actor
contributes toward forest management in Indonesia, we define who the direct and
indirect actors are.
Actors:
Direct Actors:
State
Business (Local &
Transnational) Deforestation
Forest Management
Indirect Actors :
International Financial
Institutions (World
Bank, IMF, ADB, etc.)
Academics
NGOs
Local People
Socio -Economics Implication on Environmental

Characteristics: Problems:
Ethnics: Kutai, Banjarise (East Forest Fires
Kalimantan). Water Pollution & Famines
Rejang and Chinese Depletion of Biological Species
(Bengkulu) Climate Changes
Fig. 1.1 Conceptual framework of political ecology of forest management in the Soeharto govern-
ment (Source: This figure is modified from Bryant and Bailey’s concept (Bryant and Bailey 1997))
Note: : Direct influence : Interaction link
The Role of Direct Actors 17
Review of Actors’ Movements
From the above description, there is one main critical reason to identify actors’
movements of forest management in Indonesia. It is to review and categorize direct
actors such as the state or business actors (local and transnational) and indirect
actors such as the international financial institutions (the World Bank, the IMF, the
ADB, etc.), academics, NGOs, and local people.
The state as an actor in the forestry sector is represented by the Ministry of
Forestry, according to article 33 of the Constitution. Based on the Forestry Act no.
5/1967, business groups represent the private sector, which have legal concessions
limited to 20–25 years for logging operations, the creation of timber industries, and
the replanting of trees in productive state forests. The operational mechanisms car-
ried out by the logging and timber industries pay taxes contributing to government
income in the forestry sector. In contrast, the state (the Ministry of Forestry) through
its apparatus is responsible for controlling all of these operations. In spite of that,
there is a lack of real control and law enforcement. There is neglect in the imple-
mentation of sustainable forest management practices, and this subsequently causes
forest degradation and deforestation.
In Indonesia, based on article 33 (item 3) of the Constitution, “Land and water
and the natural resources, therein shall be controlled by the state and shall be made
use of for the greatest welfare of the people.” It was also written in the Basic
Agrarian Law (1960) in terms of land-use rights, that “All forested land and natural
resources are ultimately owned by the state as an Authoritative Organization of the
entire nation.” Another section in the Agrarian Law also mentions that in order not
to harm the public interest, excessive ownership and control of land are not permitted.
Based on these two assessments of the Forestry Act, the role of the state in the for-
estry sector is to utilize natural resources for the welfare of people. Based on the
Forestry Act No.5/1967, the state allows the private sector (business groups) to pro-
mote capital accumulation, control of forest policy, and the giving of sanctions to
the private sector.
The Role of Direct Actors
The role of the state is important as it can either become a major contributor to
environmental degradation or a major contributor to sustainable forest management.
In Indonesia, for example, the Soeharto regime persisted with a forest management
policy that allowed private sectors to cut logs. This policy was based on Act no.
1/1967 and Act no.5/1967 of the Forestry Act, which signaled Indonesia’s adoption
of an outward-oriented and pro-capitalist economic development strategy (Robinson
1986). Local and transnational businessmen within the timber industries were
unprofessional and lacked a sense of responsibility. They cut down trees without
replanting, did not perform reforestation programs, and ignored the welfare of local
peoples whose social life was consequently marginalized. However, most impor-
tant, the realization of this Act created corruption and collusion among elite bureau-
crats within the Ministry of Forestry. They gave special permission to army group
foundations, local businesses from elite families, and ethnic Chinese groups who
had close relations with these bureaucrats. The role of businesses in developing
nations has been a crucial one with regard to environmental crises. Yet, insufficient
attention has been devoted to the study of the political ecology of developing nations
and the analysis of this important issue.
This phenomenon of giving special permissions to specific groups occurred
because the national political was occupied through executive power, with Soeharto
as the central decision maker (Dauvergne 1993). Most business groups in the for-
estry sector maintained good relations by offering gifts (shares of capital) to the
Soeharto family and by funding the Golkar party, Soeharto’s political machine. As
a result, legislative and judicial institutions could not effectively control forestry
policies and practices as they could not function properly or become independent.
The Role of Indirect Actors
Indirect actors of forest management can be categorized as: international financial

institutions (the World Bank, IMF, the Asian Development Bank etc.), academics
(lecturers and researchers from any institution), NGOs (local or transnational), and
local people. Based on Forestry Act No.5/1967, these actors are not directly involved
in forestry practices such as logging and timber industries. However, the World
Bank’s role is significant as an indirect actor, providing crucial financial and techni-
cal support for projects (e.g., transmigration, development of rice-field areas, build-
ing large dams, etc.). Additionally, the role of NGOs and academics are that of
critical observers to state policy, while simultaneously raising public awareness of
environmental problems such as deforestation, forest fires, climate change, river
pollution, floods, soil erosion, and the depletion of biological species. In the case of
local peoples, although based on their customary forest rights they have access to
cutting timber and collecting forest products, these forest activities are in very lim-
ited areas and provide only a small contribution to the economy of the forestry sec-
tor. From the state’s point of view, these practices are performed only in their
customary forest and not in state forests. Because the local people, in terms of prop-
erty and land tax, forest product contribution fees, reforestation funds, and the like
did not contribute to the government, this eventually led to the economic marginal-
ization of local peoples.
There seems to be a relationship between both direct and indirect actors toward
forest management. If both parties truly cooperated and created symbiotic relations
in the near future based on concepts of sustainable forest management, deforesta-
tion would be reduced significantly and reforestation would be implemented in
Indonesia.
The Role of Indirect Actors 19
Following indirect actors such as international financial institutions (e.g., the

World Bank, IMF, etc.) and their huge projects in many development sectors from
the 1970s to 1990s, indicates that a lot of corruption occurred among senior bureau-
crats and the political elite, often hindering a more “balanced” approach to environ-
mental management in Indonesia. An important reason why many leaders in the
government, as well as political parties, fail to promote environmental stewardship
at anything other than a verbal level is simply that it has not been in either their
political or economic interests to do so (Bryant et al. 1993: 62).
Therefore, theoretically, the environmental implications within the last decade
have been the rapid deterioration in developing nations for two reasons. This state-
sponsored quest has been associated with efforts to maximize natural resource
extraction for export use such as timber, mining, oil, fish, and cash crops and this
process has marginalized weaker grassroots actors (local communities), for exam-
ple, forest areas being felled for timber industries in Southeast Asia (Hurst 1990;
Dauvergne 1993). Also, state-sponsored industrial development has been linked to
air, land, and water pollution arising from the manufacturing process itself. This
condition has invited transnational corporations in the 1970s to developing coun-
tries (including Indonesia) to invest their capital, particularly in the forestry, mining,
and oil sectors. These investments are made in conjunction with other consider-
ations, such as cheap labor, rich natural resources, and market proximity (Bryant
and Bailey 1997: 57).
The consequences of TNCs’ business practices are deforestation and environ-
mental degradation throughout developing nations. United Nations institutions such
as the FAO, private institutions that advocate forest and environmental issues such
as the WRI (World Resources Institute), WFSE (World Forest, Society and
Environment), ENGOs (environmental nongovernment organizations) such as
Greenpeace, World Wildlife Fund, Friends of the Earth (Walhi-Indonesia),
Conservation International, Earth Island Institute, and so on, are voluntary associa-
tions organized across state boundaries that work toward environmental protection
at the global level, criticizing the practices of TNCs for environmental destruction
(World Politics 1995: 313). In fact, their institutional missions, often, are to influ-
ence the global civic society and the political elite on state policies within the for-
estry and environmental sectors, and they are familiar with the concepts of
sustainable development. This concept highlights humans and their environment as
one entity and the notion that they must be treated as equals on this earth.
It is also necessary to take note that international financial institutions, such as
the World Bank and the International Monetary Fund, have double standards for
developing countries that often fund badly managed projects which often cause
degradation. The initial aim of their mission is to promote social and economic
development for developing countries through the provision of technical and finan-
cial assistance. However, many studies by political economists (Adams 1991; Rich
1994; George and Sabellli 1994) on the role of the World Bank institution in
developing nations indicate that the bank has produced more costs than benefits.
The World Bank stands as the global South’s single largest creditor, with a total debt
from developing nations, in 1990, of US$1.3 trillion (Rich 1994). In terms of
Indonesia, the World Bank has supported transmigration projects with loans costing
a total of 700 million dollars to 1 billion since the Soeharto government. These
transmigration projects aimed to remove people living in densely populated areas of
Java, Bali, and Lombok to the outer islands such as Sumatra, Kalimantan, Sulawesi,
Maluku, and Irian Jaya/Papua, occupying a total area of more than 3.3 million ha.
But many ecologists (Charles 1986; Colchester 1993; Hurst 1987) criticized these
projects because of the implications regarding the huge tropical forest areas that
were cut for the allocation of transmigration sites.
Among developing countries such as Indonesia, Zaire, and Brazil, in order to pay
their debts to the World Bank and the IMF, they must exploit their natural resources
for profit through the forestry, mining, oil, and agricultural sectors ( Wood 1990).
This has caused their natural resources to become increasingly degraded. Therefore,
there is an indirect, yet close correlation between the forest degradation these coun-
tries are experiencing and the technical and financial assistance they are receiving.
On one side, international funds assist many projects including transmigration,
large dams, rice field projects, and the like in order to reduce social poverty in devel-
oping countries such as Indonesia. However, the consequences of these projects
include corruption and environmental degradation. From this point of view, criti-
cism from NGOs, academics, and grassroots organizations means that government
officials could no longer avoid the political consequences of their actions (Bryant
and Bailey 1997: 100). In this case, the existence of indirect actors, such as academ-
ics (researchers and lecturers) and NGOs who criticize direct actors such as the state
and local and international business groups, as well as indirect actors such as inter-
national financial institutions, are necessary for the public to be well informed on
environmental issues in developing nations. These facts also show us that there is a
relationship between the roles of the four actors of the state, local business groups,
international business groups, and international financial institutions toward defor-
estation and the environmental crisis occurring in developing nations, which include
Indonesia. However, each actor plays a different role and function.
It is necessary to explore the growing significance of environmental nongovern-
mental organizations in terms of the environmental degradation occurring within
developing nations. The existence of ENGOs at the local level in Indonesia, such as
Walhi (The Indonesian Environmental Forum), Elsam, Telapak Indonesia
Foundation, Skephi, and the Kahati foundation, can be seen as a reflection of the
growing power and assertiveness of civil society vis-à-vis the state in most develop-
ing nations since the late 1970s. It is mainly said that among ENGOs, they are pri-
marily concerned with development issues, most notably the promotion of social
justice and equality for poor marginalized grassroots actors. That increasing role, in
turn, is linked seemingly to the failing of the state and the declining capacity of the
state as an actor to provide environmental protection and the improvement of the
social welfare of the people in addition to maintaining support for human rights
issues. This process has occurred unevenly and is linked in particular to the spread
of democracy in many parts of the global South since the 1980s.
The Study Framework 21
It is obvious that the strength of NGOs is in their strong moral character and
desire to influence direct actors of environmental degradation. This strength of
ENGOs can be divided into that where NGOs seek to exert political influence
through an attempt to influence the environmental policies and practices of the state,
businesses, and multilateral institutions. The ability of ENGOs to lobby these pow-
erful actors successfully and encourage major policy changes has been growing
considerably in recent years. In terms of Indonesia, this is exemplified by the fruit-
ful lobby of Walhi against Freeport (mining industry in Papua) and the pulp and
paper industry (Porsea, North Sumatera) to protect natural resources against envi-
ronmental contamination issues. Their other strength appears where ENGOs seek
political influence through well-publicized campaigns, notably through the media,
to raise public awareness on environmental issues. This process may not only lead
to the growth of “sustainable” consumer practices (e.g., recycling), but also helps
ENGOs to sway the actions of traditional powerful actors, especially the state. In
this case, a large part of the success of ENGOs is related to the ability to utilize the
media and local networks to promote various campaigns (Bryant and Bailey 1997:
130–132).
In contrast, the role of large transnational ENGOs such as Greenpeace,
Conservation International, World Wildlife Fund (WWF), World Resource Institute
(WRI), ICRAF, and the like is that they employ hundreds of people, manage multi-
million dollar budgets, and maintain offices around the world. Two trends in the
development of First-World ENGOs in the 1980s are of particular interest here.
First, these actors began to take a growing interest in “global” environmental issues
such as greenhouse warming, ozone depletion, climate change, deforestation,
floods, and forest fires. This lead them to take a direct interest in environmental
problems of developing nations. Second, First-World ENGOs became much larger
and more professional in their activities and outlook in the 1980s and these changes
have been reflected in their campaigns in developing nations and political influence.
Many transnational ENGOs increased rapidly in size, budget capacity, and “global
reach” in the late 1970s and 1980s, as offices and/or affiliates were set up around the
world, including in developing nations. For example, Greenpeace grew from a sin-
gle office in Vancouver (Canada, in 1972) to staffing offices in over 30 countries. It
employs over 1,000 full-time staff members, plus hundreds of part-timers and thou-
sands of volunteers. By July 1994, it had over 6 million members worldwide and an
estimated income of over US$100 million (Wapner 1996: 47).
The Study Framework
The framework of this study contains a conceptual analysis on political ecology

(Fig. 1.1). In the conceptual framework for political ecology there are two critical
questions to elaborate upon: how does the conceptual framework process appear,
and how do actors accomplish forest management.
In order to answer the first question, the conceptual framework from Bryant and
Bailey (1997) is adopted and modified to fit the context of forest management in
Indonesia and in the context of research on the political ecology of forest manage-
ment in Indonesia. The focus of this study is to review forest management under the
Soeharto government and reformation era and its implications on deforestation and
various other environmental problems from the political ecology perspective. In line
with this is a secondary focus to review local peoples’ responses to forest manage-
ment, namely in the provinces of East Kalimantan and Bengkulu.
The second question is posed to analyze the movement of actors on forest man-
agement, whether it be state, business, local peoples, national, and global institu-
tions such as the World Bank, the multinational corporation, and so on. It seeks to
answer whether “forest management” based on the concepts of sustainability as the
central focus of Fig. 1.1 is important. In Indonesia, state and business groups acted
as dominant actors in forest management within the Soeharto government. The
state, represented by the Ministry of Forestry and Industry, issues forest-logging
concessions (HPH) and industrial timber plantations (HTI) to business groups who
develop forestry industries such as plywood, sawn wood, and pulp and paper.
Meanwhile, indirect actors, such as international financial institutions (the World
Bank, IMF, the Asian Development Bank, etc.), academics, NGOs, and local peo-
ples, are also actively involved in forest management as participants and criticizers.
The involvement of these direct actors and indirect actors (international financial
institutions) on forest management are resulting in further forest degradation due to
corruption, collusion, lack of inspection, and lack of law enforcement. This defor-
estation, which has implications on environmental problems such as forest fire,
depletion of biological species, water pollution, climate change, floods, and
droughts, encourage many NGOs and academics to criticize these institutions. In
contrast, communities at the local level, as shown from case studies on socioeco-
nomic characteristics from the Kutai and Banjarise ethnic group in the Bongan sub-
district, West Kutai district, East Kalimantan, manage their forest resources, mainly
rattan and timber, with success. On the other hand, the Rejang and Chinese in the
Kepahiang subdistrict, RejangLebong district, Bengkulu and Palembang success-
fully managed their forest resources of mainly coffee products.
In the reformation era, which was characterized by a devotion to good gover-
nance practices, forestry governance policies were changed. As a result of these
changes, the role of local governments and local peoples were added as direct
actors, resulting in state, business groups, local government, and local people, and
the indirect actors constituting the international financial institutions (the World
Bank, IMF, the Asian Development Bank), academics, and NGOs (Fig. 1.2).
Brief Synopsis of Chapters 23
Actors:
Direct Actors:
State
Business (Local &
Transnational)
Local Government
Local People
Forest Deforestation
Indirect Actors: Management
World Bank
IMF
ADB
Academics
NGOs
Socio-Economics Implication on Environmental

Characteristics: Problems:
Ethnics: Kutai and Banjarise Forest Fires
(East-Kalimantan). Water Pollution & Famines
Rejang and Chinese Depletion of Biological Species
(Bengkulu) Climate Changes
Fig. 1.2 Conceptual framework of political ecology of forest management in the reformation era
(Source: This figure is modified from Bryant and Bailey’s concept (1997))
Note: : Direct influence : Interaction link
Brief Synopsis of Chapters
This book is divided into seven main parts. Part I (Introduction to Political Ecology)
consists of this Chap. 1, which has explained forest management practices in the
Soeharto regime and the reformation era. Additionally, it provides the explanation
that this book uses the conceptual and theoretical framework of “political ecology”
which emphasizes actor movements, including direct and indirect actors.
Part II (Forest Management Under the Soeharto Regime) consists of Chaps. 2
and 3. Chapter 2 explores the Soeharto regime master plan on Indonesian economic
development in the 1970s. Chapter 3 examines the forestry sector as a significant
income for Indonesian development, after oil and gas. Additionally, it examines the
forestry industry which consists of the logging, plywood, and pulp and paper indus-
tries as well as industrial timber plantations (HTI/Hutan Tanaman Industri).
Part III (Environmental Impact of Forest Management) focuses on deforestation,
and related environmental issues as consequences of private companies ignoring
sustainable forest management principles. It consists of Chap. 4 which examines
scientists’ criticisms of bureaucrat officials who cause deforestation and Chap. 5
which explores NGOs’ criticisms regarding forest management by financial institu-

tions and the Ministry of Forestry.
Meanwhile Part IV (Forest Management in the Reformation Era) consists of
Chap. 6 which focuses on decentralization issues in the forestry sector, and Chap. 7
which examines problems in the decentralization process by using a case study of
illegal logging practices.
Part V (Local Response to Forest Management—A Case Study of East
Kalimantan consists of Chaps. 7 and 8 which examine the logging and forestry
industry and the regional economy). Chapter 9 discusses on the Livelihood of Local
People in Muara Gusik, Kutai Regency in terms of primary subsistence farming
paddy rice, and a secondary source of income rattan, rubber, fruits, Kayu Gaharu
aquilaria Malaccensis, land dispute, and timber and rattan from value-added
processes.
Part VI (Local Response to Forest Management—A Case Study of Bengkulu)
consists of Chap. 10 which examines coffee production, distribution, and markets in
terms of trading networks from the village level to the subdistrict, district, and prov-
ince levels.
The final part is Part VII (Conclusions and Recommendations) which discusses
the overall conclusions and findings of this research. The conclusion makes recom-
mendations for the reform of forest management in terms of sustainable manage-
ment principles, timber certification, reforestation, local participation, active
stakeholder involvement on forest governance, implementation of enforced laws,
and the recognition of customary forest rights of local communities in the reforma-
tion era.
Part II
Forest Management
Under the Soeharto Government
Chapter 2
Political Transition from Soekarno to Soeharto
Soekarno’s regime was monumental (1945–1966). The characteristics of his

government facilitated Indonesia to be an independent country from Dutch colonial
rule on August 17, 1945. Soekarno and his regime launched radical policies on
economic nationalization in terms of estate plantation, mining, and buildings from
the Dutch. In addition, his government encouraged the holding of the Asia Africa
Conference. The Conference was held in 1955, in Bandung, to liberate their coun-
tries from Western colonial domination.
Towards the end of the Soekarno regime, commonly known as “Guided
Democracy,” from 1959 to 1965, Soekarno still believed in the “Nasakom”1 (nation-
alism, religion, and communism) ideology. This ideology was based on the belief
that the power to move forward came from supporting the Indonesian people’s aspi-
rations. The aim of Guided Democracy was a political system in which the focal
point of political power shifted to President Soekarno as the central power, and
parliament was transformed into a nominated body of representatives of “func-
tional” groups. In a sense, the authority of an elected parliament was replaced with
the authority of the president who ruled through a variety of appointed bodies, the
most important of which were the Cabinet, the Supreme Advisory Council, the
Supreme War Authority (PEPERTI; which supervised martial law), and Supreme
Operations Command (KOTI; which dealt specifically with the West Irian/Papua
campaign; (Robinson 1986: 69–71). The main reason for Soekarno stepping down
was the Communist Party (PKI) which was involved in the military coup d’etat on
September 30, 1965 and who killed many army generals.
1
Nasakom was an Indonesian term widely used in the Soekarno government, which means an
ideology based on three pillars (nationalism, religion, and communism). See Soekarno, Dibawah
Bendera Revolusi. Jakarta: Jambatan Press, 1961. Kahin, George, Nationalism and Revolution in
Indonesia. Ithaca: Cornell University Press, 1952.

DOI 10.1007/978-981-287-745-1_2
28 2 Political Transition from Soekarno to Soeharto
Soeharto became acting president on March 12, 1966, after receiving Supersemar2
(mandatory command on March 11) to recover political and security stability in
Indonesia. Three army generals brought about this mandatory position: Muhammad
Jusuf, Amir Mahmud, and Basuki Rachmat from Bogor Palace, while Soekarno
relief or freedom, especially anything that wearies, troubles or disturbs. Then on
August 16, 1967, Soeharto delivered a monumental speech in front of parliament,
and the New Order regime was ordered to put the lives of the people, the nation, and
the state under the practices of Pancasila as the main ideology of the 1945
Constitution. Soeharto further emphasized the rise of the New Order regime as a
counterreaction to the power abuses of the Old Order on Pancasila and constitu-
tional practices. Seemingly, like its predecessor, Soeharto’s regime was authoritar-
ian, centralistic in power, and dominated by a leader with a strong personal vision.
Soeharto was not charismatic, however, and his vision was far from revolutionary.
He had sought above all, a prosperous economy amid a hierarchically ordered soci-
ety and polity (Liddle 2000: 199–200). His regime lasted 32 years thus far, with his
power based on his control of the armed forces, especially the army. Soeharto was a
lifelong soldier, whose career dated back to service in the Dutch colonial forces
before the Second World War and the Japanese occupation of Indonesia (1942–
1945). He was put in command of the army’s strategic reserves (head of Kostrad) on
October 1, 1965. Since the time of his ascendancy, Soeharto has built institutions
that simulate the appearance of a modern polity. Thus, Indonesia has written a con-
stitution that dates back to the independence revolution of 1945; an elaborate set of
corporatist, state-controlled social organizations; national elections (held every 5
years since 1971; and a three-party system. The perennial “ruling party” (really the
political face of state power is Golongan Karya, Functional Groups or Golkar),
which had never received less than 60 % of the vote in a general election before
1997.3 The closely watched minority parties were the Partai Partai Pembangunan
2
Supersemar is an abbreviated Indonesian term for Surat Perintah Sebelas Maret’. This Supersemar
letter had three substantial meanings: (1) Soeharto as head of Kostrad (Army Strategic Reserve
Command) had duties to recover political and security affairs at the national level; (2) to cooperate
and coordinate concerning national security with other army heads of command; (3) to make
reports concerning political stability and national security to Soekarno as President still believed
in the “Nasakom” (Nationalism, Religion and Nationalism) ideology. For further discussion, see
Soekarno, Dibawah Bendera Revolusi, Jambatan Press, Jakarta 1961. But, in reality Soeharto
took over this authority for his interest on coming to power in 1966. For further discussions, see
Taufik Abdullah (Head of LIPI: Indonesian Institute of Sciences) interviewed in Metro TV, June 6,
2001. And see SEKNEG (State Secretary) official document in 1966.
3
The Soeharto government has held a general election six times from 1971, 1977, 1982, 1987, 1992,
and 1997, and Golkar as the ruling party was to be winner between 60 % and 70 % of the vote. It was
because the government’s policy and facilities were given to Golkar as the ruling party and discrimi-
nated against the opposition party, for example, the PPP the Muslim supporters’ base and the PDI, of
which nationalist, Christian, and other religions were followers. For a discussion on general elections
issues in the Soeharto government, see Liddle, William R, Pemilu-Pemilu Orde Baru (The General
Election in the New Order), Jakarta: LP3ES, 1992; and Suyyadinata, Leo, Golkar dan Militer: Studi
Tentang Budaya Politik (Golkar and Military: A Study of Political Culture), Jakarta: Gramedia Press,
1992; If you would like to compare with the general election in 1955, see Feith, Herbert, The
Indonesian Election of 1955, Interim Report Series. Ithaca: Cornell Modern Indonesia Project, 1957.
And to learn about the political characteristics of the new order, see, Pabottingi , Mochtar,
Suara Waktu (The Voice of Time), Surabaya: Erlangga Press, 1999.
2 Political Transition from Soekarno to Soeharto 29
(The United Development Party) (PPP) and the Partai Demokrasi Pembangunan
(The Indonesian Democratic Party) (PDI). These institutions helped to provide a
legitimate cover for regime insiders and to bar genuine participation by outsiders.
But, the core of the Soeharto regime’s support was through Golkar, as the ruling
party (1971–1997), and the 500,000-strong army. Its officers accepted, without
question, Soeharto’s control over bureaucrats, promotions, and appointments, and
embraced the doctrine of civil military relations known as Dwi Fungsi (twin func-
tions). The two functions are to protect Indonesia from invasion and to participate
directly as an organized political force in domestic affairs.
What was economic development like under the New Order regime? The “eco-
nomic growth” in many sectors such as oil and gas, forestry and plantations, mining,
agricultures, and so on was the priority program for the New Order regime and dif-
fered from the Old Order regime, where politics played a greater part (Nusantara
1995: 35). Although, in the initial stages of this regime in 1967, serious debates
occurred concerning the pros and cons of purely economic growth, the negative
aspects of economic growth were put forward by Sarbini,4 Ibrahim Madylao, and
others, arguing that Indonesia should focus on the “agricultural sector” because
more than 80 % of the people worked in this sector. Their economic theory was
based on domestic needs, which emphasized principles of equality for all (Interview,
9 March 2000). Wijoyo Nitisastro, Emil Salim, and Sadeli, later known as alumni of
the “Berkeley Mafia” and an economic professor from Indonesian University,
emphasized “economic growth” with an external orientation with international fund
support from the World Bank, the International Monetary Fund, and IGGI (Inter-
Governmental Group on Indonesia). This theory-oriented group believed that these
borrowings and large projects would raise the social welfare of the Indonesian peo-
ple. Sarbini and his group rejected this “economic growth” theory because it was
more likely to cause injustice and an even larger social gap between the rich, with
access to facilities, and the poor, with no access to power and natural resources. Yet,
the government finally decided on the Berkeley Group, many of whom were trained
in the United States and originally placed in the National Development Planning
Board (Bappenas). The criteria for their appointments, it is argued, were not politi-
cal but based on their economic expertise. This decision would have encouraged
socioeconomic discrepancies among Indonesian people in the Soeharto regime dur-
ing the 32 years of its use, say many economic observers. The dominant conserva-
tive interpretation of social and economic policies under the Soeharto government
had been that they had been formed on the basis of “rational” and universal eco-
nomic criteria transcending political and social interests. The economic policies
formed on the basis of free-market economic philosophies did more than address
immediate fiscal and monetary dilemmas in Indonesia in the mid-1960s. At this
4
Professor Sarbini was interviewed on May 18, 2000 in Jakarta. Sarbini was formerly head of the
Statistic Bureau. He had graduated from Harvard University in the 1960s and became lecturer and
professor in the Faculty of Economics, The Indonesian University. Meanwhile, Ibrahim was the
secretary general of the Islamic Students Association (Himpunan Mahasiswa Islam/HMI) in the
1950s and he actively participated in the Indonesian business community in the 1960s. The inter-
view with Ibrahim was conducted on March 13, 2000.
time, the model approach for economic development was through the relationship
between the state, society, and the economy, based upon the “dependency theory.”
In general, the dependency argument had been that the reintegration of Indonesian
capitalism into a global system had meant a subordination of the structure of the
Indonesian economy to the needs of international capital and a subordination of the
Indonesian domestic bourgeoisie, either by their incorporation as compradors or
their elimination (e.g., in the textile industry; Robinson 1986: 114).
In July 1967, the Soeharto regime launched a program aimed at recovering the
political and economic stability of the country, which was called Dwi Darma (The
double working program). Dwi Darma concentrated on rehabilitation and stabiliza-
tion (Glassburner 1971), rehabilitation, and recovery (1966–1970). During this
period, the government was concerned with controlling inflation above all else, to
re-establish ties with the international donor community, and to rehabilitate physi-
cal infrastructure and also invite foreign investors into domestic businesses. The
introduction of orthodox monetary and fiscal policies brought inflation down sur-
prisingly quickly. The economy grew at an annual average rate of 6.6 %; the year
1968 marked the beginning of the recovery phase, with a growth of 10.9 %.
H.W. Arndt captured the rising tide of optimism over this period in a series of
BIES (Bulletin of Indonesian Economy Studies) surveys:
The Indonesian economy has turned a corner. The first objective of the Soeharto govern-
ment, stabilization, has been achieved. (July 1969, p. 1)
At the same time, rehabilitation programs5 were run that emphasized improve-
ments in people’s lives through the provision of basic necessities by providing nine
items—for example, food, house, clothing, education, health, and transportation,
among others. The greatest priority was food, housing, and clothing. Foreign inves-
tors were encouraged to invest in the industrial and mining sector. The aforemen-
tioned is in line with Yuri Sato’s opinion on the initial New Order’s economic order
setting. First, the basis of its economic policies was liberalization of foreign
exchange, foreign trade, investment systems, and active industrial policies to pro-
mote domestic industries. Second, the rapid growth was due to positive external
conditions. Two oil price upsurges in the 1970s were followed by dramatic improve-
ment in Indonesian terms of trade, and they resulted in a great increase in develop-
ment funds for the government and Bank Indonesia.6
5
For a further information of economic development in The New Order, see Hill, Hal, The
Indonesian Economy Since 1966, Cambridge University Press, 1996; and for agricultural policy in
the early 1970s, see Booth, Anne and Mac Cawley, Peter (Eds.), The Indonesian economy during
the Soeharto era, London: Cambridge University Press, 1981. As they noted, in the early 1970s
because of economic policy and the foreign exchange earnings from the oil sector totally increased,
the Indonesian economy recovered soon and infrastructure development grew from irrigation,
transportation, port, airport sector, and so on.
6
Sato, Yuri, ‘The development of business in groups in Indonesia: 1967–1989’ in Approaching
Suharto’s Indonesia from the Margins, (edited by Takashi Shiraishi), Southeast Asia Program,
Cornell University, New York, 1994, p. 101.
The stabilization program focused on the maintenance of security and better con-
ditions for all people within the country, through a development orientation, begin-
ning with attracting foreign capital and thereby opening up job opportunities for the
Indonesian people. The main focus on stability and national security in the Soeharto
regime would enhance the “security approach,” where the role of military groups
was very significant in sociopolitical, economic, law enforcement, and governmen-
tal practices (Nusantara 1995: 47–50). The outstanding features of the New Order
regime, developed in the past 32 years (1966–1998), was: the entrenchment and
centralization of authoritarian rule by the military, the appropriation of the state by
its officials, and the exclusion of political parties from effective participation in
decision-making processes (Robinson 1986: 105–106). Therefore, due to the
absence of strong political parties, except Golkar (functional groups belong to the
government party), there existed no apparent mechanism for political balance in
influence over the state by all classes or class coalitions. The consequence is that
difficulties have arisen in explaining the relationship between politics, society, and
the economy.
The period 1966–1974 marks a definite stage in the development of economic
policy in Indonesia, because it begins with the coming to power of the New Order
and ends with a combination of events and circumstances (the 1974 riots, Malari
influx of revenue into the state as a consequence of oil price rises) which led to a
significant change in the direction of economic policy. Pelita I (Five-Year
Development Plan 1969–1974) was predominantly a program for the rehabilitation
of industrial infrastructure in West Java and other sectors such as agriculture, indus-
try, mining, forestry, communication, electricity, and social welfare at a cost of Rp.
1.222 billion (Robinson 1986: 141). This must be seen in the context of state encour-
agement of industrialization through preferential fiscal and monetary policies,
including preferential effective foreign exchange rates, direct concessionary bank
credits, tax holidays, custom exemptions, protective tariffs, subsidized infrastruc-
ture, administrative services and assistance, and a variety of protective tariff
measures.
What was the perspective of the “capital ownership” structure in Indonesia?
Essentially, there are two categories of capital investment: those in oil and gas,
which do not come under the auspices of PMA (Penanaman Modal Asing/Foreign
Capital Investment) and PMDN (Penanaman Modal Dalam Negeri/Domestic
Capital Investment), whereas the remainders do. Total realized investment under
PMDN and PMA was approximately US$2 billion by December 1973. Capital
investment in oil and gas was estimated at twice this (see Table 2.1).
Foreign capital, predominantly Japanese, was concentrated in the heavily pro-
tected import-substitution sector and manufacturing goods for domestic consump-
tion, mainly textiles and large integrated mills. For example, by the 1980s, realized
foreign investment in textiles totaled US$513 million compared with approximately
US$89 million in domestic investment. However, the United States leads Japan in
oil and gas investment. In 1981, it was reported that investment in oil and gas con-
stituted 60 % of direct foreign investment in Indonesia (The Financial Times 13
October 1981).
Table 2.1 Approved capital investment under PMA/PMDN in 1973

(In US$ million)a % of Total investment approvals
Sector PMA PMDN PMA PMDN
Forestry 495.5 356.8 58 42
Agriculture 113.0 232.5 33 67
Mining 860.5 46.2 95 5
Manufacture 1,045.1 1,740.9 38 62
Tourism: Hotels 195.9 200 50 50
Infrastructure/construction 118.3 207 37 63
Total approved 2,828.3 2,978.5 49 51
Total realizedb 1,131.2 876 56 44
Sources: Cited in Robinson (1986: 142); and also see in Palmer (1978), The Indonesian Economy
Since 1965. Cass, London, pp. 110–111; BKPM (Board of Foreign Investment) (1973), Jakarta
a
Based on the 1971/1973/1973 exchange rate of Rp. 415 = US$1
b
Based on a realization rate of 40 % for PMA and 38 % for PMDN applied over the period 1967–
1980. See: Soehartoyo, Penanaman Modal dan Industrialisasi (Capital Investment and
Industrialization), Jakarta, 1981
As discussed earlier, economic development in the forestry sector in the 1970s

totaled US$852.3 million, with US$495.5 million from foreign investment and
domestic investment making up US$356.8 million. It seems that the forestry sector
continues to be a very significant and potential resource to be developed in the near
future.
This chapter discusses the role of the state as a main actor in forest management.
Conceptually, based on Indonesian forestry sector laws, all forestland in Indonesia
belongs to the state. Therefore, the policy of forest exploitation in forest production
areas—which invites other actors from the private sector: domestic and transna-
tional businesses—can be controlled by the government and therefore must be inte-
grated within the concept of sustainable forest management. Deforestation is
occurring in forest production and forest conservation areas in many districts in
Indonesia, because of forest mismanagement, collusion7 between forestry bureau-
crats and businessmen, misuse of reforestation contributions (Dana Reboisasi), and
the lack of law enforcement and inspection from central and district forestry agen-
cies. This chapter focuses on the role of the state and its policies in forest manage-
ment under the Soeharto government, through analysis of the Forestry Act No.
5/1967 and government regulation No. 21/1970, on giving logging forest conces-
sions (HPH), the plywood industry, the industrial timber plantation (HTI), and the
7
Conglomeration (grouping business) supported by government policy and their bureaucrats in
Southeast Asia often occurred in the business sector in the 1980s and 1990s. In terms of the
Indonesian case, the Soeharto government’s bureaucrats gave special facilities through economic
policies and colluded with private business especially in the forestry and industries sector. For a
further discussion on the growth of capitalism in Southeast Asia, see Yoshihara, Kunio, The Rise of
Ersatz Capitalism in Southeast Asia, 1988; and Robinson, Richard, Indonesia: The Rise of Capital,
Australia: Allen & Unwin Ltd, 1986.
pulp and paper industry. At the same time, fact finding has indicated that local com-
munities have no access to forest products or participation in forest management.
This causes an economic marginalization of local communities, resulting in their
subsistence levels of income, education, health, and so on. As a result, several con-
flicts have occurred between concession holders and local communities in many
districts and NGOs and academia have strongly criticized bad forest management.
Deforestation causes forest fires, soil erosion, flooding in the rainy season, lack of
water in dry times, water pollution, and depletion of biological species. Moreover,
climate changes are also discussed.
Chapter 3
Forestry Industry (Logging, HTI, Plywood,
Pulp, and Paper)
This chapter discusses the state as the main actor in forestry management under the
Soeharto government.1 When Soeharto came to power in 1966, after then-president
Soekarno stepped down, he launched an economic program aimed at dragging his
country out of the economic backwardness suffered by Indonesia, with high infla-
tion and extreme debt. The forestry sector, based on the 1967 Foreign and Domestic
Investment and Forestry Act, was a major part of the economic agenda to develop
logging exports from 1968 to the 1970s, the plywood industry in the 1980s and
1990s, and the pulp and paper industry. The logging and industrial timber plantation
(HTI) concession areas are in production forest. The Ministry of Forestry provides
about 60 million ha of production forest. The first part of this chapter begins with
the establishment of the 1967 Foreign Investment and Forestry Act, inviting private
businessmen from foreign and domestic sources to become the main actors in the
forestry sector by providing logging concessions and supporting the setting up of
plywood, industrial timber plantations (HTI) and pulp and paper industries. The
Soeharto regime obtained huge foreign exchange earnings from the forestry indus-
try to a total of almost US$3 billion in 1990 alone, the second largest national
income after the oil and gas sector. Therefore, several significant issues related to
the forestry industry under the Soeharto government era are discussed in this chap-
ter, chronologically through: (1) the introduction of logging forest concessions
(HPH); (2) the plywood industry from the 1970s to the 1990s; (3) industrial timber
plantations (Hutan Tanaman Industri/HTI); (4) the pulp and paper industry since the
end of 1980s; and (5) the impact of the forestry industry on social conflict regarding
land disputes between private companies and the local people.
1
Forestry management requires not only a detailed knowledge of how trees behave, individually
and collectively, when subject to various kinds of intervention; it also requires a clear understand-
ing of the functions the forest is to serve, and the priorities accorded to those several functions for
example, to provide recreation and amenity services, protect farmland and shelter wild life, and to
produce timber. But the optimum of each service requires single-purpose management. For further
information, see Jack Westoby, The Introduction to World Forestry: People and Their Trees,
Massachusetts, The Estate of Jack Westoby 1989: 33–34.

DOI 10.1007/978-981-287-745-1_3
36 3 Forestry Industry (Logging, HTI, Plywood, Pulp, and Paper)
Logging Forest Concessions (HPH)
The definition of natural resources based on the 1945 Indonesian Constitution, arti-
cle 33, verse 3 states that: “Land, water and natural resources within Indonesia shall
be controlled by the state and used for the welfare of all the Indonesian people.” In
terms of the exploitation of natural resources, especially within the forestry sector,
the state interpreting article 33, verse 2, says that the government has the authority
and responsibility to manage all significant natural resources for the welfare of the
entire nation. However, the critical question that must be asked is about the equality
of distribution of benefits from this utilization of natural resources. As Robert Rice
has observed, the state’s economic ideology of controlling “the land and water and
natural wealth contained within” is not a monopoly of the Soeharto government, but
also of Soekarno’s and of the Netherlands East Indies (NEI) government (Rice
1983: 60–82; Samego 1992: 131–133). Therefore, the Soeharto regime’s policy,
including the number 5/1967 Basic Law of Forestry, was merely an elaboration of
policies introduced before independence. Forestry policy dates back at least to the
period of Dutch colonial government in the early eighteenth century or even earlier,
when Javanese kings still maintained control over forests and people in their terri-
tories. The ancient kings of Java had an absolute right to determine not only the use
of forests in their territories but also the fate of the people living there (Moertono
1974: 119). Even the title of the “Babad Tanah Jawi,” the Mataram kingdom’s (six-
teenth–seventeenth century) historical chronicle, can be translated either as “The
History of Java’s Land” or “The Clearing of Java’s Land.” The use of the word
“Babad” in the official court chronicle of the kingdom’s history indicates the ideo-
logical imperative to transform the landscape to one that better served the needs of
and was more controllable by the state (Peluso 1992: 33–41; Dove 1985: 19). When
the Dutch East Indies Company (the VOC: Vereenigde Oost-Indische Compagnie)
attempted to extract timber from the forests of Java, the company first asked permis-
sion from Java’s kings to do so. Direct control of the northeastern coastal area
(Jepara, Rembang, Weleri, Pekalongan, etc.), later known as Java’s Northeast Coast,
was relinquished by the Mataram sultan to the VOC in 1743. Later, forested Jipang
in the primary teak zone was annexed in 1812 by the colonial state; the state annexed
the southern portions of the coastal region and most of the rest of the Javanese
island in 1830. Apart from timber, the VOC’s interest in gaining access to Java’s
forests was also driven by its goal of monopolizing the forest products trade. Having
obtained forest “concessionaire” rights from Java’s kings, the company began to
increase its involvement in the commercial exploitation of forest resources, such as
Getah, dammar (resin), copal, copra, various oleaginous seeds and resins, and rattan
(Samego 1992: 133).
It was registered in the TGHK (Forestry Agreement on Land Use) in 1984 and the
total forested areas in Indonesia totaled 144 million ha. Yet, based on the report of
TGHK and Integrated Regional space (RTRWP) in 1999, the Indonesian forest cov-
ered 120,353,104 ha.2 In recent surveys in the 1990s (FAO, WRI, and Myers)
2
Further information, see Eksekutif Data Strategis Kehutanan 2003 (Forestry Strategic Data
Executive), Kementerian Kehutanan, Jakarta, p. 3.
Logging Forest Concessions (HPH) 37
Indonesia has suffered an annual deforestation rate of almost 1.8–2 million ha. The
consequence is that the total forested areas have been drastically reduced to
116,985 ha. In 1997 the WRI (World Resource Institute) analysis warned that only
about 53 million ha of “frontier forest,” relatively undisturbed areas of forest large
enough to maintain all of their biodiversity, remain in Indonesia (Barber and
Schweithelm 2000: 2). In terms of rainforest size, Indonesia is number three after
Brazil (Latin America), with forested areas of 514.490 million ha and Zaire (Africa),
at 177,590 million ha. Indonesia contains about 8 % of the world’s tropical forests
(1,046 million ha) and some 13 % of the world’s commercial reserves. Moreover, at
present some 20 % of all logging activities in the world take place in the Indonesian
archipelago (Jepma 1995: 5). In contrast with most other developing countries,
Indonesia has favorable natural endowments (in comparison to four other ASEAN
countries regarding forested areas; Table 3.1).
The Indonesian Ministry of Forestry divided total forested area into five
categories:
1. Protected Forest area is 30 million ha.
2. Forest Conservation area for flora and fauna are 19 million ha.
3. Limited Production Forest is 31 million ha.
4. Permanent Production Forest is 34 million ha.
5. Conversion Forest is 30 million ha.
The government has allocated 65 million ha for production forest (from limited
and permanent production forests) for logging activities since 1967 in the forestry
sector. Parks and reserves cover 19 million ha, which means that about 10 % of all
Indonesian land area is set aside for conservation and protection. This is a very large
area in comparison to that designated in most developed and developing countries.
The main constraint in the reserve system is the absence of incentive for local com-
munities to take part in conserving natural resources. In fact, generally people are
not aware of environmental protection policies, and essentially they gain no benefit
from protected areas. In fact, forests have many useful functions in terms of
environmental issues: (1) hydrology: forests function to conserve water in the rainy
season and sustain water flows to the river in both dry and rainy seasons. In this
case, the role of water is significant in preventing land and soil erosion from flood-
Table 3.1 ASEAN tropical forest area

Forest area estimate Average annual deforestation
WRI FAO Myers WRI FAO Myers
Countries (Million ha) 1,000 ha (%) 1,000 ha (%) 1,000 ha (%)
Indonesia 116,895 109,549 86,000 920 0.8 1,212 1.0 1,200 1.4
Malaysia 20,996 17,583 15,700 255 1.2 396 2.0 480 3.1
Myanmar 31,941 28,856 24,500 677 2.1 401 1.3 800 3.3
Philippines 9,510 7,831 5,000 143 1.5 316 3.3 270 5.4
Thailand 15,675 12,735 7,400 397 2.5 515 3.3 600 8.4
Source: Cited in Jepma (1995:11); see also in WRI (1990: 292–293); FAO (Organization of
Agriculture and Food), Washington, (1993); Myers (1991: Table 1, p. 6)
ing; (2) climate: components of a natural ecosystem include elements of rain, sun-
light, wind, and humidity. These elements usually influence both the macro- and
microclimate; (3) natural resources: the forestry sector contributes natural products
of wood and nonwood products, such as medicinal plantations, honey, fruits, rattan,
and animals (pig, deer, etc.). These natural products can be developed to establish
sustainable wood and other industries (Arief 1994).
When the Soeharto government came to power in 1966, economic development
was the main paradigm for overcoming the “economic crisis” inherited from the
Soekarno regime. Therefore, the economic planners took immediate steps to
strengthen Indonesia’s weak economy through the Five-Year Development Plans
(Pelita I 1969–Pelita VI 1997) in many sectors. The forestry sector began to develop
the legal framework required to permit private firms to harvest and export timber.
Sumatra and Kalimantan were the first targets of forest exploitation because they
had the largest stocks of commercially valuable tree species and were closest to
Asian marketplaces such as Singapore, Hongkong, Taiwan, South Korea, and Japan.
To achieve this purpose, the Soeharto government, with parliamentary law number
1/1967 on foreign investment, law number 6/1968 on domestic investment, law
number 5/1967 on the forestry principles act, and government regulation number
21/1970 on issuing logging forest concession mechanism, contributed the lead in
forest degradation in the New Order era (Effendi 2004). In article 1 of the Forestry
Act, it states that the government has the authority to determine and arrange the
planning and use of land in the forestry sector in production forest areas. In article
13 it is also written that forestry sector development allows the extraction of wood
products from production forest for economic purposes for the improvement of the
Indonesian people’s social welfare. In this case, private businesses, whether domes-
tic or transnational, are allowed to operate their firms in the Indonesian forestry
sector by creating a “Body Corporate” (Badan Hukum/Perusahaan Terbatas) and
registering with the Ministry of Justice. Transnational businesses have both created
joint operations with domestic businesses and operated as single players.
In contrast, the economic condition of local communities as former utilizers of
forest products and wood production became worse after the operation of The
Foreign and Domestic Investment and the Forestry Act on “logging forest conces-
sion” in many districts, as observed by previous studies (Hidayat 1997; Tjitrajaya
1993).3 Even though the government still recognizes the customary forestry rights
of local communities, local people are only allowed to collect forest products, but
are strictly prohibited to cut trees. Therefore, land conflicts between local forest
dwellers and logging concession holders have been widely reported to occur in the
3
Land conflicts occurred in many districts in Sumatra, Kalimantan, Sulawesi, and Irian Jaya
(Papua). These land conflicts usually occurred because of macro mapping from logging concession
holders annexing the customary forest rights of the local people. See Tjitrajaya, Iwan, “Differential
Access to Resources and Conflict Resolution in a Forest Concession in Irian Jaya,” in Ekonesia: A
Journal of Indonesian Human Ecology, Anthropological Ecology Development, The Indonesian
University, Vo. 1, No. 1, 1993; Hidayat, Herman, Empowering Economic Communities Through
Village Forest Development (Bina Desa Hutan): In Case of Muara Gusik, Kutai, East Kalimantan,
in ANALISIS, Journal of CSIS, Jakarta, September, 1997.
Indonesian outer islands, such as Muara Gusik, Kutai district, East Kalimantan, and
other districts.
The legitimatizing of both the Foreign and Domestic Investment and Forestry
acts had a beneficial impact on domestic and foreign businesses as well. They made
large investments in the forestry sector. To anticipate this phenomenon, the govern-
ment made regulation number 21/1970 (PP: Peraturan Pemerintah/Government
regulation) on “logging forest concession (HPH) and forest production contribution
rights” on May 23, 1970. This regulation emphasized that “the income from the
forestry sector” would be used for infrastructure, for example, road or water trans-
portation, resettlement programs for local communities, and so on. The government
further determined in the Presidential Decree (Kepres) number 66 on September 29,
1971 that all proceeds should go to “the improvement of infrastructure” for the for-
estry sector. It was considered that, considering the government’s limitations in cov-
ering all means of infrastructure, all improvements to infrastructure would be
delegated to logging holders. Therefore, the central government had the necessary
task of carrying out forest management in terms of planning and controlling permis-
sion for logging concession holders for approximately 20–25 years, with a possible
renewal, to determine the quality of logging work and give sanctions, and to collect
forest fees such as reforestation contributions (Dana Reboisasi) and forest product
contributions (Iuran Hasil Bumi). The local government is represented by the
Provincial Forestry Agency (Kanwil Kehutanan) and District Forestry Agency
(Dinas Kehutanan), whose main duties are to inspect forestry management at the
local level of logging concession holders.
In January 1968, the Directorate General of National Forestry held a meeting in
Makasar, again in Bukitinggi, Balikpapan, and then Tretes (East Java). The goals of
these meetings were: (1) to consolidate forestry development in terms of planning,
implementation, and the creation of inventories for logging areas in the outer islands
(Table 3.2) and (2) to formulate capital investment in the forestry sector, whether
domestic or foreign. As an illustration, in December 1968, the total registered
amount of investment in the forestry sector reached US$10,655 million from for-
eign investment (PMA) and Rp.57 million from domestic investment (PMDN;
Sejarah Kehutanan Indonesia/Indonesia Forestry History II–III 1986: 11). This rap-
idly increased during Pelita I (1969–1974) to reach US$1,026.5, with US$555.7
million of foreign investment (Table 3.3).
Who were the foreign businesses in the forestry sector? They were George
Pacific and Weyerhouser from the United States in East Kalimantan; Mitsubishi,
Sumitomo, and Shin Asahigawa from Japan in East Kalimantan, Korindo; Kodeko
from South Korea in Irian Jaya and South Kalimantan; International Forest Asiatique
(IFA) from France in Jambi; and Sambu group from Singapore(Hurst 1990: 34).4
Domestic players in the forestry sector fall under several categories: (1) Private
businesses, the majority being Chinese Indonesians with relations and access to the
political elite under the Soeharto government, such as Bob Hasan, Prayogo Pangestu,
4
Interview with Herman Prayudi (staff of APHI: Logging Holders Association) June 11 and 19,
2001 in Jakarta, concerning foreign investors in the forestry sector in Indonesia.
Table 3.2 Forest inventory Years Size (Million) ha

activities in Pelita I (1969–
1969/1970 5,176,000
1974) (Million) ha
1970/1971 6,166,000
1971/1972 5,920,000
1972/1973 6,924,000
1973/1974 7,251,000
Total 31,437,000
Source: Directorate General of Forest
Product, 1974
Table 3.3 Foreign Foreign countries Capital amount

investment according to
1. Philippines 307,150,000
country during Pelita I
1969–1974 (Million US$) 2. Malaysia 44,300,000
3. Hong Kong 42,950,000
4. Japan 42,150,000
5. South Korea 62,000,000
7. Unites States (USA) 28,500,000
8. Singapore 13,750,000
9. Taiwan 6,300,000
10. Italy 5,600,000
11. Panama 1,500,000
12. France 1,500,000
Total 555,700,000
Source: Directorate General of Forestry of
Exploitation and Forest Product, 1974
and Anthony Salim. (2) Army groups and Soeharto with his family, through organi-
zations such as Supersemar and Mangadeg (Soeharto foundations), Kartika Eka
Paksi, Kobame (special army ranger/Kopassus), Jamaker (defence military institu-
tions), and Brata Bakti (police groups; Samego 1992: 78–91); (3) State Forestry
Corporations; Badan Usaha Milik Negara/BUMN on the forestry sector) such
as,Perhutani I, II, and III in Java and Inhutani I, II, III, IV in the outer islands
(Sumatra, Kalimantan, Sulawesi, Maluku, etc.).
Apparently, the logging forest concession system profited businessmen, espe-
cially timber traders’ conglomerates, who have close relations with the political
elites. It is also well known that many government bureaucrats and military officers
as well were involved in the forestry sector in the Soeharto government. This phe-
nomenon eventually had its affect on corruption, collusion, and nepotism in the
Ministry of Forestry. In line with this condition, the implementations of law enforce-
ment for logging holders who break forest regulations were difficult in the field. The
logical consequence led to forest degradation and deforestation in Indonesia, and
particularly occurred in the outer islands (Sardjono 2004: 5–6).
The provision of logging concessions based more on political aims than the pro-
fessionalism and capability in forest management has led to greater deforestation
occurring in the forestry sector than necessary. Weak forest management institu-
tions have resulted in inefficient extraction of timber, unnecessary damage to the
remaining trees, excessive waste wood left in the forest, unnecessary severe impacts
on animal populations, soil erosion, and stream pollution. Low government royal-
ties on timber and weak supervision have given the concessionaires little incentive
to reduce timber waste, mitigate environmental impacts, or manage their conces-
sions in a sustainable manner.
The New Order regime succeeded in attracting large volumes of foreign and
local capital in support of forestry development. This caused the exports of forest
products, at first mainly in the form of logs, to become one of the most important
sources of foreign exchange for the country (Jepma 1995: 285). A large number of
concessions for logging activities were granted and profits were assured by tax
exemptions. From 1969 to 1974, for example, nearly 11 million ha of logging con-
cessions were granted in East Kalimantan alone, whereas in 1967 only 4 million m3,
1969/1970 5,299,000 and 1973/1974 24,319,499 cubic meters (Table 3.4) of logs
were cut from Indonesian forests for export and domestic use. However, by 1977 the
total had risen to approximately 28 million m3, at least 75 % of that for export. The
government income from the forestry sector rose from US$6 million in 1966 to
more than US$564 million in 1974. By 1979, Indonesia was the world’s major
tropical log producer, with a 41 % share (US$2.1 billion) of the global market, rep-
resenting a greater export volume of tropical hardwood than Africa and Latin
America combined. Roads, towns, and other infrastructure were built in Sumatra
and Kalimantan in the wake of the timber bonanza, and the populations of these
islands grew substantially (Barber and Schweithelm 2000: 29–30).
Among log-importing countries in the 1980s, Japan 58 % and Taiwan 20 %,
Singapore 10 %, and South Korea 5 % became the largest consumers of Indonesia’s
logs, followed by other Asian countries such as Hong Kong (Table 3.5). In terms of
Japan, almost all of the wood products were imported for domestic markets. This
was totally different from South Korea, Taiwan, and Singapore, where the greatest
part of these imports were for further value-added exports. Apparently, the fact
remains that logs exported from Indonesia played a very significant role in the wood
Table 3.4 Log production Years Production

from forestry during Pelita I
1969/1970 5,299
(Million) m3
1970/1971 15,899
1971/1972 13,706
1972/1973 17,703
1973/1974 24,319
Totally 76,926
Source: Directorate General of
Forest Products and exploitation,
1974
Table 3.5 Log importing countries (volume m3) in the 1980s (Million)
Countries 1980 1981 1982 1983 1984 %
Japan 8,563,546 3,536,194 1,896,588 1,725,712 906,444 57.9
Taiwan 2,046,555 1,309,580 639,508 584,710 320,226 20.4
South Korea 2,046,555 445,417 165,762 178,593 84,008 5.4
Singapore 788,652 430,006 203,521 283,511 153,913 9.8
Hong Kong 355,48 228,488 102,585 100,925 60,271 3.8
Other Asian 62,093 192,440 78,005 48,379 26,569 1.7
Netherlands 11,019 15,752 1,694 0 0 0
Italy 55,652 9,959 0 0 0 0
Other 40,278 4,759 7,033 11,053 4,267 0.3
Europeans
United States 1,783 0 0 0 0 0
Canada 0 0 0 0 0 0
Australia 0 0 0 0 0 0
Africa and 3,148 218,736 6,862 26,417 11,102 0.7
Others
Total 14,583,369 6,391,331 3,103,468 2,959,300 1,566,800 100
Source: Directorate of Forest Products Order, 1980–1984
industry until the log ban enacted in 1985 by the Indonesian government for the
main purpose of creating greater income generation from the forestry sector.
In terms of logging concession holders, the government in 1968 gave 18 logging
concessions with a total of 2 million ha, and in 1972 rapidly increased this to 101
logging concessions, with 31 million ha, in 1988, 538 logging concessions, with 55
million ha provided and finally 657 in the 1990s with 69 million ha (Table 3.6).
The four provinces of East Kalimantan, Central Kalimantan, Irian Jaya (Papua),
and Riau received the largest “Original Income of District” (Pendapatan Asli
Daerah/PAD), more than 50 % of the forestry sector in the 1980s. This occurred
because these four provinces were the highest ranked for potential logging and
scarcely populated compared to the geography and richness of their natural
resources.
In the second phase, government policies turned toward industrial development
and from the late 1970s onward, several policy measures were taken also to promote
the processing of tropical hardwood in Indonesia. In 1978, the export tax on logs
was doubled and taxes were exempted for most sawn wood and plywood. In addi-
tion, from 1980 onward, log exports that had progressively increased to almost 15
million were reduced to 2 million m3 in 1984 and in 1985 were totally banned (Table
3.7). The impact of the log ban mostly affected log production during 1987–1996
which was mainly used for the domestic market as raw material for the plywood
industries (Table 3.8). As a result, Indonesia succeeded in capturing between 70 %
and 80 % of the world’s (hardwood) plywood market between 1987 and 1997.
Therefore, presently the wood industry makes an even stronger positive contribu-
tion to the whole economy than before.
Table 3.6 Logging forest concession development in many provinces (1990)

Not
Valid valid Total
Provinces unit Valid areas unit Not valid areas unit Total areas
DI Aceh 18 1,472,614 7 336,000 25 1,808,614
N. Sumatra 10 731,990 9 667,190 19 1,399,180
W. Sumatra 6 412,230 7 535,000 13 947,230
Riau 49 4,153,399 16 1,311,225 65 5,464,624
Jambi 16 1,447,779 19 1,554,500 35 3,002,279
S. Sumatra 13 1,231,850 15 978,612 28 978,612
Bengkulu 4 352,900 1 36,000 5 388,900
Lampung 0 0 3 177,000 3 177,000
W. Kalimantan 44 5,153,500 26 1,715,787 70 6,869,287
Central 80 9,563,775 37 2,651,285 117 12,215,060
Kalimantan
E. Kalimantan 73 10,624,854 45 2,756,189 118 13,381,043
S. Kalimantan 10 1,102,310 3 120,500 13 1,222,810
West 2 80,500 1 10,000 3 90,500
NusaTenggara
N. Sulawesi 9 676,650 1 131,000 10 807,650
S. Sulawesi 9 486,602 2 60,255 11 546,857
Central Sulawesi 17 1,640,410 9 811,000 26 2,451,410
SE. Sulawesi 4 651,000 0 0 4 651,000
Maluku 34 3,83,123 5 399,600 39 3,482,723
Irian Jaya 49 11,226,030 4 890,900 53 12,116,930
Total 447 54,073,510 210 15,142,050 657 69,662,560
Source: Directorate General of Forest Products, 1997; Nurjaya 2001: 3
Table 3.7 Log circulation in the domestic market in the 1980s (Volume × Million m3)
Years Production realization Export realization Domestic market in realization
1980 28,926 14,583 14,343
1981 23,334 6,391 16,943
1982 22,448 3,103 19,345
1983 26,390 2,595 23,795
1984 30,900 1,567 29,333
Source: Directorate General of Forest Products and exploitation, 1984
How much was the government’s income from the forestry sector under Pelita I?
The government received a total of Rp.38,927,069,562 from the forestry sector.
From Forest Product Contribution Fees (IHH) Rp. 28,052,519,420; from Logging
Forest Concession Contributions, (IHPH) Rp. 5,780,560,105; and from Additional
Forest Products Contributions, (IHHT) Rp.5,093,940,037. The local government
received 70 % of the total income from IHH, IHPH, PBB, and IHHT, and the central
government received just 30 %. In contrast, the central government received 100 %
of reforestation contributions (Dana Reboisasi), with the reason that there are many
Table 3.8 Log and sawmill Years Log Sawmill

production, 1987–1997
1987/1988 27,565,919 9,750,080
(Million m3)
1988/1989 27,760,196 10,237,500
1989/1990 24,409,000 3,919,249
1990/1991 25,312,000 3,117,000
1991/1992 23,892,000 3,006,046
1992/1993 28,267,000 3,534,356
1993/1994 26,848,010 2,244,000
1994/1995 24,027,277 1,729,839
1995/1996 24,850,061 2,014,193
1996/1997 26,069,282 3,426,740
Source: Directorate General of Forest Products,
1997
forestry areas requiring replanting throughout Indonesian districts, and the role of
the central government is to distribute all those funds in an equal manner. In fact, the
government requires US$36 for every cubic meter from logging concession holders.
On the other hand, the operational cost for logging concession holders is almost
US$40 for every cubic meter. The price of every cubic meter in the domestic market
was US$80–90 and the overseas market, US$100–110. Therefore, the profit margin
for every cubic meter was US$100–36–40 = US$24. As 10 of the biggest logging
concession holders controlled around 30–35 % of total logging areas in production
forests, they have access to almost US$10–15 billion from the forestry sector.
Unfortunately, their assets are not just spent within the forestry sector, but they have
expanded their businesses into real estate, banking, transport, chemical products,
and more (Wibisono 1989).
From this description, many economic observers concluded that at the end of
Pelita I, Indonesian economic development tended to be positive and economic
recovery could be achieved. The forestry sector was considered a leading sector
after the oil and gas industry.
Plywood Industries in the 1970s
The plywood industry was very strategic for the forestry sector. In this regard, the
government initially paid attention to its development. This was a different strategy
for the New Order regime in its development steps. The first decade (1966–1976) of
the Soeharto government was a period of rather ad hoc moves toward the establish-
ment of political order and economic growth that emphasized rehabilitation and
stabilization programs. The second decade (1976–1986) under the Soeharto regime
emphasized a more systematic integration of its political, ideological, and economic
goals for the growth of industrialization. From a political point of view, its character
became more strident and authoritarian toward corporatism, in which the state
Plywood Industries in the 1970s 45
apparatus either incorporated its critics or potential opponents from the middle class
who called for more transparency on economic policy, good governance, and higher
appreciation for democratic values. Economically, the New Order was able to move
closer to state-led industrialization (Robinson 1986: 176–177). During the second
period, Pelita II (1974–1979), the government focused on the processing of raw
materials to a higher stage of value-added (timber, rubber, oil, and minerals) materi-
als. Therefore, economic policies after 1974/1975 may partly be interpreted as a
direct response to foreign economic dominance, involving the transfer of capital
ownership from foreign to domestic bourgeois in those sectors in which domestic
capital was most highly developed: in import-substitution manufacture of consumer
goods and intermediate goods, in trade and distribution, and the timber industry.
New regulations governing the formation of joint ventures and assigning levels of
exclusion and priority for foreign investment were the mechanisms for such a
transfer.
The government launched two significant aspects for economic development: (1)
economic incentives provided by the state and (2) state control over economic
development in Indonesia. First, in terms of economic policies, the state launched
various economic incentives, such as export credit and foreign exchange and inter-
est regulations. By these regulations, the state encouraged the process of industrial-
ization in many sectors. For example, in the forestry sector, one of the programs was
the promotion of industrialization and Indonesiaisation.5 Following growing public
criticism, the state enforced stricter controls over timber processing. At the macro
level, state-led industrialization was characterized by an effort at facilitating
Indonesiaisation (Samego 1992: 195). As Hill commented, “The big push for
greater controls came after violent protests erupted in Jakarta on 15 January, 1974,
accompanying the visit of Japanese Prime Minister Kakuei Tanaka” (Hill 1966: 31).
The demonstrations then became violent riots in which many Japanese cars, motor-
cycles, and commercial buildings were burnt and the armed forces and many student
leaders from various universities were arrested and 11 demonstrators were shot.
Among the political elite in Jakarta, there were many comments pro and con the
demonstrations. Those who were pro had concluded that the Soeharto regime was
selling the country’s resources for short-term gain and making the country a sweat-
shop for industrialized countries. Those who were against the demonstrations
argued that economic development is intended to provide social welfare for all peo-
ple and needs political stability. Those among these groups tended to be from the
bureaucratic apparatus in official government offices. The lesson from the Malari
demonstration6 was that the government, on January 22, just 1 week after the riots,
drastically changed its economic policies, which supported Indonesian capitalists;
5
The term “Indonesiaisation”is related to the economic ownership policy. It means reducing the
number of foreign investor shares in companies and transferring some of their shares to domestic
capitalists.
6
Malari demonstration: Malari is an Indonesian term referring to the demonstration that occurred
on January 15, 1974 in Jakarta.
all new investments were to be joint ventures; tax incentives were to be reduced, the
list of industries closed to foreign investments was to be extended, and the number
of foreign personnel was to be restricted. Corresponding to these changes were new
measures affecting domestic investors principally that, “pribumi”7 firms were to be
given preferential access to state bank loans (Jenkins 1984: 48–49). This latter
resolution was in accordance with requirements that 75 % equity in all national
companies be transferred to indigenous owners within 10 years, preferably by sell-
ing shares through the stock exchange. These regulations emanated, not from the
technocrats themselves, but from the president (Robinson 1986: 189). The govern-
ment strategy stressed reducing Indonesia’s reliance on imports and building up
domestic technological capacity, by paying more attention to the processing of raw
materials obtained from within the country. Indeed, President Soeharto stated that
the growth strategy of the Indonesian government for the 1970s and 1980s should
be led by this sector (Kohler 1972: 93). The government also launched employment
initiatives by inviting investors to (1) expand their capital investment in rural areas
and the outer islands through lower taxes for outer islands cooperating with foreign
firms in building infrastructures such as ports, harbors, and highways.
It was hoped that these rural industries would absorb employment opportunities
outside the agriculture sector and stimulate further development in Indonesia.
Therefore, during 1975–1979, the emphasis of the industrialization policy was not
merely economic production, but, and more important, to increase the value-added
natural resource-based products. A highly influential Foreign Ministry official que-
ried at the time commented:
Why can’t we refine some of the oil here, instead of just exporting crude oil? Why not
process wood products here, instead of having it done only in Japan? And we should insist
that foreign investors replant after they have cut down trees. There is a real danger that
foreign investment will become exploitation, the way it is being implemented now.
(Weinstein 1976: 496; Samego 1992: 197)
This statement was obviously aimed at foreign and domestic investors in the
forestry industry to build wood processing, such as a plywood industry. This condi-
tion assisted the Indonesian government in receiving additional value through trans-
fer of technology, taxes, capital investment, and rapidly increased employment
among the Indonesian people.
The state also facilitated wood-processing industries during this period with the
intention of protecting the country’s forests from overlogging. As Walhi (The
Indonesian Environmental Forum) mentioned, deforestation during the 1970s was
300,000 ha annually and rapidly increased to 600,000 ha in the 1980s. As stated by
a former Minister of Agriculture, Toyib Hadiwidjaja, timber exports were not the
main focus of the state’s development policy in the forestry sector. In fact, the for-
estry sector policy tasked the state with the control of forest conservation by enforc-
ing various regulations that led businessmen to follow conservation programs. In
7
Pribumi means indigenous Indonesian. Initially, under the Soeharto regime, the pribumi firms had
very limited access to economic resources, such as those in the forestry, mining, and fishery
sectors.
Table 3.9 Reforestation and Years Reforestation (000 ha) Greening (000 ha)
greening programs,
1974/1975 45.6 149.8
1975–1979
1975/1976 83.9 70.6
1976/1977 125.4 304.3
1977/1978 204.1 632.7
1978/1979 265.1 689.3
1979/1980 301.3 680.1
Source: Directorate of land and forest rehabilitation, 1979;
Series of the Bank Indonesia report 1980
reality, most regulations were not followed by the private sector because they had
access to the political elite and sometimes colluded with forestry bureaucrats, lead-
ing to a lack of hard sanctions on these businessmen. Even Emiel Salim, the Minister
of Environment, observed, “Skilled people and socially prominent figures have
actively taken part in illegal deforestation” (Kompas 17 July1978).
The results of these programs were insufficient to control deforestation activities.
As Table 3.9 indicates, the reforestation program conducted by the Ministry of
Agriculture applied to only a very small number of areas compared to those which
were deforested in many districts in Indonesia. This occurred because of mechani-
zation of the industry and market-oriented cutting for the high demand of logs,
causing deforestation to grow faster than reforestation.
The main problems of reforestation and greening programs during the second
five-year development plan (1974–1979) were the limitation of financial resources.
As the head of the Research and Development Office of the Ministry of Forestry
acknowledged, the state was unable to enforce consistent and equitable payment of
the various levies. An important consideration was the cost of reforestation, because
the replanting of trees was expensive. The cost of one reforestation project, for
example, in Southeast Sulawesi, covering around 2,000 ha was US$1,767,000.
According to Soedjarwo, the Director General of Forestry in 1990, the reforestation
budget was Rp.1 billion or US$2.4 million annually, but financial resources were
inadequate to facilitate this program. On top of this, logging concession holders
often ignored the Forestry Act and Forestry agreement.
Second, the state also attempted to increase its involvement in economic activi-
ties because the state received much revenue from the oil and gas and forestry sec-
tors. For example, the government received 20.74 % (the proportion of the
government’s annual budget provided by oil and gas revenues) in 1969/1970 to a
high of 53.27 % at the beginning of the oil boom in 1974/1975. Based on its politi-
cal strength and economic resources, state-led industrialization during this Pelita II
was directed to facilitate:
(a) Processing industries, such as timber, minerals, and basic industries such as
steel, paper, and cement
(b) The emergence of domestic entrepreneurs by providing more opportunities for
them and reducing the role of foreign investors in economic development
(c) The development of infrastructure and the provision of credit and indirect
investment
Because of this, the industrialization policy during the second Pelita was ori-
ented toward promoting exports by concentrating on primary resource processing
industries, particularly the plywood industry. The long-term objective of this strat-
egy was to facilitate a high rate in output. As Kuyvenhoven and Jansen have argued,
“In an export-led industrialization strategy, high rates of output growth are expected
to be realized through sales at the international market” (Samego 1992: 99).
The government also concentrated on providing not only granting working capi-
tal to weaker economic groups and indigenous businessmen, but also providing
credit for those involved in the production of export commodities.8 The forestry
sector utilized available funds for the intensification of economic development
activities and provided assistance to timber exporters who faced financial difficul-
ties as a result of government restrictions on logging exports. In this case, the state
provided credit facilities (about 25 % of working capital) to businessmen who were
involved in priority projects. This was a positive strategy of the government enabling
plywood businessmen to develop this industry due to the availability of “soft” credit
granted by the government.9
Another act by the government was to provide more opportunities to domestic
timber producers by instructing foreign timber companies to practice
“Indonesianisation.”10 Otherwise, they were told, they would be banned from the
logging industry in Indonesia. In fact, the state policy of promoting Indonesianisation
in the wood-processing industries was not very successful for Pribumi, because
indigenous Indonesian businessmen lacked capital, market knowledge, and access
to the political elite compared to Indonesian-Chinese businessmen. State officials
trusted the Indonesian-Chinese because of their loyalty and their contributions to
the ruling Golkar party. Therefore, as the state closed this sector to direct foreign
capital investment, the role of the ethnic Chinese in encouraging industrialization,
especially in the plywood industry, became more significant. Indonesian-Chinese
businessmen profited significantly from the policy of Indonesianisation, such as
Liem Sioe Liong,11 Prayogo Pangestu, Bob Hasan, Burhan Uray (Bong Sun On), Lie
8
See Bank of Indonesia report, Financial Year 1973/1974, pp. 19.
9
Cited by Samego, Indria, interviewed with Koentjono, marketing Executive of Kayu Lapis
Indonesia, February 8, 1991.
10
Bob Hasan is the adopted son of General Gatot Soebroto, a senior army officer who helped the
then-Colonel Soeharto. Liem Sioe Liong (father of Anthony Salim) controls companies in many
sectors from banking, the forestry sector, palm oil, the automotive and motorcycle assembling
industry, Cibinong cement, wheat imports, and more. He was introduced to Soeharto in the 1950s,
when Soeharto become head of the regional army in Semarang and became close friends with
Soeharto when he came to power in 1966.
11
Liem Sioe Liong is familiarly called by the Indonesian name “Soedono Salim”. He was born in
1916 in Fuqing, China. He owned 225, the largest company in Indonesia since 1980s (See Sato
Yuri, Op Cit., pp. 122).
Siong Thay, and Yos Soetomo. However, as long as domestic investors ran the ply-
wood industry, most of the profits would remain in Indonesia.
President Soeharto and his closest associates played active roles in directing the
development of the timber industry. As one interviewee noted, due to the political
interest of the New Order in its early period of consolidation, the army used forest
resources as its main source of finance. Therefore, many army generals played dom-
inant roles in distributing forest concessions.12 Accordingly, as Mackie has com-
mented, due to the mutual interest of the state and Indonesian-Chinese businessmen,
the latter have been able to run their businesses easily (Mackie 1976: 3). Therefore,
the exploitation of the forestry sector was related to the political and economic
motives of state officials, for example, the creation of ITCI Company (International
Timber Corporation Indonesia) as a joint venture in 1971 between Tri Usaha Bakti
Company (Army foundation) and George Pacific of the United States with an area
of more than 600,000 ha in Kenanga, Balik Papan, East Kalimantan.
Essentially, the state’s interest in promoting the timber industry was demon-
strated by many regulations. First was the Presidential Decree (Keputusan Presiden)
No. 20, May 1975 by which the state implemented two additional measures to
ensure the effectiveness of earlier regulations. In this case, the state encouraged
concession owners not to contract out their logging concessions. Moreover, if they
must, they should contract them to domestic companies. Foreign involvement in
concessions was allowed as long as it was designed to develop wood-processing
industries and the joint-venture system was to be adopted as the main procedure in
this regard. However, ownership was to remain in the hands of Indonesian business
groups. Second, the government tried to encourage the development of the plywood
industry by issuing regulations governing export “certificate” and logging licenses.
Apparently, by the joint Ministerial Decree on 1 May 1979, of the Ministers for
Agriculture, Trade and Industry, the government attempted to strengthen previous
regulations issued by the Director General of Forestry. The policy was that logs
should be primarily allocated to those who had already obtained permission to
develop a wood-processing industry (Samego 1992: 208–209). Moreover, export
certificates were to be provided to loggers who processed some of their production
domestically. Those who made an effort to export only logs were no longer free to
determine prices. The Minister of Trade and Cooperatives Decree No. 371/
Kp/V/I/1979 set the price of Meranti (Shorea Bracteolata) and export logs at no
more than Rp. 35.000 (equivalent US$50) per cubic meter.13
Third, in order to promote the domestic industry and reduce dependence on
imported goods, in 1975, the state introduced a regulation banning plywood imports.
Although the market price of imported plywood was about 20 % cheaper than
domestic plywood, the government encouraged domestic capitalists to develop the
12
Interview with Ibrahim Madylao (former activist and secretary general of the Islamic Students
Association in the 1950s), on March 15, 2000.
13
Meranti wood is one the most favorable trees for the plywood industry’s raw material. It grows
profusely in Sumatra and Kalimantan. See also R. Coats, “Indonesian Timber”, in Pacific Research,
Vol. 2, No. 4, 1971, p. 9.
plywood industry.14 So, the state also guaranteed a secure supply of timber to the
domestic market by, among other things, gradually restricting log exports until
1985. This policy was begun by increasing export taxes on the most marketable spe-
cies and rare woods, such as ebony trees, in particular (Far Eastern Economic
Review/FEER, July 4, 1975: 43). For these species, export taxes were increased to
about 20 % or US$30 per cubic meter, encouraging exporters to process timber
rather than export it. Also, the government obliged businessmen to pay higher levies
on exported wood. In this case, the royalties for the timber trade were increased
threefold, and in January 1979 a scheme was established, whereby US$1 per cubic
meter was collected as a compulsory saving levy.15 As a result, the government ban
on the importation of plywood, the lack of competition from foreign companies in
the plywood industry, and credit incentives from the government finally created a
monopoly, which was then able to determine the price of plywood on the domestic
market. The timber business association, on February 12, 1976, built an association
familiarly called Apkindo (Asosiasi Panel Kayu Indonesia). This association aims
to consolidate and strengthen domestic timber businesses and promote wood-
processing industries for export. Initially, this association did not work efficiently;
however, when Bob Hasan became head of Apkindo from 1983 to 1990, the asso-
ciation cooperated closely with the government to rapidly promote plywood
industries.
Finally, the Indonesian plywood industry grew continuously and steadily. For
example, plywood factories grew in number from 8 in 1975 to 21 by 1979 (Table
3.10), producing 151,333 m3 in 1977 with an income of US$3,282 million to
1,250,446 m3 and US$287,072 million by 1982 (an average increase of nine times
per annum), as seen in Tables 3.11, 3.12, and 3.13 (the development of the plywood
industry by production). Another important issue was the growing number of log
exports, although in 1985 the government placed restrictions on this. The problem
was the involvement of a significant portion of state apparatus and institutions, par-
ticularly senior military officers and civilian officials, who had an interest in pro-
Table 3.10 Development of Number of Production

the plywood industry, by Years factories capacity (m3)
number of factories
1975 8 305,000
1975–1979
1976 14 405,000
1977 17 535,000
1978 19 799,000
1979 21 1,809,000
Source: Apkindo report 1979
14
The statistic recorded that in the mid 1960s almost 95 % of Indonesian wood-panel commodities
were imported from abroad. There were five mills, two in Java, one in Sulawesi, and two in North
Sumatra. Their production was very small.
15
See Paul Zach, “Indonesia’s timber take root”, in Far Eastern Economic Review, November 10,
1978, p. 57.
Table 3.11 Development of the plywood industry by production, export volume, and values,
1977–1982
Years Volume (m3) Income (US$) Average
1977 151,333 3,282,474 21,691
1978 68,130 13,330,256 195,66
1979 140,611 33,458,239 237,95
1980 282,711 60,278,365 213,22
1981 764,268 162,781,910 212,99
1982 1,250,446 287,073,096 229,58
Source: Apkindo (Indonesian Plywood Association) 2000; Tropis Magazine September 2000
Note: In 1977–1982 (Before Trade Order Commence)
Ave the abbreviation from “average” annually/per m3
Table 3.12 Development of the plywood industry by production, export volume, and values,
1983–1992
Years Volume (m3) Values (US$) Average
1983 2,023,332 483,229,012 238,83
1984 3,021,145 663,120,085 219,49
1985 3,240,197 651,242,711 200,99
1986 3,873,401 865,170,264 223,36
1987 5,951,369 1,892,489,182 317,99
1988 6,901,504 2,310,892,570 334,84
1989 8.051,210 2.709,094,299 336,48
1990 8,513,332 3,023,833,314 355,19
1991 8,969,993 3,165,125,206 352,86
1992 9,782,718 3,557,085,785 363,61
Source: Apkindo 2000; Tropis Magazine September, 2000
Note: In 1983–1992 this period after trade order
Table 3.13 Development of plywood industry by production, export volume, and values after
IMF 1993–2000
Years Volume (m3) Values (US$) Average
1993 9,713,127 4,589,235,187 472,48
1994 8,917,797 4,035,727,836 452,67
1995 8,750,710 3,886,943,896 444,19
1996 8,574,836 4,029,477,732 469,92
1997 8,353,906 3,887,962,855 465,41
1998 8,043,635 2,486,165,999 309,08
1999 7,767,979 2,704,740,868 348,19
2000 6,972,500 2,419,118,475 346,95
Source: See Apkindo report 2000
Note: In 1993–2000 period (Post International Monetary Fund Trade Order)
duction for export. For example, according to George Weyerhauser, there were 75
generals dependent on ITCI Company, a joint venture between Weyerhauser
and Tri Usaha Bakti Company (army foundation) in exploring forest resources in
Balik Papan.
What was the effect on the employment sector from the development of plywood
industries in the outer islands? In this case, the demand for labor increased rapidly.
Unfortunately, since industrialization required certain skills not fulfilled by local
people, only relatively skilled migrant laborers could fulfill these employment
opportunities. As Vargas has commented, there were 3,000 people from outside
Kalimantan who worked in the ITCI Company in the mid-1970s, and there was only
one local Dayak (Vargas 1985: 141). As a consequence, the increasing number of
Javanese in Kalimantan has provoked resentment among local laborers.
What was the impact on smaller business groups? As has been mentioned, the
politics of the state-led plywood industrialization supported the growth of already
large Indonesian-Chinese businessmen (conglomerates). In fact, it created more
problems for smaller business groups (indigenous businesses) because they did not
have much working capital, technology, and market opportunities. So, as a result of
timber logging occurring at ever-increasing distances from the area of wood pro-
cessing, the transportation of logs became too expensive for small factories.
Apparently, this problem was exacerbated by bad weather, particularly in the rainy
season, and by deteriorating transport infrastructure (Kompas 21 January 1975). In
1977, for instance, 70 concession holders lost all or part of their concessions for
failing to utilize processing industries near the concession areas (Far Eastern
Economic Review, December 2, 1977: 66). For example, a company that was con-
trolled by the Soriano group of the Philippines Kayan River Timber Company left
Indonesia after failing to obtain a US$3 million loan for new equipment (Samego
1992: 233).
Hence, initially the state was the main actor in creating economic and industrial-
ization policies. This was because the political stability and economic income from
the improvement of income from the oil and gas sector rapidly increased in
1974/1975. Therefore, because capital formation was insufficient to develop the
plywood industry Indonesian business groups looked to the government for capital
assistance and regulations conducive to developing this sector. Then, mutual coop-
eration in developing the plywood industry in the 1980s between the government
and the private sector produced positive results for the industrialization of wood-
based processing. There were some who said that by providing more chances to
domestic capitalists to develop the plywood industry, the government cultivated
their political support. As a result, the policy of Indonesianisation improved the
standing of the government, particularly the president, to businessmen and society
at large.
The Plywood Industry in the 1980s and 1990s 53
The Plywood Industry in the 1980s and 1990s
During Pelita IV 1979–1984 (the Fourth Five-Year Development Plan) the govern-
ment focused on secondary processing, plus the establishment of capital goods
(engineering) industries. The Soeharto government concentrated on three strategic
steps in the forestry sector. First, the state began to focus on the plywood industry
as an essential export substitution commodity; ranking second after oil and gas
export revenues. It was noted in Table 3.11 that the plywood industry contributed
foreign exchange earnings US$60,278,365, with total exports of 282,711 m3 in
1980, rapidly increasing in 1984 to US$663,120,085 and 3,021,145 cubic meters
(Table 3.12). This was a necessary approach, as foreign exchange revenues from oil
and gas started to decline in 1983, as oil prices decreased to US$25 per barrel from
US$30 per barrel in 1980. Also, as the recession struck industrial countries, the
demand for raw materials from developing countries, including Indonesia, dropped.
Therefore, a program for promoting nonoil export commodities was significant.
Based on Forestry Act (UUPK) no. 5/1967 and the 1968 Forestry Agreement dis-
cussed previously, both logging concession holders and other nonconcession log-
gers were ordered gradually to establish a “wood-processing industry.” Secondly, in
the last Five Years Development (Pelita III), the government promotion of the ply-
wood industry contributed substantially to Indonesia’s balance of payments and
economic growth. Because of this strategy the contribution of the plywood industry
to the manufacturing sector, as a proportion of GDP (gross domestic product), rose
from less than 9 % in 1971 to more than 15 % in 1980 (Robinson 1986: 171–172).
More than 60–70 % of development activities were funded through revenues par-
ticularly from oil and gas, logging, and plywood. Third, the government consis-
tently carried out appropriate economic policies in the early 1980s to enforce the
implementation of an export-oriented industrialization strategy, especially in the
wood-processing industry, such as the banning of logs for export in 1985. Initially,
the World Bank and advanced countries—including Japan and the United States—
opposed this decision, based primarily on free-market arguments. However,
Indonesia ignored these pressures, concluding that it was essential to control the
market and develop a timber processing industry. Three key reasons were given for
this decision: first, to add value and diversify the economy away from a
heavy emphasis on oil exports; second, to create wide employment opportunities;
and third, to provide incentives for long-term forestry investments (Dauvergne
1997: 78).
These policy initiatives were expected to foster wood-based manufacturing
industries. First was the state effort to eliminate the problem of lack of raw material
supplies for manufacturing, especially timber. Second, in the production process,
state business was directed to increase the efficiency of the plywood industry. Third,
the state made substantial efforts to assist the marketing of Indonesian plywood
(interview with Apkindo officer, June 8, 2001). Therefore, state organizations for
forest enterprises and plywood businesses were strengthened. Certainly the role of
the Indonesian Forestry Society (Masyarakat Perkayuan Indonesia/MPI) and the
Indonesian Wood Panel Association (Asosiasi Kayu Panel Indonesia/Apkindo)

have played dominant roles in determining the development of the forestry industry
in Indonesia. For example, the government cooperated with Apkindo concerning
the potential lack of logs in the near future. As Apkindo’s executive chairman in the
early the 1980s, Karsudjono Sinduredjo said before the Indonesian parliamentary
meeting, due to the existing process of deforestation, in the near future the Indonesian
plywood manufacturers would find difficulties in obtaining logs for their industry.
If this trend were to continue, Indonesia would depend on logs from other countries
(Kompas, 3 February 1983). Based on his views, the rapid rate of deforestation was
generally caused by two major factors: (1) demand for logging had increased rap-
idly as Indonesian markets grew. Apart from foreign markets, demand for logs
could not be avoided as domestic wood-processing industries had also been estab-
lished; (2) logging holders were not interested in conserving forest resources.
Rather, they paid more attention to generating profits. Consequently, it would be
difficult to force them to adopt the reforestation programs to which they had previ-
ously agreed. On this issue, R. Repetto commented that, particularly, because defor-
estation proceeded more rapidly than reforestation, the development of the plywood
industry in the long-term could be expected to be blocked by a shortage of wood
resources. Unless the state’s strict controls over forestry management were fol-
lowed, the state-led plywood industrialization would result in, to borrow Repetto’s
words, “forests without trees” (Repetto and Gillis 1998). For example, Barito Pacific
Company, the biggest group in the forestry industry, had only reforested about
1,500 ha since acquiring almost 600,000 ha in forest concessions 16 years ago
(1967–1983), even though it had already logged an area of 60,000 ha (The Jakarta
Post, 14 January 1985). On the other hand, as commented by the General Manager
of Tanjung Raya Timber Group Company, reforestation would be better done
through “a third party” rather than the government or logging concession holders.
His company was willing to pay a reforestation fee of US$15 per m3 to a profes-
sional third party. His company was willing to pay this fee, instead of US$7, as long
as they were not burdened with having to carry out reforestation themselves (Samego
1992: 322). Unfortunately, due to weak management and control and also hard
sanctions from the Forestry Agency at the provincial and district levels to logging
concession holders, these reforestation programs were not successful.
To overcome a reduction in log exports, the state introduced another decree,
which aimed to phase out log exports and promote the development of the plywood
industry as the core of the new wood-processing industries, in a Joint Decree of four
Director Generals: Forestry, Multifarious Industry, Domestic Trade and Foreign
Trade. The government allowed loggers to export their products as long as this
helped to develop integrated wood-processing industries. Apparently, through this
regulation the government expected to see a reduction in log exports and the devel-
opment of integrated wood-processing industries from May 1981 onward.16 This
16
This regulation, familiarly known as Surat Keputusan Bersama Empat Dirjen (SKBED), was
issued on April 22, 1981. The additional notes of the Director General of Forestry, May 4, 1981,
stated that this regulation encouraged those who were not able to comply with the minimum
policy stipulated that for a period of 2 years, businessmen who had already invested
in the plywood industry were permitted to export logs at a rate of 25 % of their total
production. New investors in plywood were able to export up to 50 % of their total
production. Those investors who were not able to develop their own processing
plants were required to merge with companies that could do so. In other words, this
policy was expected to serve the interests of both actors in the plywood industry,
namely state and private sectors. The state hoped that the growth of the plywood
industry would have a “multiplier effect” on the economy, supporting domestic
industry, assisting in job creation, and increasing the production of value-added
products. Producers were also to benefit from stable domestic supplies in terms of
logs and prices as well as increased export prices. Higher prices and stable cheaper
inputs would assist businessmen in borrowing or in accumulating capital needed to
maintain their business activities (Samego 1992: 255).
Drawing from the above description, the development of the plywood industry in
the 1980s did not run smoothly, reaching only 21 factories in 1979/1980 (Table 3.9).
Therefore, state intervention in this sector was necessary for several reasons: (1) the
emerging plywood industry was restricted by technical difficulties. Obstacles
appeared in the form of inadequate marketing networks and a lack of capital and
technology. In terms of a lack of capital, the state launched various incentives,
including low interest, export credit facilities, the provision of export credit guaran-
tees, and export insurance. Barito Pacific staff mentioned that initially Barito used
almost all Japanese machines, such as Hashimoto, Meinan, Kikugawa, and Unoko,
and Japanese instructors taught Indonesian workers how to properly operate the
machines.17
As newcomers, Indonesian businessmen encountered strong competition from
established producers including Japan, South Korea, Taiwan, and Singapore. For
example, in the 1980s, Japan owned 450 plywood factories, South Korea 60, Taiwan
135, and Singapore 46 (Tropis September, 2000). They enjoyed many profits from
the “logging bonanza” in Southeast Asia, especially Indonesia, in the 1970s and
1980s. In contrast, Indonesia just owned 21 plywood factories in 1979. The
Indonesian plywood industry required the capital, technology, and market monopo-
lized by those countries; also, investment in the plywood industry was very costly.
In the late 1970s the cost of building an average size plywood factory was often over
US$5 million. A few years later, in the 1980s, this figure rose again. According to
UNIDO, the investment costs in terms of machinery and equipment for plywood
factories were US$80 for every 480 per m3.18 In addition, taxes, duties, and levies
imposed on the timber firms led to high production costs (Samego 1992: 266); in
addition, a lack of infrastructure, such as electricity, communications, water, roads,
conditions of developing wood-processing industries (less than 250,000 m3 of allowable cut forest)
to merge with others.
17
Interview with Simon, marketing manager of Barito Pacific plywood industries, June19, 2001, in
Jakarta.
18
The former figure is derived from the FEER (Far Eastern Economic Review), 2 December 1977,
p. 66. For the latter, see UNIDO, Indonesia Industry Sector Study, 1983, p. 67.
and other transport infrastructure, also increased costs. Due to the state’s limited
capacity to provide these facilities, plywood manufacturers were asked to develop
their own infrastructure. Consequently, their production costs went up continually.
Overhead costs also intensified through this period, as Indonesia still faced the
problem of a lack of regular and reasonably priced shipping. The Forestry Basic
Law (UUPK) in 1967 did not explicitly restrict concession owners from contracting
their logging concession areas to other groups for an unlimited period of time.
Finally, concessions had not been allocated on merit. In this case, it was considered
more a “distribution of favors” (pembagian rizqi) than a profit-based distribution of
resources. Consequently, those who had close relationships to the center of power
obtained concessions at the expense of real entrepreneurs.
To overcome these technical problems in the plywood industry, the government
tried to facilitate such development by encouraging the private sector’s involvement
in maintaining economic development. In other words, the state aimed to create a
more open economic policy. Nevertheless, there was “disagreement among the
leadership concerning the extent to which the challenge could be met by increasing
foreign and domestic economic openness.”19 It was obvious that the state, under the
leadership of President Soeharto during Pelita III, was eventually directed to pro-
vide more opportunities for the domestic private sector. While state-owned resources
declined, economic participation by the private sector was encouraged to secure the
political survival of the Soeharto regime through initiating the following develop-
ment programs:
Increased job opportunities, which means that labor intensive investment proposals will be
favored; more import substitution to increase self sufficiency; encouraging the manufacture
of low cost consumer items and discouraging the production or import of luxury goods;
strengthening the export base; encouraging industries which process raw material into fin-
ished or semi-finished goods; giving priority to goods producers for the agricultural sector,
such as farm implements and fertilizers; promoting agro-based industries20
In terms of the import substitution industry (ISI) strategy in the preceding Five-
Year Development Plan (Pelita II), on entering the Third Five-year Development
Plan (Pelita III), the state’s industrialization policy emphasized export-oriented
industry (EOI). This means that the state aimed to create a conducive climate for
economic expansion. Particularly as the state’s revenues from oil had begun to
decline in 1983, an outward-looking economy was considered the best solution for
maintaining economic growth and political stability. On the other hand, instead of
exporting unprocessed raw materials, the Soeharto government declared that export-
ing finished products would be one of the high priorities of the Third Five-year
Development Plan (Pelita III). This policy was a significant shift from the previous
period, when it had been a lower priority because expanding oil export earnings and
a logging “bonanza” had promised sufficient export revenues. Then, in the Third
Five-year Development Plan (Pelita III), the government was forced to make up for
19
For further information see Bruce Glassburner and Mark Poffenberger, “Survey on Recent
Developments”, in BIES (Bulletin of Indonesian Economic Studies), Vol. 19, No. 3, 1983, p. 1.
20
See: Economists intelligence Unit, Indonesia Annual Supplement, 1981, p. 5.
falling oil revenues. It could not expect to attain this from the logging sector. Instead,
the state encouraged a shift toward manufacturing. The most significant efforts in
developing the export sector were the government’s economic package in January
1982. This policy, which ultimately became known as the “export certificate” (serti-
fikat ekspor), was designed to assist domestic businessmen in promoting export
activities. Therefore, in order to strengthen the position of national exporters, the
government introduced a “counter purchase policy” that indirectly forced foreign
investors to buy the products needed for their projects in Indonesia.21 Both of these
economic policies were expected to strengthen the competitive position of
Indonesian producers in international markets.22
What was the marketing program of the plywood industry? The government and
private sectors cooperated to facilitate marketing. First, the state implemented sev-
eral promotional strategies and reforms in the export–import sector. This step began
with the revision of the 1979 export certificate system. Apart from increasing the
number of commodities eligible for export certificates, a new policy introduced in
January 1982 provided export incentives designed to provide low-interest export
credit facilities, export credit guarantees, and export insurance. The government
offered a simplification of export procedures. Foreign exchange regulations were
also relaxed for holders of export certificates. In addition, the government reduced
its harbor service fees at the primary export ports (Bank Indonesia, Fiscal Year
1981/1982: 63). On the other hand, to increase the volume of plywood exports, the
government worked on both breaking market barriers and facilitating the entry of
plywood exporters into a new market in various parts of the world. A major tool for
overcoming market barriers was the counter purchase policy. This policy indirectly
forced other countries to import plywood from Indonesia in exchange for Indonesia
accepting their exports. Especially for those countries that had adopted protection
measures toward imported plywood, such as Japan, it was felt this policy could
influence indirect pressure on them to lift or reduce trade barriers.
Secondly, Apkindo as representative for the timber businessmen’s association
launched its strategy to established “Kompa” (Marketing Commission), integrated
marketing among timber producers and research and development (R&D) to ana-
lyze fluctuations in prices and markets. And it followed by establishing a marketing
branch, “Napindo,” in Japan and “Fendy Wood” in Singapore for the Middle East
and Southeast Asian country markets. These market strategies and the synergy
between the government and private sector were fruitful in the middle of the 1980s.
The positive indicators that indicate this are: (1) the growing number of plywood
factories in many provinces, as demand for plywood products rapidly increased, and
(2) the increased production capacity of plywood factories for export from
21
See Toshihiko Kinoshita,“Japanese Investment in Indonesia: Problem and Prospects,” BIES,
22,1, April 1986. He analyzed that this policy has affected the joint-venture projects between
Indonesia and Japan.
22
For further discussion on the state’s macroeconomic policy during the first years of the Third
Repelita, see Arndt, “Survey of Recent Developments,” BIES, Vol. 19, No. 1, 1983.
Table 3.14 Development of the Indonesian plywood industry 1980–1984 (m3)

Years Factory Capacity Production Utilization (%)
1980 29 1,949,000 1,011,000 51
1981 40 2,601,500 1,552,000 59
1982 61 3,292,400 2,140,000 65
1983 79 4,477,100 2,943,265 65
1984 95 5,27,600 3,820,000 72
Source: Apkindo 1984. And also Nurtanto, “Masalah dan Prospek Kayu Lapis Indonesia” (Problem
and Prospect of Plywood Indonesia), EKI, Vol. 34, No. 3, 1986, p. 336
3,240,187 m3 and obtained foreign exchange earnings US$651,242 million in 1985

to 8,513,332 m3 and received US$3,023 billion in 1990 (Table 3.11).
In 1983, the state-led industrialization resulted in overproduction and price wars
among domestic manufacturers. Apkindo proposed that the government prohibit
new investment in this subsector after 1983. As the head of Apkindo mentioned this
year, the production of domestic plywood was 3.7 million m3, significantly greater
than the target of 3.3 million m3. So, if the government opened this subsector to
further investment, state-led plywood development could threaten the profitability
of the industry. In order to maintain production at 9 million m3, according to
Apkindo, the existing 60 operating factories, the 45 under construction, 32 awaiting
permission, and 30 applying for investment, were enough (Table 3.14; Kompas, 24
January 1983; Sinar Harapan, 2 Desember 1982). As a result, plywood factories in
other provinces were rapidly developed (Table 3.14). However, this suggestion from
Apkindo’s chairman was difficult to be implemented in the field, because based on
the market, demand for plywood products from consumer countries rapidly
increased, especially after the government ban on log exports in 1985 (Table 3.15).
By introducing this policy the state hoped that the price structure of Indonesian
timber products would be determined in a seller’s rather than a buyer’s market.23
The effort of Bob Hasan, as a head of Apkindo and his group in launching nego-
tiations between the government and international consumers was significant and
effective at promoting plywood products on the international market at the end of
the 1980s. From this perspective, the government conglomeration policy in 1988
was the best way to reduce production costs and had both positive and negative
impacts. Because the number of forest areas declined, the existing number of log-
ging concession holders also needed to be reduced. Therefore, the policy required
them to merge from 528 individual concessions to 70 units of integrated wood-
based industries.24 However, in reality, the conglomeration policy assisted just
10–15 big businessmen in the plywood industry who had access to the ruling elite
(Table 3.16). On the other hand, conglomerates (business groupings) had emerged
23
For discussion on the role of buyers in determining the price of wood from Southeast Asian
forests, see: Paul Gigot and others in “The fall of the Forests,” FEER, 30 November, 1979.
24
See SKEPHI (an NGO on Environmental and Forest Advocation in Jakarata), “Menjual Warisan
Kita: Komersialisasi Hutan Indonesia,” Jakarta, 1990, p. 46.
Table 3.15 Development of the plywood industry by location (m3), 1988–1989

Location Unit D.I. capacity Unit F.I. capacity Total unit Total capacity
Aceh 2 190,000 – – 2 190,000
N. Sumatra 4 364,700 – – 4 364,000
W. Sumatra – – 1 109,100 1 109,100
Riau 8 790,800 1 140,000 9 930,000
S. Sumatra 4 338,600 – – 4 338,600
Lampung 1 64,300 – – 1 64,300
Jambi 5 419,200 2 65,000 7 484,200
W. Java 1 90,000 – – 1 334,600
C. Java 1 334,600 – – 1 90,000
E. Java 2 260,000 1 100,000 3 360,000
W. Kalimantan 14 391,000 – – 14 1,391,000
S. Kalimantan 14 1,191,400 2 94,000 16 1,285,400
E. Kalimantan 24 690,700 3 154,800 27 1,845,500
C. Kalimantan 5 334,000 3 160,000 8 494,000
Sulawesi 2 32,000 1 53,500 3 85,500
Maluku 12 991,700 – – 12 991,700
Irian Jaya/Papua 1 90,000 – – 1 90,000
Total 100 – 14 – 114 9,448,700
Apkindo report 1989; and Data Consult 1989
D.I. domestic investment, F.I. foreign investment
Table 3.16 Largest plywood exporters by area (million), investment and export values
Company Areas (million ha) Investment (Rp million) Values (US$000)
Barito Pacific 1,980 306,336 183,265
Alas Kusuma 1,775 155,877 74,543
Satya Djaja Raja 1,495 n.a 104,955
Djajanti 1,426 171,757 89,613
Berkat 1,086 n.a n.a
Gunung Raya 1,052 n.a n.a
Jati Maluku 929 n.a n.a
Hutrindo 896 n.a n.a
Benua Indah 892 n.a n.a
Bumi Raya Utama 888 394,626 77,346
Total 12,416
Source: PDBI (Indonesian Business Data Center), Forestry Indonesia, 1988, pp. 62–66
Note: n.a not available
Table 3.17 Development of the wood panel industry by product, volume, and value to 1989
Product Volume (000 m3) % Values (US$000) %
Raw plywood 3,478 78.1 1,223,123 80.0
Special items 520 11.7 144,508 9.5
New products 187 4.2 84,789 5.6
Block board 233 5.3 60,571 4.0
Veneer 34 0.8 684 0.6
Total 4,454 100.0 1,522,547 100.0
Source: Apkindo report 1989
and demonstrated their capacity to face competition on the international market, and
more important, to respond to government policies for increasing production and
value-added products.25 So, as seen in Table 3.17, due to the policy of conglomera-
tion since the implementation of Pelita IV, the production of timber panel products
had been emphasized over raw plywood. This means that the policy of conglomeration
led to a diversification in the production of wood-panel products. On the other side,
however, since the government introduced this policy, only a few large plywood
producers survived the competition, whereas smaller manufacturers were disadvan-
taged. And the 10 largest groups dominated more than 59 % of plywood exports.
Because of a lack of capital, technology, and market openings and availability of
resources, some companies closed down or were sold to larger companies. For
example Talibu Timber Company, Sangkurilang, Tunggal Group, and Limbang
were sold to Barito Pacific. Kalimanis Group, which was owned by Bob Hasan, also
grew rapidly because it took over a number of domestic and foreign operators
including Georgia Pacific, in Balik Papan.26
On the negative side, the conglomeration policy resulted in a growth-oriented
strategy, lack of broad participation among medium businessmen, transparency or
control, a lack of employment creation, and deforestation. For example, in terms of
the employment sector, it was registered in 1998 that the timber industry, especially
plywood factories, absorbed 1.5–2 million workers. However, this employment
capacity was rather small in comparison to the amount of investment and production
in the plywood sector.
The plywood industry has made a major contribution to nonoil and gas revenues
since the early 1980s to the early 1990s. For example, foreign exchange earnings
from the export of plywood was US$60.2 million in 1980 and increased to US$3
billion in 1990 (Tables 3.11 and 3.12). At the same time, the volume of Indonesian
log exports decreased from 14.5 million m3 in 1980 to 1.5 million m3 in 1984. In
25
Based on Mackie, conglomeration refers “to economic groups,” which recently have become the
main actor in economic transformations in regional perspective, in Hal Hill and Terry Hull (Eds.)
Indonesia Assessment 1990, Political and Social Change Monograph 11, Department of Political
and Social Change, Research School of Pacific Studies, ANU, Canberra, 1990, p. 108.
26
For a further list of acquisitions in the forestry sector, see Wibisono, Christianto, Forestry
Indonesia, PDBI, Jakarta, 1988, pp. 216–217.
dollar terms, log exports declined more than US$1 billion from the 1980 pre-ban
level to US$0.4 billion in 1984.27
The negative impact of the log export ban in 1985 on foreign companies is indi-
cated by the rapid decrease in factories in operation. For example, in Japan, where
previously 450 factories operated, the number declined to 100, Taiwanese factories
fell from 135 to 54, South Korean from 60 to 6, and Singaporean from 46 to 11
(Tropis, September 2000). This was because Indonesian plywood exports became
more competitive and thus attracted concession owners to develop the domestic
plywood industry further. More interestingly, Indonesian plywood exports were not
only directed to traditional Asian markets, but also gradually moved to various new
markets (Table 3.18) such as Latin America, the Middle East, Europe, North Africa,
the United States, and Canada.28 This means that the marketing of plywood became
another key factor for promoting an exponential increase in the industry. Due to the
activities of both the state and Apkindo, the Indonesian plywood industry has been
able to diversify its markets. Since the government restricted log exports, new mar-
kets have been developed. Even Japan, one of the leading plywood industries in
Asia, has increased its import volumes and prices dramatically to become the largest
consumer of Indonesian plywood since 1986 (600,000 m3) to 2 million m3 in 1988
(Table 3.18). Based on data from ITTO (International Tropical Timber Organization)
in Yokohama, in 1994 Japan consumed almost 8.2 million m3 for housing and build-
ing construction, which increased in 1997 to 9.5 million m3. The plywood factories
in Japan could provide only 4.2 million m3 and the rest of its stock needed to be
Table 3.18 Plywood exports by country of destination, 1984, 1986, and 1988 (000 m3)
Country destination 1984 1986 1988
United States/Canada 821.7 1,135.7 998.6
England/Ireland 109.6 263.9 299.1
European Countries 128.2 352.6 498.3
China/Hong Kong 669.0 852.6 1,327.2
Taiwan 110.0 302.4 290.3
Singapore 460.5 490.2 232.6
Middle East 417.2 340.0 527.6
Japan 145.3 600.9 2,032.3
Non-Japan New Markets 31.5 9.0 490.2
Other Countries 128.1 270.4 152.7
Total 3,021.1 4,617.7 6,848.9
Source: Data Consult 1988; Apkindo report in 1988
27
See Lindsay, “The Indonesian log export ban: An estimation of foregone export earnings,” BIES,
Vol. 25, No. 2, 1989, p. 113.
28
Due to the positive impact of the log ban in 1984/1985, Indonesia has been able to replace some
Asian producers such as Japan, South Korea, and Taiwan. See, for example, Dedy AS, Bermand
and Radu Malem, “Mengantisipasi Ancaman kayu Tropis” (Tropical wood threat and anticipa-
tion), Business News, No. 66, Tahun II/1991, pp. 1–6.
Table 3.19 Utilization of plywood in Japan and imports from Indonesia (million m3)
Years Utilization Domestic product Shortage Import
1994 8,190,000 4,864,000 446,000 3,229,000
1995 8,814,000 4,420,000 4,394,000 3,018,000
1996 9,960,000 4,646,000 5,324,000 3,260,000
1997 9,553,000 4,226,000 5,327,000 3,223,000
1998 7,179,000 3,304,000 3,872,000 3,327,000
Source: Apkindo report, 1994–1998; Tropis Magazine, May, 1999a
imported from other countries; for example, Indonesia contributed 3.2 million m3
for export to the Japanese market (Table 3.19) (Tropis September, 2000).
As the largest consumer of hardwood tropical timber, Japan needed a continuous
stable supply. A visit from Koichi Mataga as head of the Japanese Plywood
Manufactures Association (JPMA) occurred in April 1999 in Jakarta. This meeting
was held between Apkindo members and the JPMA delegation to discuss “sustain-
able markets” and finally agreed on two main points: Japan agreed to maintain mar-
ket stability in Japan and also to maintain sustainability in the utilization of
hardwood from tropical timber in this region; and the producer countries, such as
Indonesia and Malaysia, promised to supply requested amounts of plywood con-
tinuously to this market (Tropis May, 1999a). Furthermore, Matagi said that the
Japanese market in 1999–2000 needed 8–9 million m3 of hardwood annually, and
half must be imported. Indonesia, one of the largest exporters for the Japanese mar-
ket, is supplying more than 50–60 % (Table 3.19).
This chapter also reviews current market conditions and trends in demand for
tropical timber products. Japan was the dominant market for tropical timber, fol-
lowed by Europe, then North America (Table 3.17). Over the last decade, South
Korea and Taiwan have emerged as significant importers of tropical timber; by 1990
the level of imports by Korea and Taiwan was just below that of Europe. Imports by
Korea and Taiwan of logs from Southeast Asia, especially Indonesia and Malaysia,
were mainly destined for export-oriented timber processing industries, with Japan
and North America as the major end-consumers of these “secondary processed”
products.
However, Japan continues to be the world’s largest importer and consumer of
tropical timber, accounting for roughly 50 % of tropical timber imports by industri-
alized countries and more than 20 % of world trade in tropical timber. On the other
hand, in recent years, “secondary producers” of tropical timber products have
increased shipments to the Japanese market.29 For example, Japanese imports of
furniture made from tropical timber have more than doubled in the past decade, with
nearly all this growth accounted for by imports from secondary producers.
29
“Secondary producers” are countries that import tropical timber in raw form, process it domesti-
cally, and then re-export it, for example, South Korea and Taiwan, which do not have substantial
stocks of tropical timber but are competitive in certain types of wood processing.
Industrial Timber Plantation (Hutan Tanaman Industri/HTI) 63
Industrial Timber Plantation (Hutan Tanaman Industri/HTI)
Historical Background
There are two underlying reasons for industrial timber plantation (HTI) develop-
ment. First, the lack of wood as a raw material for the wood industries of pulp and
paper, plywood, sawmill, and so on. For example, in Pelita IV (1983–1988 Five-
Year Development) the demand for wood was 40 million m3, and it rapidly increased
to about 70 million m3 by the end of the 1990s. But the supply capacity from natural
forests annually reached 38. 4 million m3, and total forest production reached 64
million ha. Secondly, HTI was developed to fulfill the need for wood as a raw mate-
rial. Therefore, it was developed from industrial timber plantation (HTI) on three
bases: social, sustainability, and private profit (economic; Tri Nugroho1994: 6–18).
In 1983, the idea for the necessity of HTI development appeared in an academic
meeting held by the Faculty of Forestry at The University of Gadjah Mada in
Wanagama during December 27–28, 1983. Meanwhile, the whole concept of HTI
was discussed in a national seminar entitled: “We Plant Today and We Harvest
Tomorrow,” which was held by the Bogor Institute of Agriculture (IPB) in Bogor in
1984. The roles of state and private companies in HTI development are significant.
As a result of this national seminar, the Ministry of Forestry launched a long-term
strategic policy program to build industrial timber plantations (HTI). The opera-
tional technical basis for HTI development was issued through many regulations:
(1) government regulation (Peraturan Pemerintah/PP) number 7/1990 regarding
concession rights of HTI, a complement to Minister of Forestry decision number
320/Kpts-II/1986 concerning HTI development; (2) Presidential Decree (Kepres)
number 29/1990 about the reforestation contributions (Dana Reboisasi) which was
a complement to Presidential Decision number 35/1980 on the “Reforestation
Insurance Fund and Replanting Forest;” (3) Minister of Forestry decision number
19/Kpts-II/1991 on distribution of reforestation contribution for HTI development,
performed by the State Forestry Corporation (Inhutani) in the Ministry of Forestry;
(4) Joint decision (SKB) of the Minister of Forestry and Minister of Finance number
421/Kpts-II/1990 and number 931/KMK.o13/1990 concerning the principles of
involvement of state capital and lending of the reforestation contribution in HTI
development.
Conceptually, HTI is the forestry developed in order to improve the potential and
quality of production forest, implementing intensive silviculture to provide indus-
trial wood as raw material. Therefore, industrial timber plantations (HTI) are pro-
duction forests with their own characteristics, allowing the implementation of
intensive silviculture, producing raw material for the wood, pulp and paper industry,
and other necessities. The plants of trees are categorized as fast-growing trees such
as eucalyptus and Acacia mangium. These trees from planting until harvesting need
to be cut around 6–7 years.
The Aim and Policy of HTI Development
Since the beginning of Pelita IV (Five-Year Development Plan: 1983–1988), the

government has begun to perform HTI development, targeted at:
1. Supporting the growth of the wood industry by providing wood as raw material
for sustainable resource supply
2. Supporting wood industry exports in addition to domestic wood demand
3. Improving the potential of wood in production forest areas, particularly in non-
productive areas
4. Expanding job opportunities within the forestry industry30
The Principles of Industrial Timber Plantation Development Policy:
1. Based on the purpose of production, the utilization of HTI can be classified as
company categories:
(a) Wood industry companies (Perusahaan Kayu Pertukangan) such as those
involved in supplying raw materials for plywood, sawmill, and veneer
industries
(b) Fiber (serat) wood companies, supplying the pulp and paper industry with
fiberboard which can be changed chemically to become rayon and celluloid
(c) The energy wood company class used for charcoal (arang), fuel, and
grassfire
(d) Nontimber forest products company class
2. The areas and locations for implementing HTI development consist of:
(a) Limited Production forest area or other forest areas, which can be settled to
become limited production forest
(b) Empty land, savanna (padang alang-alang), bush areas, and nonproductive
swamp forest (production forest with a potential for commercial type 30 cm
or smaller and a volume of 20 m3 every hectare)
(c) Production forest, which is still productive, can serve as a HTI area, if all
wood-cutting production is utilized for the fiber (serat) wood industry
The width and various wood types of every HTI development area are regulated
as follows:
1. To support the pulp industry, 300,000 ha were provided.
2. To support the wood and other industries, 60,000 ha were provided.
There are various species of HTI’s plants such as Eucalytus spp (eukaliptus),
Pinus Merkusii (Tusam), Peronema canescens (sungkai), Acacia mangium
30
For further information, see Untung Iskandar and Agung Nugraha, Politik Pengelolaan Sumber
Daya Hutan: Issue dan Agenda Mendesak (Political Management on Forest Resources: Issue and
Urgent Agenda), Debut Pres, Jogjakarta, 2004, pp. 75.
(Akasia), Acacia Auriculiformis (akasia) and Albizzia Falcataria (Sengon and

Jeunjing)
3. Funds for developing HTI are derived from:
(a) Reforestation fund
(b) Private funds
(c) Other funds:
c.1. The reforestation fund is not a government subsidy, but could be cate-
gorized as government shares in HTI units.
c.2. The amounts of government shares that can be given total a maximum
of 49 % of all investments.
c.3. The reforestation fund capital declaration is held under State Forestry
Corporations (Badan Usaha Milik Negara/BUMN) such as Perhutani
and Inhutani.
The Role of the Government in Planning and Projections

concerning HTI Development
The government plan for HTI development in Pelita IV, V, and Pelita VI (up to the
year 2000) totaled 6.2 million ha. This projection was based on estimates of wood
production by 2000 reaching an annual supply of 150 million m3, 60 million m3
from natural forest and 90 million m3 from industrial forest plantations (HTI).
Therefore, to anticipate this need for HTI, the Ministry of Forestry in Pelita V
(1988–1993) planted 1.5 million ha of HTI in 18 provinces (Table 3.20), concentrat-
ing on four large provinces for HTI, namely East Kalimantan (200,000 ha), West
Kalimantan (180, 000 ha), South Sumatra (180, 000 ha), and South Kalimantan
(100,000 ha). Unfortunately, planting only reached 23 % (Tropis 2000: 60). The rest
of the HTI will be planted within 1985–2000, totaling 11 million ha and consisting
of 386 units of timber estate (Satuan Pengelola Hutan) with a width of 30,000–
50,000 ha for every unit.
To support the success of HTI in Pelita V, a center for permanent seeding was
built and every unit is planned to be able to produce about 10 million seeds (bibit).
The funding for this activity was derived from a loan from Scandinavian countries
and the reforestation fund. Permanent Seeding Centers were built in 18 provinces
(Tables 3.21 and 3.22).
In August 1991, the Directorate General of RRL explained that until now there
had been only three registered operational pulp and paper industries, namely Indah
Kiat (IK) Company, Inti Indorayon Utama (IIU), and Kertas Kraft Aceh (KKA).
Meanwhile, the collective data up to July 1991 from the Directorate General of RRL
register of HTI development proposals totaled 521 units, consisting of:
(a) About 23 requests for permission for HTI after 1 April 1991 (denied).
Table 3.20 Annual Years of planting Size (ha)

projection of HTI
First Year 100,000
development in Pelita V
Second Year 240,000
Third Year 360,000
Fourth Year 400,000
Fifth Year 400,000
Source: Directorate General of RRL (Reforestation
and Rehabilitation of Land), 1989
Table 3.21 Planning of Capacity

seeding development centers (millions of
in Pelita V Years Unit plants)
1989/1990 9 90
1990/1991 21 210
1991/1992 30 300
1992/1993 30 300
1993/1994 30 300
Source: Directorate General of RRL (Reforestation
and Rehabilitation of Land) in 1991
Table 3.22 HTI The process Unit Width (ha)

development program
1. Proposal step 153 6,123,789
2. Field orientation step 157 2,559,420
3. Planting experiment 52 2,040,657
step
4. Implementing HTI 24 1,044,732
Total 386 11,768,500
Source: Directorate General of Reforestation and
Rehabilitation of Land 1991
(b) About 597 requests for permission before April 1, 1991. These consisted of 228 inac-
tive units and 369 active units. Of the active participants (369 units), 336 units were
nonpulp requests and 33 units for pulp HTI.
In fact, the government, still consistently launches timber plantation develop-
ment in many provinces. This policy is implemented in an attempt to overcome the
long-term depletion of wood as a raw material for plywood, sawmill pulp and paper
industries. In order for this to occur, two problems must be solved. First is the rise
of illegal logging in protected and conservation forests, because the demand for
wood for the forestry industry will rapidly increase. Second is the serious deforesta-
tion taking place in many districts. Therefore, the planting of 2.4 million ha of
industrial timber plantations (HTI) in 1998 has not reached (Table 3.23) the total
allocated 5.6 million ha.
Table 3.23 Timber Realized by

plantation development up to Provinces Allocated 1998
1998 (hectares)
Sumatra 2,148,946 893,463
Kalimantan 2,928,414 956,261
Sulawesi 255,791 85,455
Maluku 64,775 77,656
Papua 153,250 39,996
Other 48,730 352,215
Indonesia 5,599,924 2,404,364
Source: World Bank1999; WRI (World Resources
Institute 2001: 31)
Private Companies’ Views on HTI Development: Some

Constraints
The Ministry of Forestry (Kompas 24 August, 1991) stated that proposed HTI
investment was not competitive, in spite of the relatively fewer numbers of investors
proposing HTI development. The constraints faced are the high cost of operation,
financial analysis (when compared to other competitive sectors), land conflicts with
local communities, and so on.
The government obliges all private companies involved in HTI development to
cooperate with the State Forestry Corporation (Inhutani), under the Ministry of
Forestry. The involvement of Inhutani in this joint corporation enables the
government to obtain 35–40 % of all capital. Through this joint corporation, private
companies can obtain grants from the “Reforestation Fund” with 0 % interest and
commercial lending with a grace period of 8 years from planting. Altogether there
are 94 companies who enjoy the use of the reforestation fund, reaching a total of Rp.
1.9 billion. These funds prioritize the development of pulp HTI, wood engineering
(Kayu pertukangan), and transmigration. The realization of HTI planting and seed-
ing location has thus far reached 1.1 million ha. However, according to Adi Warsita,
head of the Indonesian Forestry Businessmen Association (APHI), the reforestation
funding and planting are corrupted by government bureaucrats and members of the
private sector, because at the time of sale and valuation, the cost of every hectare
was 1.4 million Rupiah, which was neither based on estimations nor the real cost in
the field. It seems that finding accurate accounting was difficult; therefore, it is nec-
essary to judge values by independent team valuations in the field and not just
accept the Ministry of Forestry’s apparatus.
The government has developed a “priority model” system in HTI development.
There are 13 companies, such as Tusam Hutani Lestari, Aceh Nusa Indrapuri in
Aceh, Musi Hutan Persada in South Sumatra, Arara Abadi, Riau Pulp and Paper in
Riau, Indorayon Utama in North Sumatra, that benefit from this system. Meanwhile,
in Kalimantan are ITC Hutani Manunggal Company, Sura Hutani Jaya, Tanjung
Redeb Hutani, and Adindo Hutani Lestari in East Kalimantan, whereas in West
Kalimantan is PT. Finnantara Intiga (Joint Corporation between Inhutani III,
Table 3.24 Reforestation Activities Amount (Rp.) Realization (Ha)

fund and HTI’s plant
HTI Pulp 1,036 quintillion 1,094.061
realization
HTI Nonpulp 208,3 billion 307,301
HTI Transmigration 328,5 billion 278,676
HTI Swakelola BUMN 336,06 billion Not written
Total 1,909 quintillion 1,680,038
Source: Secretary General of Department Forestry 1998; See also
Tropis No. 9, August 1999: 17
Gudang Garam and Enso from Finland).31 These companies are responsible for
developing 2,605 million ha HTI areas with physical centers, including land alloca-
tion, seed preparation (pengadaan bibit), and planting. Why do these companies
benefit from the “priority system”? According to a directorate general of Production
Forest resource, the main argument is that HTI owners have good relations with the
family of Soeharto (Tropis, No. 9, 1999: 13).
The Ministry of Forestry until March 31, 1999 spent Rp. 5,064 billion of the
reforestation fund (Table 3.24). HTI development reached Rp. 1.9 billion and other
funds were spent on greening programs outside HTI, such as social forestry devel-
opment, forest rehabilitation of Logging Forest Concessions (HPH), working credit
for forest people (Hutan Rakyat), natural silk, credit for small enterprises in DAS
(Daerah Aliran Sungai/Watershed), Lauser (in Aceh) protected forest for manage-
ment, and mapping for protected forests.
Swakelola BUMN: State Forestry Corporations such as Inhutani I, II and III build HTI in
the outer islands with their own management. This management failed due to a lack of
professionalism and good management in HTI development.
There is a gap between the realization in the field and planning of HTI develop-
ment. Therefore, there are many critiques regarding corruption of the reforestation
fund and the lack of law enforcement on HTI planting from NGOs. For example,
M.S Zulkarnaen, former head of Walhi (The Indonesian Environmental Forum),
criticized Soeharto, demanding he withdraw Presidential Decree (Kepres) number
42/1994 regarding the reforestation fund, which allowed its use for another sector of
the forestry industry, such as for the Nusantara Aircraft Industry (IPTN) Rp. 400
billion in Bandung, for the Sea Games, Rp. 35 billion in 1997 in Jakarta, and an urea
tablet factory Rp. 80 billion, owned by Arie Sigit, the grandson of Soeharto, in
1992. At the same time, HTI concession holders also manipulated the total size of
HTI areas, such as Musi Hutan Persada (MHP) Company (Prayogo Pangestu and
Tutut) in South Sumatra, Menara Hutan Buana (Probosutedjo) in South Kalimantan,
31
My impression of Finantara Company in Sanggau district, West Kalimantan in July 1997, that
management of HTI was well-organized and fruitful result, because this company supported local
people for “social and economic” empowering program. See Haba and Hidayat (Eds.), The Impact
of HTI’s Development on Local people, LIPI, 1998.
Pulp and Paper Industries 69
and Fendi Hutan Lestari (Bob Hasan) in West and East Timor. However, because of
their strong relations with elite power, especially Soeharto, it was difficult to pros-
ecute them in the courts.
Land-use decisions for HTI development are a critical problem in the field. There
are many land disputes on HTIs between government departments, private compa-
nies, and local communities. For example, the Ministry of Mining and Energy and
Ministry of Forestry have experienced conflicts concerning mining and oil explora-
tion clashing with the forestry sector. As explained by A. Siddik Nitikusuma, head
of public relations at the Caltex Pacific Indonesia (CPI) Company, in Riau province,
Caltex had carried out oil exploration for several years before Arara Abadi Company
arrived to set up a HTI. This conflict of interest was based on the land areas claimed
by CPI Company included in their land concession. When Arara Abadi Company
performed wood processing, forest fires and heavy bulldozer operations were affect-
ing the safety of pipe construction for CPI Company (Antara 30 August, 1991; Tri
Nugroho 1994: 37–38).
Land disputes between local people and private companies occurred in Porsea,
North Sumatra between Inti Indorayon Utama and the local communities surround-
ing the forest under question, in Jangkang and Bonti, Sanggau district, West
Kalimantan between Inhutani III and the local communities covering some 228,411
ha, and in Kampar and Indra Giri Hulu district, Riau province between Riau Andalan
Pulp and Paper (RAPP) company with local people concerning areas totaling
159,500 ha. In order to overcome land disputes, usually Inhutani III will conduct
two programs. First, Inhtani will provide adequate compensation for local commu-
nities and their customary rights to the forests used for HTI. Second, Inhutani will
conduct “training management” and “empowering” socioeconomic programs for
local communities, such as providing credit with very low interest to cooperative
sectors, small industries, small traders, and the like. Inhutani will also recruit locals
for full-time and part-time work in Inhutani seeding centers and tree planting.
Pulp and Paper Industries
Do natural forests and industrial timber plantations (HTI) provide sufficient pulp
and paper industries with raw material? This question is connected to the above
discussion on the planting of 1.5 million ha of HTI in 1990/1991, from a target of
3.8 million ha. There are many sides to the argument in the answer to this question.
(1) Every pulp and paper industry has an obligation to build around 200,000–
300,000 ha of HTI. This investment for HTI should reach 10 % of capital for every
factory, and infrastructure should be worth US$1.5 billion. (2) Pulp and paper con-
cession holders usually buy from logging wastes taken from tree branches about
10–15 cm in diameter. (3) Pulp concession holders attempt to buy woodcutting from
land clearing such as palm oil and transmigration project areas (Interview, July 6,
2001).32 These three areas will produce short fibers (serat pendek) as raw material
for the pulp industry. However, long fibers (serat panjang) are still imported from
overseas. The Indonesian Pulp and Paper Association has not planted for long fibers
because it is considered inefficient, yet the paper industry requires both short and
long fibers. To illustrate, in 1993, pulp imports were 705,700 tons, with a production
of 900,000 tons. Therefore, 123,600 tons were exported and domestic consumption
from six pulp companies reached 1,482,100 tons, rapidly increasing in 1998 to 4.3
million tons of pulp production; 1.6 million tons exported, and 839,510 tons were
imported and domestic consumption reached 2.6 million tons (Directory Indonesian
Pulp & Paper 1999).
Based on a report in 2000, pulp and paper companies have grown to 81 units,
when in 1995 they had just been 57 units. Their production for the pulp industry
totaled 5.2 million tons and 9.1 million tons of paper. The pulp and paper industries
absorb 110,000 workers and receive foreign exchange earnings of US$3 billion,
consisting of US$707,409,000 from pulp and US$2,012,494 billion from paper,
whereas finished products (furniture) totaled US$289,077 (Table 3.25).
It is necessary to understand conceptually what is meant by pulp. Pulp is the raw
material processed to create paper. This raw material is made from short fibers
(serat pendek) derived from wood and nonwood products, such as sugar waste
(ampas tebu), dried rice stalks (jerami), or rice straw (merang). Currently, the
greater part of the pulp industry uses materials such as eucalyptus, acacia, and pines
(pohon pinus). There are three kinds of pulp processing: mechanical, chemical, and
Table 3.25 Profile of pulp and paper industry 1999

Number of Installed Installed
Status and location mills capacity pulp (%) capacity paper (%)
State enterprises 3 297,000 6 322,900 3.9
Private (domestic) 66 1,321,100 26.9 4,650,430 55.8
Private (foreign) 12 3,296,000 67.7 3,354,100 40.3
Total 81 4,914,100 100.0 8,327,430 100
Integrated (pulp and 10 3,584,000 72.9 1,984,200 23.8
paper)
Nonintegrated:
Paper 65 – 6,343,230 76.2
Pulp 6 1,330.100 27.1 –
Java 67 418,000 8.5 7,095,690 85.2
Sumatra 12 3,931,000 80.0 1,231,740 14.8
Kalimantan 2 565,100 11.5 –
Total 81 4,914,100 100 8.327,430 100
Source: Directory Pulp and Paper Industry 1999
32
The interview was carried out with Mohammad Mansur, head of Presidium Pulp and Paper
Association Indonesia, Cikini Jakarta on July 6, 2001.
semi-chemical. The most popular process in Indonesia is chemical, followed by

semi-chemical.
Technically, supply of raw material for 200,000 ha of HTI must support each
pulp industry. For example, in the harvesting of eucalyptus trees, over a period of 8
years, each hectare will produce 200 m3 of wood. Therefore, 25 m3/per ha of wood
is produced annually. If the size of a HTI area is 200,000 ha × 25 m3, then 5 million
m3 of wood can be produced. This is roughly equivalent to 1 million tons of pulp. If,
in 2000, the previously planted 1.5 million ha are harvested, an estimated 1.2 mil-
lion ha × 25 m3 of wood = 6.6 million ton of pulp will be sold. This means that the
required pulp production of 5.2 million tons in 2000 will be fulfilled (Interview, July
6, 2001). Although Indonesia will produce 2–3 % (5.2 million tons of pulp) of total
world pulp production in the year 2000, according to Mansur we are optimistic that
in the coming decade the production of the pulp industry will be developed. As
illustrated in 1999, the United States annually produced 88 million tons of pulp,
Canada produced 20.2 million tons, and Finland 13 million tons.
Government Policies and Regulations
Investment
The government attempted to encourage domestic and foreign investors. Various

facilities have been provided to facilitate investment in projects such as the simpli-
fication of permission procedures, banking facilities, allocation of land for HTI
plantations, and the reforestation fund. However, many companies are not using
reforestation funds for HTI plantations, although some of them used the fund (Table
3.26).
The government is actively involved in supporting the development of the pulp
and paper industry in order to obtain added value of forest products and foreign
exchange. The government’s policies in forest protection, HPH (logging forest con-
cession), HTI (industrial timber plantation), and transportation facilities are aimed
at supporting the development of the pulp and paper industry in order to meet the
rising demand for paper, both for domestic and export markets.
The government protects local paper procedures, such as through an import duty
applied to paper already produced locally at a level of 30–40 %.33 This regulation
was beneficial for companies that were able to launch products of equal quality to
imported products. The government has also provided tax exemptions in accor-
dance with prevailing regulations. On the other hand, the role of BKPM (the Board
for the Coordination of Capital Investment) was to give priority to investors who
wished to join the pulp and paper industry and exclude investors who appeared
inefficient.
33
For further information, see The Pulp and Paper Industry in Indonesia: Its Current State and
Prospects, Jakarta, Data Consult, November, 1990, pp. 132–136.
Table 3.26 Realization of pulp HTI projects, June 2000 (ha)

Area of land
Company Location reserved Realization
Using reforestation funds:
Alas Helau Aceh 96,899 24,630
Musi Hutan Persada S. Sumatra 296,000 205,084
Surya Hutan Jaya E. Kalimantan 183,300 125,642
Tanjung Redep E. Kalimantan 180,330 77,342
Finantara Intiga W. Kalimantan 299,700 33,268
Acindo Foresta E. Kalimantan 201,821 29,016
ITCI Hutani Manunggal E. Kalimantan 161,127 88,181
Indonusa Indrapuri Aceh 111,000 30,600
Menara Hutan Buana S. Kalimantan 268,585 113,952
Not using reforestation funds:
Toba Pulp Lestari N. Sumatra 269,060 49,117
Indah Kiat Riau 299,975 181,313
Wira Karya Sakti Jambi 172,978 84,703
Riau Andalan Pulp and Paper Riau 159,500 101,327
Total 2,700,675 1,114,175
Source: Ministry of Forestry 2000; See Data Consult Research Paper 2000
The pulp and paper industry is still open for new investments under PMDN
(Domestic Capital Investment) and PMA (Foreign Capital Investment), except for
laminated kraft paper for cement sacks, which has been deemed as closed for all
types of investments. Valuable paper production has also been restricted to compa-
nies under PMDN status from selected BUMN groups such as the Padalarang and
Kertas Leces Companies. Meanwhile, supply areas for raw materials have been
chosen outside Java, such as Riau, East Kalimantan, South Kalimantan, and other
potential areas. The government’s policy to restrict new investments in the produc-
tion of cement sack paper is aimed at protecting companies already in operation,
such as Kertas Kraft Company in Lhoksumawe, Aceh and Kertas Kraft Cilacap.
Regulation for PMA Investments
The government has paid much attention to PMA, as reflected in the following
provisions:
(a) PMA companies that obtained government approvals under law no. 1/1967 are
given a 30 year period of investment from the date of establishment of the legal
business.
(b) PMA companies that have committed investments according to the govern-
ment’s approval can apply for a permit to expand.
(c) PMA companies are required to be in the form of joint ventures and a minimum
of 20 % of the companies’ shares is to be national capital at the time of estab-
lishment and it is to increase to 51 % within 15 years from the commencement

of commercial production.
(d) PMA companies are entitled to the same facilities as PMDN companies if the
government owns 51 % of the shares or national private companies, on condi-
tion that 20 % of the total shares are sold through the stock exchange market as
shares “on behalf” of the public share.
(e) The pulp and paper industry has now attracted PMA investors, as Indonesia’s
conditions are considered competitive, particularly for export purposes.
Facilities for Investment
Fiscal facilities provided to PMA/PMDN companies introduced in law no.7 of 1983

regarding Value-Added Tax for Goods and Services and Sales Tax for Luxurious
Goods and law no. 13 of 1985 concerning Stamp Duty for Fiscal Facilities are as
follows:
(a) Reduction of/exemption from import duty for machines and spare parts, except
for specified types already produced locally
(b) Exemption from import duty for raw materials/supporting materials for a 2 year
period of production
(c) Exemption from change of name duty for the first ship registration act applied
in Indonesia
(d) Exemption from income tax for importers of capital goods and raw materials
for a 1 year period for new companies on condition that the company is not
under obligation to pay income tax
Indonesian Paper Consumption
Indonesia has the potential to develop its pulp and paper industry in the coming
years. Indonesians consume 5 kg of paper per capita, which is below the average
rate for Southeast Asian countries such as Malaysia, Singapore, Thailand, and the
Philippines, and advanced countries consume a higher rate of paper than developing
countries (Table 3.27).
According to a Jaako Poyry International study (1999), world paper consump-
tion from 1986 to 2001 increased annually by 2.4 %. The largest consumption is
household paper and tissue at 3.18 % annually, followed by cultural paper such as
newspapers, printing paper, and writing paper at 3 % annually and industrial paper
at 1.86 % annually. A general prediction for after 2000 is that world paper consump-
tion will increase to 50 kg/per capita annually. Southeast Asian countries will play
a major part in this increase, for example, with Singapore using 179 kg/per capita/
year, Malaysia 56 kg, Thailand 21 kg, the Philippines 13 kg, and Indonesia 10 kg
(Asian Development Bank 1987). Even with these estimates, Indonesia still records
the lowest record of paper consumption per capita, although the consumption rate is
Table 3.27 Paper Consumption

consumption per capita of Country (kg/per capita)
several countries (1989)
United States 317.8
Sweden 311.3
Japan 204.5
West Germany 203.7
British 163.5
Australia 155.5
Taiwan 153.0
Hong Kong 147.0
RRC 12.0
Singapore 95.0
Malaysia 25.0
Thailand 17.0
Philippines 9.0
Indonesia 5.0
Source: Tri Nugroho, Hutan Tanaman Industri:
Kajian Konsep dan Implementasinya, Walhi
1994: 7–8
the most increased at 7.25 % annually, when compared with other Southeast Asian
countries, such as Malaysia, which is increasing at a rate of 7.06 % per year,
Thailand at 5.62 % per year, the Philippines with 4.18 %, and Singapore at just 3.63
% per year.
Why is the Indonesian paper consumption per capita record still low? There are
two main factors. First, the GNP (Gross National Product) per capita of Indonesian
people is still low at around US$600/year (1996), although GNP increased to
US$1,000/year in 1998. However, after the economic crisis hit Indonesia, GNP
decreased to US$650 in 2001. Second, it is a cultural and habitual factor that
Indonesian people do not widely use industrial paper, such as tissue paper, newspa-
per, cardboard, duplex paper, and wrapping paper.
From the above description, it can be said that there is positive growth of world
paper consumption in advanced and Southeast Asian countries. This demand for
paper is higher than the world population growth, which is around 2.3 % annually.
The above estimation of an increase in paper consumption is still being developed
because of the continuing impact of modernization and democratization in many
parts of the world. This modernization trend causes an acceleration of the need for
commodities, including paper. This condition seems to be a logical consequence of
consumption improvements, so the direct need for pulp and paper will rapidly grow.
According to the Directorate General of Basic Chemistry projection in 1990, world
requirements for pulp were 185.5 million tons in 1994, and the supply capacity was
183.5 million tons, leaving a shortfall of 2 million tons. In 2000, world pulp demand
reached 215.2 million tons, meanwhile the supply capacity just reached 197.3 mil-
lion tons, leaving a shortfall of 17.9 million tons (Report of APKI 1999).
This indicates that there is a gap between demand and supply of world pulp and
also domestic pulp and paper demand, because the Indonesian economic growth
rate was around 7 % during 1996–1997. Indonesia has many competitive advan-
tages regarding “cost production,” with low labor wages and large quantities of
wood from natural forests and industrial timber plantations (HTI). Therefore, the
price of every ton of pulp produced in Indonesia is currently US$85–90 (Table
3.28), which is lower than other countries.
The Pulp and Paper Industry in Indonesia
Historically, the pulp and paper industry in Indonesia began during the Dutch colo-
nial era. The first factories were built in 1923 in Padalarangan, West Java and in
Probolinggo, East Java in 1939. Both factories used rice straw (merang) with a soda
process that produced around 4,000 tons annually and were built by a Dutch com-
pany named Gelderland & Tielens from Niimegen (Interview, July 6, 2001).
When Indonesia obtained independence in 1945, the Indonesian government
built several paper factories, such as Blabak (Magelang), Pematang Siantar (North
Sumatra), Basuki Rachmat (Banyuwangi, East Java), and Gowa (South Sulawesi).
During Pelita I (1969–1974) there were just six factories in operation, with total
production reaching 9,000 tons annually. During Pelita II (1975–1980), the total
number of pulp factories reached 27 privately owned and 6 by states, with a total
production capacity of 245,770 tons. Meanwhile in 1987, there were 36 pulp and 41
Table 3.28 Cost of Cost production

production per ton of pulp, Country (in US$)
1990
Sweden 271
Finland 269
Spanish 245
Portugal 157
Australia 133
Canada 115
United States (USA) 106
South Africa 104
Brazil/Chile 80–110
Indonesia 85–110
Source: APKI (Association of Pulp and
Paper Industry) 1990; and see, Tri Nugroho
1994: 9
paper factories. Among these factories, 12 were integrated into larger pulp and
paper companies, such as Indah Kiat, Kertas Kraft Aceh, and Kertas Leces. As an
illustration, the Board of Coordination and Capital Investment (BKPM) stated that
until July 1991 there were 82 approved pulp and paper companies. Seventy-two
factories were approved for domestic investment (PMDN), with total investment
recorded at Rp. 15.5 quintillion (trilyun) and 10 from foreign investment, with total
recorded investment at Rp. 4.8 quintillion (trilyun). Total investments for the pulp
and paper industry were Rp. 20.3 quintillion (trilyun). Meanwhile, production
capacity for all factories was 7,521,402 tons annually. Most paper produced in these
factories was industrial paper (4,483,177 tons per year or 59 % of production). In
contrast, cultural paper production, such as newspaper and writing paper were
2,884,532 tons or 38 %. Other paper, such as tissue, cigarette paper, and household
paper produced totaled 153,702 tons annually, or 2.8 % (Perjalanan Secarik Kertas
1992: 34–36).
The 1990 report registered that the total capacity of the paper industry was
1,716,000 tons, yet total production was 1,438,100 tons. This means that factories
were working at 83.80 % capacity. If compared with the production capacity of
292,000 ton in 1980, there was a surplus of production. In 1995, paper production
was rapidly increased to 2,946,950 tons annually, or 88.9 % of the total capacity of
the domestic paper industry. Meanwhile, pulp production reached 2,508,400 tons
annually, or 90.6 % of total domestic pulp industry capacity (APKI Report 1995).
In 1998, the production of pulp factories increased to 4,106,200 tons per year, or
34 % growth. Therefore, there is a correlation between increasing pulp production
with world consumption of paper. In reality, long fibers are still imported, because
domestic factories cannot produce them. For example, in 1987, 232,500 tons of long
fiber were imported, decreasing in 1990 to 216,700 tons. General paper imports in
1987 decreased from 144,400 tons to 123,600 tons in 1990.
Why were paper factories in the 1990s located in the outer islands (islands other
than Java)? There are two reasons for this. First, modern paper industries are giant
projects; they require much raw material of wood. This amount of wood is found
only in the outer islands. The pulp and paper industry has recently become difficult
to develop in Java, because Java’s highly populated forests cover only 20 % of the
total land or an equivalent to 3 million ha. Second, the raw materials for pulp, such
as eucalyptus, pines, and albizzia chinensis plants are mostly located in the outer
islands. The pulp and paper industry in Indonesia is ranked tenth and is still open to
further development. This is because of Indonesia’s supporting factors and com-
parative advantage in terms of land coverage, surplus labor, raw material supply,
and the ability of Indonesia to produce the appropriate climate for fast-growing
trees such as eucalyptus. For example, for a eucalyptus to grow to 30 meters tall
with a 30 cm stalk (batang) in Finland, with its cold climate, requires 25–30 years.
In Indonesia, these same eucalyptus trees will be harvested within 6–7 years due to
high rainfall and sufficient sunlight throughout the year. Therefore, if Finland
requires 100,000 ha of pine to provide for a pulp factory, Indonesia just needs
40,000 ha of pine for the same factory.
Table 3.29 Pulp and paper companies and their capacities in Indonesia, 1990
Company owner Unit factory Pulp (ton) Paper (ton) %
State 6 396,400 422,900 13.78
Private (domestic) 30 246,100 2,124,700 69.17
Private (foreign) 5 465,000 523,900 17.05
Total 41 1,107,500 3,071,500 100.0
Source: Indonesian Paper Trade Directory 1991. See Perjalanan Secarik Kertas (The Journey of a
Sheet Paper), Walhi, 1992, pp. 34
There are two types of pulp and paper factories, both integrated and nonintegrat-
ed.34 In a 1995 research report, it was explained that the total amount of noninte-
grated factories was 46, consisting of 41 paper factories and 5 pulp factories. Large
paper factories which are nonintegrated, such as Tjiwi Kimia, which produces
394,000 tons annually, and Indah Kiat Pulp and Paper in Serang, which produces
300,000 tons/year, are under the Sinar Mas Group management. Other paper facto-
ries are Fajar Surya Wisesa, which produces 200,000 tons/year, Aspex Paper, with
190,000 tons produced annually, and Surya Agung Paper, which produces 172,700
tons annually (Table 3.29).
The second type of factory is the integrated pulp and paper factory. This type is
where the company has a pulp factory and also owns a paper factory. Based on the
1995 report, there are 11 factories of this type, with a production capacity of
1,304,800 tons of pulp/year and 1,309,600 tons of paper/year (Table 3.30).
The role of the state is necessary in setting out public policy regarding credit for
loans, allocation of land permission for pulp and paper factory construction, and
promoting private company shares in stock exchange markets, both domestic and
international. This encouraged the pulp and paper industry to develop in the 1980s
and until the year 2000. For example, in 1987, the total number of pulp and paper
factories was 36, increasing rapidly to 41 in the 1990s. In the middle of the 1990s,
this number increased again to 57. Of these factories, private companies dominated
53 factories, with a production capacity of 2,508,000 tons of pulp/year, or 90.67 %
of total domestic production capacity. Of these, domestic private companies pro-
duced 1,498,400 tons annually, or 59.73 % (PMDN). Meanwhile, the remaining
1,010,000 tons/year, or 40.27 % was produced by foreign private companies (PMA).
On the other hand, the state currently controls just four pulp and paper factories
through State Firm Corporations (BUMN), with a total production capacity of
258,000 tons of pulp and 364,800 tons of paper annually. Of these, there are four
companies: Kertas Kraft Aceh, with a production capacity for pulp of 165, 000 tons
and 135,000 tons of paper, Kertas Leces, producing 72,000 tons of pulp and 194,000
tons of paper, Kertas Padalarangan, producing 6,000 tons of pulp and 10,900 tons of
paper, and Kertas Gowa, with a production capacity of 15,000 tons of pulp and
34
Further information in terms of pulp and paper factories, integration and nonintegration, see
Studi tentang Industri dan Pemasaran Kertas dan Pulp di Indonesia, Research Report the CIC
Consulting Group, Jakarta, 1995, pp. 7–10.
Table 3.30 Integrated pulp and paper factories and their capacities, 1995
Company Location Pulp (ton/year) Paper (ton/year)
Eureka Aba Mojokerto 3,300 51,000
Indah Kiat Riau Riau 790,000 254,000
Kertas Basuki Rahmat Banyuwangi 10,000 13,700
Bekasi Teguh Bekasi 90,000 92,000
Blabak Magelang 5,400 12,700
Kertas Gowa Gowa, S.Sulawesi 15,000 24,200
Kraft Aceh Aceh 165,000 135,000
Kertas Leces Probolinggo 72,000 194,700
Padalarang Bandung 6,000 10,900
Lontar Papyrus Aceh 3,000 14,000
Pakerin Mojokerto 145,000 160,000
Total 1,304,800 962,200
Source: Association of Pulp and Paper (APKI) Report, Studi tentang Industri Pulp dan Kertas di
Indonesia (Pulp and Paper Industries Study in Indonesia) 1995, p. 8
24,200 tons of paper/year. The state also still controls 85 % of shares of Kertas Kraft
Aceh and 15 % of the Pasopati group. Unfortunately, Kertas Gowa was recently
evaluated by a public accountant as unhealthy, and the state is attempting to sell the
company. The state has already sold Kertas Blabak and Kertas Basuki Rahmat for
this same reason.
In 2001, the number of paper factories in Indonesia did not increase drastically,
reaching a total of 43. However, production increased to 9,118,950 tons per year,
compared to production in 1999 (6.3 million tons) and in 1990 (3 million tons/per
year; Table 3.8). From the total 9.1 million tons of paper produced, about 60 % was
made for the export market and 40 % for domestic consumption. Private companies
dominate share ownership at 40 % foreign capital, 38 % domestic private compa-
nies, and 22 % BUMN (State Firm Corporations). The above-mentioned indicates
that the actors of international financial institutions have played a critical role in
facilitating the rapid expansion in Indonesia’s pulp and paper industries. Offshore
investment banks have channeled much of the US$12 billion invested in these
industries through direct capital loans or by orchestrating bond offerings that tap
into North American and European debt markets. For example, since 1994, the
Sinar Mas Group (Indah Kiat Company) alone has raised over US$13 billion for
investments in pulp and paper projects in Indonesia and China through its holding
company, Asia Pulp & Paper. The Raja Garuda Mas Group (Riau Andalan Pulp and
Paper Company) has, likewise, borrowed over US$2 billion through Asia Pacific
Resources International, Ltd (APRIL) during the same period. The two groups have
also obtained investment funds by offering equity shares in APP and APRIL on the
New York Stock Exchange.35 There are three dominant groups, producing more
35
Barr, Christopher, “The political-economy of fiber, finance, and debt in Indonesia’s pulp and
paper industries,” in The Indonesian Quarterly, Vol. XXIX No. 2, 2001, pp. 182.
Table 3.31 Largest paper producers and their capacities, 2001

Production capacity
Name of company Mill location (ton/year)
Indah Kiat Pulp & Paper Serang, Banten 1,161,600
Perawang, Riau 700,000
Tangerang, Banten 120,000
Pabrik Kertas Tjiwi Kimia Mojokerto, East Java 1,092,000
Pindo Deli Pulp & Paper Karawang, West Java 1,303,000
Pakerin Mojokerto, East Java 700,000
Fajar Surya Wisesa Bekasi, West Java 500,000
Aspex Kumbong Cileungsi, West Java 430,000
Riau Andalan Kertas Riau, Sumatra 350,000
Surabaya Agung Gresik, East Java 336,800
Jaya Kertas Nganjuk, East Java 200,000
Kertas Leces Probolinggo 180,000
Pelita Cengkareng Paper Tangerang, Banten 157,000
Papyrus Sakti Bandung, West Java 150,450
Ayu Wangi/Eka Mas F Malang, East Java 150,000
Surya Pamenang Kediri, East Java 150,000
Kertas Bekasi Teguh Bekasi, West Java 150,000
Suparma Surabata, East Java 150,000
Kertas Kraft Aceh Lhoksumawe, Aceh 125,000
Surabaya Mekabox Gresik, East Java 85,200
Lontar Papyrus Aceh and Jambi 67,500
Kertas Blabak Magelang, Central Java 64,800
Source: APKI (Association of Pulp and Paper) 2001; See Data Consult Research 2001
than 1 million tons of paper per year. Among the 20 largest companies, Sinar Mas
Group produces 2 million tons, Pindo Deli Pulp and Paper, 1.3 million tons, and
Kertas Tjiwi, 1 million tons (Table 3.31).
Pulp factories in 2001 totalled 17, producing 5,933,100 tons per year (Table
3.32). Of these 17 factories, 5 are foreign-owned (PMA), 5 are State Firm
Corporations (BUMN), and the remaining 7 are domestic private companies
(PMDN). There are two reasons as to why the pulp and paper industry has not
increased that rapidly: the economic recession that occurred in Indonesia from mid-
1997 until now and the subsequent lack of foreign and domestic investment; and the
social and political instability in the transition period from the Soeharto regime to
the reformation era (interview with APKI officer, July 6, 2001). The reformation era
is usually identified by campaigns to review environmental accountability and
human rights issues, leading to stronger controls on investors to ensure sustainable
development, and therefore attempts to reduce, if not counter, the deforestation of
Indonesian forests.
Table 3.32 Producers of pulp in Indonesia and their production capacity, 2001
Start Prod. capacity (ton/
Company Location Status operation year)
Long-Fiber Pulp:
Toba Pulp Lestari Porsea, PMA 1989 220,000
N.Sumatrra
Kertas Kraft Aceh Aceh BUMN 1988 165,000
Subtotal 385,000
Short-Fiber Pulp:
Indah Kiat Pulp & Paper Perawang, Riau PMA 1977 1,820,000
Riau Andalan Pulp & Perawang, Riau PMA 1994 1,300,000
Paper
Lontar Papyrus Pulp & Jambi PMDN 1994 545,000
Paper
Kiani Kertas E. Kalimantan PMDN 1997 525,500
Tanjung Enim Lestari S. Sumatra PMA 1998 450,000
Wira Karya Sakti Jambi PMA 1994 430,000
Kertas Leces E. Java BUMN 1939 129,000
Pakerin E. Java PMDN 1980 150,000
Kertas Bekasi Teguh W. Java PMDN 1978 90,000
Pola Puprindo Mantap Lampung PMDN 1996 20,000
West Kalindo Pulp & W. Kalimantan PMDN 1993 39,600
Paper
Kertas Basuki Rahmat E. Java BUMN 1971 10,100
Kertas Blabak C. Java BUMN 1962 5,400
Eureka Aba E. Java PMDN 1978 30,500
Kertas Padalarang W. Java BUMN 1923 3,000
Sub total 5,543,100
Total 5,933,100
Source: Ministry of Industry and Trade 2001; APKI 2001; Data Consult Research 2001
Abbreviation: PMA (Foreign Capital Investment), PMDN (Domestic Capital Investment), BUMN
(State Firm Corporations)
Land Dispute: ITCI Company Versus Local People
The majority of people in the Muara Gusik community have been farmers for many
generations. Chambers once said, “Farmers have their own ways of trying out
genetic material and practices. Methods of small-scale experimentation can be
taught to them. For example, in order more fruitful their products by using agricul-
tural technology and marketing” (Chambers 1994: 72–73). However, in the case of
Muara Gusik farmers, these kinds of technology and their productions are still very
small. Their staple crop, grown every year, is rice. Additional income to rice comes
from rattan, rubber, and fruits, particularly durian. Other business comes from sell-
ing Kayu Gaharu (Aquilaria malaccensis), Damar (Resin), and Kayu Ulin
(Eusideroxylon Zwageri) found within and around the forest. However, according to
Land Dispute: ITCI Company Versus Local People 81
several respondents, quality of life as a farmer in Muara Gusik village rises and
falls. At the beginning of the 1960s and until the 1980s, their quality of life was
good: they owned their rice fields, with every household owning around 4 plots or
2 ha and they produced 0.5–1 ton of rice from each plot of land (2 tons of rice can
provide for a family for 1 year). So, according to the above respondents, the major-
ity of farming products were for the basic necessity (food), ensuring three meals a
day. The remainder could be sold for clothing, education, and health needs. Also,
their spending power was greater: the owners of the village shops each (there were
six shops) gained Rp. 30,000–Rp. 40,000 a day in the 1980s from the sale of basic
necessities such as rice, oil, food, biscuit egg, soap, soybean, tobacco, milk, and so
on. Consumption per capita each month in 1996 reached Rp. 45,000: Rp. 36,000
(76.10 %) on food and Rp.9,000 (23.90 %) on nonfood items. This means that the
Muara Gusik community could be placed at that time within the Rp.40,000–
Rp.59,999 category of monthly consumption.
Unfortunately, not many households invested the money they obtained in the
good years from the 1960s to the 1980s into their children’s education, by sending
them on to senior high school (Sekolah Menengah Atas/SMA) or higher education.
Only the children of the previous village head and owner of the rice mill (Hiler)
attained higher education degrees. These 3–6 children now work in the city of
Samarinda, a very small number compared to the average number of children of the
community.
There are members of the community who realize that providing further educa-
tion for their children will bring with it new optimism for the future. Others
believe in advancing human capabilities and the community in order to reach
perfection.
After these “golden years” came “the fall,” from the 1990s until 2001. This fall
was, according to various respondents, caused by one major factor: the land dispute
between the community and ITCI Company. The customary forest rights of the
community for generations was a 14,440 ha-wide piece of the forest, usually used
for farming and tree gardens and then sectioned or annexed on the map as logging
concession land. The result of this on-going dispute was that in 1993 the problem
was handled by the Kutai Regency Regional Government, the Regional People’s
Representative Council, and the East Kalimantan Level I and II Regional
Governments.
According to Won Jeong, the roots of social conflict are associated with the
struggle for maintaining or challenging a dominant power status, frustration gener-
ated by relative deprivation, repression of basic needs, and differences in cultural
norms and values. He further commented that according to real politics, conflict can
be effectively controlled and managed by the use of force or threat of punishment or
retaliation. The maintenance of stable relations depends on law and order.36
This statement is appropriate regarding the land dispute between the ITCI
Company and the Muara Gusik community. Initially, ITCI was the dominant power,
36
See Won Jeong-Ho (ed.) (1999), Conflicts Resolution: Dynamics, Process and Structure,
Brookfield USA, Ashgate Publishing Company, pp. 4–5.
maintaining its logging areas by the use of security apparatus. Any local inhabitants
found entering these logging areas were arrested by security staff. Although the
local inhabitants reported the land dispute to the Regency of Kutai Kertanegara and
District and Provincial Regional People’s Representative Councils, the conflict has
still not been resolved, because the ITCI Company has the greater political bargain-
ing power in the courts. According to several respondents, since 1993, the logging
concession company has increased surveillance of their borders with local land and
houses, using several full-time guards and the army. The majority share of ITCI
Company belongs to Kartika Eka Paksi (51 %) or the Army Foundation, 34 %
belongs to Bimantara Citra, the son of Soeharto, and 15 % to Group Nusamba, Bob
Hasan.37 Due to this tight surveillance, several local people (Z, G, Y), while cutting
timber in the forest, which according to the claims of the locals is still a part of their
traditional land under dispute, were arrested and held in prison by the police for 27
days. The result of these arrests under the instruction of ITCI guards was that a
conflict arose between the company and the community. The solution agreed upon
in a joint consultation was that the ITCI Company would create 270 ha of farming
land for the community close to the Trans-Kalimantan Road, as a substitute for the
traditional land under dispute.
Only the problem with this is that the 270 ha of farming land have not yet been
cleared. The local community considers the agreement with ITCI as unsatisfactory,
because the allocation of land for farming rice and other crops has been slow and
therefore the community has experienced a drastic fall in their basic income.
According to a worker at ITCI, the status of the land is still being converted through
BPN (The National Land Board) and the Level One Forestry Regional Agency,
from forest production land to converted land and finally to private property.
There is a positive correlation between the conflict over the status of the 14,440 ha
of community forest rights land and the continuously falling level of community
income. Also, community members have faced a decrease in their amount of pri-
vately owned land compared to the 1960s to the 1980s, as each household went
from owning 2 to less than 0.5 ha. Because of these two factors, the buying power
of the community has decreased and the average person is only able to eat twice a
day. Interest in education and health is very low, because the cost of education past
high school, in the subdistrict and district centers, requires large amounts of funds.
Therefore, only a few households can afford to send their children to school in the
city. Also, efforts to maintain physical health in the community in the form of facili-
ties for bathing, latrines, and drinking water are still dependent on the brown river
water.
In order to overcome this reduction in their quality of life, a number of house-
holds have signed up to become local transmigrants in a settlement about 10 km
from Muara Gusik village. This settlement has a mixture of many ethnic groups,
such as Javanese, Bugis, Kutai, and people from Nusa Tenggara. They receive 2 ha
of land: 1.5 ha of farming land and 0.5 ha for a house and garden. They also receive
37
See Haba and Hidayat (Eds.), Alternative Model for Social Problem for Forest Squatters: A Case
Study of ITCI Company and Muara Gusik Community, LIPI, PMB, 1997, p. 2.
Concluding Remarks 83
food in the amount of Rp. 60,000 every month for 1 year (1996–1997). Meanwhile,
of the households that have stayed, the majority still hope that the regional govern-
ment can solve the conflict fairly, so that their quality of life will improve.
Respondents stated, “This was not national development, which should in essence
be aimed at equalizing community income” (Interview, March 21, 2002).
This is in line with the words of Anne Booth and Sundrum, who showed the
unequal income distribution between households according to National Employment
Survey data, both in the countryside and the cities. In reality, income distribution
was more equal in the cities than in the countryside for the whole of Indonesia.
The field data and interview findings show a causative correlation between the
falling income of the Muara Gusik village community and the various reasons men-
tioned above. The traditional land dispute with the ITCI Company has impacted
negatively on the productivity and equalization of income distribution. In other
words, the Muara Gusik village community savings ratio, both in the form of sav-
ings in the Indonesian People’s Bank (Bank Rakyat Indonesia/BRI) and capital in
the form of land, is unproven.
Anne Booth and Sundrum also asked what factors influence the direction of
income and expenses distribution in the Indonesian countryside. First is the
production factor, where the most important input is land. Second is an employment
opportunity for those without land, that is, opportunities for full employment. Third
is the village production growth rate, where the most important factor is agricultural
production and the direction of price changes for this production. In other words,
income distribution in the countryside is expected to change over time, if a number
of farmers receive a much higher price for production than others, or if farmers as a
group experience a sharp increase in income compared to households without land.
Studying the analysis of these three factors and their impact on income distribution
and expenditure in the Indonesian countryside, the correlation between decreases in
the Muara Gusik community income with the production process is understandable,
as the protracted land dispute has reduced some main sources of production for
farmers. The increasingly few employment opportunities because of decreasing for-
est resources, such as Kayu Gaharu, Kayu Ulin, and a fall in the price of rattan, has
exacerbated this problem.
Concluding Remarks
What is the impact of logging activities from the viewpoint of “political ecology”
which focuses on three key themes, namely political, economic, and ecological
issues? The positive impact was great from political economy views. The Soeharto
regime recorded success in inviting many investors from both domestic and transna-
tional companies to invest US$600,000 million in the forestry sector. US$2.1 billion
in foreign exchange earnings for the government came from the logging industry.
Income from the forestry sector went toward the building of roads, towns, and other
infrastructure such as harbors, airports, water transport, interrelated road systems in
many hinterland districts, education and health institutions were built by logging
concession holders, fully supported by the government in Sumatra, Kalimantan,
Sulawesi, Maluku, and Irian Jaya (Papua) in the wake of the timber bonanza and the
populations on these islands grew substantially.
The case of negative impact on social issues occurred on land disputes between
the ITCI Company and local people. This conflict eventually affected economic
marginalization in terms of lack of purchasing power, food, education, and health
access.
On the other hand, the negative impact in terms of the ecological issues also
occurred. Because of overexcessive logging in many districts forest degradation
occurred on a large scale. Based on Walhi (NGO: Friend of Earth) and APHI
(Logging Holders Association) reports, deforested areas covered 300,000 ha in the
1970s and 600,000 ha in the 1980s, rapidly increasing to over 1.5–2 million ha in
the 1990s.38 Frankly speaking, forest degradation occurred in many districts because
of the collusion between logging concession holders and forestry apparatus, lack of
inspections, lack of law enforcement, and hard sanctions on logging concession
holders who break forestry regulations, such as the TPTI system (Indonesian
Selective Cutting and Replanting) and manipulation of the reforestation contribu-
tion (Dana Reboisasi). In addition, the deforested area can have an adverse impact
on the fertility of the area through soil erosion and runoffs. The cost to downstream
areas can be sizeable indeed, because forests carry out a twofold buffer activity: the
tree canopy intercepts the rain, and the humus and roots absorb and recycle water.
Loss of these functions results in rivers from deforested lands flooding after a down-
pour and quickly running dry thereafter (e.g., The Kapuas and Mahakam, both riv-
ers in West and East Kalimantan). Another cost is due to the loss of the world’s
genetic materials, half of which are probably located in tropical forests. Precisely
because the economic losses that may be involved with the extinction of various
plants and animals remain for the most part unknown, these losses are generally
perceived as a matter of great concern. Moreover, tropical forests, once destroyed,
are almost impossible to restore, for the tropical rainforest perpetuates itself in
“cyclical regeneration.”
38
Interview with Longgena Ginting, expert on forestry issues, Walhi’s executive director, on April
10 and July 5, 2001.
Part III
Environmental Impact of Forest
Management
The mismanagement of forest resources due to ignoring the practice of sustainable

forest management and the lack of law enforcement eventually affected deforesta-
tion. Most of the deforestation that has occurred in Indonesia has occurred in this
century, especially since the 1970s. By 1989 the annual rate of deforestation had
reached 142,200 km2, which represents 1.8 % of the 8 million km2 of remaining
forest, and the rate of deforestation is accelerating (Myers 1992; Palo and Vanhanen
2000). Current rates of deforestation exceed 0.4 hectares per second (Repetto 1990),
and each hectare may contain millions of flora representing thousands of species
(Uhl and Geoffrey 1986). As a result of habitat destruction, as many as 10,000 spe-
cies may become extinct each year, an unprecedented level in global history (Raup
1988; Wilson 1992; Whitemonre and Sayer 1992; Sponsel et al. 1996).
In the case of Indonesia, although a Department of Forestry report in 1997 stated
that Indonesia had 123 million ha of forest, forest cover at the end of the 1990s actu-
ally ranged from 92.4 million to 113 million ha (World Bank 1998). It was reported
by the FAO (2000) that natural forest cover in Indonesia was 95 million ha of a total
forest cover of 104 million ha. At this time, the annual deforestation rate was 1.3
million ha (1.2 %). In 1997, the World Resource Institute (WRI) warned that only
about 53 million ha of “frontier forest”—relatively undisturbed areas of forest large
enough to maintain all of their biodiversity—remain in Indonesia. Although various
sources had estimated the country’s annual deforestation rate at between 0.6 million
and 1.2 million ha, a mapping effort carried out with support from the World Bank
during 1999 concluded that the average annual deforestation rate since 1986 has
actually been about 1.5 million ha, much of it “caused by forest fires, excessive log-
ging, illegal logging, conversion into agricultural land and transmigration sites,
shifting cultivations, forest squatters” and more. Some 29 % of Sumatra’s and 22 %
of Kalimantan’s forest cover vanished during this period, according to the World
Bank study (1999). It is probable, therefore, that the WRI figure is closer to the truth
86 III Environmental Impact of Forest Management
than earlier estimates. If current trends continue, virtually all nonswampy lowland
forests in Kalimantan and Sumatra will be destroyed by 2010.1
As mentioned above, “mismanagement of forest” was the main cause of defores-
tation during the Soeharto regime. There were three factors that played a large part
in this high rate of deforestation. First is the behavior of Indonesian politicians and
attitudes of decision makers in the Soeharto government, with support from the
international system,2 shaping and encouraging various factors that contributed to
deforestation. Second is the ignoring of inspection among forest apparatus, whether
at the central, provincial, or district level to implement sustainable forest manage-
ment. Third is the lack of law enforcement and sanctions against private businesses,
whether it is international or domestic actors who break forestry industry
regulations.
This last point is proven by typical logging practices. Forestry apparatus have
little knowledge of the characteristics of the land designated as production forest,
the traditional rights of the communities living there, and the importance of conser-
vation of forest ecosystems. Therefore, the weakness of these forest management
institutions have resulted in inefficient extraction of timber, unnecessary damage to
the remaining trees, excessive waste wood left in forests, and an unnecessarily
severe impact on animal populations as well as a depletion of biological species,
soil erosion, and stream pollution (Lash 2000). This part focuses on definition,
deforestation area, and causes of deforestation.
Definition
In the Food and Agricultural Organization’s (2000) tropical forest assessment, for-
ests are defined as “lands more than 0.5 ha, with a tree canopy of more than 10 %,
which are not primarily under agricultural or urban land use.”3 This definition
includes both natural forests and forest plantations. Based on the consensus recom-
mendation of the Intergovernmental Panel on Forests (IPF) in 1997, this same defi-
nition was used for all countries in FRA (Forest Resources Assessment) 2000. In
1
See statement of Nur Mahmudi Ismail, the Minister of Forestry and Plantations installed in late
October 1999, who explained to the press in an interview that he would “consolidate the personnel
of the ministry, strengthen morale and attitudes and secure their commitment to manage the coun-
try’s natural resources in the public interest” New Ministers Look Ahead. Jakarta Post, October
27, 1999).
2
The role of international finance such as the World Bank (WB), the International Monetary Fund
(IMF), and the Asian Development Bank (ADB) in financially supporting Indonesian development
is significant. For example, the World Bank, from 1972 to 1985, supported 75 % of a total budget
of US$637 million in foreign aid for transmigration projects in Indonesia. For further discussion
see Charles Secrett, “The environmental impact of transmigration,” in The Ecologist, Vol. 16, No.
2/3, 1986, p. 85.
3
For further information, regarding the definition of “forest”, see Basic Definition for FRA (Forest
Resources Assessment), 2000, p. 2.
III Environmental Impact of Forest Management 87
FOREST Deforestation
Reforestation OTHER
(Degradation, LAND USE
Improvement) Afforestation CLASS
Fig. 1 Deforestation (Source: Forest Resources Assessment 2000, FAO)
FRA 1980 and FRA 1990, a 10 % threshold was used for developing countries, but
for industrialized countries a threshold of 20 % was used. Based on FAO (2000)
explanatory notes, “forests are determined both by the presence of trees and the
absence of other predominant land uses. The trees should be able to reach a mini-
mum height of 5 m in situ.”4 Areas under reforestation which have yet to reach a
crown density of 10 % or tree height of 5 m are included as temporarily unstocked
areas, resulting from human intervention or natural causes, which are expected to
regenerate. Meanwhile, Myers (1991) defines “tropical forests” as partly evergreen
forests, in areas receiving not less than 100 mm of precipitation in any month for 2
out of 3 years, with a mean annual temperature of 24-plus degrees Celsius and
essentially frost-free.5
In this overview, “deforestation” has been defined by the FAO (2000) as “the
conversion of forest to another land use or the long-term reduction of tree canopy
cover below the 10 % threshold.” On the other hand, deforestation implies a long-
term permanent loss of forest cover. Such a loss can only be caused and maintained
through a continued man-induced or natural perturbation. Deforestation includes,
for example, areas of forest converted to agriculture (including agroforestry),
pasture, water reservoirs, and urban areas (Fig. 1). Forest degradation and forest
improvements occur within forests that continuously stay above the 10 % canopy
threshold. Reforestation occurs when forests attain regrowth after temporarily hav-
ing below 10 % canopy cover, but are still considered forests throughout that time.
Deforestation and afforestation represent the transfer between forest and other land
use classes.
A basic definition by FAO (2000) on “deforestation” has been developed that is
generally accepted by participating countries and is well known to experts of forest
inventories and assessment. International terms and definitions are not static, but
follow the general development of international processes. For example, the impor-
tance of forests as carbon sinks was not widely discussed several decades ago, yet
this issue is now at the top of the international political agenda. On the other hand,
forests change (degradation and deforestation) relatively slowly, and it is necessary
to compare estimates several decades apart to establish reliable trends. For this pur-
4
Ibid.: 3–5.
5
For a definition of “tropical forests”, see Myers (1991), Tropical Forests: Present Status and
Future Outlook, Climatic Change, Vol. 19, September, p. 3.
pose, FRA 2000 has tried to maintain a globally homogeneous set of definitions that
allows comparisons with earlier global forest resources assessments.
The World Resources Institute (WRI) defines deforestation as “the conversion of
forestland into agricultural land use.” This deforestation includes forestland used
for infrastructure building, mining, resident use, pasture, and shifting cultivation
(World Resources 2000–2001: 275). Myers (1991) defines deforestation as “the
complete destruction of forest cover through clearing for agriculture of whatever
sort” (cattle ranching, smallholder agriculture whether planned or spontaneous, and
large-scale commodity-crop production through, for example, rubber and oil palm
plantations). It means that not a tree remains, and the land is given over to nonforest
purposes.
It seems to me that these differences in definition not only affect the measure-
ment of forest resources but also of annual deforestation in respective countries
such as Indonesia. It seems fair to estimate that Myers’ definition involves less area
labeled as tropical forest cover than the FAO/WRI approach (see: area of deforesta-
tion). At the same time data on deforestation can be expected to be upwardly biased
through the use of the more extensive definition suggested by Myers (Jepma 1995:
8). Therefore, deforestation data according to Myers may not only become larger
through the definition of deforestation itself, but also due to the fact that deforesta-
tion processes are related to a smaller area of forest cover to only that defined as
tropical forest.
The FAO and WRI definition of deforestation seems more appropriate in describ-
ing the large- and medium-scale deforestation that has occurred in Indonesia. Large-
scale deforestation is caused by the conversion of natural forest to another land use
or agricultural farming such as oil palm plantation, rubber, coffee, and pepper and
rice fields. The Soeharto government considered oil palm as a lucrative agroindus-
try, so its development was very rapid. For example, in the 1980s, 842,700 ha of oil
palm were planted, rapidly increasing in 1998 to become 2,957,079 ha, with a
planned total of 5.5 million ha of oil palm plantations by the year 2000 (World Bank
1999). Forty-six percent of the owners of these plantations were private companies,
40 % of the plantations belonged to state companies, and smallholders hold the rest.
An example of the rice field conversion is the million–hectare peat-swamp project
run in Central Kalimantan. This project aimed at converting more than 1,457,100 ha
of forestland for agricultural purposes in 1995, but failed. In the medium term, this
area was used for resettlement (local people and isolated communities) and transmi-
gration sites. During the period of the New Order government (1968–1998), trans-
migration areas in outer islands such as Sumatra, Kalimantan, Sulawesi, Maluku,
and Irian Jaya (Papua) have utilized 1.7–2 million ha of forestland, converted into
agricultural and resettlement land for over eight million people.
Logging holders and timber traders carry out excessive logging in both produc-
tion and conversion forest areas and do not tend to carry out long-term replanting
programs in these same forest areas. These actions can certainly motivate indige-
nous people to attempt to use this forestland for shifting cultivation, as has occurred
in East Kalimantan, such as coffee and pepper plantations in Bengkulu. This action
can also be categorized as deforestation. Therefore, Myers description of deforesta-
tion only refers to the complete destruction of forest cover through clearing for
agricultural purposes, without taking into consideration the irreversible destruction
of forest cover by both legal and illegal logging practices.
Deforestation Area
This discussion on deforestation areas is confined to the case of Indonesia, with

respect to countries facing similar conditions. Data on deforestation is compared to
Malaysia and Myanmar. I would like to compare recent data on tropical forests in
terms of forest area and deforestation as provided by WRI, FAO, and Myers.6
The current data are based on FAO (2000), WRI (1995), and Myers (1991) expla-
nations (Table 1). Both FAO and WRI sources indicate that the annual deforestation
rate has relatively increased, but Myers (1991) data are still static, based on data
from 1991 (Tables 2 and 3).
This WRI data is supported by the World Bank (see also World Development
Indicators (2000), World Bank, p. 127). This information shows us that “average
annual deforestation” 1990–1995 was recorded at 10,844 km2 (1.0 %).
Based on Myers’s explanation (1991) that Indonesia is especially important to
this survey on forest area and deforestation for the very reason of its high deforesta-
Table 1 Southeast Asia: forest resources and deforestation based on FAO 2000
Area change 1990–2000
Country Natural forest (ha) Total forest (ha %) (Total forest) (ha/year %)
Indonesia 95,116 104,986 58.0 –1,312 –1.2
Malaysia 17,543 19,292 58.7 –237 –1.2
Myanmar 33,598 34,419 52.3 –517 –1.4
Source: Global forest resources assessment 2000: Main Report, FAO 2001: 174
Table 2 Tropical forests: present status and deforestation based on Myers 1991
Present extent Present extent
Original extent of of forest cover of primary Annual deforestation
Country forest cover (km2) (km2) forests (km2) (km2/year %)
Indonesia 1,220,000 860,000 530,000 12,000 (1.4 %)
Malaysia 305,000 157,000 84,000 4,800 (3.1 %)
Myanmar 500,000 245,000 80,000 8,000 (3.3 %)
Source: Myers (1991), Tropical forests: present status and future outlook, Climatic Change, Vol.
19, p. 6
6
The country selection is based on their respective roles in tropical timber production. The follow-
ing data on forest areas and deforestation for both Malaysia and Myanmar is only used here as a
comparison, not for further analysis.
Table 3 Present status and deforestation based on WRI 1995 (1,000 ha)
Forest Area1990–1995 Change Natural Forest 1990–1995 Change
Country 1990–1995 1990–1995
Indonesia 115,213 109,791 (0.96) 109,088 103,666 (1.02)
Malaysia 17,472 15,471 (2.43) 17,391 15,371 (2.47)
Myanmar 29,088 27,151 (1.38) 28,853 26,875 (1.42)
Source: World Resources 2000–2001, UNDP, UNEP, WRI, p. 266
tion rate. Moreover, forest products are significant for Indonesia’s economy, timber
industries being the second largest export after oil and natural gas combined, sup-
plying US$2.5 billion in foreign exchange earnings in 1987. Furthermore, as a
result of the logging boom that began in the mid-1970s, the Transmigration
Programme that was underway by the mid-1970s, and the recent expansion of plan-
tation agriculture (especially oil palm, rubber, coffee, pepper, etc.), much forestland
has been grossly degraded or destroyed outright (Myers 1988; Hurst 1990; World
Bank 1987). Nationwide the total area featuring forest of any sort can be estimated
to have amounted to no more than 1 million km2 and more likely as little as
914,000 km2 by 1981–1982. Myers refers to the World Bank (1988), which indi-
cates during the 1980s, an average annual deforestation rate of 9000 km2/year (by
contrast with FAO’s 1988 estimate of 6,000 km2).7 This means that during the period
1983–1988, a further 54,000 km2 of forest were eliminated. As a result, there were
only 860,000 km2 of forest left in 1988.
The estimation of 9,000 km2 destroyed on average each year is now considered
to be a low estimate, according to Myers. The World Bank (1988) accepts that a
“reasonable” estimate for the late 1980s could be anywhere from 7,000 km2 to
12,000 km2/year. Myers also made a presentation for the vice-president and eight
cabinet ministers in August 1988 in Jakarta, where he commented that five of the
nine agreed that in light of expanding logging and growing encroachment on forests
by slash-and-burn cultivators, the estimates could well be corrected for 1988.
Moreover the Indonesian Development Plan for mid-1989 to mid-1994 (Ministry of
Forestry 1989) presents an estimate of 11,550 km2 of forest eliminated per year. So
a deforestation rate of 12,000 km2/year is accepted as valid for today. This amounts
to 1.4 % of remaining forests.
Myers’s opinion (1991) on forest cover and deforestation in Indonesia has some
speculative methodological problems. The weakness of this methodology is based
on two reasons. Myers did not carry out his survey based on accurate methods. He
also did not explore and review the primary sources of case studies on deforestation
that have been written by many scholars. National estimates of forest cover and
deforestation need to use the current technique of remote sensing in order to obtain
accurate data. It is generally recognized that despite ongoing improvements in
remote sensing techniques both with respect to data collecting and interpreting,
7
Regarding the discussion on average annual deforestation resources between the World Bank and
FAO in the 1980s, see Myers (1991), “Tropical forests: Present status and future outlook” in
Climatic Change, Vol. 19, September, p. 14.
remotely sensed data still need to be accurately interpreted again. In this case, Myers
did not utilize this technique and data from 1991 into 2000 should be updated. But
he preferred personal observation in tropical country. As he told his impression in
Borneo visiting in the beginning of the 1990s:
I remember seeing a tree felled by a commercial logger in a forest of Borneo. It stood, I
guessed, about 70 m tall, with 50 m of clear bole. A stately specimen. The chainsaw toppled
it in 10 min, or one-millionth parts, I reckoned, of the tree’s probable lifespan. Each day,
many thousands of such trees are cut in Borneo.8
Second, discussion about deforestation measurement techniques, although

highly valuable in itself, should not overshadow the main thrust of the problem,
namely that irrespective of the deforestation assessment approach, all sources
clearly point out the alarming rate of annual deforestation. In this regard, the various
sources should make clear that deforestation rates do differ substantially across the
various tropical regions.
Meanwhile, WRI (1995) data on forest area and annual deforestation rates seem
to be in line with the FAO’s figures in the year 2000 (see Table 2.2). The method
implemented by WRI to carry out research contains two weaknesses: WRI does not
support research teams to conduct field research in their respective tropical coun-
tries, and WRI places greater emphasis on utilizing remote-sensing surveys to
obtain accurate data. This method tends to lack of accuracy if not combined with the
synergetic approach of literature reviews.
However, the qualitative studies by FRA were extensively documented in the
2000 FRA working paper. Deforestation has been a popular research subject in the
past decade. A survey of scientific papers (FAO 2000) found over 1,200 published
papers on tropical deforestation since 1980, of which 825 contained findings related
to deforestation processes and were included in the analysis. For example, in the
1980s, as concern about deforestation grew, the number of publications increased
from 8 in 1980 to 41 in 1989 and in 1990 increased again to between 45 and 60
publications per year. Seemingly FAO’s survey team on forestland area and defor-
estation reviewed many publications in order to make these findings more accurate.
In recent decades, the rate of forest conversion has been particularly high in the
tropics. FRA 2000 estimates tropical deforestation at 14.2 million ha per year dur-
ing 1990–2000, which means that almost 1 % of tropical forest is being lost per year
(in Indonesia 1.2 % or an equivalent of 1,300,000 ha annually).9 Two types of quali-
tative study of forest area change were carried out. First, a review was made of all
available documentation within the country, including grey literature, combined
with interviews of key informants who are responsible for national inventories and
assessments. Second, an intensive survey was carried out of scientific literature
(peer reviews of papers published in scientific journals) covering aspects of tropical
deforestation.
8
For further information, see Myers, Norman (1985) The Primary Source: Tropical Forests and
Our Future, London: WW. Norton, p. 91.
9
Regarding discussions on forest cover and deforestation based on FAO 2000, see Global Forest
Resources Assessment (FRA), 2000, pp. 13–14, and 174.
How were these methods utilized by the FAO? Several different methods were
used to assess the extent of forest area and deforestation. Apparently, for area statis-
tics, FRA 2000 generated information at the national (based on surveys of national
inventory and mapping reports), regional (FRA 2000 remote-sensing survey), and
international levels (FRA 2000 global mapping). For the estimates of area and area
change, only country- and regional-level information was used, as the global forest
map did not provide sufficient precision. Ecological zones used the global-level
information to derive relation data such as the distribution of forests.
My critical comments on FAO’s survey 2000 method to decide forest cover and
deforestation are based on two evaluations. First, there is strength to the FAO
method of implementation in obtaining accurate data. FAO’s officers combined to
integrate research teams to conduct interviews with key informants and also study
the literature (books, papers, journals) concerning the forest area and forest change
processes. Because of this, the data shown by FAO regarding deforestation and for-
estland are considered to be more accurate and a solid reference for any person
studying forests. Second, FAO also carries out mapping through remote-sensing
surveys at the national, regional, and global levels. Certainly, this method can make
available data that are more accurate regarding deforestation and forestland area.
Causes of Deforestation
Deforestation is a result of natural and man-made events. However, the majority of

causes related to human development activities have been increasing during the past
three decades. In this study I deal with deforestation directly or indirectly caused by
human activities. The significance of deforestation was emphasized by the United
Nations, when the organization took the lead in running a global Conference on the
Environment and Development (UNCED) held in Rio de Janeiro, Brazil in June
1992. This Earth Summit, as it was called, coincided with UNEP’s twentieth anni-
versary (the United Nations Environment Programme). Deforestation issues
received a high priority in preparatory discussions as well as in the UNCED pro-
posed plan of action, known as Agenda 21. The conference led to the holding of the
Kyoto Protocol in 1997, held in Japan with an agenda specifically aimed at global
warming as a major detrimental effect of deforestation and in Johannesburg, South
Africa in August 2002, the World Summit on Sustainable Development.
The term “deforestation” describes the complete, long-term removal of tree
cover. In a definition from an FAO publication (2000) in terms of tropical countries,
“the term deforestation refers to the conversion of forest to another land use or the
long-term reduction of tree canopy cover below the 10 % threshold.” Changes
within the forest class (from closed to open forest) which negatively affect the stand
or site and, in particular, lower the production capacities are termed forest “degrada-
tion”. Many activities modifying forests can be accurately described as forest deg-
radation. Apparently, the intensity of human intervention determines the degree of
human impact on forest loss.10 Extreme degradation can lead to total forest replace-
ment. In this context we should consider how to utilize forest resources in a sustain-
able way to prevent serious forest degradation.
Structural analysis of forest loss (degradation and deforestation) has mainly
focused on two factors: underlying/root causes and proximate causes. The underly-
ing causes, as well as major proximate causes, are determined by identifying com-
mon elements in the target country (Indonesia). This writing wishes to identify a
credible chain of causation of forest loss. The approach explored in this study is to
investigate underlying causes through data collection in the target study area
(Indonesia). Comments and studies carried out by analysts and NGOs on the causes
of forest loss (degradation and deforestation) are discussed. For a main analytical
framework, this study refers to an explanatory model of forest loss proposed by
Hirsch (2000) which was developed based on existing studies addressing the causes
of forest loss (Yamane, IGES 2001: 8–9).
This model is a schematic representation of the ways and modes of explaining
deforestation. The diagram shows the different ways in which more immediate
causes are framed in terms of means, purposes, and agents or key actors in the pro-
cess of deforestation or degradation of forests. Demonstrating the relationships
between the means and purposes of forest loss makes it easier to identify the key
actors in forest loss. For example, regarding the commercial logging of timber,
which has been indicated as a leading cause of tropical forest loss, many studies
have revealed the different roles of such actors as foreign timber importing compa-
nies, the government and the military, concession holders, and so on. The diagram
shows that underlying causes can be identified with reference to contextual and
development factors.
Meanwhile, proximate causes of forest loss have progressed through various pro-
cesses such as logging, land clearance, burning, forest fire, shifting cultivation, and
the like. Much of the forest loss in the target areas generally started with logging.
The logging caused degradation of the forest, but is not directly related to the major
areas of deforestation. Often logging is only the first stage of forest loss. Most log-
ging operations target valuable timber for commercial purposes.11 This statement is
supported by Inoue, who adds that: “It would have been more accurate to explain
the loss in terms of exploitative agriculture following the tracks of commercial fell-
ing. Only a fraction of the damage can be attributed to the farmers. Big business
started the process and cannot escape its responsibility.” In the pre-stage of forest
conversion in every tropical country, factors such as settlement programs (transmi-
gration) and agricultural farm development (oil palm, coffee, rubber, pepper, cacao,
etc.) have occurred, including in Indonesia. After logging, forestlands are degraded
10
Regarding discussions concerning underlying causes of forest loss in the Asia-Pacific region, see
Yamane, Masanobu (Eds.), Report of the First Phase Strategic Research Forest Conservation,
IGES, March 2001, p. 7.
11
The major proximate cause of forest loss is logging operations. This statement is also supported
by Inoue, Makoto. See “Who is killing the rain forests?” in Japan Views Quarterly, Autumn/
Winter 1992, p. 13.
Underlying/Root Cause Proximate Causes
Mode 2
Structural Instrumental
M
Contextual Agents/Actors Purpose Means
Developmental O
Development Land tenure Logging- Firewood Clear cut-
Forest tenure Company D Commercial- felling
Under-
development Inequality Government – E Logging Selective-
Poverty agency Shifting- cutting
Demand Plantation- cultivation Burning
Economic- owner 1 Cash cropping Slash & Burn
Growth Shifting- Plantations Forest fire
Foreign- cultivator Land Planting
exchange Landless- Clearance Etc.
Forest- Farmer Dams
Ecology Dam builder etc.
etc. etc.
National Forest Policy
Points of Intervention
Fig. 2 Explanatory modes of underlying causes of forest loss (Source: Yamene 2001. Report of
the first phase strategic research: forest conservation. IGES. pp. 9; Cf. and modified diagram pro-
posed by Hirsch (2000))
or deforested via three processes: the absence of management, planting of tree plan-
tations, and conversion to other uses.
Therefore, recent major proximate causes of forest loss in the case of Indonesia
are export-oriented unsustainable commercial logging, logging for the domestic
plywood industry, transmigration projects and rice field development projects, non-
traditional shifting cultivation, industrial timber plantations, frequent large-scale
forest fires, and oil-palm plantation development.
The underlying causes of forest loss highlight two factors: underlying causes
based on structural analysis and proximate causes (Fig. 2). The proximate causes
seem to be a prime cause in the high rate of deforestation in Indonesia. First is the
contextual and developmental factor, as prioritized under the Soeharto regime,
where the forestry sector was exploited specifically for economic purposes. The
New Order regime used a strongly rational economic paradigm for development.
The consequences are that all natural resources, including those in the forestry sec-
tor, were treated as capital resources, with the specific purpose of obtaining foreign
exchange earnings to cover national development objectives. Therefore, the struc-

tural policy of forest management emphasized economic orientation rather than the
ecological and social functions of forests. However, in order to maintain a sustain-
able forestry export sector, the government must treat the forestry sector as an inte-
grated ecosystem with multidimensional functions of economic, ecological, and
social values. For example, the “ecological functions” of forests in maintaining the
soil quality in order to prevent soil erosion, hydrological cycles to preserve water for
agricultural land, and maintaining oxygen production levels at a level able to pre-
vent global warming and climatic change (Rietbergen 1993: 191) are considered
just as important as the economic values derived from forest products.
Logging concessions were issued in the end of the 1960s, with government pol-
icy giving priority to concessions for logging holders with close relations to, and
therefore open access to the political elite, such as military forces (army generals)
and Chinese business groups, rather than to all possible candidates with knowledge
of forest management systems. In contrast, local people and local businesses in the
provinces and districts had no access to forest management processes. This struc-
tural policy impacted on the poverty levels of local people, causing an economic
marginalization of the district income. The lack of inspection by forestry and secu-
rity apparatus has increased the effect of the degradation and deforestation of much
of Indonesian forests.
Chapter 4
Analysts’ Comments on Deforestation
There are two underlying factors of deforestation: underlying/root and proximate

causes. This chapter discusses both factors through the involvement of domestic and
foreign agents. Domestic actors/agents involved in activities leading to forest loss
are those actors such as the government agency (central and local), logging compa-
nies and forestry industry, military authorities, and local communities. Foreign
agents and actors include importing countries, multinational corporation capital
(MNC), and international financial institution (World Bank and IMF).
In the case of Indonesia, the role of government is very significant as planner of
forest policies and executor of economic development policies. In terms of design
and implementation of economic development policy, the central government pro-
motes the logging and forestry industries (plywood, sawmill, and pulp and paper) as
a major means of acquiring foreign exchange earnings and recognizes forestland as
not only a source for logging concessions, but also as opportunities for conversion
to agriculture and other land uses, leading to forest conversion projects. Such large-
scale forest development programs were conducted through a top-down approach
and pushed without consultation with local communities and other stakeholders,
because all forests were categorized to be owned by the state. Domestic logging
companies, closely connected to the government and military authorities, have
played a leading role in forest loss in many places. In many cases, logging compa-
nies conduct forest extractions through the allocation of logging concessions by
paying forest-use charges to the national treasury. In Indonesia, the military authori-
ties have the power to allocate logging concessions, and they promoted natural for-
est extraction because of their tight connections with the domestic forestry industry,
Chinese merchant capital, and even foreign capital through MNCs (multinational
corporations) such as the ITCI Company in Kenanga, Balikpapan.
This chapter focuses on the role of analysts in criticizing “forest management”
from the perspective of the political and economic interrelation of client/patron rela-
tionships under the Soeharto government, based on the involvement of many actors
in forestry industries.

DOI 10.1007/978-981-287-745-1_4
98 4 Analysts’ Comments on Deforestation
Dauvergne, a scientist from the University of British Columbia, Vancouver,

Canada, launched his critiques through a political explanation of deforestation
issues under the Soeharto government. He explained what a small part politicians
played in Indonesian power relations and that the military, in fact, controlled most
aspects of the political structure, including the central government in Jakarta, the
provincial governments on the outer islands, the bureaucracy, and many state-run
companies (Pacific Affairs 1993–1994: 504).1 President Soeharto, a “retired general
from central Java, emerged as the most powerful political figure and established his
New Order government after the military deposed Soekarno in the mid-1960s.”2
Many of the cabinet ministers have army backgrounds from 1987; 21 of Indonesia’s
27 governors were either active or “retired” generals or colonels. Golkar (the
Functional Groups) was also led by Soeharto, was directly linked to the military,
and controlled the national, provincial, and district level assemblies.3 Although
there are two main opposition parties, Partai Persatuan Pembangunan (PPP) [The
United Development Party] and Partai Demokrasi Indonesia (PDI) [The Indonesian
Democratic Party], these were strictly controlled by the government. This was used
to explain why logging holders and the plywood industry were highly politicized
and closely related to subsequent calls of corruption and collusion.
This historical allocation of timber concessions contributes to current manage-
ment problems. In 1970, to quash provincial claims to timber areas that Soeharto
had awarded as “presents” to loyal military and political clients, the authority to
distribute concessions was centralized under the Directorate General of Forestry. As
a result, small-scale loggers without Jakarta ties lost their concessions and many
resorted to illegal logging. The “patron–client ties” relation in terms of foreign and
domestic players, based on links between powerful state patrons (mainly Japanese)
and Indonesian Chinese business clients (Cukongs), were a dominant feature under
the Soeharto government.4 Compared to ties between Javanese, these connections
are less likely to have strong bonds of loyalty and honor and more likely to be held
together by mutual need and a mutual desire to make money. Political and military
patrons supply credit, contracts, licenses, access, and protection whereas Chinese
clients provide vital expertise and capital with which to operate the business.
1
For a further discussion on the political role of the army, see Harold Crouch, The Army and
Politics in Indonesia, revised edition (Ithaca: Cornell University Press, 1988); and G. McGuire and
B. Hering, “The Indonesian Army: Harbingers of Progress or Reactionary Predators?” in Christine
Doran (ed.), Indonesian Politics: A Reader (North Queensland: James Cook University, 1987).
2
Soeharto was elected in 1993 for a sixth 5-year presidential term. Key figures in the new cabinet
are discussed in Far Eastern Economic Review (FEER), April 1, 1993. For an overview of
Soeharto’s rule, see Michael R.J. Vatikiotis, Indonesian Politics under Soeharto (London:
Routledge, 1993).
3
For a discussion of central and local government, see Colin, Mac Andrews (Ed.), Central
Government and Local Government in Indonesia (Oxford University Press, 1986).
4
For a further discussion on the relationship between patrons and clients on economic develop-
ment in Indonesia, see Richard Robinson, “Toward Class Analysis of the Indonesian Military
Bureaucratic State,” Indonesia, No. 25, Cornell Modern Indonesia Project, (April 1978); and also
Robinson, Indonesia: The Rise of Capital (Sydney and London: Allen and Unwin, 1986).
4 Analysts’ Comments on Deforestation 99
Chinese clients also provide crucial access to market and funds through Chinese
contacts in Singapore and Hong Kong. Even though both sides clearly benefit, this
relationship is not equal. Indonesian Chinese are in a subordinate position and are
vulnerable to political shifts and societal backlash (Dauvergne 1997: 65–77).
Soeharto distributed timber concessions to reward loyal generals and army orga-
nizations such as Tri Usaha Bakti Company, Jamaker, ITCI, and others. Tri Usaha
Bakti Company, which belongs to Hankam (Department of Defense) business
groups, along with regional military command, controlled at least 14 timber compa-
nies.5 Others were owned by Kostrad (Strategic Army Forces), Poleko Company,
the Presidential Palace, and the Ibnu Sutowo family and other assorted military
groups. Soeharto himself moved to become associated not only with Kostrad’s busi-
ness empire, but with a family empire of his own, the so-called “Cendana Groups.”
This empire is essentially a nexus of junior partnerships in joint ventures with
Chinese and foreign businessmen. The most important alliance exists with Liem
Sioe Liong and his Kencana groups, which since 1965 has had the “good fortune”
of obtaining the credit and licenses necessary to establish companies in banking,
logging, trade, crumb rubber, flour milling (Bogasari company), and cement
(Cement Cibinong Company). For example, in East Kalimantan, the International
Timber Corporation of Indonesia (ITCI) operates a 600,000 ha concession. As well,
by the year 2000, ITCI plans to develop 140,000 ha of forest timber plantations
(Hutan Tanaman Industri). Fifty-one percent of this company is controlled by the
armed forces.6 Of the remaining shares, Bimantara Citra Company—a conglomer-
ate chaired by Soeharto’s second son, Bambang Trihatmodjo—holds 34 % and an
Indonesian-Chinese timber leader, Bob Hasan, owns 15 %. According to Hasan, the
military uses its profits to add to its budget and build houses for soldiers. Jamaker
Company (Jaya Maha Kerja), since November 1, 1967, has run a logging conces-
sion on the borderline between Malaysia and Indonesia in the provinces of West and
East Kalimantan, covering a total of 1,108,500 ha.7 It is divided into two separate
sections with West Kalimantan running 843,500 ha and 265,000 ha in East
Kalimantan. Previously, the aim of providing timber concessions in this region was
for security purposes, familiarly known as “belt security” on a width of 20 km from
5
These companies were backed by Chinese and foreign funds based on many resources. See
Robinson, Indonesia, No. 25 (April 1978), pp. 28–31; Samego, Bila Abri Berbisnis? (When
Military Conduct Business?), Bandung: Mizan Press, 1997.
6
In the early 1970s, ITCI’s major shareholders included the most powerful generals of the New
Order. According to Hurst, ITCI’s concession was in effect a “pay-off from Soeharto for the loy-
alty of Indonesia’s military elite.” Hurst, Rainforest Politics, pp. 34.
7
While Jamaker Company actively ran this timber concession, many Jamaker apparatus performed
illegal logging, cutting, and cooperated with sawmill owners in Sabah to export the logs to
Malaysia at the end of the 1980s. The bad management of Jamaker in terms of logging practices
was widely reported to the Department of Forestry. During the reformation era, under the presi-
dency of Habibie, the Minister of Forestry strictly banned the Jamaker operation based on SK.
No.376/Kpts/1999, and the delegation of authority for timber concessions was passed to State
Forestry Corporation One (Perhutani Satu). Perhutani then started operations in East Kalimantan
(Nunukan district) in July 1999 (interview with Perhutani official, August 10, 2001).
the border and along the 1,840 km length of the border. This timber concession was
directly linked to the army. Therefore, not surprisingly, with such strong military
protection, little bureaucratic supervision of logging occurs in these remote areas.
Dauvergne (2001) also discussed the role of the Chinese businessmen who
largely controlled the forest industry under the Soeharto regime. He said that
Chinese control almost two-thirds of logging conglomerates. Non-Chinese timber
businesses are limited mainly to local companies. Chinese companies, however,
must rely on politicians for concessions and licenses, on military officers for protec-
tion, and bureaucrats for “flexible” interpretation of management rules. Of these
Indonesian-Chinese businessmen, Bob Hasan is the most powerful figure in the
forestry industry in Indonesia. He is the head of four associations connected to for-
est management, including Apkindo, the wood panel association that controls the
plywood industry. One forestry official aptly declared that “the forestry department
cooperates with Apkindo, but Apkindo really makes policy.”8 Asia’s largest timber
operator is Prayogo Pangestu, a Chinese businessman from Bengkayang, West
Kalimantan. He runs the Barito Pacific Timber Company. Like Hasan, Prayogo has
close personal ties with Soeharto.9 Prayogo’s timber concessions cover 5.5 million
ha (the size of Switzerland) and he employs more than 50,000 people. Prayogo is
the world’s largest exporter of tropical plywood, with annual sales of around
US$600 million. The total value of Prayogo’s forestland, logging infrastructure, and
plywood mills is US$5–6 billion. The Barito Company is also the largest borrower
of state funds, with more than US$1 billion in loans. He has recently established a
huge state-subsidized softwood plantation to supply a US$1 billion pulp and paper
mill in South Sumatera. His partner is Soeharto’s eldest child, Siti Hardijanti
Rukmana (known as Tutut). Prayogo has also reportedly helped rescue poor invest-
ment linked to Soeharto and the military. He also has made substantial “donations”
to charities and social programs connected to Soeharto’s family.
These patron–client relationships between state leaders and timber operators
apparently weaken state supervision of bureaucratic implementers and distort state
forestry management policies. For example, in terms of reforestation programs, a
selective cutting system (TPI) was introduced by the government in the late 1980s
and also in 1989, and a further cutting policy called the Indonesian selective cutting
and replanting system (TPTI). Although these logging guidelines are essentially
important for sustainable forest management, almost all of the big logging holders
do not carry out this forestry regulation. The consequences of this phenomenon are
8
For a further discussion on the background of Apkindo, see “Indonesia: Plywood Exports Tumble
due to Declining Prices,” Jakarta Post (12 August 1995); and also in The Jakarta Post (3 July
1995) on the issue of Apkindo to help government in marketing.
9
Prayogo’s memo in 1991 to Soeharto illustrates their close relationship. In this memo, Prayogo
requested Soeharto to encourage the forestry minister, Hasjrul Harahap, to “facilitate the paper-
work and financing for an industrial-tree plantation in South Sumatera.” According to the Far
Eastern Economic Review (FEER), Soeharto responded by jotting a note to Hasjrul on the memo
that “he should fulfill all of Prayogo’s requests.” For a further discussion on a critical account of
Barito Pacific Timber, see SKEPHI, Setiakawan: A Call for International Solidarity on Indonesian
Tropical Forest Issues, No. 10 (January–June 1993).
that deforestation occurs in huge forestland areas of almost 1–1.5 million ha annu-
ally. The combined impact of legal and illegal logging is the most important direct
agent of deforestation in Indonesia (Pacific Affairs 1993–1994: 512–516). There are
powerful political forces that support and promote destructive logging, and impor-
tant political reasons why these destructive practices are not better controlled.
Dauvergne (2001) also points out the role of international finance institutions,
such as the World Bank, the Asian Development Bank, and the International
Monetary Fund (IMF), all have provided policy advice and set financial conditions
that encourage deforestation. Because of the impact of deforestation on the degrada-
tion of earth, air, trees, and water, it means different things to different people. For
people who depend on the forests themselves, such degradation means a loss of
dignity and independence, security, livelihood, and health. Defending forest logging
is thus often a matter of life and death.10 In the past, IMF policies have encouraged
the import of manufactured goods and technology in exchange for natural resources,
including timber. The World Bank and the Asian Development Bank have helped
finance development projects in Indonesia for building hydroelectric dams, roads,
and transmigration, all of which have contributed to deforestation.11 Tod Martens
(1989) argues that the World Bank does not properly consider the environmental
consequences of financing development projects and “consequently, Bank-financed
projects often create more problems than they solve.”12
Japan, among the developed countries, plays a very significant role in Indonesian
deforestation. Indonesia’s need to obtain foreign exchange to service its debts to
Japan is an important economic factor driving destructive forest practices. William
B. Wood (1990) argues that Indonesia’s (US$78 billion) debts to international
finances in the 1990s, along with other developing countries such as Brazil
(US$110 billion), Zaire (US$9 billion), India, Nigeria, Mexico (US$70 billion), and
Thailand, have strong direct links to deforestation in these respective countries.
They cut their tropical forests in order to fulfill their socioeconomic and political
10
For a further discussion of the role of international finance in promoting environmental degrada-
tion, see “Mainstream Solutions,” Ecologist, Vol. 22, No. 4 (July–August 1992), pp. 165–194.
11
The role of the World Bank in the construction of “Kedung Ombo” Dam in Grobogan Boyolali,
Central Java is very significant. This hydroelectric dam, 5,898 ha in area, was constructed in 1985
and holds reserve of 725 million m3 of water, servicing an irrigation system of 37,500 ha and create
new rice fields of almost 10,000 ha and also electrical energy of 22.5 MW. This project totaled US$
283.1 million. The World Bank contributed US$ 156 million, and the remainder came from the
Indonesian government and a loan from Exim Bank of Japan. However, the critical program for
5,390 heads of families will be removed to the outer islands. Muko-Muko, Bengkulu, and Irian
Jaya were elected as main target areas and thousands of hectares of forestland were cleared. For a
discussion on this matter, see, Nusantara, G. Hakim (ed.), Atas Nama Pembangunan: Bank Dunia
dan Hak Asasi Manusia di Indonesia (On behalf of Development: World Bank and Human Rights
in Indonesia), Jakarta: Elsam, 1995.
12
For a further discussion on the environmental consequences, see Todd K Martens, “Ending
Tropical Deforestation: What Is the Proper Role for the World Bank?”Harvard Environmental Law
Review, Vol. 13, No. 2 (1989), pp. 489, 493 (cited in Pacific Affairs 1993–1994: 516).
needs, one of them repayment of debts.13 On the particular issue of Indonesian

deforestation related to debts, Ivan Head commented that:
The current Indonesian requirement for foreign exchange to service its debt to Japan is
approximately US$2 billion per year. The value of Indonesian forest product exports is
approximately the same. On the further premise that forest depletion to the extent now
under way in Indonesia has a worldwide negative effect on the environment, the climate of
societies in many regions is being sacrificed in the interests of the Japanese banking
community.14
As mentioned above, the role of Japan in the 1970s to the1980s, as the main
target of logging and plywood production was significant. This statement was made
by Makoto Inoue, an academic from The University of Tokyo, who went on to
explain that Japanese importers of Southeast Asian timber have attempted to defend
themselves against charges that “They are destroying tropical rain forests” by blam-
ing slash-and-burn agriculture. He further discussed the debate so far, which has
centered on the depletion of “rain forests” in Indonesia, the Philippines, and the
Malaysian states of Sarawak and Sabah. The province of East Kalimantan in
Indonesia is a classic example of the problem. Japan has been importing huge quan-
tities of timber from this area since World War II. Based on his argument, the worst
damage in East Kalimantan is in relatively accessible areas near the coastal cities.
The process has three stages: (1) roads are constructed and hardwoods are cut and
transported to nearby ports for export; (2) smaller logging operations come in, using
the same roads to extract other commercially viable timber; (3) then poor peasants
make their way into the land, burning whatever is left of the forest to use the ground
for dry-field rice cultivation. When the rice has been harvested, they plant pepper
and cassava as their main cash crops (Inoue 1992).
This phenomenon encouraged, among Southeast Asian countries, especially
Indonesia, the exploitation of natural forests in order to repay foreign debts. As
Japan’s main supplier of tropical logs, Indonesia’s supply, in 1980, reached 8.5 mil-
lion m3. These logs fueled Japan’s domestic plywood industry and were used to
make kon-pane,15 siding for the construction of concrete building foundations.
Other scientists, such as Secrett, Colchester, Budihardjo, and others, commented
that one of the proximate causes of deforestation such as “transmigration projects,”
run in Indonesia from the 1970s to the 1990s, opened 1.7 million ha of agricultural
13
There is a strong correlation between deforestation among tropical countries and paying debts to
developed countries, see, William B. Wood, “Tropical Deforestation: Balancing Regional
Development demands and Global Environmental Concerns”, “Global Environmental Change”
Vol. 1, No. 1, December 1990, pp. 23–26.
14
Cited in Dauvergne, “Pacific Affairs,” 1993–1994, Vol. 66, No.4, pp. 516, and a further discus-
sion, see Ivan L. Head, On A Hinge of History: The Mutual Vulnerability of South and North
(Toronto: International Development Research Center, 1991, pp. 104–105).
15
Kon pane (composite panel) most of which are discarded after being used just once, are often
pointed to as one of the world’s greatest examples of wasteful consumption. In the 1980s, about
one-third of Japanese tropical hardwood imported from Southeast Asia was used for kon-pane
(cited in “Pacific Affairs,” 1993–1994: 516). The utilization of Kan pane as disposable Japanese
construction panels for molding concrete.
land and transported some 8 million people to the outer islands. This program
received financial backing from international agencies and western governments.
From 1972 to 1985, the Department of Transmigration received US$637 million in
foreign aid (two-thirds from the World Bank). Millions of dollars in international
“aid” have been spent promoting a program that ecologists now describe as a “natu-
ral disaster.”
As mentioned by Secrett (1986: 77), the program is leading to the permanent
destruction of millions of hectares of undisturbed tropical forest, with a correspond-
ing large loss of irreplaceable genetic diversity and potential resources. Therefore,
the role of international finance and multilateral aid could be categorized as direct
actors in the deforestation of Indonesian outer islands. Transmigration means the
mass movement of the landless poor from Indonesia’s overpopulated central islands
of Java, Bali, Lombok, and Madura to the less densely populated outer islands, with
over 3.6 million people moved by 1984. A recent study reveals that the percentage
of landless farmers on Java increased from 3.2 % to 14.9 % between 1973 and 1980,
with the percentage of farmers owning less than 0.5 ha rising from 45.7 % to 63 %.16
In fact, the aim of the transmigration program is for the purposes of economics and
national defense. From the point of view of economic targets, this program aims to
reduce the rate of population growth on Java, to encourage the underutilized labor
forces in Java to take advantage of the underused lands of the Outer Islands, and
create 200,000 new jobs a year, if the fourth Five-Year Plan’s (1989–1994) target of
moving 750,000 families were met. However, many of the transmigrants are neither
fully aware of the tasks and hardships that await them, nor are they well equipped to
deal with them (Arnt 1993: 63–64). Their expertise in Javanese wet rice cultivation
does not help them grow food or cash crops in the entirely different conditions of
the outer islands. Arndt also suggested that the problem of ethnic relations requires
the attention of decision makers as well. It is fair to say that indigenous people have
not generally welcomed settlements of Javanese transmigrants among them, espe-
cially where the Javanese have threatened to become a majority.
There is a correlation between transmigration and national defense based on the
concept of “territorial management” (pembinaan territorial). The army defines the
regional task of its vast network of territorial units as “territorial management.” This
is inseparably linked with “area management,” which is the responsibility of the
civil administration, where many posts are also held by active or retired military
officer such as Boedihardjo. The Indonesian government has stated that transmigra-
tion is considered of great importance as an exercise in promoting “national security.”
General Benny Murdani, the commander-in chief of the Indonesian Armed Forces
16
For a further discussion on pattern of transmigration in the New Order, see, Colchester, Marcus,
“Banking on Disaster: International Support for Transmigration,” in Ecologist, Vo. 16, No. 2/3,
1986, pp. 61–67. In terms of Western governments’ aid for the transmigration program, for exam-
ple, the Netherlands Government has been closely involved in transmigration through multilateral
lending and grants, but also bilaterally. On a bilateral basis alone, the Netherlands government has
provided 29.6 million Dutch gulden (DG) to upgrade transmigration settlements in Bengkulu and
to provide “technical aid” to the projects. And a further 3.0 million (GD) has been allocated for the
construction of roads and for building three bridges for the Kuro Tidor Transmigration project.
is quite frank about the importance the country’s military rulers attach to transmi-
gration. He describes it as “The only program in the economic field that must quite
categorically be tied in with defense and security considerations.” Therefore, loca-
tions and the removal of obstacles to land availability need to be given special focus,
he said, because the “choice of locations is related to the concept of territorial man-
agement in the regions.” “This is why the Armed Forces must be involved at the
earliest possible stage in the selecting the sites” (Sinar Harapan, 8 March 1985).
This statement is related to the issue of transmigration is very necessary in promot-
ing national security). In October 1985, President Soeharto issued an instruction to
the army to become involved in the choice and preparation of transmigration sites
(Kompas, 6 January 1986). Soeharto has long been known to have a strong interest
in transmigration. His personal interest in this transmigration program has for many
years been such that no official has dared oppose it. The instructions were clearly
intended to give the army a direct role in the project. Transmigration projects since
the 1970s and 1990s have filled all available lands in the more accessible and fertile
lands in Sumatra, Kalimantan, Sulawesi, Maluku, and Irian Jaya (Papua).17 Papua,
with a total population of 1.2 million, has been designated to receive about 685,000
settlers in the next 5 years.
There have been widespread reports of human rights abuses associated with the
program. Javanese settlers have been situated on the borderlines between West and
East Papua for national security purposes. Unfortunately, this transmigration pro-
gram invoked local conflict between nationalist Papuans struggling for self-
determination and the Indonesian armed forces. Local resistance to takeover of
traditional lands has been met with brutal violence by the Indonesian military, caus-
ing a flood of over 10,500 West Papuans fleeing their lands and seeking refuge in
neighboring Papua New Guinea (Colchester 1993: 62). The transmigration policy in
the 1990s has altered from subsistence agriculture toward wage labor on forest
industrial timber estates (Hutan Tanaman Industri) and palm plantations. As noted
above, almost 39 % of timber estate areas lie in transmigration sites, and some
956,257 ha of oil palm plantations with a formal link to transmigration sites had
been established by the end of 1995 (Lash 2000).
The World Bank in 1985 received hundreds of letters from people around the
world expressing their dismay that the transmigration program was jeopardizing the
future of the tribal people of Indonesia and causing widespread deforestation. The
World Bank stated that it only recognized the problems of the program’s previous
steps and would improve the comprehensive guidelines for the implementation of
Bank projects in terms of environmental and tribal issues.
Meanwhile, another proximate cause of deforestation related to the conversion of
forestland is the clearing of forests for the creation of palm oil plantations. Expansion
of palm plantation is approximately the largest single commercial force behind
deforestation today. The area covered by these plantations grew from about
17
The name of Papua was substituted from Irian JayaProvince and it is formally used in the
Abdurrachman Wahid Government (October 20, 1999–July 23, 2001).
843,000 ha in the mid-1980s to nearly 3 million ha in 1998.18 Global production

grew from 14.7 million tons in 1994 to nearly 16 million tons in 1997. Apparently,
Malaysia dominated this sector as the largest producer (with 50.6 %), and Indonesia
(28.8 %) was the second largest. Global production is expected to grow by more
than 7 % per year, and by 2005, Indonesia is expected to produce some 12 million
tons (41.4 %) of the total. Two crops compete with oil palm for the same type of
land: rubber and coconut with cocoa. Several studies have shown, however, that oil
palm gives better returns on investment than rubber. Anuwar Mahmud (1992) gives
internal rates of return of 17 % for rubber, 24 % for oil palm, and 28 % for coconut
with cocoa in 1975.19
The development of palm oil plantations is rapidly increasing, indicated by a
comparison between 1970, with just on 133,000 ha of land cleared, and 294,000 ha
of land in 1980. During this period, state-owned estates dominated over private
estates (Moll 1987: 110–112). In terms of opportunities to expand nonoil exports,
palm oil has been referred to (Ahmad Affandi, former Minister of Agriculture) as
the “prima donna” of agricultural export commodities (Kompas 20 July 1983).
Government development plans call for an increase in areas planted with oil palm
of 912,000 ha by the year 1993, an increase of 2.7 times the present area. On the
other hand, since the 1990s, privately owned estates are increasing to almost 46 %,
with smallholders and state estate plantations making up the rest (Lash 2000). The
largest number of palm oil estates is located in Sumatra, but Kalimantan is rapidly
being developed as well, with Irian Jaya/Papua targeted for expansion in the future.
The greatest part of the development outlined has taken place in the province of
North Sumatra with Medan as the center of activities, because a crude palm oil
(CPO) factory is located there. Production, however, has started recently in Aceh,
Riau, and Lampung, in West Java and Sulawesi. It is obvious that the government
has given priority to further development of the palm oil sector in the five-year
development plan (1984–1989) and long-term plans. The target for 1989 was
480,000 and 912,000 ha for 1993, and 2.9 million ha in 1998, and rapidly increased
to 7.8 million ha in 2011 (Table 4.1).20
The government aimed to reach a total 5.5 million ha by the year 2000, a target
that was not realized. Three million ha have been cleared, at an annual forest con-
version rate of 200,000–250,000 ha/year.21 Unfortunately, four conglomerates that
18
See World Bank report 1999 on Oil Palm Plantation in many provinces in Indonesia; see also,
CIC Consulting Group, Jakarta, 1997.
19
For a further discussion on oil palm, see Moll, H.A.J. (1987), The Economics of Oil Palm,
Netherlands, Pudoc Wageningen Press, pp. 144; and also Mahmud, Anuwar, “The Oil Palm
Industry,” Occasional paper 1, PORIM, Kuala Lumpur. For a further information on oil palm
development in 1990s and the role of Malaysia as the leading oil palm producer, see Glassburner
and Poffenberger in “Bulletin of Indonesian Economics,” (1983), vol. XIX, No. 3, December,
pp. 22.
20
Kompas News Paper, 15 September 2011.
21
Cited in Lash (2000), and for discussion, see Kartodihardjo, H and Supriono (1999),“The
Impact of Sectoral Development on Natural Forest: The Case of Timber and Tree Crop Plantations
in Indonesia.” Draft report for the Center for International Forestry Research (CIFOR), Bogor.
Table 4.1 Palm oil plantation development areas in Indonesia mid-1980s–1998 (hectares)
New palm oil Outstanding
Palm oil area, Palm oil area, area, since applications from
Provinces mid-1980s 1998 mid-1980s developers, 1995
Sumatra 805,800 2,240,495 1,434,695 9,395,697
Kalimantan 0 562,751 552,751 4,760,127
Sulawesi 11,800 101,251 89,451 665,379
Maluku 0 0 0 236,314
Irian Jaya 23,300 31,080 7,780 590,992
Other 1,800 21,502 19,702 1,777
Total 842,700 2,957,079 2,114,379 15,650,286
Source: World Bank 1999; World Research Institute, “Trial by Fire,” 2000, pp. 32
previously controlled logging, wood processing, and pulp and paper industries, such
as the Sinar Mas and Salim groups, dominate the palm oil industry. Just four com-
panies held 68 % of the 1 million ha estates in private hands in 1997. There is also
considerable foreign investment: as of the end of 1998, 50 foreign firms were
involved in the palm oil sector, with total investment valued at US$3 billion (Lash
2000). The negative impact of the palm oil sector is the higher risk of forest fires
such as occurred in the 1990s. As former minister of Agriculture Syarifuddin
Baharsyah commented, burning in 1997 550,000 ha in Sumatra and Kalimantan.
Also, the Minister of Forestry at the time, Djamaluddin Suryohadikusuma, said that
46 % of the hot spots that appeared on satellite images on September 28, 1997, were
lands granted for plantations. These fires also caused heavy losses later in 1997 and
in 1998 as they spread out of control, and an estimated 160,000 ha of plantations in
East Kalimantan were damaged. This condition subsequently affect on sickness of
local people for instance red eyes, couch, breathing problems and stop operating of
airports.
Another discussion on the proximate causes of deforestation is the mega project,
“Lahan Gambut Sejuta Hektar” (The Million-Hectare Peat Swamp Project) in
Central Kalimantan. Soeharto launched his idea to construct the million-hectare
peat swamp project while he addressed parliament members on August 16, 1999. In
his speech, he said: “by considering the limited land in Java, caused by agricultural
land conversion into industrial and real estate areas. Therefore, it is necessary to
construct agricultural land by utilizing one million peat swamp areas in central
Kalimantan. It is a large budget to be spent for this paddy rice project. We must
perform it now due to facing difficulties in fulfilling rice needs for our population in
the near future.
The PLG project was promoted by Soeharto himself and was made into state
policy in 1995 by Presidential Decrees no. 82 and 83. Situated in Central Kalimantan
province, the area intended for the project covered about 1.4 million ha. The budget
totaled Rp. 1.5 billion (US$500 million) in 1995–1998.22 Of this, some 500,000 ha
were converted from peat swamp forest to rice and other crop cultivation such as
rattan, rubber, and fruit gardens. The region in question constitutes a large part of
the largest peat swamp, flood plain in western Indonesia and contains some of the
oldest and deepest peat deposits on the planet.
Forest clearing and construction of canals began in late 1995, 6 months before
the required environmental impact analysis (Amdal) was initiated. The Amdal con-
cluded that only about 30 % of the project area was at all suitable for agriculture.
However, the government and its contractors ignored this finding based on field
research. Gunawan Suratmo, head of Regional Amdal (environmental impact ana-
lysts) for this project, hesitated over the location (peat swamp) to be converted into
agricultural land. If this project continues, it could probably cause great ecological
destruction. Suratmo mentions that peat swamps are complex and fragile ecosys-
tems that are essentially unsuitable for large-scale agriculture because of their
hydrology, which is very difficult to manage, and their extremely acidic soils on
which “it is impossible to grow economically viable crops” (Lash 2000). Because
of these difficulties, paddy production, which is estimated will annually reach
5.1 million tons for a location this size, cannot be realized. These types of project
usually begin with an environmental impact analysis. In contrast, this project began
with an irrigation system being constructed and Amdal later on. The Directorate
General of Plantation and Horticultural, Department of Agriculture (Amrin Kahar)
stated that “It is most important that we have performed technical analysis of this
project. And all parties involved in this project must obey the technical team agree-
ment, and in which all elements are headed by the Minister for Public Work.” (Bisnis
Indonesia, 2 March 1997).
By 1997, some 13,500 transmigrants had been brought in, and the project area
had become a free-for-all zone for illegal logging facilitated by deals between the
companies regarding the project infrastructure (canals, transmigration sites, and
roads) and small logging companies. Among the contractors was Rante Mario
Company owned by the president’s youngest son (Tommy), and subsidiaries of the
Salim Group, controlled by a long-time Soeharto business partner, Liem Sio Long.23
By October 1997, floats of hundreds of logs of the area’s best timber were being
continuously sent downriver. By mid-1997, the drought was occurred. This condi-
tion seriously affected on large amounts of logging waste, intentional burning had
created an inferno that affect on huge areas from July through November. This event
related high concentration of peat swamp. This largely accounted for intense haze
22
In a different calculation on the budget spent, based on another source, the government budget
reached almost Rp. 5–8 billion. This budget was taken from reforestation funds and nonbudget
allocation. This calculation is based on 1.4 million ha × US$2,200 per ha, and an exchange rate of
US$1 for Rp. 9,800–10,000 in 1998. See Haryanto, Ignatius (Eds.) (1998), Reformasi Tanpa
Perubahan: Kehutanan Pasca Soeharto, Bogor (Reformation without Changes: Forestry Sector
Post Soeharto Regime), Latin Press, p. 41.
23
The Mega-Rice Project, Central Kalimantan, Indonesia: An Appeal for Intervention to the
International Community,” 1998. Briefing dossier compiled by SKEPHI Support Office in Europe,
Amsterdam.
suffered Malaysia’s state such as main land Malaysia, Sarawak, Sabah and
Brunei as well.
In fact, in October 1997, Soeharto had planned to see the harvesting of 2,500 ha
of rice. Yet only 297 ha had growing rice by the end of August. After much suspense
in the local press, the president did not show up for the harvest after all; the “thick
haze” blanketing the region made travel too difficult, it was explained. It can be
concluded that this megaproject failed spectacularly as a rice-growing effort.
Chapter 5
NGOs’ Criticisms on Forestry Management
The roles of NGOs as indirect actors are very significant. The writer interviewed
some NGO officers such as Walhi, Skephi, Apkindo, Elsam, and others, to discover
the extent of their criticism onforest management in terms of discourse on HPH
concession, industrial timber plantation, the impact of the plywood and pulp and
paper industry, and the implication of environmental issues such as forest fires,
water pollution, famine, depletion of species, and climate changes.
Discourse on the Logging Forest Concession (HPH) System
Ginting from Walhi (The Indonesian Environmental Forum)1 criticizes deforesta-

tion based on forest mismanagement under the Soeharto regime. He totally dis-
agrees with the TGHK (Tata Guna Hutan Kesepakatan: The Consensus Forest Land
Use Plan) report in 1984, as mentioned above, which says that forest coverage of
Indonesia was 114 million ha or 73 % of all Indonesian land (Moniaga 1993: 134).
Six forestland use categories were determined on the basis of physical topographic
characteristics, potential for soil erosion, rainfall, and slope (Peluso 1995: 389).
Based on Walhi observations, the TGHK report was invalid and does not really
describe the true condition of the forests. By using Landsat studies and aerial pho-
tographs in 1993, actual land use cover is now being mapped and the areas included
in different forestland use categories are being reconsidered. Apparently, the dis-
crepancy between the earlier TGHK maps and the RePPProt (Regional Physical
Planning Programme for Transmigration) maps are striking, as illustrated in
1
The term “Walhi” is an abbreviation of “Wahana Lingkungan Hidup Indonesia” (The Indonesian
Environmental Forum). It was established in the early 1980s in Jakarta. Walhi is an association of
NGOs advocating on environmental issues with many office branches in many Indonesian prov-
inces. The writer interviewed Longgena Ginting, forest expert on the Walhi staff on April 11 and
16, 2001.

DOI 10.1007/978-981-287-745-1_5
110 5 NGOs’ Criticisms on Forestry Management
Table 5.1 Comparison of Forest classification TGHK RePProt

TGHK (1987)a and RePPProt
Conservation forest 14.59 18.42
by classification (million
hectares) Protection forest 22.53 20.25
Normal production forest 15.39 19.79
Limited production forest 30.74 10.77
Convertible forest 16.24 76.64
Unclassified forest 48.02 1.63
Total area 147.51 147.50
Source: Government of Indonesia (1987; GOI; n.d)
Regional Physical Planning Programme for Transmigration
(RePPProt), Jakarta: ODA and Department of
Transmigration
a
The 1987 figures for TGHK have been converted to a scale
of 1:250,000 from the original TGHK maps drawn at
1:500,000 scale, in order to match the RePPProt maps and
recommended changes. The change of scale resulted in an
approximately 1 % increase in area (cited in Peluso, “Whose
woods are these? Counter-mapping forest territories in
Kalimantan, Indonesia,” in Antipode 27; No. 4, 1995: 403)
Table 5.1. These latest planning maps also include settlement areas around urban
areas and villages, cultivated fields outside these settlements and planned forest
areas (Peluso 1995: 389–390; Tanah Air, Edisi 1, 1996). The maps do not, however,
indicate forest-based populations’ claim to and management of forest territories, as
well as their actual patterns of forest and agricultural land use. For example, shifting
cultivation is considered a “nonpermanent” use of land, although it is recognized
that this may not agree with the views expressed under local customary rights. The
villages associated solely with this extensive form of land use are not permanent in
the long term, although some may remain on the same site for 10–20 years or more
before moving elsewhere (RePPProt West Kalimantan Executive Summary: 30).
As indicated in Table 5.1, there are differences in allocations for areas. For exam-
ple, limited production forests, according to RePProt, total 10.7 million ha, yet
according to TGHK, total 30.7 million ha. Also, normal production forest, accord-
ing to TGHK, totals 15.3 million ha whereas according to RePPProt, it totals 19.7
million ha. Walhi tends to support the RePProt data, whereas the government uses
data from TGHK. According to Ginting, “valid forestland data” is significant, as it
will be fostered to become guidelines for forest management in the future. Therefore,
it is necessary to ensure the plan of the forestry industry is based on the sustainable
potential of forest resources. As an illustration, in 1990, the wood industry needed
44 million m3, but forest production supplied 31.2 million m3. Therefore, the log
shortage reached 12.8 million m3. Based on Walhi’s investigation in 1993, if the
“forest logging system” fulfilled the quotas until now, the production forest of East
Discourse on the Logging Forest Concession (HPH) System 111
Kalimantan would be destroyed by 2002 and would have completely disappeared

by the year 2011 (Tanah Air, No. 1, 1996).
This condition is encouraged by forest exploitation with “illegal logging,” cut-
ting in conservation and national park forests in many districts in Indonesia. For
example, as reportedly published by Skephi in September 1992, Irian Jaya’s/Papua’s
police caught 3,036 m3 of logs from pontoon ships. These logs were from illegal
logging in the Sorong and Beraur subdistricts and it was to be sold to Barito Pacific
Company in East Kalimantan. This also occurred in West Sumatra, and protected
forests in the West Pasaman district had 6,500 m3 of Meranti and Banto trees cut
from them. The perpetrator was identified as Duta Samigu Perkasa Company (estate
plantation holder) in cooperation with Bumi Bakti Utama Company.2 Therefore,
there are many smuggling rings involving top military, political, and businessmen,
as well local forestry officials, security officers, and foreign business executives
(particularly Malaysians), who transport many of these logs outside the country.
There are strong signs that Japanese companies are purchasing illegal logs from
Kalimantan and moving them through East Malaysia. As noted, in 1992, timber
smuggling has reportedly cost Indonesia Rp. 135 billion (Dauvergne 1997: 74–75).
Despite foreign exchange earnings from the forestry industry in 1993 reaching
US$4.5 billion or 15.4 % of total nonoil and gas exports, this came at a high price
when compared to the natural forest degradation that also occurred in Indonesia.
Ginting also criticizes logging concession practices. According to Ginting and
Walhi, there are two main grassroots conflicts on the existence of HPH (logging
concessions) in the midst of local communities. First, conflict of space, because the
Soeharto government claims, based on the Forestry Act number 5/1967, that all
forestland belongs to the state. The consequence of this claim is that the government
ignores the customary forestland ownership by local people. This condition leads to
“land conflicts” between logging holders and local people in many districts in
Indonesia. Under the Soeharto regime, there were 1,700 land conflict cases (Tempo
24 September 2000). Most of these land conflicts involved government officers,
businessmen, and local communities. According to the vice-head of the National
Land Agency (Lutfi Nasution), the root of land conflicts is the “economic gap” in
land ownership. Peasants in Java own agricultural land ranging from 3 to 4 ha in
size, whereas outer island farmers usually own 1 ha. In contrast, businessmen deal-
ing in real estate can own up to 500–6,000 ha in the cities, and palm oil plantation
owners have concessions as large as 100,000–400,000 ha. On the other hand, it was
interesting to observe that logging holders can hold concessions from 400,000 to
6,000,000 ha. However, among 657 of the logging concessions are dominated by
only 20 of the largest companies, occupying 51.6 % of all production forests. From
2
For a further discussion on illegal logging, cutting in many districts in Indonesia, see Skephi
NGOs report 1990 (Jaringan Kerjasama Pelestarian Hutan Indonesia) on the topic: “Delapan
Perusahaan Perusak Lingkungan,” (Eight Companies Destroy on Environment), pp. 163–164; See
also Skephi, Setiakawan: A Call for International Solidarity on Indonesian Tropical Forest Issues,
No. 11 (July–September 1993), pp. 31–33. It was told according to local forestry service data, log-
gers smuggle between 50,000 and 100,000 m3 of illegal timber every year from West Kalimantan
to East Malaysia. Cited in Dauvergne, Asian Timber (January 1993), p. 9.
this point, Ginting asks, “Where are the principles of justice and democratic values”
in the forestry industry? In fact, this conglomeration of the forestry industry occurred
as a direct result of a formal policy of the Soeharto government launched in 1980,
which was issued as a three-joint ministers’ agreement regulation (SKBTM), the
Ministers of Trade, Industry, and Agriculture. This regulation emphasizes that every
logging holder should invest in the plywood industry and construct sawmills. This
policy had a positive response among large concession holders to expand their busi-
ness and improved the domestic economy because the domestic-led wood-
processing industries are necessary to improve additional income and create
domestic employment. In contrast, among small logging concession holders,
because of a lack of capital, managerial skill, technology, and marketing, most sell
their logging concessions to larger businessmen. As an illustration, formerly Barito
Pacific Groups Company owned 1.9 million ha in 1988 and this rapidly increased to
6.1 million ha in 1993. Meanwhile, Kalimanis Group, owned by Bob Hasan, had
about 700,000 ha in 1988, which increased to 1.9 million ha by 1998 (Table 5.1).
There are two main reasons for this conglomeration of logging concessions: the
large logging concession holders have close relationships with political elites, espe-
cially Soeharto as the central power; and the big businessmen have access to finan-
cial support such as state banks and good marketing skills (Table 5.2).
Why did land conflicts occur under the New Order regime? The Soeharto gov-
ernment discriminated with its land policies between businessmen and local com-
munities. This formal land policy was supported by the creation of 41 acts and
regulations, overriding the previous principal land act (UU Agraria), promulgated in
1960, which formally recognized the customary rights of local communities.
Conflicts also occur among actors of the forest management system. Recently, many
laws have provided more facilities for credit banking, training, marketing, port
facilities, and others, that aid businessmen, rather than local communities; in par-
ticular, the development of forest products such as rattan (calamus spp.), damar
(resins), camphor, fruits, usually produced by local communities, has lacked gov-
ernment attention in terms of credit banking, training, and marketing. This phenom-
enon was commented on by Peluso, who stated, “For Kalimantan, the notion of
extractive reserves is an attractive one, particularly given the rapidity with which the
province’s forests are being logged, while local people continue to lose de jure and
de facto controls over the forest territories they occupy.”3 According to an Elsam
officer, if land conflicts occurred between logging concession holders and local
communities, the Elsam Institute was pleased to support local communities, based
on human rights, justice, and democratic values.4
3
For a discussion on forest product access for local communities and businessmen, see Peluso,
Nancy Lee, “The political ecology of extraction and extractive reserves in East Kalimantan,
Indonesia,” in Development and Change, Vol. 23, number 4, October 1993, p. 50.
4
The Elsam (Lembaga Studi dan Advokasi Masyarakat) head office is located in Pasar Minggu,
South Jakarta. Elsam is one of the NGOs actively involved in advocating for local people’s rights,
particularly their customary forest rights concession from the government. The writer interviewed
Sandra Moniaga, vice-head of Elsam in terms of local peoples’ rights in many districts on May 9,
2001.
Discourse on the Logging Forest Concession (HPH) System 113
Table 5.2 Conglomeration of logging holders based on broad area in 1993 (hectare)
Unit
Company of HPH Broad area Percentage (%)
1. Barito Pacific 60 6,158,670 9.6
2. Kayu Lapis Indo 20 3,437,000 5.3
3. Alas Kusuma 18 2,988,000 4.6
4. Djajanti 20 2,775,000 4.3
5. Kalimanis 9 1,936,000 3.0
6. Mutiara Timber 6 1,558,900 2.4
7. Korindo 7 1,436,000 2.2
8. Indo Plywood 10 1,329,000 2.1
9. Tanjung Raya 11 1,226,300 1.9
10. Hutrindo 12 1,152,000 1.8
11. Pakarti Yoga 4 1,133,000 1.8
12. Hanurata 4 1,016,000 1.6
13. Bumi Raya U 9 955,000 1.5
14. Budi Dharma B 10 947,500 1.5
15. Satya Jaya R 8 938,000 1.5
16. Antang 11 891,000 1.4
17. Surya Damai 7 883,593 1.4
18. Uni Seraya 8 835,000 1.3
19. Kayumas 9 802,000 1.2
20. Budi Nusa 5 801,000 1.2
Total 248 33,198,963 51.6
Source: Pusat Data Bisnis Indonesia (PDBI) (Indonesian Business Center Data), 1994; Tanah Air
(Jurnal Wahana Lingkungan Hidup Indonesia/Walhi), Edisi No. 1, 1996, pp. 6
As noted by many (Ropetto and Gillis 1988; World Bank 1992), the govern-
ment’s income from timber rents such as export taxes, royalties, and licenses fees is
very little. According to Ropetto, from 1979 to 1982, only US$1.6 billion of a
potential aggregate rent of US$4.6 billion was collected by the government—the
remainder became private profits.5 In 1992, the World Bank estimated that the
Indonesian government collected only 30 % of the economic rent from logging,
compared with 85 % for petroleum. And even a study by Walhi found that the gov-
ernment captured a mere 8 % of timber rents in 1989. In 1990, after an increase in
reforestation fees and timber taxes, Walhi calculated that the government still
captured only 17 % of timber rents. According to a Walhi representative, in 1993,
the government likely captured around 15 % of timber rents (Dauvergne 1997:
75–76). Apparently, low government rent collection has important implications. To
maximize profits before rules suddenly change, logging concession holders quickly
and recklessly extract logs while ignoring silvicultural treatments, reforestation,
and sustainable forest management.
5
Ropetto (1990), “Deforestation in the tropics,” Scientific American 262 (4), pp. 36–42.
Drawing from the above, the HPH (logging concession) policy since the mid-
1960s to the end of the 1990s encouraged the destruction of the tropical forest eco-
system and influenced a lack of socioeconomic income among the local communities
who live in and around the forest. As was stated by Alqadrie in his professorial
inauguration in 1993 at the University of Tanjung Pura, Pontianak, “The existence
of HPH (logging concessions) has caused a shortage of Dayak people’s income in
the hinterland of West Kalimantan.”6 For example, from 1963 to 1965, before HPH
operations, Dayak community incomes were on average Rp. 42,655 (US$102.79)
per month. This income was derived from agriculture—Rp. 11,375 (US$27.41);
forest products—Rp. 17,062 (US$102.79); and plantations—Rp. 14,218
(US$46.71). Recently, their incomes in 1991/1992 were on average Rp. 88,750
(US$46.71), divided into agriculture (shifting cultivation)—Rp. 35,500 (US$18,68);
forest products—Rp. 17,750 (US$9.35); and plantations—Rp. 35,500 (US$18.68).
If these amounts are compared, there was an increase of Rp. 46,095, however, con-
sidering the nominal US dollar rate change over the same period, the increase was
US$56.08. Other impacts to be considered are social issues; the use of HPH in many
subdistricts encouraged fighting, gambling, and prostitution. For example, in terms
of fighting, many HPH workers and local people will fight after drinking alcohol
while at local music exhibitions. This negative condition has certainly threatened
the traditions and religious beliefs of local communities which usually encompass
harmony, peace, and security.
Discourse on the Industrial Forest Plantation (HTI) Fund
There were three fundamental mistakes made during the development of HTI,
according to Ginting. First, the main target to obtain HTI funds is to process an IPK
(Wood Utilization Permit). After obtaining an IPK, the wood industry concession
holders can begin to cut trees in natural forests, which previously were only allo-
cated for limited production forests. Second, the original fund from HTI is derived
from reforestation funds (Dana Reboisasi/DR). In fact, these reforestation funds
should be spent on reforestation programs, for reforestation aims at improving natu-
ral forest and social welfare in the future. Therefore, the provision of reforestation
funds to big businessmen means the legalization of subsidies to conglomerates.
Lastly, the acquisition of local community lands by private businessmen for HTI
areas in many districts means that the rights of local people are being ignored.7
6
For further information, see Alqadrie, Sjarif Ibrahim, “Pidato Pengukuhan Professor Dalam
Bidang Ilmu Administrasi Negara,” (The Professorship Inaugration of the Field of Political
Administration) di Fakultas Sosial Politik, Universitas Tanjung Pura, Pontianak, tahun 1993.
7
For further discussion, see Ginting, Longgena,“Pengelolaan HTI: Suatu Kritik,” (The existence of
HTI and A Critical Review), Walhi, Oktober. 1999. In Indonesia, the term “reforestation fund” is
called “Dana Reboisasi.” This fund is always used for replanting trees in the previously production
forestland.
Discourse on the Industrial Forest Plantation (HTI) Fund 115
In fact, the initial HTI program in 1984 aimed at providing large quantities of
wood for plywood and the pulp and paper industries. This HTI program was based
on Ministry of Forestry Act No.20/Kpts-II/1983, and was strongly related to the
reforestation fund and land rehabilitation on critical production forestland. In prac-
tice, the HTI plantation programs were not well realized. For example, from 1989
to 1994 the government allocated 2,160,541 million ha to the program; however, the
target only reached 928,175 ha (42.96 %). The government launched a HTI support
policy, which provided “loans” to every HTI Company, totaling 32.5 % of all loans
and without interest for 7 years until harvesting. In this case, the government was
deeply involved and was provided with 14 % of shares in joint ventures on behalf of
Inhutani. And HTI companies must provide 21 % of the company shares.
Unfortunately, these programs, based on Walhi’s investigation, did not succeed and
could not provide wood as raw material for plywood and pulp and paper industries
until the end of the 1990s. Until then, many wood industries still consumed wood
from natural forests (Press Release Walhi, Tahun 2000).
Unfortunately, the reforestation funds in 1990–1991, which reached a total of
Rp. 305 trillion, had been corrupted and a misuse of allocations for other sectors
occurred. For example, Soeharto, as president, through Presidential Decree No.
42/1994, delegated this fund of Rp. 400 billion to IPTN (Indonesian Aircraft
Industry) in order to develop an N-250 type. This Kepres No.42/1994 was taken to
the Jakarta Institutional Court on December 23, 1994 by five environmental activ-
ists in order to force Soeharto to withdraw the Kepres and return the reforestation
fund to the state.8 Other corruption concerning reforestation funds occurred with
many large logging concession holders, such as Barito Pacific groups, Menara
Hutan Buana Company, and Fendi Hutan Lestari Company. For example, Musi
Hutan Persada Company was accused of corruption and manipulation. According to
the Forestry Department investigation team, the state fund lost Rp. 505 billion and
was still being processed by the courts (Tempo 17 June 2001).
Meanwhile, Probosutedjo, the young brother of Soeharto as head of Menara
Hutan Buana (MHB Company) in South Kalimantan, was accused of misuse and
corruption of Rp. 4.9 billion reforestation funds for RKT (Annually Working
Planning) from 1994/1995 to 1996/1997. Bob Hasan also, as head of Fendi Hutan
Lestari Company, colluded with Inhutani Company in the provinces of East and
West Timor and is under investigation by the Indonesian Supreme Court (White
Book of Corruption Watch 1999; Table 5.3).
Meanwhile, the government continued with the reforestation program (Reboisasi
Program) in Pelita V. For example, in 1989/1990, the government planned to imple-
ment reforestation programs on 42,800 ha, but the implementation just reached
39,925 ha. Also in 1990/1991, it planned to reforest 40,857 ha, realizing only
8
For detailed information on the debate of five environmental activists concerning Soeharto, see
Walhi report (1995), “Kembalikan Dana Pelestarian Hutan” (Sustainable Forest Fund to be
Returned).
Table 5.3 Revenues from Months 1989/1990 1990/1991

reforestation fees. In
1. April 20,336,277,357 24,883,844,255
1989/1990–1990/1991
(Rupiah) 2. May 15,769,590,664 32,096,274,367
3. June 16,546,828,388 23,771,434,215
4. July 22,218,568,100 32,062,296,574
5. August 26,180,799,475 13,259,039,540
6. September 25,845,392,108 14,851,865,885
7. October 26,777,863,220 20,130,016,888
8. November 27,984,304,890 29,503,363,956
9. December 24,551,672,225 26,727,556,832
10. January 25,996,614,337 34,431,143,420
11. February 22,013,709,338 32,884,889,488
12. March 29,500,834,517 20,640,598,236
Total 283,723,454,619 305,242,323,657
Source: Secretary General of Forestry Department, 1990
32,608 ha.9 According to Walhi, the failure of reforestation programs is twofold:

some branches of the Forestry Department were unprofessional in carrying out
reforestation programs. Many seeds died after planting because of lack of water in
the dry season. In addition, the reforestation programs were central government
projects, “subcontracted” to Inhutani (State Forest Corporation) in the outer islands.
However, the process usually created opportunities for corruption and collusion. So,
the budget for reforestation programs was not utilized efficiently in many districts.
Ginting emphasizes several misconceptions concerning HTI development. He
says HTI and natural forests have totally different functions. The natural forest has
a complex ecosystem, which a HTI does not have. For example, natural forests are
self-regenerating: fertilizing soil, holding water, and producing a microclimate, cre-
ating energy, and sheltering fauna and flora. In contrast, HTI areas are one type of
tree only, such as Eucalyptus species, Pinus, and others, and it is more appropriate
to call them “Kebun Kayu Komersial” (Commercial Trees Garden) than forest. HTI
can actually have a negative impact on ecosystems, because they reduce soil quality,
consume much water, and encourage the loss of biodiversity in flora as well as
fauna. However, the greatest difficulty, according to the Walhi investigation, is that
almost all HTI areas are located in what were previously production forestlands,
which were formerly intended for reforestation programs.
9
For detailed information on planning and implementation of reforestation programs in many dis-
tricts in Indonesia, see the Statistic of Reforestation programs in Directorate General of
Reforestation and Rehabilitation Land, in the Forestry Department, 1990.
Discourse on the Impact of the Plywood Industry 117
Discourse on the Impact of the Plywood Industry
The Soeharto government’s strategy to develop the “plywood industry” as a leading

industry after oil and gas was significant. The role of the state as economic facilita-
tor and Apkindo as the Panel Industry Association, in facilitating overseas markets
is important. From these synergies of policy, the plywood development sector could
become the largest producers in Asia. In 1993, the plywood industry produced 9.7
million m3 of wood and obtained foreign exchange earnings of US$4.5 billion,
decreasing in 2000 to just 6.9 million m3 and US$2.4 billion because of the world
economic recession. However, the plywood industry has not rapidly increased due
to lack of growth in wood consumption. This has occurred because plywood con-
cession holders are inefficient in their use of raw materials, as the repercussions of
internal trading, monopolization, cartel practices, and quota systems have taken
effect. Meanwhile, the progress of the plywood industry has not been accompanied
by an accurate planning of reforestation programs by the private sector. As noted by
the Walhi investigation, “The wood industry in Indonesia needs almost 70 million
m3 in 1998, but the capacity of production forests can only contribute about 26–30
million m3” (interview with Ginting, April 16, 2001). Therefore, to fulfill the need
for wood, illegal logging in many nature parks occurred. The government should
therefore practice better law enforcement against violations of forestry regulations.
Otherwise, rapid deforestation will continue to occur and the implementation of
sustainable forest development will be threatened in many districts.
According to the Bureau of Statistics (Badan Pusat Statistik) in 1990, the ply-
wood industry was not assisted in creating additional income and employment
opportunities for the country. The reason is that the plywood industry utilizes 72 %
of logs, yet absorbs only 9–12 person per 1,000 m3. This is considered too little
compared to other wood industries.
The Walhi investigation also agrees with the statement of the Bureau of Statistics,
that the plywood industry ranks eighth in all wood-processing industries behind
sawmills, moulding, furniture, wood home construction, and others. Meanwhile,
direct taxes and labor wages rank seventh and total additional income ranks fifth
(Tanah Air, Edisi 1, 1996). In Apkindo, corruption also occurred because a public
accountant cannot audit many “fees” for reforestation, concessions, office overhead,
and marketing: there is no responsibility for their distribution.
The plywood industry is slow moving compared to other wood-processing indus-
tries in terms of foreign exchange earnings. For example, from 1988 to 1993, the
plywood industry reached only 95.5 %, sawn timber, 339 %, and the rattan industry,
126.4 %. Therefore, according to the Walhi investigation, the negative impact should
the government policy to provide protection, credit, and marketing facilities leading
to rapid growth and overproduction. Today, the shortage of wood (30 million m3) is
related to overproduction in the wood industry, especially the plywood and pulp
and paper industries. If the government does not act in the near future, the “illegal
logging” will threaten deforestation in conservation, protected forests, and national

parks in many districts in Indonesia.10
Discourses on the Impact of the Pulp and Paper Industry
As mentioned above, the development of the pulp and paper industry is remarkable.
Meanwhile, in 1987, pulp factories numbered 36, rapidly grew to 81 in 1999, com-
prising 65 paper factories, 10 integrated pulp and paper factories, and 6 pulp facto-
ries. These factories (81 units) produced 4.9 million tons of pulp and 8.3 million
tons of paper. These pulp and paper industries absorbed 110,000 workers. The gov-
ernment plans that by 2005 Indonesia will become one of the 10 largest producers
of pulp and paper.
Unfortunately, this cannot be realized if three critical problems recently facing
the pulp and paper industry are not resolved.
First, the pulp and paper industry, due to a lack of raw materials in terms of HTI,
(Industrial Forest Plantations) cannot reach the target. As noted, for example, one
pulp industry requires an HTI of the size of 200,000–300,000 ha. Therefore 6 pulp
factories, for example, would require 1.2 million ha. Meanwhile, in 1994, for 1.3
million tons of pulp and 3 million tons of paper, the factories required more than 1
million ha of HTI. In reality, based on a Walhi report in 1994, HTI plantations just
reached 139,908 ha (13 %) of the requirements of the pulp and paper industry.
Meanwhile, based on Minister of Forestry regulation No.20/KptsII/1983, “HTI
development is one of rehabilitation (on critical lands) and to improve the potential
of production forests in order to supply sufficient wood as raw material for the pulp
and paper industry.” Based on the Walhi investigation, however, manipulation and
corruption on HTI plantations has occurred, with the majority planted in previously
natural forestlands, as occurred in Pelaihari national park, in Tanah Laut, South
Kalimantan, where it was allowed that an area of 35,000 ha could become HTI, yet
the company only planted 27,500 ha.
Therefore, according to Walhi, based on the potential of HTI plantations, pulp
and paper production should reach 1.7 million tons.11 The shortfall of wood is there-
fore usually obtained through illegal logging practices, where many wood traders
(cukong) paid local people to cut trees in natural forests and nature parks (Interview
with Ginting, April 12, 2001). Ginting and other colleagues suggest a solution of
strictly limiting “permissions” for new pulp and paper factories. Otherwise, land
10
See, Press Release Walhi, 1999, for detailed information; the correlation between illegal logging
and overconsumption from wood industries will encourage deforestation in many districts.
11
For further information, see Directory (1999) Indonesian Pulp and Paper Industry, that pulp
capacity reached 2,054,700 t and 2,399,100 t paper; and also see the Journal of Tanah Air: Jurnal
Lingkungan Hidup, Edisi 1–1996, for a comparison of “raw materials” provided for the pulp and
paper industry in 1994.
Discourses on the Impact of the Pulp and Paper Industry 119
conflicts and rapid deforestation will continue, and forest resources will be
completely extracted.
Second, land conflicts are becoming more common between local people and
HTI concession holders in many districts in Indonesia.12 An example of these land
conflicts is those that occurred in Sugapa village, Toba, North Sumatra. This con-
flict occurred in 1987 concerning 51 ha of customary land, taken by Inti Indorayon
Utama Company (IIU) for a HTI plantation. IUU Company colluded with the head
of the village and subdistrict to pay Rp. 625,000 as a contract for 30 years on 51 ha.
Therefore, the contract price was only Rp. 12,500 per ha. The main difficulty arose
when several members of the community did not agree with this contract, and,
according to local traditions, all members of the community must agree in order for
others to use the land.
Third, “environmental contamination” from the effects of the pulp and paper
industry can have long-term effects on future production. It usually occurs in devel-
oping countries such as Indonesia, Thailand, the Philippines, and others where some
industrial factories do not have adequate water treatment systems. Therefore, envi-
ronmental pollution such as water, air, and biological species can be seriously
affected. For example, many studies have indicated that P.T.IIU is involved in envi-
ronmental contamination. According to Kitoshi Uematsu, an expert in chemistry
from JICA (Japan International Cooperation Agency), who worked in North
Sumatra for some time, said that the pulp industry, produces 50–60 % pulp, and the
remainder, particularly “lignin,” is digested by chemicals to become “waste liquid”
(buangan cair). This waste liquid, if thrown into a river, can contaminate the water,
causing a bad smell, painful skin irritations, and more, causing local communities
to lose their vital source of drinking water, as well as water being used for bathing
and washing. Fishing and agricultural activities stop. Fish and paddy roots die,
because they suffer from too much sulfide and alkali. According to the Walhi inves-
tigation, rice field production declined to 70 % because of a high degree of acidic
rain. PH levels reached 4–5, a dangerous level for living species. The health conse-
quences are many. Locals more easily suffer from illnesses, such as skin diseases,
coughs, inflamed throats, conjunctivitis, and more.13 Syahwir Syarif, the director of
the Directorate General of the Chemical Industry, summarily rejected this opinion.
He stated that it was difficult to connect the emergence of some diseases with the
pollution created by the Indorayon factory. In contrast, Markus Sudibyo, the direc-
tor for Community Development of the Indorayon stated that: “The accusation of
environmental contamination was totally unfair, as generalizations without public
scrutiny were encouraging a negative image of the community and company.”14
12
See “Land conflicts that occurred on HTI plantations in 1994 in subdistrict Jangkang, Sanggau,
West Kalimantan, between local people and Inhutani III,” Center for Social and Cultural Studies,
LIPI report in 1996.
13
See the research report carried out in 1991, which focuses on the health impact of environmental
contamination in Porsea by Deddy Yevri. This report is entitled “Perjalanan Secarik Kertas,” (The
Travelling a sheet of paper) Walhi, 1992, pp. 70–73.
14
Ibid.
He added that the positive aspects of Indorayon for local communities was the
ability of the company to employ 7,294 people, among them 3,730 ethnic Batak, in
1998. The currency flowing into this region in 1996 totaled Rp. 25.6 billion, through
wages, logging activities, services, and others. In 1997, it was Rp. 23.5 billion, with
Rp. 10.4 billion through community development projects, such as scholarship for
pupils, infrastructure construction, schools, and health facilities. This means that the
total, including community development payments and other cash flows in this
region, was larger than the local original income (Pendapatan Asli Daerah/PAD)
(Tropis, No. 5/April 1999). The management of this factory, according to Markus,
had received an ISO Certificate 9002 (for management requirements) in 1995. And
in the near future, the company would attain an ISO 14001 for environmental man-
agement quality. Sarwono Kusumaatmadja, the former Minister for the Environment
stated that, “Relocation of the factory site is the responsibility of the government,
because the government previously gave permission for its operation.” Therefore,
the Indonesian government should be responsible for maintaining the “truth” for
investors.
Walhi supported the social protests launched by the local communities of Porsea,
requesting that the government close the factory, which was accused of environ-
mental contamination. In the reformation era, President Habibie, on March 19,
1999, declared the temporary closure of the Indorayon Utama factory, stating that
the government would perform an international public audit concerning Indorayon’s
involvement in environmental contamination.
Implications of Environmental Issues
There is a close relationship between forest loss (degradation and deforestation) and
the forest management of the Soeharto government with great environmental impli-
cations. These implications, such as forest fires, climatic changes, depletion of bio-
logical species, floods, droughts, water pollution, and more, are causing high
causalities in terms of economic, ecological, and social damages. Certainly, it is the
government and private companies’ responsibility to overcome this disaster as the
government receives billions of US dollars from the forestry sector.
This section focuses on the discussions concerning the environmental implica-
tions from these proximate and root causes of forest loss (degradation and
deforestation).
Forest Fires
Why do forest fires occur in Indonesia, and what is the management system for for-
est fires? These critical questions are difficult to answer. This chapter discusses the
characteristics of the 1982–1983 and 1997–1998 forest fires and their consequences.
Forest Fires 121
Many previous studies (Walhi 1983; Wirawan 1984; Brookfield and Byron 1993,
etc.),15 have looked at the 1982–1983 forest fires that damaged 3.7 million ha, where
the underlying cause was forest mismanagement, due to: (1) most forest fire sites
were in Forest Logging Concession (HPH) areas (70 %), 20 % were located in shift-
ing cultivation areas and 10 % in primary forest; and (2) a lack of inspections and
sanctions for the provision of forest fire equipment among logging concession hold-
ers by forestry apparatus , whether at the district or provincial level. In contrast, the
1997–1998 forest fires, which were considered the largest fires, damaging 5 million
ha, were caused by “land clearing” performed by plantation holders, especially
palm oil plantations in “conversion forests.”16 According to Walhi investigations,
plantation concession holders began the 1997–1998 forest fires systematically. This
apparently occurred because of a government agricultural policy concerning palm
oil plantation development, where a target expansion of sites was planned from
842,700 in the 1980s to 1,310,996 in 1991; 2,957,079 in 1998; and 3,167,697 ha by
the year 2001. Ludwig Schindler, a GTZ researcher from Germany, criticized the
forest fires in Indonesia. He said, “The fires in Indonesia are 99 % human- caused
and mostly deliberately set for a variety of reasons.”17 Indonesia was again unpre-
pared. Only East Kalimantan in 1997 managed to prevent and contain fires by abid-
ing by an early warning system introduced by IFFM/GTZ. However, in the second
phase, wherein a drought struck East Kalimantan in 1998, the situation became
hopeless. A fatal combination of a 10 months rain deficit, economic crisis, and
impoverishment drove people to the forests. Ludwig Shindler has suggested the
decisions and changes that need to occur in order to contain fire problems, which
are: (1) to start solving land tenure problems; (2) to enforce the law (which will only
become possible by raising the salaries of public servants); (3) to set the course for
a forestry policy that raises the awareness and interest of the general public, media,
and local communities to protect the forests; (4) to adjust (reduce) the annual allow-
able cutting of forests, particularly adapting forestry planning after the occurrence
of fires; (5) to develop a binding fire management concept for forest logging conces-
sion holders (HPH); and (6) to stop conversion of natural forests into plantations.
15
For further discussion on the patterns of the 1982–1983 forest fires, see Wirawan, Nengah
(1984), “Can we afford to lose more of the rain forest in Kutai? A survey to the southwest corner
of Kutai National Park,” World Wildlife Fund, Bogor, Java (cited in Brookfield and Byron (1993)),
South-East Asia’s Environmental Future: The Search for Sustainability, Oxford Singapore, 1993,
pp. 242–258; See also Tanah Air Journal, No. 5/1998, published by Walhi.
16
For information on the trends, causes, and consequences of the 1997–1998 forest fires see
Lapoaran Kebakaran Hutan dan Lahan di Indonesia (Forest Fire and Land Report), Volume 1,
published by Ministry of Environmental Office and United Nations Development Programme
(UNDP), Jakarta, 1998.
17
See Ludwig Schindler, “Fire management in Indonesia-qua vadis?” in Tropical Forest Fire:
Prevention, Control, Rehabilitation and TransBoundary Issues, Proceeding Paper, Published by
Bappenas, Jica, and ITTO, 7–8 December 1998, pp. 285–286.
The 1997 Forest Fires
According to PHPH (the Directorate General of Forest Protection), the 1997 forest
fires destroyed a total of 383,870 ha (Minister for the Environment Report 1998).
Official records are lower than those of other, independent reports. According to
Pangestu and Ahmad, based on provincial reports and other independent resources,18
the total was closer to 627,280 ha. The burnt areas consisted of 41 % peat moss, 26
% small and large plantations, 16 % national parks and conversation forests, 13 %
timber forest plantations (HTI) and production forests, and 4 % reforested land
(lahan reboisasi). Table 5.4 provides yet another estimate of the extent of destruc-
tion caused by these fires.
Another source stated that the forest fires from 1997 to 1998 affected an esti-
mated 9.7 million ha, including areas other than woodlands. In Kalimantan alone,
6.5 million ha were consumed by fire (The Asahi Shimbun, September 23, 2002).
This was said to be because “tropical forests are felled to develop palm oil planta-
tions or plant fast growing trees such as acacias and albizzia in accordance with a
policy Jakarta has promoted since the 1990s.” He further commented that tropical
forests are cut down and the stumps are then burned and the ground is cleared for
planting. This operation not only releases vast amounts of “smoke,” but there is
always the danger of the fire spreading to the forests or farms.
What was the impact of the forest fire on health and the environment? In
1997/1998, at least 20 million Indonesian people were directly and indirectly
affected by the pollution from these forest fires. Black smoke contains many air pol-
lutants: CO, CO2, NO (x), NH4, and bacteria such as Streptococcus, which caused
many thousands of people in Riau, Jambi, South Sumatra, and West, Central, and
East Kalimantan to be hospitalized. In Pekanbaru and Riau, for example, at least
357 people were hospitalized, 65 in critical condition. The smoke caused students
Table 5.4 Areas affected by fire during July–September 1997 and January–April 1998 (ha)
1997 1998
Forest type (July–September) % (January–April) %
Production forests (logging) 578,000 33.70 105,900 42
Conservation area 45,000 2.60 75,600 30
Plantation area 798,000 46.55 71,000 28
Peat Swamp area 260,000 15.20
Transmigration area 30,000 1.70
Swidden agriculture 3,000 0.20
Total 1,714,000 100 252,500 100
Source: Siscawati, ‘Underlying causes of deforestation and forest degradation in Indonesia,’ in
IGES workshop on forest conservation, 21–23 July, 1998, pp. 56; See also Bobsien and Hoffmann
(1998)
18
One report emphasized the latest research work carried out by CRISP (Center for Remote
Imaging) in Singapore, based on “Landsats” of Sumatra and Kalimantan.
Forest Fires 123
of kindergarten, primary, and secondary school (74,000 pupils) in Riau to be forced

to remain at home until the smoke had cleared. In Kalimantan, there was an out-
break of many diseases, such as bronchitis, asthma, red eyes, ISPA (breathing infec-
tion), and so on, among the local communities, and hundreds of people died in Irian
Jaya/Papua because the transportation of food and other necessary supplies to the
hinterlands were forced to stop due to smoke. The total financial cost of all this
reached Rp. 394 billion for 8 provinces, based on a World Bank report in November
1997. However, in terms of long-term health problems and impacts, total financial
cost could have reached three times that amount (Rp. 1.2 trillion). According to the
1998 Walhi report on the five potential forest fire provinces of South Sumatra,
Lampung, and East, West, and Central Kalimantan, the total reached Rp. 465
billon.19
What was the effect on economical issues in terms of transportation? The
Meteorological and Geophysical Agency (BMG) and Ministry of Health collected
and correlated statistics in six locations throughout Sumatra and Kalimantan along
meteorological parameters (Tables 5.5 and 5.6).
As noted by Gerhard (1998),20 the most affected provinces were Central
Kalimantan, Jambi, and southern East Sumatra, where peak particle concentrations
were 4,000 ug/m3. Those locations were downwind from dense, intense peat fire
clusters. Relatively less affected were East Kalimantan and the eastern and northern
parts of Sumatra, where particle concentration remained below 800 ug/m3
TPM. Daily mean horizontal visibility during the haze period was below 1 km for
80 days in Palangkaraya and for 60 days in Jambi. In almost all locations, daily
mean visibility was below 3 km for at least 50 days. In Jambi, Sultan Toha Airport’s
daily financial losses were between Rp. 30 million and Rp. 100 million (Table 5.6).
Therefore, if airports were closed for about 313 days (Table 5.5), then the total
recorded financial loss was between Rp. 9.3 billion and Rp. 31.3 billion (Sriwijaya
Post, August 19, 1997). If we add the costs to airplane companies, total financial
loss will reach Rp. 100.78 billion to 122.69 billion. Yet, the most tragic plane acci-
dent occurred in Sibolangit, North Sumatra in November 1997 with all 200 passen-
gers dead, and shipping accidents in the Malaka straits became common as well.
Since April 1997, Indonesia has brought about a “haze confrontation” with
neighboring countries such as Singapore, Malaysia, Brunei, the Philippines, and
Thailand.21 This confrontation succeeded in closing airports and canceling flights
because of the haze. The rich families of Singapore and Malaysia preferred to
become temporary refugees in Hong Kong and Australia.
19
For further information on forest fire cost in five provinces, see Tanah Air, No. 5/1998; and inter-
view with Ginting, Lonngena, and expert forest issues of Walhi staff, on July 20, 2001.
20
For a discussion on the correlation between haze and the transportation system, see Gerhard
Dieterile, “Impacts of large-scale forest and land fires in Indonesia 1997 on regional air pollution,”
in Tropical Forest Fire, Bappenas cooperation with JICA and ITTO, December 7–8, 1998, p. 138.
21
For further discussion on the haze confrontation among ASEAN countries, see D. Jacob, T
(2001), Tahun-Tahun yang Sulit: Mari Mencintai Indonesia (The Most Difficult Times to love
Indonesia), Jakarta: Yayasan Obor Indonesia.
Table 5.5 Airport inactivity Airport

during the 1997 forest fire Provinces closed (days)
West Sumatra 39
Riau 32
Jambi 35
South Sumatra 45
West Kalimantan 37
East Kalimantan 65
Middle Kalimantan 31
South Kalimantan 29
Total 313
Source: Department of Transportation,
1998; and see Laporan Kebakaran Hutan
dan Lahan di Indonesia, Jilid 1, Kantor
Menteri Negara Lingkungan Hidup RI
dan UNDP (United Nations Development
Programme, 1998, pp. 60–63
Table 5.6 Financial loss for Airline companies Financial loss (Rp)
airline companies during
Garuda Indonesia 76,800,000.000
1997 forest fires
Merpati Nusantara Airline 10,600,000.000
Mandala Airline 2,800,000.000
Bouraq 954,000.000
Dirgantara Air Service (DAS) 234,713,000
Total 91,338,713.000
Source: Department of Transportation, 1998
Water Pollution and Famines
The increase in occurrences of acid rain, floods, and other changes in water chem-
istry brought about by the ash from the fires, were apparently the factors that trig-
gered the explosions in populations of Aeromonas hydrophila, Staphyloccus sp.,and
Pseudomonas sp. that attacked and caused an epidemic of skin infection among the
fish population of the Mahakam River (Tempo, August 4, 1984). In addition, the
disease also attacked and caused serious health problems in the dolphins (Orcaella
brevirostrist), unique to the central Mahakam area. Serious floods were also experi-
enced along major rivers in the province. Houses along the tributaries of the
Mahakam River, for example, were submerged for several months during the 1983–
1984 rainy seasons (Wirawan 1984). A bridge along the Bengalon River, just north
of the Kutai National Park, was reported to have been destroyed by floods.
Water Pollution and Famines 125
The haze from the forest fires also seriously affected transportation systems.
Widodo and Rahman (1984)22 noted that thick smoke covered areas near the source
of the fires for more than 3 months. Many pilots reported that the heavy smog
reached up 5,000 m into the air. These circumstances caused flights to inland areas
to be cancelled several times. Balikpapan airport was closed or used only between
2 and 5 p.m., when winds would lift the smog. Similar conditions affected other
airports in Kalimantan, as well as impeding traffic at airports farther away, in
Surabaya, Sarawak, Sabah, and Singapore. These cancelled flights caused a loss of
income in the billions of rupiah by the government, private sector, and workers in
many segments of the industry. Travel by land and water were also affected.
Traveling from Balikpapan to Samarinda, just 97 km away, was very dangerous, not
only because of poor visibility but also because flaring fires often jumped across the
road. Furthermore, ships had to wait in Samarinda and cancelled travel up the
Mahakam River.
According to Judith Mayer (1989), the implication of the effects of fire and
drought in 1993 on rural populations was serious. Based on her survey in mid-1989
of 12 villages in the burned area north of the Mahakam River, the local communities
suffered from loss of plants and damaged agricultural plantations (Paddoch and
Peluso 1996: 190–200). Survey data on crop destruction in 1982 and 1983 showed
that fire and drought virtually wiped out the 1982 rice crop in 5 of the 12 villages
surveyed: by fire in Pelawan, Long Segar, and Muara Danau, and by drought in
Long Lees and Melan. Average proportions of 1982 household food crops damaged
in other villages ranged between 58 % and 88 %. Fires and drought also devastated
fruit production. Even in the vicinities of Long Bleh and Kalekat, where many fruit
trees did not burn, trees failed to produce fruit for two seasons after the fires. Village
heads reported that many people consumed their remaining seed grain during the
drought, after their 1982 crops burned. Those who were unable to get alternative
supplies of padi (rice) seed could not plant in the 1983–1984 season. The village
head of Long Bleh mentioned that 37 families of his village—about one-sixth of the
village households—had left the village during the fires to find food and work else-
where. Apparently, this severe catastrophe caused the Kutai District government to
organize “emergency” rice distributions twice a week of 2.5 kg of rice per house-
hold for up to a year to villages in the Mahakam River basin. Almost the greatest
part of survey respondents said this emergency food action helped prevent mass
starvation among local communities.
22
For detailed information on the impact of forest fire on the transportation system in East
Kalimantan, see Widodo, J and Rahman, I (1984), Setahun setelah Kebakaran Hutan Kalimantan:
Langit Mendung di Tengah Kemarau Kering’ (A year after forest fire in Kalimantan), Kompas,
June 5, 1984.
Species Depletion
What about the loss of biological resources? The island of Borneo (Kalimantan) has
the richest flora, with some 3,000 species of trees, 2,000 species of orchids, and
1,000 species of ferns. Borneo covers less than 0.2 % of the earth’s land surface, yet
1 in 25 of all known plants is found here as well as 1 in 20 of all known fauna. There
are 37 endemic birds (compared to only 20 on Sumatra island) and 44 endemic land
mammals (compared to 8 mammals on Sumatra and its offshore islands) (Padoch
and Peluso 1996: 60).23 Based on a relatively short period of ground and aerial sur-
veys in the affected areas, Lennertz and Panzer recognized three classes of damage.
Class 1 areas received only drought damage and 10 % of the canopy trees died; class
2 areas suffered both drought and fire damage and 10–50 % of the canopy trees had
died, and class 3 areas suffered severe burns, with more than 50 % of the canopy
trees dead. It was reported that the affected areas covered some 3.5 million ha,
including 800,000 ha of primary forest; 1,400,000 ha of logged forest; 750,000 ha
of secondary forest, shifting cultivation and settlements; and 550,000 ha of peat
swamps and peat swamp forest (Brookfield and Byron 1993: 247). Further study
indicated that most of the affected areas had class 2 or 3 damage; Wirawan (1984)
found that the number of dead canopy trees (up to 71 %) was found to be the
result of drought only. Wirawan (1985) also reported that after the fire, live
remnants of the forests varied from scattered individual trees, through to pockets
or stands of a few unburned hectares, to largely undamaged areas several thousand
hectares in size.
As an illustration, the fire-affected Kutai National Park, 306,000 ha wide was
found by Pearson (1975)24 to be rich in bird species before the forest fires. Based on
a survey of the area, he listed some 300 species belonging to 47 families and sub-
families, including 239 species of 33 families and subfamilies or 83 % of the forest
birds of Borneo. Cokburn and Sumardja observed 7 species of ungulates (including
the Malayan sun bear, leopard cat, binturong, civets, mongooses, weasel, and otters),
11 species of primates (including the orang-utan, macaques, proboscis and leaf mon-
keys, Bornean gibbon, slow loris, and tearsier), and 25 species of rodents (including
the porcupine, mice, rats, and 15 species of squirrels). However, after the fire, further
studies by Wirawan (1985), Leighton and Wirawan (1986), Azuma, Dio, and Suzuki25
indicated that most of the large mammals (except for the Sumatran rhinoceros) were
still in the area. Although smaller animals are more difficult to see and require more
23
For a further information on biodiversity in terms of flora and fauna of Kalimantan (Borneo), see
Mack Kinnon, J and Phillips, K (1993), A Field Guide to the Birds of Borneo, Sumatra, Java, and
Bali, Oxford University Press.
24
Cited in Brookfield and Byron (1993). For information on the various birds in Kutai National
Park, see Pearson, D.L. (1975), “A preliminary survey of the birds of the Kutai reserve, Kalimantan
Timur, Indonesia,” Research Note No. 2, Treubia, 28, 4: pp.151–162.
25
For a discussion in terms of forest fire and biological species, see Tagawa and Wirawan (Eds.)
(1988), “A Research on the Process of Earlier Recovery of Tropical Rain Forest after Large-Scale
Fire in Kalimantan Timur, Indonesia,” Occasional Paper No. 14, Research Center for the South
Pacific, Kagoshima: Kagoshima University, pp. 12–50.
Species Depletion 127
intensive fieldwork to determine their numbers, major concerns were raised on the
population status of the various birds and rodents, as noted by Leighton and Wirawan
in the Menkoto study area. The fire killed 52 % of the fruit trees belonging to
Meliacecese and Myrtaceae, which are highly preferred by the 6 species of hornbills,
and 2 of the territorial hornbills were no longer observed in the area during fieldwork
in September 1983 and August 1984 (Brookfield and Byron 1993: 252). Although
the fire affected half of its 200,000-ha area, Kutai National Park is still considered to
be the only large reserve in the world that contains such an assortment of biological
resources.
The existence of tropical rainforests is necessary for the maintenance of land
fertility and hydrological systems, as well as shelter for fauna and flora. A study by
Supriatna noted that Indonesian forests produced various medicinal plant species
such as a substantial variety of antibiotics. The hinterland people of Sumatra and
Kalimantan have long recognized various medical plant species able to prevent
many diseases. In Siberut, an island in West Sumatra, for example, local people use
223 medicinal plant species which they find in the forest; the Anak Dalam tribe in
South Sumatra uses 54 species; the Talang Mamak tribe in Riau uses 36 species; and
the Harawu village tribe in Central Kalimantan uses 100 species. Therefore, local
communities depend on forest products for their health.26
The multifunctions of the forests were lost in the fires along with the loss of its trees.
According to Mack Kinnon and Phillips (1993), forest fires cause trouble for the five
“ecological forest” processes of natural succession, organic substantial production and
decomposition, hydrological cycles, and soil creation. Forest fires also damage the
function of the forest as a climate, carbon, and DAS (water flow) regulator.
As an illustration, ITTO’s study on biological diversity in Bentuang National
Park, Karimun, West Kalimantan, in September 1997, looked at the effect of the
haze on the biological assimilation process. It concludes that the impact of lack of
sunlight for 1 month causes the assimilation process to be constrained for creating
carbohydrate and organic networks. This has affected further biological species
plant growth. In the same location, WWF and ITB researchers noted that reproduc-
tion of various “primate species” (such as monkey species), reptiles, and amphibian
animals ceased because of the fires. These animals face threatened extinction
(Kompas 15 October 1997).
According to the World Conservation Monitoring Center (1998), Sumatra and
Kalimantan have 11 forest types and various species of plants face extinction.
Before the 1997 forest fires, both locations (Sumatra and Kalimantan) had lost 50 %
of their primary forests. According to the Pangestu and Ahmad study, using a
“benefit transfer approach” model, it was predicted that every hectare sustained
US$300 (Rp. 1.5 million) of biological species loss. If the total affected area was
263,991 ha, the loss reached Rp. 395.9 billion. Meanwhile, the total loss of eight
provinces reached Rp. 201.6 billion or 50.92 % of national loss cost.
26
Usually those forest fires in national parks are not seriously big fires, compared with production
forest and other locations. This is because in national parks the humidity and soil fertility are in
relatively good condition. See Laporan Kebakaran Hutan dan Lahan di Indonesia, Jilid 1, Kantor
Menteri Negara Lingkungan Hidup, 1998, pp. 34–36.
What was the impact of local people’s income after the forest fires?
According to a 1998 Walhi study on several villages in Lampung, there was a
correlation between the failure of agricultural production and droughts suffered and
the forest fires. Apparently, many farmers’ monthly incomes decreased by 27.7 %
from Rp. 235,000 to Rp. 169,000 after the fires. In West Kalimantan, for example,
the Dayak people usually cultivated rice and rubber. Their annually incomes from
shifting cultivation fell from Rp. 642,000 to Rp. 530,000 after the forest fires.
Climate Changes
Recent years have seen several international environmental conferences and agree-
ments, many focused on global climate change. Widespread concern over the dete-
rioration in air quality and potential global warming has directed public attention to
the “lungs” of the planet: forests. The media has focused on “tropical deforestation”
as vividly symbolic of the crisis in the global ecosystem. For example, in mid-
September 1989, both Time and The Economist featured cover stories on the annual
burning of remote sections of the Amazon rain forest. In fact, the Western media
was unfair in publishing the underlying factors of climate change in terms of defor-
estation in 14 developing countries with tropical rainforests contributing to less
“carbon dioxide” production compared to advanced countries. Currently, seven
industrialized countries, consisting of 11 % of the world’s population, produce 40
% of all carbon dioxide emissions.27 It is the release of excessive amounts of carbon
dioxide, which later diffuses through the troposphere that is part of the problem of
global warming.28
Tropical forests function as “carbon sinks.” They absorb carbon dioxide from the
atmosphere and store carbon. Tropical forests, with rapidly growing plant biomass,
have proven particularly efficient in this process in the early successional stages.
When forests are burned, they release this stored carbon back into the atmosphere,
accelerating the build-up of carbon dioxide, a greenhouse gas that contributes to
global warming (Wood 1990: 23).29 Because of this, world scientists and policy
makers have been at the forefront of calling for an end to the destruction of tropical
rainforests. Although global climate change is just one of myriad deforestation-
27
In terms of the danger of “carbon dioxide” for human being’s breathing, see Turner, B.L (et al.),
“Two types of global environmental change,” in Global Environmental Change, Vol.1, Number 1,
December 1990, pp. 16; See also Carbon Dioxide Information Center (CDIC), Oak Ridge National
Laboratory, Oak Ridge, TN, 1989.
28
Proximate sources are final human activities such as biomass burning or industrial emissions that
directly affect the environment, whereas driving forces constitute a complex multitiered set of
actions and rationales (e.g., population change, urbanization, land tenure, technological change)
that give rise to proximate sources.
29
The role of tropical forest in the production of “carbon sinks,” for further discussion, see Roger
Sedjo,“Forests, a tool to moderate global warming?” in Environment, Vol. 31, No. 1, 1989,
pp. 14–20 (cited in Wood, William, Global Environmental Change, December 1990).
Climate Changes 129
related issues, it is the one that has captured the most attention. In contrast, the gas
emissions producing carbon dioxide in industrialized countries tend not to receive
the same attention. This subsection examines deforestation and its contribution to
global warming as well as the consequences of this in Indonesia.
Fourteen tropical countries, responsible for over 80 % of the world’s tropical
forests, exhibit, with few exceptions, characteristics found throughout the Third
World: rapid population growth, low per capita incomes, and large debt burdens
(Wood 1990). These conditions usually lead to deforestation for overlogging for
economic purposes. Brazil, where most international attention has been focused,
has by far the greatest area deforested each year (2.2 %), Mexico (1.3 %), Malaysia
(1.2 %), and Indonesia (1.1 %).
In the case of Southeast Asia, particularly Indonesia, while the Soeharto govern-
ment stimulated the forestry industry and supported the growth of logging activities
in the 1970s, the forest biomass became severely depleted. When the decline of
biomass and depletion of the ecosystem is so severe that the residual forest can no
longer rejuvenate, it is termed “deforestation.” The 1983 fires eliminated 36,000 km2
of forests in East Kalimantan alone, and in subsequent years, there has been further
destruction of forests.
According to Houghton (1991),30 when forests and woodlands are cleared for
cultivation, land clearing, and logging activities, much of the aboveground biomass
is released immediately into the atmosphere as CO2. Some of the wood may be
harvested for products and oxidized more slowly. The rest of the aboveground and
belowground material decays, as does the organic matter of newly cultivated soil.
These rates of decay vary with climate (John, Lang and Knight). When croplands
and pastures are abandoned, the lands may return to forests at rates determined by
the intensity of disturbance and climatic factors (Brown and Lugo 1982). Tropical
deforestation was estimated to have released between 0.9 and 2.5 × 10(15) gC into
the atmosphere in 1980 (Houghton et al. 1985).
Both surveys by the National Research Council (Myers 1980) and FAO/UNEP
(Lany 1982) included the few national studies that had used satellite imagery to
estimate changes in forest areas. Based on these surveys, Myers’ estimates were 18
% higher in Africa and 80 % higher in Asia, whereas the FAO/UNEP estimate was
54 % higher in Latin America (Houghton et al. 1985). On average, these estimates
were about 54 % higher than the low ones. This comparison is based on closed for-
ests only; Myers did not consider open forests.
According to Myers and Goreau (1991),31 the solution is a massive “tree planting
program” to overcome the greenhouse effect as a consequence of deforestation.
This would require far more vigorous measures than have been implemented to
30
In order to know the correlation between tropical deforestation and atmospheric production of
carbon dioxide, see Houghton, “Tropical deforestation and atmospheric carbon dioxide,” in
Climatic Change, Vol. 19, September 1991, pp. 102–111.
31
To prevent the development of the “greenhouse effect” as deforestation occurred in many regions,
see, for further discussion, Myers et al. (1991),“Tropical forests and the greenhouse effect: A man-
agement response,” in Climatic Change, Vol. 19, September, pp. 216–223.
date. Fortunately, there is growing support for such initiatives, as witnessed by

political leaders and policy makers in many tropical forest countries. President
Aquino of the Philippines, former Prime Minister Rajiv Gandhi of India, President
Daniel Arap Moi of Kenya, and even former President Habibie of Indonesia have all
spoken of deforestation in their countries as a “national emergency.” However, the
eight industrialized countries that produce more than 40 % of the carbon dioxide in
the world have provided financial aid to tropical rainforest countries for reforesta-
tion action programs. If this international cooperation continues, it will prevent
deforestation in tropical rainforests, which will in turn reduce total global warming
in the future.
How does climate change affect Indonesia? The Indonesian Committee on
Climatic Change Monitoring directed that the stimulated climate change in
Indonesia should be compared to previous records. The particle content of CO2 has
risen from an initial 286 parts per million of CO2 to 340 parts per million in the early
1990s. Hidayati (1990), for example, has studied the climate change in Jakarta and
surrounding areas. She found a very significant change of 0.03 C per year in the
maximum temperature. The increase through 1949–1987 was smaller than that over
1916–1987; between 1970 and 1987, the change was negative. Apparently, the
change during the east monsoon season (June–August) was larger than that during
the west monsoon season (December–February). The minimum temperature,
although significant, increased only by 0.01 C per year over 1916–1987.
The Agro Meteorology Group (1991) at the Bogor Agricultural University
recently undertook another study. This study focused on data from climatological
stations, which are thought to be little affected by the development taking place in
Indonesia. The result shows that, of the 12 stations examined, 8 exhibited a definite
change over the last 15 years. The magnitude was between 0.29 C and 0.63 C, or
about 0.02–0.04 C a year since 1970.32
The climate change also influences agricultural production. Rice production
could suffer serious setbacks from secondary causes. First, there would be heavier
erosion in upstream areas, which may have to be abandoned or reforested. Second,
some of the fertile coastal alluvial land would be inundated with seawater. For
example, the three districts of the Citarum River basin would lose a total of more
than 20,000 ha of rice fields. In the district of Subang alone, more than 25,000 ha
would be inundated, of which almost 12,000 ha are irrigated farmlands, which, with
two plantings annually, produce about 110,000 tons of rice and almost 4,000 tons of
maize and soybean. To maintain the present level of these three districts’ produc-
tion, the yield would have to be increased by 37.5 % beyond the current yield.
De Rozori particularly stressed the serious consequences of a rising sea level for
Indonesia, with so much of its best rice land very close to sea level. Even a small
reduction in rice production might be sufficient to cause the country to lose self-
sufficiency in rice production. Especially for Java, there is a need to identify the
32
For further information on the climatic change in Indonesia, see Manuel de Rozari, “Climatic
change in Indonesia,” in Brookfield and Byron (1993), South-East Asia’s Environmental Future:
The Search for Sustainability, Kuala Lumpur: Oxford University Press, pp. 190–195.
Climate Changes 131
most vulnerable areas and to decide which of them is worth engineering production.
There is also a need to determine which upstream areas need to be abandoned and
revegetated.
Apparently, the impact of the 1997–1998 forest fires was particularly serious,
causing damage to many aspects of human life, such as ecological damage and
economic and social loss (Table 5.7).
Table 5.7 Impacts of forest fires (overview)

Category Ecology Economy Social
Local Vegetation: Financial losses: Social costs:
Forest destruction Loss of timber Disruption of daily life
Biodiversity Loss of nontimber Disruption of life
depletion products (rattan, indigenous
Ecosystem wildlife fruits) communities
loss Loss of swidden Disruption of education
Habitat destruction agricultural fields Industrial disruption
Soil erosion (producing rice Transport disruption
Loss of soil, and cash crops) Public health impact
fertility, hydrology National Parks Traffic accidents
Watershed destruction Conjunctivitis, skin,
destruction Production wood eye irritation, asthma,
River decline of loss bronchitis, cancer,
water quality and Transport chronic disease
quantity disruption Water scarcity
Change of micro/ Forestry industries Famine (lack of food)
macro climate loss
(drier and hotter) Accidents
Acid rain Flood and water
Global warming supply
Air pollution
National/Regional Air pollution Airplanes cancel Disruption of daily life
Acid rain Transport Disruption of
Increase of disruption educational system
frequency of El Public health
Nino Higher risks of
accidents
Global Climatic change Financial aid Social and public
increase in CO2 Tourism industry dissatisfaction
emissions Influence on Political repercussion
international trade Sanctions
and business
Source: Siscawati, cf Bobsien and Hoffmann (1998), “Plantation forest fires in Indonesia,” NGO
Forum, May 4–6, 1990, Bonn, Germany
Concluding Remarks
Analysts and NGOs have debated deforestation, in the case of Indonesia, from many
points of view. Underlying factors causing “deforestation” in Indonesia have tend to
be more political and economical factors rather than proximate. The following are
some of the major points to be taken as concluding remarks:
1. Deforestation, as defined by FAO (2000), “is the conversion of forest to another
land use or the long-term reduction of tree canopy below the 10 % threshold.”
The structural analysis of forest loss looks at degradation and deforestation as
mainly caused by two factors: (1) underlying/root causes (2) and proximate
causes.
2. Deforestation trends in Indonesia have been increasing since the 1990s. Over the
last decade, the average rate of deforestation reported by FAO (2000) was 1.3
million ha (1.2 %) a year and the Lash (2000) reported an annual rate of 1.1 mil-
lion ha (1.02 %). Both the government and private sector have treated the “for-
estry sector” as a capital resource to be exploited for obtaining economic gain
without consideration or accountability for the ecological and social functions of
forest.
3. The contribution of logging and oil palm plantation holders on “deforestation”
are significant compared to local people practicing slash and burn and shifting
cultivation. Therefore, the private sector should be held more responsible for
implementing reforestation programs in natural forests to prevent forest degrada-
tion and shortage of wood as raw material in future years.
4. Other actors such as international financial institutions (the World Bank, the
Asian Development Bank, the IMF, and importer countries of tropical timber)
have also contributed to encouraging increased deforestation in Indonesia, pro-
viding grants for transmigration projects, oil palm plantations, the pulp and
paper industry, dam projects, and other uses. On the other hand, the excessive
logging for lucrative profits among developing countries, particularly Indonesia,
in order to pay their debts to donor countries such as Japan, the United States,
Europe, and others, are an indirect cause of forest exploitation.
5. The Soeharto regime’s policy on “forest management” was supportive of
“patron–client” relationships. These relationships also happen to be based on
links between powerful state patrons, mainly army generals and Indonesian
Chinese business clients (Cukong), leading to a continual lack of perfect compe-
tition. This condition indicated that from a “political ecology” perspective, the
concentration of political and economic power related to the Soeharto regime
was very strong and centralistic.
6. NGOs criticize the Soeharto regime on “discrimination” in forest management
in favor of the private sector over local communities, who are provided with no
legal access to forest timber and other forest products. This policy of discrimina-
tion against local communities, launched by the Soeharto government, has
become a major source of conflict, with land disputes in many districts and the
marginalization of the majority of local people in the economics sector.
Part IV
Forest Management
in the Reformation Era
The “reformation” agenda, introduced by President Habibie, concentrated on

democratization, good governance, decentralization, and respect for human rights.
Democracy requires strong linkages between civil and political spheres and trust
among citizens, activists, politicians, and government officers, building “good gov-
ernance” from political grassroots to the national level. Meanwhile, decentralization
was aimed at enhancing the impact of local government, to improve the skills and
political capabilities of the governmental apparatus and society and maintain
national unity. Political scientists agree that the implementation of “decentraliza-
tion” could accelerate developments in many sectors, such as economics, the
empowerment of local people, health, education, and infrastructure. If related to
forest resources management, the essence of forest decentralization is to democra-
tize the Department of Forestry apparatus throughout all levels (central, province,
and district), fulfilling principles of good governance, namely transparency, partici-
pation, and public accountability.
With deforestation levels annually reaching about 2–2.5 million hectares in 2001
and forest mismanagement spanning three decades, the general public and CGI
(Consultative Group on Indonesia) demanded that the government carry out forest
management decentralization. The very centralized and monopolistic forest man-
agement system of the previous 30 years had encouraged massive forest degrada-
tion and deforestation. Therefore, it was hoped that through forest decentralization,
Indonesian forest management would start moving towards a sustainable system.
This chapter focuses on discussion of forest reform policies in the reformation
era from the viewpoint of three elements: the conceptual approach of decentraliza-
tion and decentralization in the forestry sector; the interpretation of decentralization
by stakeholders; and problems occurring during the process of decentralization.
Chapter 6
Decentralization on the Forestry Sector
Decentralization is a popular technical term in social science. However, some prob-

lems have occurred in formulating an appropriate definition of decentralization,
because some branches of social science have only adopted the terminology and
therefore defined within the context and interests of these branches (Conyers 1984:
187). This discussion focuses on two main perspectives, namely the political and
administrative. Therefore, the term decentralization used in this chapter refers to
any transfer of the authority to plan, make decisions, and manage public functions
from the national level to any organization or agency at the subnational level.1 This
is consistent with the way in which the term is used by the government departments
involved in decentralization programs examined herein. In line with “political per-
spective,” Smith (1985) defines decentralization as “The transfer of power, from top
level to lower levels, in a territorial hierarchy, which could be one of government
within a state or offices within a large organization.” According to Smith, therefore,
“devolution of power” is the main substance of decentralization and is not just lim-
ited to governmental structures.
The Aim of Decentralization
In principal, it can be said that the purpose of decentralization is as an antithesis for

centralization.2 Centralization encourages the unification of political power into a
central government authority. Therefore, decentralization is the dissemination of
1
For a further information regarding the term decentralization see Diana Conyers (1983)
‘Decentralization: the latest fashion in development administration’ in Public Administration and
Development, Vol. 3, pp. 101–102.
2
“Decentralization” in the Reformation Era; see Syarif Hidayat and Bhenyamin Hoessein (2001)
“Desentralisasi dan Otonomi Daerah,” in Syamsuddin Haris, Paradigma Baru Otonomi Daerah,
LIPI. PoPoliticPoliticalStudies. Studies, pp. 27–35.

DOI 10.1007/978-981-287-745-1_6
136 6 Decentralization on the Forestry Sector
power and authority to the local government level. In general, Smith (1985) differ-
entiates two main categories as the aim of decentralization, namely political and
economical.
The aim of decentralization from a political perspective is to enhance local gov-
ernment, to improve the skills and political capability of governmental apparatus
and society while defending national integration. This aim of decentralization “is
based on the liberation idea which is importantly emphasized to build democratiza-
tion of local government as prerequisite to realize democratization in national level”
(Yluisker 1959: 30). The economical perspective of decentralization is to improve
local government capabilities in the provision of public goods and services, to
encourage the efficiency and effectiveness of localities in economic development
(Rondinelli and Cheema 1983: 4).
The Central Government
The central government sees three main aims to decentralization, according to

Smith (1985). The first aim is political education. Inspired by the concept of demo-
cratic decentralization, de Tocqueville justified this concept by stating, “Town meet-
ings are to liberty what primary schools are to science, they bring it within the
people, and they teach men how to use and how to enjoy it” (Smith 1985: 20).
Maddick (1963) says that the formation of local autonomy creates a “healthy politi-
cal understanding” for society and in particular with state operational mechanisms.
Maddick goes on to state that by implementing decentralization, a society will learn
to understand various social, economic, and political affairs; to support or refuse
their local legislative representative and to criticize local government policy, includ-
ing budget allocation development (Maddick 1963: 50).
The second aim of decentralization is to provide training in political leadership.
This aim starts from the basic assumption that local government is an appropriate
means for training bureaucrats and politicians, before moving to more significant
positions at the national level. Therefore decentralization is aimed at motivating and
encouraging the rise of national leaders. Harold Laski (1931) argues, “If the mem-
bers of national legislative body have prior experiences at the local body, they would
gain the fell of institution so necessary to success.”
The third aim is to create political stability. Supporters of this third aim believe
that, through decentralization, we will be able to realize social harmony and politi-
cal stability (Smith 1985: 23). Decentralization through political education and
training in political leadership will eventually lead to political stability. The improve-
ment of social participation in the decision-making process at the local level, along-
side the improved sensitivity and political capability of local government apparatus
in accommodating various demands is a significant prerequisite to creating political
stability.
Review of Decentralization on Act No. 22/1999 137
The Local Government
From the local government perspective, there are several aims to decentralization.
The first aim is to realize political equality in order to create more opportunities for
society to participate in various political activities at the local level. Smith (1985:
24) states that local people can practice on the formation of political participation,
for instance, to be member of political parties and interest groups, in addition to
obtaining freedom in order to express their interests and be actively involved in the
decision-making policy process. Second is local accountability. Smith (1985: 26)
tends to relate accountability to the basic idea of liberty. Therefore, he believes that
through decentralization, practice will rapidly increase the capability of local gov-
ernments to respond to community needs.
Third is local responsiveness. One of the basic assumptions of supporters of
decentralization is that local governments have more information about factors
important to their local community. Therefore, it is hoped that decentralization will
become the best alternative to overcoming socioeconomic difficulties and accelerat-
ing the socioeconomic development of local communities.
Obviously, from the above description, aims of decentralization—political edu-
cation, training of political leadership, creating political stability, political equality,
local accountability, and local responsiveness—should be further examined in the
practice of decentralization at the local and central level as well.
Review of Decentralization on Act No. 22/1999
The Role of the CGI
With the fall of President Soeharto and his regime in May 1998, there was strong
pressure internally and externally for change. Internally, the people of Indonesia
demanded greater improvements for a democratic system and decentralized govern-
ment. Externally, as a part of an integrated program to recover from the economic
crisis Indonesia had suffered since the middle of 1997, the Consultative Group on
Indonesia member countries (CGI) tightened regulations on “forestry reform” for
debt restructuring.3 This economic recovery program was considered by the CGI
and World Bank as a prerequisite for the Indonesian government to obtain an eco-
nomic package worth US$43 billion from the IMF. Therefore, the Indonesian gov-
ernment, through Presidential Decree (Kepres No. 80/2000, decided to create a
Trans Departmental Commission on Forest (IDCF) to redefine and implement the
3
Kartodihardjo Hariadi, ‘Masalah Struktural dalam Implementasi Kebijakan Baru Kehutanan’
(Structural Problem on Forestry Policy Implementation), in Resosudarmo et al. (ed.) Ke Mana
Harus Melangkah: Masyarakat, Hutan, dan Perumusan Kebijakan Hutan di Indonesia (Which
Way Forward?: People, Forests, and Policy Making in Indonesia), Jakarta: Yayasan Obor Press,
2002, pp. 188.
new forestry programs. These programs included law enforcement on illegal log-
ging, maintaining natural resources, evaluating forest conversion policy, and a mor-
atorium for all conversion of natural forests until a national forestry program is
ratified, restructuring of the forestry industry to improve competition, and closing
bankrupt wood industries.
Unfortunately, those programs were not well implemented by IDCF and not
advocated by government bureaucrats in implementation, whether at the central or
local level. In addition, the Department of Forestry, which is a central institute on
forestry reform, had no role in the IDCF. Apparently, the bureaucrats were more
interested in reforming government structure than forest management policies.
To Improve Regional Autonomy
Soeharto’s successor, President Habibie, made a commitment to the Indonesian

people of a more democratic government to accommodate people’s demands for a
decentralization policy. The central government issued Acts No. 22/1999 and No.
25/1999 in May on regional autonomy and fiscal balancing between the central and
local governments. These laws were followed by an operational mechanism (gov-
ernment regulation/Peraturan Pemerintah No. 25/2000 regarding the authority of
the national government and provinces with regards to regional autonomy).
The national parliament’s (DPR/Dewan Perwakilan Rakyat) positive response to
the decentralization bills reflected a view that the proposed changes represented an
acceptable compromise between the two main contending concepts of government
reforms, namely the introduction of a federal system under which power would be
devolved to the provinces, or the retention of the existing highly centralized system
with only small modifications. Neither of these options enjoyed strong public sup-
port. Habibie’s government preferred to focus on regional autonomy at the district
and municipality (Kabupaten/Kota) rather than provincial level. The devolution of
political and economic authority to the district was seen as an acceptable middle-
way solution. The policy was intended to provide more scope for local creativity
and initiative in making policy and promoting public participation. Ryaas Rasyid,
former Minister of Regional Autonomy in Habibie’s administration (1998–1999),
stated that from a political perspective decentralization is fundamental to the devel-
opment of democracy. First, it gives the provincial and district legislatures (Local
Parliament/DPRD I and II) the power to elect and hold accountable local heads of
governments, to initiate and promulgate statutes and regulations, and to approve
budgets and to create institutions. Second, with the considerable powers invested in
the regions—especially in the fields of mining, forestry, industry, investment, land
administration, public works, education and culture, public health, transportation,
environment, cooperatives, and labor affairs—local communities gain vastly greater
opportunities to participate in decision making and providing their own services.
Third, as a consequence of heightened public accountability, the community can
ensure that its interests will not be violated. For example, Ryaas said that Act No.
Review of Decentralization on Act No. 22/1999 139
22/1999 granted the DPRDs (Local District Parliament) full authority to elect and
require accountability from their own heads of government (Bupati), thereby giving
regional communities sovereignty over their political affairs. It was hoped with the
elimination of central intervention, local governments would freely elect the best
and the brightest to lead them. Apparently, this law indicates a dramatic change
from the previous system.4
In Act No. 22/1999, chapter four, article 7 (1), it is highlighted that “the authority
of local district government (district/Kabupaten) covers all fields of government
affairs, except foreign affairs, defense and security, the judiciary, monetary and fis-
cal matters, religion and other authorities.” It explains in article 7 (2), that other
authorities than those mentioned in article (1), covers national planning, the guid-
ance of national development at the macro level, the fiscal balancing fund, state
administration, state economic institutions, manpower development and empower-
ment, natural resources utilization, strategic and advanced technology, conserva-
tion, and national standardization. Regarding natural resource management,
chapters four, article 10 states that “local government has the authority for national
resource management within their existing territory and are fully responsible for
maintaining a sustainable ecology based on regulation and law.”
Article 7 (2) can be understood to say that regional autonomy contains excep-
tions and limitations, because certain government sectors remain within the control
of the central government, including natural resource utilization, where the forestry
sector is one of those natural resources. The explanation of article 9 (1) states that
the province, as the authority of regional autonomy covers the authority of the gov-
ernmental sector to monitor interlocal governments and municipality relationships
attain authority over the forestry sector. Meanwhile, article 10 (1) states that local
government has the authority over national resources management within their ter-
ritories and is responsible to maintaining sustainable environments based on regula-
tions and laws.5 I Nyoman Nurjaya from the Faculty of Law, Brawijaya University,
stated that the regulations explained above bring about two legal problems. One is
that Act No. 22/1999 on regional autonomy is ambiguous about implementation.
One article stipulates limits on local government authority. There is also a contra-
diction in the inconsistency between articles 7, 9, and 10 regarding the local govern-
ment’s authority.6 Nurjaya further states that the legal implication of this is multiple
interpretations on legal norms and no clear philosophical meaning to this law.
Because the law must be formulated systematically, the legal substance of regula-
tions must be consistent and clear, not allowing for multiple interpretations.
4
Ryaas Rasyid, “Regional autonomy and local politics in Indonesia,” in Aspinall, Edward & Greg,
Fealy (Eds.), Local Power and Politics in Indonesia: Decentralization & Democratization,
Singapore: ISEAS & CSIS, 2003, pp. 64–65.
5
For further information on Regional Autonomy Act No.22/1999, see Undang-Undang Otonomi
Daerah 1999 dan Juklak, Jakarta: Sinar Grafika, 2000.
6
Nurjaya, I Nyoman, “Pengelolaan Hutan dalam Perspektif Otonomi Daerah; Wacana Ilmu
Hukum” (Forest Management in Regional Autonomy Perspective: Law Discourse), in Duta Rimba,
February, 2001, pp. 14.
Based on Act No. 25/1999
To Improve Fiscal Capabilities
It can be said that the issuance of Act No. 25/1999 on fiscal balancing is proof of the
attention the central government has given to improving the fiscal capability of local
governments. In chapter three, article 3, it is written that the resources income of
local governments under decentralization are: (1) local revenue (Pendapatan Asli
Daerah/PAD), (2) the balancing fund, (3) regional credit, (4) and other validity
incomes. The new budgetary arrangements give local governments a far larger
income derived from more varied sources. Local governments receive a share of oil
and gas revenues as well as continuing to receive block grants from Jakarta’s
General Allocation Fund (DAU). This aspect of fiscal decentralization, which came
into force in January 2001, has enabled the DPRDs (local governments), in resource-
rich provinces in particular, to generate higher revenue. The central government
allocates 25 % of domestic income to the DAU (article 7, Act No. 25/1999). DAU
funds are distributed to the region based on the population size, area, geographical
location, level of income, and natural resource potential of each territory, with 90 %
going to the district level and only 10 % to the provincial level. In addition, the
central government supports specific projects in selected regions through its Special
Allocation Fund (Dana Alokasi Kusus/DAK). DAK funds are mainly targeted to
helping poorer regions maintain and improve public services, such as education,
health, environment, transportation, water supply, and so on. Apparently, the
revenue-sharing arrangements of the regions vary according to the source of reve-
nue. For example, the split between the national and local governments is 10:90 in
the case of property taxes; 20:80 for forestry, fisheries, mining; 85:15 for oil; and
70:30 for natural gas (article 6 for the balancing fund).
In the case of the forestry sector, there are two main incomes. First is IHPH/
Forest Concession Rights Levies); second is the PSDH/Provision of Forest
Resources. The more important of these two are forest concession right levies, roy-
alties, and reforestation funds. The formula for the redistribution of funds varies
depending on the type of fee. For example, according to Act No. 25/1999 and its
implementing regulations, 16 % of funds generated by concession rights levies is to
be distributed to provincial government and 64 % to the producing district (the pre-
vious arrangement was for 30 % of such revenue to be retained by the central gov-
ernment, with the remainder being distributed to the provinces). The new
arrangement for reforestation funds, the most lucrative of the fees, is for 40 % to go
to producing districts and 60 % to be retained by the central government (Aspinal
and Fealy 2003: 232–233).7
7
In the case of royalties (IHPH), the province will receive 16 % and the producing districts 32 %.
The remaining 32 % will be distributed equally among the other districts within the province.
Previously, royalty revenue was divided as follows: 30 % to the provincial government, 15 % to the
district, 40 % to national forestry development, and 15 % to regional forestry development
(Presidential Decree No. 67/1998).
Based on Act No. 25/1999 141
Since the decentralization laws were officially carried out in January 2001, forest
management at the local level has undergone rapid and profound change, setting it
on a radically different course to that pursued under the New Order regime. Changes
have been particularly great in the way that permits are granted and in how logging
activities are carried out. It should be noted, however, that some of these changes
predate the decentralization legislation and are in fact associated with the broader
atmosphere of reformation in Indonesia since 1998.
In considering these new Acts, a critical question must be asked. Does the imple-
mentation of both Acts No. 22/1999 and 25/1999 bring about greater justice and
prosperity for local governments and their constituents? Or, in contrast, will the
implementation of both acts affect the rise of small lords, carrying out greater cor-
ruption, collusion, and nepotism in local governments, because of a lack of real
inspection by local legislative members (DPRD/Dewan Perwakilan Rakyat Daerah).
The Constraints of Practice
There have been some problems encountered with the implementation of Acts No.
22/1999 and 25/1999 after they took effect on January 1, 2001. The problems are
due to a number of factors, namely: (1) a weak government (loss of confidence
because of the deteriorating social, economic, and political situation faced by the
current central government), exploited by many local governments, which are
implementing their own concepts of autonomy; and (2) local governments, con-
cerned by the budgetary implications of decentralization, are exploring ways of
using natural resources, including forest resources, as a means of generating local
revenue (PAD), either through taxation or involvement in resource management.8
The issuance of Act No. 22/1999 during the reformation era is aimed at restoring
relations between the central and local governments of Indonesia. In fact, many
observers say that Acts No. 22 and 25/1999 have a federal orientation. In reality, as
explained by Haris (Kompas, 28 April 2000), these laws tend towards sustaining the
old paradigm of local autonomy, by allowing only a uniform autonomy at the local
district level (Daerah Tingkat II) without considering the differing capabilities and
potential of each district. Haris’s criticism is supported by chapter one, article 1 (e)
of Act No. 22/1999, where it is explicitly stated “decentralization is the submission
of governmental authority by central control to regional autonomy in the framework
of the united nations of the Indonesian Republic.” This still refers to the old para-
digm of administrative decentralization, not encouraging the devolution of power,
such as would be found from political decentralization.
Therefore, the power relationship between the central and local governments, as
mentioned in Act No.22/1999, chapter four, article 7, is characterized by an effort to
maintain this centralization of power in the hands of the central government, where
8
Hutabarat Silver,“Forestry developments with regional to decentralization” in The Indonesian
Quarterly, Jakarta: CSIS, Vol. XXIX, No. 2, 2001, pp. 155–156.
it is stated that “the local government’s authority covers all fields except foreign
political affairs, security and defense, the judicial system, fiscal and monetary pol-
icy and religious affairs. The number of exceptions to local government control is
then further extended in chapter seven, article (1), also managing to become
extremely vague with a reference to “other field authorities” in the exceptions to
local government control. This statement is ambiguous about what authority the
central government is limited to interfering in local government affairs. Meanwhile,
Buyung Nasution, a lawyer scientist, said that the practice of Acts 22 and 25/1999
is even more skeptical in practice, causing great confusion and uncertainty in the
central and local government relationship.9
On the other hand, Jatmiko from NGO (Konphalindo), states that there are three
potential weaknesses in the implementation of Acts 22 & 25/1999: (1) Act No.
22/1999 has the potential to allow exploitation and unsustainable development of
natural resources, as the local government endeavors to stimulate local revenues; (2)
Act No. 22/1999 does not provide a clear mechanism for creating an independent
institute for natural resource management; and (3) Act No. 25/1999 provides a
greater autonomy for local governments to take and divide up general income with-
out any clear public accountability mechanism.
Decentralization of the Forestry Sector
When Muslimin Nasution was appointed to be Minister of Forestry under the

Habibie administration, he launched many forestry deregulations. He revised 138
draft regulations10; re-evaluated HPH (Logging Forest Concession) property poli-
cies, so that the cooperative sector and small companies would have access to for-
estry management, and re-evaluated the reforestation fund. He issued a popular
slogan of “forest for the welfare of the people.” He stated that he would dramatically
change forest management to emphasize “forest for the people” and not people for
the forest at a meeting with employees of Kraft Paper Industry in Aceh, Lokseumawe
in early July 1998 (Republika 9 July 1998). He also reissued the Social Forestry
program, which had actually been introduced in 1990 and was developed through a
Social Forestry Development project in cooperation with Germany. In line with the
spirit of the reformation era, the government issued Act No. 41/1999 on Forestry in
September, which emphasized the recognition of customary forest rights, forest for
the welfare of people, sustainable forest management, a reforestation program, and
more. For example, Act No. 41/1999, chapter two, articles 5 (3) states that the gov-
ernment acknowledges the customary forest rights of local communities still prac-
ticing their traditions. In chapter five, article 23 it states that forestry management is
9
Haris, Syamsuddin et al. Paradigma Baru Otonomi Daerah (A New Paradigm of Local
Autonomy), LIPI: P2P, 2001, pp. 183.
10
See Jatmiko, Tejo Wahyudi, 2000. Pengelolaan Hutan Berkelanjutan dalam Desentralisasi’
(Sustainable Forest Management in Decentralization) in Berita Bumi Edisi No. 67.
Decentralization of the Forestry Sector 143
aimed at obtaining maximal benefit for the welfare of all communities, based on
justice and sustainable forest management. Article 28, item (5) explains that the
permission for wood and nonwood production can be provided to individuals and
cooperatives. This act is a substitute for Forestry Act No. 5/1967, which was aimed
at facilitating big businesses and forest exploitation for national revenues, and does
not recognize the customary forest rights of local communities. In line with the
amendments to the above act, which recognizes the existence of customary com-
munities and recognizes both individual and collective human rights, including
rights to property, cultural identity, and the “rights of customary communities,” gov-
ernment regulation No. 25/2000 regarding the 2000–2004 development program
stresses the need for popular participation in decision making, including NGOs,
giving priority to the rights of local communities and the need to strengthen local
institutions.11
In reality, there has been inconsistent implementation of this policy due to ambi-
guity between Act No. 22/1999 and Act No. 41/1999 regarding the authority of
forest resources management. Act No. 22/1999 regulates regional autonomy in rela-
tion to forest resources management. Meanwhile Act No. 41/1999 regulates forest
resource management authority. This causes substantial differences in interpretation
and institutional authority claims between local governments and the Department of
Forestry. The critical question is which law should be utilized if two different laws
regulate the same area? I Nyoman Nurjaya has answered this question by
considering:
1. When there is a specific ‘substantial law’, a general law is put aside;
2. The more current law is adopted over an older law;
3. A higher-level law overrides a lower one.
Therefore, in referring to the above legal principles, it is clear that the authority
for forest resources management must be Act No. 41/1999 on forestry and not Act
No. 22/1999 on regional autonomy (Duta Rimba February 2001).
The Role of the Central Government
In the context of devolution of powers, however, several sections of Act No. 41/1999
are not consistent with Act No. 22/1999. For example, Act No. 41/1999, chapter
one, article 4, item (2) states that the central government has the authority to manage
relating to the forestry sector, forestry areas and forestry production; to decide the
status of forest areas; to arrange and decide the legal relationship between people
and forests; and to arrange legal action on forestry.
11
Further discussion on “customary communities” on forestry access, see Obstacles and
Possibilities: The Application of Forest Stewardship Council’s (FSC) Principle 2 & 3 in Indonesia,
Jakarta:Walhi, DFID, GTZ, 2003, pp. 251–252.
In May 2000, the year following the issuance of Act No. 22/1999, the govern-
ment issued Government Regulation (Peraturan Pemerintah/PP) No. 25/2000
regarding “the authority of government and provinces under regional autonomy.”
This regulation explains the responsibility between the central government and the
provinces in various sectors. However, the regulation tends to identify more powers
held by the central government than were ever handled before. For example,
Government Regulation No. 25/2000 determines, central and provincial authority,
but not district (kabupaten) government authority, whereas Act No. 22/1999
transfers a great amount of authority and responsibility to district government/
municipality. Therefore, Van Zorge states that in order to clarify the inconsistencies
of both regulations, there must be a clear “implementation regulation” which
explains the authority of district governments and municipalities (Resosudarmo
2003: 407–408). Chapter two, article 4 (i) of the regulation states that there shall
be a mechanism for the central government to retake authority in many sectors
considered, due to insufficient funds, unable to be realized by the provincial or
district governments. The regulation has caused many district governments to feel
frustrated and disillusioned with the regional autonomy professed within Act No.
25/1999. The central government had taken over regional autonomy, including
authority for the forestry sector, creating an autonomy not sincerely practiced
(Potter and Badrock 2000: 12).12
Apparently, the forestry regulation in practice indicates that the authority for
decision making in terms of “natural resource management” is still substantially in
the hands of the central government, especially the Department of Forestry.
In general, the central government’s role in forestry management is deciding on
standards, planning various aspects of forest management, while the provincial and
district government performs the daily tasks of forest management. In order to facil-
itate forest management, the government issued government regulation No. 34/2002,
which states the authority and accountability of the Forestry Department, which in
the formulation of forest management policy:
1. To decide forest areas, changes in status and function of forests;
2. To decide criteria and standards for funds/tariffs for wood production, provision
of forest resources, the reforestation fund and investment to protect sustainable
forest management;
3. To decide criteria and standards for natural resource conservation and ecosys-
tems in forests and estate plantation.
12
Cf Resosudarmo et al., Loc Cit, pp. 412. See Potter, L and Badrock, The Effect of Indonesia’s
Decentralization on Forest and Estate Crops: A Case Stud of Riau Province, The Original Districts
of Kampar and Indragiri Hulu, Internal draft, CIFOR, Bogor, 2000.
Impact of Decentralization on Regional Revenue 145
Impact of Decentralization on Regional Revenue
As mentioned above, the two decentralization acts on regional autonomy and fiscal
balancing transferred authority for forest resources to regional governments and
gave them an increased share of the revenue derived from forestry. In line with this
spirit of reformation, Ministry of Forestry decision No. 310/KPTS-II/1999 concern-
ing “Guidance on Forest Wood Production Concessionaires” was launched in the
districts. This regulation had two main purposes: to stimulate local governments to
be actively involved in and accountable for forest management and to improve
social welfare for local people who live in and around forests. Chapter three, article
4 (1) states that the provision of forest wood production concessionaires is given to
the district head (Bupati), with technical considerations made by the head of the
Regional Forestry Department. Article 4 (2) states that forest wood production
licenses are provided for a 1-year period, with a maximal width of 100 ha. Article 4
(3) states that forest production for logging and nonwood production shall be pro-
vided for the cooperative sector and individual Indonesian citizens.
These legal points are significant for regional governments, as they can create
local regulations (Peraturan Daerah). The forest is a significant source of income
for regional governments, by providing natural resources that the government could
relatively easily utilize in order to obtain rapid revenue. As stated by Resosudarmo
and Colfer, forest resource management under decentralization has had an over-
whelming emphasis on economic considerations. Since the decentralization pack-
age took shape in 1999, local governments have tended to believe—with some
justification—that they would early be able to finance their administrative and
development priorities and maintain their independence if they could generate sub-
stantial local revenue.13 This rationale has been particularly evident in forest-rich
regions, where the dominant pattern has been for district governments to seek to
accumulate revenue from forestry activities as soon as possible. District heads have
issued HPHH (Forest Product Harvesting Rights) or IPPK (Timber Extraction and
Utilization Rights) in numerous quantities to cooperatives and individuals.14 The
publishing of HPHH or IPPK, fully supported by local parliament (DPRD/Dewan
Perwakilan Rakyat Daerah) has many benefits: first, it is a source of regional reve-
nue for local governments; second, through this regulation local governments can
accommodate local requests for access to wood resources; third, it opens opportuni-
ties for the local elite to participate in the timber trade; fourth, those with the capital
and technical capability (sometimes HPH holders), currently prefer to work together
13
Resosudarmo, Ida Ayu P (2003),“Shifting power to the periphery: The impact of decentralization
on forest and forest people,” in Aspinall, Edward and Fealy, Greg, Local Power and Politics in
Indonesia: Decentralization and Democratization, Singapore: ISEAS and CSIS, pp. 233.
14
The terms HPHH and IPPK have indeed the same meaning. These terms refer to wood-cutting
permission, around 100 ha, that are available for the cooperative sector and individuals as well. The
term IPPK is familiarly used in Malinau, Nunukan, and Bulungan. Meanwhile, IPHH is used more
in West Kutai, Kutai Kertanegara, and East Kalimantan.
with local people rather than with the central government (Resosudarmo and Colfer
2003: 417).
The Role of HPHH
District leaders immediately issued a large number of small-scale logging licenses

to local individuals, community groups, and village cooperatives, who then collabo-
rated with investors who could provide the capital and technical expertise they
themselves were lacking.15 These partners (Cukong) could be local, domestic, or
even foreign—usually Malaysian—firms or entrepreneurs. Sometimes Cukong of
this IPPK and HPHH were already holders of large-scale HPHs. In the case of
IPKKs in the Malinau, Bulungan, Tarakan, and Nunukan districts in East Kalimantan,
large companies and Cukong16 will typically negotiate a timber-harvesting agree-
ment with the community or village head that has a recognized claim over the forest
in question. In exchange for the right to harvest a forest, the companies agree to
provide community members with a set fee for each cubic meter of wood harvested.
They also agree to hire local people to do the felling, promise donations of material
goods such as roofing materials or rice mills, and offer to assist the communities in
developing cash crop plantations once the forests have been cleared (Aspinal and
Fealy 2003: 234).
In practice, many of the areas covered by small-scale licenses, both HPHHs and
IPPKs, have fallen within the boundaries of areas already subject to active large-
scale HPH, thereby posing a threat to the operations of large logging enterprises.
Saeful Teteng, Secretary of the East Kalimantan Provincial Government, criticized
many district heads for not paying attention to the Ministry of Forestry’s decision on
logging forest concessionaires. According to Saeful, there are many HPHH /IPPK
licenses overlapping with HPH licenses previously provided by the central govern-
ment (FORUM Keadilan, No. 1, 8 April 2001).
The amount of HPHH/IPPK has rapidly increased in the last 2 years (2001–
2002). In Malinau and Kapuas Hulu, both bordering Malaysia, IPPK permit holders
have transported far more heavy equipment to the area than they could possibly
need to log the area allocated to them. This may indicate either that they expect to
be granted much larger areas than those allocated thus far, or that they hope to gain
informal access to areas outside those delineated in their permits (Aspinall and
Fealy 2003: 238). In the case of West Kalimantan, as explained by Gusti Hardiansyah,
a lecturer at the Faculty of Forestry, University of Tanjungpura (Untan), local
15
The price of HPHH and IPKK’s concession costs per unit are around Rp. 20–25 million in East
Kalimantan (Interview July 31, 2003, with head of regional forestry, in West Kutai).
16
Cukong is a Chinese word referring to a rich trader especially for timber traders. This word is
familiarly used in timber trading. For example, local Cukong in Tarakan, Bulungan, and Malinao
come from Chinese ethnics working together with Cukong Malaysia in facilitating money and
marketing of wood (Interview with staff of Regional Forestry in Nunukan in May 2003).
Impact of Decentralization on Regional Revenue 147
districts have issued 405 HPHH licenses in the last 2 years, where Sintang and
Kapuas Hulu are the greatest issuers, reaching 343 permissions. Gusti criticized
local governments, insisting that the HPHH issued are not systematically accompa-
nied with a strict control system and hard sanctions in order to avoid illegal cutting
in protected and conservation forests (Kompas, January 4, 2003). Meanwhile, the
West Kutai government has issued 600 licenses, worth Rp. 1.2 billion. However, the
question remains, is this money being audited and utilized with accountability and
transparency in local parliament? (Gatra, 15 December 2001). Kutai Kertanegara
(Analisis CSIS, No. 2, 2001), one district in Central Kalimantan, has issued 150
licenses, and 223 licenses were issued in one district in East Kalimantan
(Resosudarmo and Colfer 2003: 415). The idea to give the authority for issuing
wood production licenses to local governments started with the best of intentions, at
least when Muslimin Nasution launched this policy in 1999. However, it is clear that
theory and practice are never exactly the same.
The Impact of HPHH
The impact of excessive HPHH and IPPK licenses has meant an oversupply of logs
from many districts in Indonesia. The price of logs, which previously reached Rp.
600,000/m3 in 1997–1998, drastically fell to Rp. 200,000–400,000 in East
Kalimantan in 2001–2002. In Teweh and Puruk Cahu, Barito district, Central
Kalimantan, illegal logging, which now only produces costs of Rp. 20,000–30,000/
m3, previously reached Rp. 1 million in the 1990s, said Transoto, a Regional Forestry
officer in South Kalimantan (Gatra, 15 December 2001). The above shows the defi-
nitely suffered loss of profit among HPH holders, because the price of logging dras-
tically fell into the lower price. In contrast, actors of illegal logging receive “profit”
because they can sell logging not just in domestic but export markets overseas.
The complaints of excessive wood production licenses in many districts come
from private actors, such as B. S. Suba, Director of the Segara Timber Company, a
timber trader in East Kalimantan. He said that excessive log exploitation by
HPHH/IPPK holders has caused log floods and eventually reduced the prices. He
further mentioned that in north Kalimantan large log export smuggling occurred to
eastern Malaysia (Serawak and Sabah), largely caused by the granting of IPPK
licenses to small businessmen by local governments (FORUM Keadilan, No. 1, 8
April 2001). Longgena Ginting from Walhi criticized that there has been “coopera-
tion mismanagement” between central and local governments in the implementa-
tion of the regional autonomy act, and it was further eroding any ability to attain a
sustainable ecological system (FORUM Keadilan, No. 1, 8 April 2001). Nana
Suparna, Alas Kusuma’s HPH officer, stated that the issuance of HPHH and IPPK
in the HPH area that belong to other companies generates conflicts of interests and
also damages previously arranged sustainable logging cycles. On the other hand,
HPHH/IPPK issued without considering the rules of sustainability will surely gen-
erate negative impacts on the environment and sustainability of the forest, inasmuch
as the locations of HPHH/IPPK are allocated without any consideration for long-
term forestry planning and other production, ecological, and sociocultural criteria.
He further criticized the lack of inspection and law enforcement of HPHH/IPPK
holders in the field by local governments, allowing a spread of illegal practices and
smuggling and surely fostering unhealthy competition in the forestry business.17
How to Overcome This Condition
The government has accepted critiques from HPH holders and other stakeholders,
especially through APHI (the Association of Forestry Holders Indonesia), that the
excessive log production in many districts has led to a fall in log prices and even
more rapid deforestation. To overcome this problem, the central government issued
a regulation through the Minister of Forestry decision No. 84//KPTS-II/2000, post-
poning the provision of forest wood production rights on April 13, 2000. The
Provincial Forest Agency registered at least six district heads providing an exces-
sive number of HPHH and IPPK licenses: Pasir, West Kutai, Berau, Bulungan,
Nunukan, and Malinau. The governor of East Kalimantan has the authority in this
matter, but “the district heads frankly said that their districts could manage them-
selves” (Gatra, 15 December 2001). Other regulations introduced have been the
Minister of Forestry decision No. 1132/KPTS-II/2001 and Minister of Industry and
Trade decision No. 292/MPP/Kep/10/2001 on “stopping log exports.” Article 1
states that log exports throughout the Indonesian territory must completely stop and
article 2 states that the decision on log exports mentioned in article 1 shall remain in
place until further notice.
Apparently, there is much potential for continued conflict between the central
and district governments over forest policy. Consequently, we can expect more pol-
icy incoherence, confused implementation, and legal uncertainty in the forestry sec-
tor, with all the negative consequences for appropriate and environmentally sound
forest management that this entails.
17
See Suparna, Nana (2003) “Forest management in the regional autonomy era,” The Indonesian
Quarterly, Jakarta: CSIS, Vol. XXIX, No. 2, pp. 165.
Chapter 7
Government Versus Local Indigenous
People in Papua
Legally, adat (pertaining to customary law) forests are defined as state forest located
in an adat community area. The creation of the adat forestry concept is significant,
because it is the first time in Indonesian legal history that a national law supports the
territorial transformation of forests to adat land.
However, in order to understand how this law assists in achieving decentraliza-
tion, we must look at whether the state has maintained strategic control over adat
forestry. First, this law categorizes adat forest as state forest, as state forests were
previously not burdened by land rights questions, as decided in the 1960 Principal
Agrarian Act. Second, this Act gives the state the authority to recognize and/or
cancel the status of Adat Community and also Adat Forest. This authority has been
given to the district/local government, although it must be decided in accordance
with national government criteria. The criteria used to recognize Adat Community
is as follows:
1. The community maintains an association (paguyuban).
2. There is a local institution that manages adat law.
3. There is a certain area managed by adat law.
4. There is a legitimized law and its decisions are obeyed by the people.
Third, the Act declares that Adat Community rights will be given as long as they
do not contradict national interests. Fourth, this law is based on the assumption that
the state’s authority over forests is legitimate. However, the adat communities feel
they have a historical claim upon those lands. Historically, adat communities have
controlled almost all forests in the outer islands, through their customary
institutions.
This chapter previously published in the Journal of South Pacific Studies, Kagoshima University,
and Research Center for The Pacific Islands, Vol. 34, No. 2, 2014, pp. 71–98. The chapter explains
the meaning of the Adat community and forest relating to the conflict of interest in the forest land
between governments supported by private companies versus the local indigenous people.

DOI 10.1007/978-981-287-745-1_7
150 7 Government Versus Local Indigenous People in Papua
Therefore, this new Forestry Act is a small step towards achieving decentralization
of forest control to adat people, yet it still provides too much authority to the central
government to make decisions on forest management; it all depends on how this Act
is carried out.
In this chapter, we study the conflict of interest between indigenous people
(masyarakat adat/asli) versus government on Papua’s forest in terms of illegal
logging, estate plantation (palm oil), and mining in some districts such as Sorong,
Timika, Manokwari, Merauke, and Jayapura (Sentani).
Papua’s (Irian Jaya) forest is categorized as the last frontier rain forest in the Asia
Pacific region. According to the Ministry of Forestry (2005), forest cover in Papua
in the middle 1990s registered about 34 million ha. By 2004 Forest Watch Indonesia
(FWI) estimated that it had decreased to 30.4 million ha of natural forest cover,
which included degraded forest 10.2 million ha and 1.1 million ha deforested
area, equivalent to 73 % of the territory (McBeth 2007). It is obvious that the rich
biodiversity and forest resources in Papua are coming under major threat. The main
threats include logging (both legal and illegal), oil palm plantations, and mining
areas that have also had an impact on the forests of Papua. For instance, in the case
of illegal logging on behalf of Kopermas (Koperasi Peran Serta Masyarakat) that
reached more than 120 units in 2003 in Sorong Regency, West Papua was manipu-
lated and corrupted by the local elite group (bureaucrats, military, and politician).
The existence of Kopermas led to conflict between local indigenous people with the
local elite group. Local people received timber trade on behalf of Kopermas with a
small amount of money for their timber trade, compared with the money gotten by
members of the local elite group. This conflict also occurred in Freeport Company,
mining sector. Despite the Company being considered one of the largest corporate
contributors for taxpayers and paying a dividend to the Indonesian government of as
much as US$899 million in the fiscal year 2010, the operation of the company led
to forest degradation, river pollution, environmental damage, and conflict with the
local people of Amungme and Kamoro.
The central government aims to expand the palm oil estate in Papua, because it
is a lucrative business to receive revenues from export taxes and dividends. By 2011
Papua planted palm oil on about 1.5 million ha and another 2 million ha at the state
of preliminary proposals (Obidzinski et al. 2012). Besides, the MIFEE project
(Merauke Integrated Food and Energy Estate), The Ministry of Agriculture, decided
1.6 million ha should be allocated for the project. The allocation for palm oil estate
estimated 600,000 ha. As a result of this megaproject for palm oil, rice fields, and
food production eventually threatened of a part of virgin forest and protected areas
including peat, the water catchment area, and even residences including of the
village of indigenous people.
When the Soeharto regime stepped down in May 1998, centrally managed natu-
ral resources was changed to decentralization, where the local government has
sufficient space to manage natural resources. This regime was so called reformation
government (1999–2004) and has emphasized democracy, accountability, good
governance, and transparency on natural resources management (Hidayat 2004).
There are three aspects able to be decentralized in terms of giving authority to local
7 Government Versus Local Indigenous People in Papua 151
government such as administrative decentralization, fiscal, and political affairs.

Therefore regarding political decisions to transfer a part of authority from central
government to local government could be well realized, if local government has
sufficient capability and capacity in managing administrative affairs, fiscal, and
politics (Inman and Rubinfield in Litvack et al. 1998). Local autonomy policy as a
realization of political decentralization in Indonesia according to Law number
22/1999 and finally changed in Law number 32/2004 is one of the significant foun-
dations in changing the government operation system. Hence as conceivedl, local
autonomy policy as a governance system is more highly appreciated for democracy,
accountability, participation, independence, and social welfare.
The decentralization concept appeals by local autonomy law and is considered
more of a guarantee of the enforcement idea of democratic principles to support
plurality, transparency, accountability, and local basis capacity. But in practice,
special autonomy which was given to Papua province on regulation No. 11/2001 in
general is recognized to be customary forest rights of local indigenous people, adat
land tenure systems, established by the Papua’s People Council (Majlis Rakyat
Papua), and a greater share of revenues from natural resources utilization and
exploitation. But in connecting with central government interest on natural resources
management and administrative, fiscal, and politics there were still many conflicts
and constraints in implementation because of the lack of “government regulation”
(Peraturan pemerintah) as an integrated part of the law operation (Interview May
20, 2012). Then by making a government regulation, local government actually
could issue concession permission in terms of logging, industrial timber plantation
(HTI), palm oil, and mining sector to private sectors. As a consequence of giving the
concession, local government subsequently would get revenues from tax exports,
dividends, and royalties from private companies in order be able to cover develop-
ment and empowering economic and social lives of local communities. From this
discussion, it is obvious that central government was reluctant to give full authority
on behalf of implementation of special autonomy to local government, because of
conflicting interest of both authorities in terms of political authority, getting big
revenues, dividend royalties, and taxation of exports of natural resources.
The field work was carried out in May in Jayapura Regency, Sentani and in June
2012 in Manokwari Regency (Fig. 7.1). The technique of research was in-depth
interviews with purposed informants who were considered familiar with the objec-
tive of guided questionnaires such as two Forestry Agency officers, two officers of
Social and Political Agency, two government officers, three academics, two heads
of tribe (Ondoafi), two NGO staffers, and five local farmers. Manokwari and Sentani
were selected to carry out field work based on two rationales. First is the Manokwari
Regency site where many local communities still heavily depend on their interests
in forest resources. Besides, the locals actively maintain their customary forest
rights practice for almost their whole subsistence (primarily meals) such as Sagu
(Metroxylon sp.), gembili (Dioscorea spp.), talas (Colocasia esculenta), and so on
are taken from forest resources. Second is Jayapura Regency with the government’s
interest on issuing a logging concession and Tablasupa Nickel Mining Company in
Cycloop conservation forest. These concessions issued by the government eventually
Fig. 7.1 Map of West Papua Province/Irian Jaya (Source: Google 2013)
affected forest land conflict and led to forest degradation. Meanwhile Merauke
and Boven Diegul Regencyies where palm oil and MIFEE project were located and
Jayawijaya Regency where the Freeport area and Sorong, Raja Ampat, Bintuni, and
Manokwari Regencies where the illegal logging crisis in terms of data collection
was conducted using books literature, newspapers, and website information.
The chapter applies the political ecology approach theoretical framework which
emphasizes and combines the concerns of ecology (conservation of forest) on cus-
tomary forest rights among local and political economy (logging, estate plantation,
and mining concession) or so-called human interests for government and private
companies to represent an everchanging dynamic tension between ecological and
human change, and between diverse groups within society at scales from the local
individual, regional, and transnational as a whole (Paterson 2000).
Problem One
The Illegal Logging Crisis
The pressure on Papua’s forests has increased dramatically in recent years.

According to Telapak and ELA (The Environmental Investigation Agency) investi-
gation report in 2004 entitled: “The Last Frontier,” Papua has become the main
illegal logging hotspot in Indonesia and the report describes how some 300,000 m3
Problem One 153
of merbau1 logs per month are smuggled from West Papua such as Sorong, Raja
Ampat, Bintuni, Fakfak, and Manokwari to wood-processing factories in China. As
stated in the Obidzinski et al. (2007) report cross-border timber trade in Kalimantan
and Sarawak also involves systemic “conspiracy” between government officers,
timber traders, and local people.2 Then, similarly in Papua that modus operandi of
illegal logging also occurred with a systemic scenario. This activity involves illegal
trade through powerful international syndicates of brokers and fixers in Indonesia,
Malaysia, Singapore, Hong Kong and China, each with his or her specific role. In
addition, the logging and timber smuggling operations are supported and managed
by high-ranking Indonesian military (TNI), police, and other government official
and law enforcers.3 The critical illegal logging based on ELA and Telapak findings
state that around 2.3 million m3 of Indonesian timber were smuggled to the Chinese
market. Indonesian government estimates are even higher at around 9 million m3
valued at Rp. 18 trillion (US$1.86 billion). Those events of illegal logging occurred
because of weak law enforcement during the political transition from Soeharto
regime to the reformation period, a “democratic” system of governance involving
greater regional autonomy (1999–2004) to many districts in Indonesia.
In 2001 the Indonesian government passed a law granting special autonomy to
Papua, involving the establishment of a Papuan People’s Council (Majlis Rakyat
Papua), recognition of traditional tribal or adat land tenure systems, and a greater
share of revenue from natural resource exploitation: 80 % of income from forestry,
mining and fishing, and 70 % from oil and gas for Papua local government.
There are two driving factors on the emergence of the illegal logging trade. First
is the internal factor in terms of conflict of interest between central government, the
Ministry of Forestry, and local government. Forestry management in Papua is simi-
larly chaotic, with a raft of overlapping and conflicting regulations being issued at
the national level in Jakarta, the provincial level in Jayapura, and at the district level.
For instance, the Ministry of Forestry (central government) issued a decree on per-
mitting the allocation of small-scale local concessions of 100 ha for establishing
community forestry. The spirit of this decree in the reformation era was very condu-
cive to empowering the indigenous local people. This concession led to creation of
the Kopermas (Koperasi Peran Serta Masyarakat) system, through which local
1
Merbau is the most commonly used name for the genus Intsia spp., which comprises three sepa-
rate species: Intsia bijuga, Intsia palembanica, and Intsia retusa. Merbau is also known as kwila
in Papua New Guinea, ipil in the Philippines, and kayu besi in Borneo/Kalimantan. Intsia bijuga
and Intsia palembanica are mostly found in Papua-Indonesia and Papua New Guinea, and Intsia
palembanica in Malaysia. Within Indonesia merbau is virtually confined to the province of Papua.
The dark timber is widely used for high-class general construction, exterior joinery, flooring, out-
door furniture, and so on. Prices of Merbau timber vary, but are around US$150–200 per m3 for the
logs and US$450–$600 for sawn timber at the point of export (See The Last Frontier 2004: 5).
2
Obidzinski, K, Andrianto, A and Wijaya, C “Cross-border timber trade in Indonesia: Critical or
overstated problem? Forest governance lessons from Kalimantan,” in International Forestry
Review, Vol. 9 (1).
3
See paper “The Last Frontier: Illegal Logging in Papua and China’s Massive Timber Theft,”
investigation report was carried out by Telapak and ELA NGOs, Bogor, 2004.
communities could obtain permission to log on their customary forest rights by

establishing local cooperatives. There are more than 300 so-called community log-
ging cooperatives (Kopermas) in Papua. Following this were widespread reports of
abuse of such licenses because of the involvement of military, police, and the for-
estry agency as “foster father” (bapak angkat) in flattering local communities into
selling merbau timber to traders, even to intimidation if communities were reluctant
to sell it.
The Ministry of Forestry criticized the abuse practice of Kopermas and said that
“Kopermas permits are only fronts for private businessmen to exploit out forests.
These Kopermas permits are illegal” (Targeting Illegal Logging in West Papua
2005). These activities led to conflict within communities, who often feel powerless
to against their foster father. As an illustration of this conflict in the Sorong Regency,
the local community was promised Rp. 100 million ($10,920) for 3,000 m3 of
merbau, but received only Rp. 25 million ($2,750) plus sacks of rice and noodles.
Another case occurred near Sorong where members of a community were being
paid just Rp. 100,000 ($11) per cubic meter of merbau under pressure from a military
police officer. The greater parts of profits come to the foster father and brokers.
Meanwhile the communities just receive a very small amount of this illegal trade.
Merbau costs US$120 per m3 at the point of export in Papua, and in arrival in China
costs US$240 per m3 (Table 7.1). It was registered that out of the 120 Kopermas
permits issued in the Sorong region up to early 2003, over 40 % were located in the
Raja Ampat district, despite much of the area being designated as protected nature
reserves (The Last Frontier 2004: 7).
In addition, by 2002 the Ministry of Forestry issued 54 logging concessions
(HPH) permits, covering an area of 13 million ha, almost a third of Papua’s total
land area. Many of these concessions are linked to Indonesia’s biggest forestry con-
glomerates, such as the Kodeco and Korindo (from South Korea), Wapoga Mutiara
Timber, Kayu Lapis Indonesia, the Djajanti Group, and the military foundations,
such as Hanurata (APHI 2011), which controls five concessions in Papua and shares
its headquarter in Jayapura with a detachment of troops from the army’s special
forces. It was widely known that military personnel are frequently employed as
“security” for logging operations in Kalimantan and Papua. Obviously with the
growth of both logging concessions (HPH) and Kopermas concessions throughout
Papua, especially in West Papua, the province’s forests are being exploited at an
Table 7.1 The price of merbau from logging to processing in the market/per cubic meter/US$
Country Normal price Illegal timber trade/paid
Indonesia (Papua) 120–150 11–20
China (on arrival) 240
China for flooring price 468
Retail price in UK and USAa 2,288
Source: The ELA and Telapak Investigation 2004
a
Figure is for 26 m2 of flooring, the average amount produced from 1 m3 of logs
Problem One 155
unprecedented and unsustainable level. These conditions led to forest degradation

in Papua. The Ministry of Forestry claims that deforestation occurring there only
averaged 118,000 ha/year over the previous decade. Similarly over 2 years ago, an
official release (January 15, 2003) stated that timber was already flooding out of
West Papua illegally to Malaysia, China, and other countries at the rate of 600,000 m3
per month—twice that revealed in the ELA/Telapak report—at a cost to the govern-
ment of Rp.7.2 billion in lost revenues.4
In October 2001 the Ministry of Forestry in Jakarta banned the export of logs
from Indonesia, prompting the governor of Papua to issue his own decree permitting
the export of merbau logs. This obviously showed the ambivalent policy of both
decrees: the action of the governor illustrates the tensions between Jakarta and
Jayapura over the control of natural resources, especially the forestry and mining
sector. Similarly, in 2003 the provincial authorities issued logging permits for 3 mil-
lion m3 of timber, twice the amount authorized by the ministry in Jakarta.
The second is the external factor of the involvement of integrated international
“syndicates,” spanning Papua, Jakarta, Malaysia, Singapore, Hong Kong, and the
final destinations of China and India. As a consequence the huge profits from this
illegal trade grows in the bank accounts in Singapore and Hong Kong, and the forest
communities in Papua are paid very little and left to count the cost. It is obvious that
illegal logging operations on the ground in Papua are frequently controlled by bro-
kers based in Jakarta and Surabaya, both major ports and timber trading centers in
Java. In operation these brokers usually have links to senior military, police, and
forestry officers in order to be able to ensure safe passage from Papua to interna-
tional waters. Malaysian traders (Chinese) from Sarawak are frequently represented
as logging gangs on the ground in Papua.
The role of the Malaysian in Papua is to provide the heavy machinery for cutting
trees and the technical expertise required to fell the merbau trees; the machine oper-
ators usually come from Sarawak. Singapore acts as a major regional hub in the
illegal logging business. Singapore-based shippers arrange transport for the logs
and also provide for opening Letters of Credit for illegal timber deals; its traders
have the international connections to find buyers for the logs. Hong Kong-based
brokers sell huge quantities of merbau to the timber manufacturing industry of
mainland China (Fig. 7.2). The final step is to move a huge volume of illegal merbau
logs out of Papua and into the emerging markets of China and India. It is known that
consumption of merbau in these two countries is escalating rapidly to serve both
domestic needs and processing into flooring and furniture for export. China’s wood
flooring is consumed domestically; a significant proportion is targeted for export,
mainly to the United States, Japan, and Europe. In the 9 months to September 2004,
China exported 193,000 tons of wood flooring worth US$240 million, an increase
of 77 % over the same period the previous year (The Last Frontier 2004: 26). It was
recorded that the United States is the largest market for Chinese wood flooring
4
See “Targeting Illegal Logging in West Papua,” in Down to Earth Report No. 65, May 2005.
(http://www.downtoearth-indonesia.org/story/targeting-illegal-logging-west papua). Accessed
December 28, 2012.
Fig. 7.2 Illegal merbau at log pond in West Papua (Source: Ela and Telapak collection photo
2003; Google 2013)
exports, reached a total of 30 % of all sales, worth US$96 million annually. Other
potential markets include Canada, Japan, and the United Kingdom.
It is known that every ten tropical logs shipped worldwide, five are targeted for
China.5 Indonesia has become the country’s largest supplier; Chinese import statis-
tics show a dramatic rise in the volume of Indonesian logs entering the country
between 1997 and 2001. In 1997 the volume of logs registered as imported from
Indonesia just reached 31,000 m3, but by 2001 rapidly developed to 1.14 million.6
During this period imports of Indonesian logs through Nanjing ports grew by 8.30
%. It is obvious that the growth has been fueled entirely by illegal timber.
Also, an additional factor driving the illegal timber trade (merbau), is that China
is already the world’s biggest consumer of many commodities, such as timber, steel,
copper, coal, oil, gas, and cement since the imports of logs were eliminated in 1999.
In contrast, the government banned logging in natural forests and implemented a
huge tree planting program in order to prevent the flooding as occurred in 1998. As
a result of a low import tariff on timber, China’s timber and wood product imports
have skyrocketed. From 1 million m3 in 1997, imports of logs alone had reached 16
million in 2002, and by 2010 they are projected to reach 100 million. China is the
number one of buyer of timber from many countries most affected by the scourge of
illegal logging including Indonesia, Papua New Guinea, Cameroon, and Gabon.7
The country is the main buyer of wood from Russia and Liberia (47 %) of exports
5
UNEP, “The World List of Threatened Trees,” 1996.
6
WWF, “The Timber Footprint of the G8 and China,” June 2002.
7
See, “Papua Refuses to Revoke Logging Licenses,” Jakarta Post, 25 March 2003.
To Take Action to Crush Illegal Logging 157
destined for China, Burma (42 %), and Cambodia (78 %), all countries where the
sale of stolen timber has fueled armed conflict.8
To Take Action to Crush Illegal Logging
The impact of illegal logging from the viewpoint of economic, social, and ecologi-
cal damage leading to deforestation in Papua was huge. Therefore, when Susilo
Bambang Yudhoyono (SBY) was selected to be Indonesian president, he declared
“war on illegal logging.” He made this speech on November 11, 2004 near Tanjung
Puting National Park, Kotawaringin Barat, Central Kalimantan; following this he
issued a presidential decree to stop illegal logging (Inpres 4/2005). President
Yudhoyono instructed National Police Chief Da’I Bachtiar to lead a coordinated
crackdown on illegal loggers with the Minister of Forestry (MS Kaban) and Minister
of Environment (Rachmat Witoelar). The serious action involving a 1,500-member
team under the control of the national police was instructed to take action against
anyone involved in illegal logging in 2-month operation called “Hutan Lestari”
(Sustainable Forests). It was obvious that an integrated team comprised officials
from the police, military, Attorney General’s Office, Ministry of Forestry,
Immigration, and Customs to take action to crush systemic and integrated syndi-
cates of illegal logging. Between 2001 and 2003 the Papua police reported 19 cases
of illegal logging involving the seizure of around 100,000 m3 of merbau logs, 250
units of heavy logging companies, and the naming of 62 suspects, of whom 42 were
of Malaysian citizenship. Yet based on a confidential report, with at least 300,000 m3
of merbau leaving Papua every month, the level of seizures is negligible.
According to the report, by late April 2005 the operation of Hutan Lestari
resulted in the seizure of more than 340,000 m3 of logs, 19,000 m3 of timber, 5
boats, and 22 barges. The task force has apparently summoned 157 people; 35 have
been detained and 14 case files have been submitted to the prosecutors. For instance,
in November 2004 Papua police seized the vessel MV Fitria Perdana. The vessel
was found to be carrying 5,000 m3 of merbau timber heading for Biak Island. In
addition, the external factor was enhanced to halt illegal logging. Actually there was
a signed bilateral agreement, pledging to work together to halt shipments of “stolen
wood” in December 2002, between the Indonesian government and the Chinese.
Unfortunately these measures have had little effect in stopping the practice of illegal
timber in the field. China has failed to respond to the Government of Indonesia’s
requests to implement the agreement. Indonesian Forestry Minister MS Kaban
blamed the Chinese as they “did not care where commodities come from.” He
claimed that all Chinese imports are considered legal under existing trade regula-
tion. As a result, in the 2 years since the bilateral agreement was signed, not a single
piece of stolen wood has been halted on arrival in China. The constraint of this
agreement highlights both countries in a level of action to ban the illegal logging
8
See “Court Issues Unclear Ruling in Papua,” Jakarta Post, November 12, 2003.
strictly and to implement law enforcement with hard sanctions. Despite the lack of
action, there is much that could be easily done. All of the merbau log vessels travel-
ing from West Papua to China are accompanied by falsified Malaysian papers
including Certificates of Origin and entry permits (The Last Frontier 2004: 28).
According to the ELA (Environmental Investigation) report of how a leading
American distributor of hardwood flooring, Goodfellow Inc., is selling products
made from logs illegally felled in West Papua, through China Business Company,
Goodfellow’s president and CEO issued a public statement saying that the company
was “committed to market products only where there is complete and documented
legal chain of custody,” and that its suppliers would soon be discussing this issue
with Indonesian officials.9
Another action was launched by consumer countries including China, the United
States, Japan, and the United Kingdom and producer countries such as Indonesia to
stop destructive logging. Measures to stop smuggling syndicates and international
trade in illegal timber form a part of this. The United Kingdom, United States,
Canada and other G-8 countries are currently negotiating new measures to halt
imports of illegally cut timber. For example, on March 18, 2005, G-8 environment
and development ministers met in Buxton, England and committed to action against
the illegal timber trade.10
Government Perception of Forest Land
The government’s policy on issuing logging and estate plantation concessions even-
tually affects land conflict between indigenous local people and private companies
in Papua. As a rationale the government does not recognize “customary forest
rights” which is not written in the positive law of Indonesia. According to govern-
ment argument that natural resources management based on the 1945 Indonesian
Constitution, article 33, verse 3 states that: “land, water, and natural resources
within Indonesia shall be controlled by the state and used for the welfare of all the
Indonesian people.” In terms of the exploitation of natural resources, especially
within the forestry and mining sector, the state interprets article 22 verse 2 as the
government has the authority and responsibility to manage all significant natural
resources for the welfare of the entire nation. When the Soeharto government came
to power in 1966, “economic development” was the main paradigm of liberal eco-
nomics for overcoming the economic crisis inherited from the Soekarno regime. In
line with this aim, the economic planners took immediate steps to strengthen
9
Letter from Richard Goodfellow dated April 18, 2005 (cf. http://www.downearth-indonesia/org/
story).
10
See “Targeting Illegal Logging in West Papua,” in Down to Earth Report (http://www.down-
toearth-indonesia/org/story). It was taken on December 28, 2012.
Government Perception of Forest Land 159
Indonesia’s weak economy through the Five-Year Development Plan (Pelita I

1969-Pelita VI 1997) in many sectors. Therefore, the Soeharto regime’s policy,
issued Basic Law of Forestry number 5/1967 and government regulation number
21/1970 on issuing logging forest concession mechanisms in the spirit that the gov-
ernment would like to exploit natural resources including the forestry sector in order
to achieve high economic growth and not recognizing customary forest rights for
indigenous people. As a result, the forestry sector began to develop the legal frame-
work required to permit private company and state forest enterprises (Inhutani)11 to
harvest and export timber. Sumatra and Kalimantan islands were the first targets of
forest exploitation because they had the largest stocks of commercially valuable tree
species and were closest to Asian marketplaces such as Singapore, Hong Kong,
Taiwan, South Korea, and Japan (Hidayat 2004: 50).
In contrast, the economic condition of indigenous local communities in many
districts in Indonesia as former consumers of forest resources and forest products
such as timber and nontimber as well became worse after operation of the Foreign
Act (number 1/1967), Domestic Investment Act (number 6/1968), and Forestry Act
(number 5/1967) on logging forest concessions that eventually affected land conflict
and contributed to forest degradation in many districts as observed by previous stud-
ies (Hidayat 1997; Tjitrajaya 1993).12 The problem in the Soeharto regime was that
government ignored recognition of the customary forestry rights of indigenous local
people, who are only to collect forest products in a very limited manner and are
strictly prohibited from cutting trees and utilizing their forest land. Therefore, land
conflicts on the area 18,600 ha between local forest dwellers and logging conces-
sion holders have been widely reported to occur in Indonesian outer islands such as
Muara Gusik villagers with the ITCI private company from the end of the 1980s
until the end of the 1990s. Another land conflict also happened between the Arara
Abadi Forestry branch of the Sinarmas holding company with local people in the
Bengkalis and Kampar districts of the Tarik Serai, Tasir Serai Timur, Pinang
Sebatang Barat, and Koto Garo on part of HTI concession area of 299,975 ha in
1991. The local communities claim that part of the Acacia plantation in those
11
Inhutani major shareholder is state business enterprise. The aim for establishing Inhutani was to
carry out logging concessions in the outer islands such as Sumatra, Kalimantan, Sulawesi, and
Papua. In contrast, the name Perhutani is also owned by state business enterprise but is the main
field for planting and selling teak plantations and their concentration area in Java Island. Most the
performance of Inhutani is rather bad on being profitable, because the company was filled with
collusion and corruption among Inhutani officers in relation to the Ministry of Forestry officers.
12
These land conflicts occurred in many districts in Sumatra, Kalimantan, Sulawesi, and Papua
because of macro mapping from logging concession holders annexing the customary forest rights
of an indigenous people or local communities. See Tjitrajaya, Iwan, “Differential Access to
Resources and Conflict resolution in a Forest Concession in Papua (Irian Jaya),” in EKONESIA: A
Journal of Indonesian Human Ecology, Anthropological Ecology Development, The Indonesian
University, Vol. 1, No. 1, 1993; Hidayat, Herman,“Empowering Economic Communities Through
Village Forest Development”: in Case of Muara Gusik, Kutai, East Kalimantan, in ANALISIS,
Journal of CSIS, Jakarta, September, 1997.
villages belong to customary forest rights and asked for the return of the concession
area to them (Hidayat 2011: 137). In line with a consecutive land conflict, the issuing
of a new Forestry Law number 41/1999 which was substitute number 5/1967 was
released in the spirit of “reformation”that focused on accountability and transparency,
after the Soeharto regime stepped down (May 1998) which subsequently recog-
nized customary forest rights of indigenous people based on Forestry Act number
41/1999.
It is obvious from the discussion that ignoring customary forest rights of local
communities subsequently affected land conflict, especially of forest resources. But
actually land conflict is not just a matter of getting rights, but also focuses on the
access problem. Ribot and Peluso (2003) give a definition of access as “the ability
to derive benefits from things,” referring to someone’s capability to receive benefit
from things. Those things might be materials (land, forest products), people
(manpower), institutions, or symbols. The capability is related to power. The power
is able to formulate whether in material combination (wealth and arms), culture
(dignity and charisma), and social status (position in power). The claim toward their
customary forest rights of local communities to obtain their land access based on
their rights and able to propose based on their moral claim, despite local communi-
ties not having rights, but based on the morality perspective, they might to claim on
forest land access.
Conflict over access of forest resources management was indicated as one of the
constraints to achieving sustainable forest management, especially “natural forest”
management such as logging (HPH) and industrial timber plantation (HTI) as well.
Apparently, to date, just some management units of HPH and HTI companies could
be able to realize the social function of sustainability in forest management, so-
called “Social Management.”13 Social management performances have been evalu-
ated by criteria and indicators. Those indicators not just directly related to occurring
in conflict resolution, but also related to the effort on social capacity development as
whole, so-called “conflict management” (Nurrochmat and Hasan 2012: 245–247).
Actually there are some issues such as palm oil and the mega MIFEE project,
Kopermas, and mining exploration, and so on in which government is involved in
inviting investors, for instance, domestic and foreign as well. These investments are
initially launched as “national development” in order for the government to be able
to obtain foreign exchange earnings, levy taxes, collect national gross domestic
products (GDP), and create job absorption for people. In contrast, the existing
investors significantly need a huge land to extend their business of logging, planta-
tion, and mining activities eventually run into land conflict with local communities
in many districts in Papua.
13
Social management is range of activities that aims to improve benefits and to reduce minimal
impact on forest management units whether by logging and industrial timber activities on the liv-
ing of local communities from crossing generations (based on Indonesian Ecolab Standard
Institute/LEI 5000 year 2000).
Problem Two 161
Problem Two
Palm Oil and the Mega MIFEE Project: The New Threat
of Forest to Papua
As of early 2011, palm oil plantations developed to 7.8 million ha in Indonesia,

where previously between 2006 and 2010 the area of palm oil cultivation just
reached an area of 5.9 million ha (Slette and Wiyono 2011). In 2010, these planta-
tions produced 22 million tons of Crude Palm Oil (CPO) and production increased
further to 23.6 million tons by the end of 2011 (Obidzinski et al. 2012). Within that
production were allocated 15.5 million tons for overseas export. The investors
receive Rp.122.7 trillion foreign exchange earnings. The government gets income
of just Rp. 14 trillion from CPO taxes (Kompas September 15, 2011). Most planta-
tions, as well as crude palm oil production, are located in Sumatra and Kalimantan.
As new land available for plantations becomes more limited, annual development of
plantations is expected to continue its gradual decline. As a result, Papua Island (Irian
Jaya) is obviously appointed the next target area of palm oil in the 2000s. Actually
by 2011, Papua planted about 1.5 million ha in palm oil and another 2 million ha at
the state of preliminary proposals (Papua Province Bureau for Plantation Estates,
April 2011). In 2008, the governor issued a policy-enhancing pro-poor–rural
development through palm oil plantations for biofuel production (USAID 2009).
The role of palm oil investors are very significant in establishing CPO processing
such as Perkebunan Nusantara XIII Company owned by the government, which
established the CPO factory in West Kalimantan in the 1980s. In addition, big inves-
tors and multinational groups such as Sinar mas, Wilmar, Golden Hope, Asian Agri,
Cargill, and Lyman control major palm oil plantations in the provinces (Obidzinski
et al. 2012). According to official statistics, 337 palm oil plantations covered a total
of 3.6 million ha in 2009 (Kalbar 2010).
There is no doubt that the rich biodiversity of forest in West Papua is causing
deforestation. The main threats of Papua’s forests are palm oil plantation, logging
(both legal and illegal), and mining areas. As told by John McBeth in his article
entitled: “Tussle for Papua’s Forest” in The Straits Times, Singapore on August 28,
2007, that Indonesia’s central government plans to expand palm oil plantations mas-
sively in West Papua. The forest land conversion needed 4 million ha appointed for
palm oil estate and area such as Merauke, Boven Diegul and Mappi, and in the Sari,
Keerom, and Jayapura Regency. According to Mc Beth, about 90 % of the area
designated for conversion to palm oil plantation is primary forest that has never
been logged, although the exact amount of land set aside for palm oil plantation is
unclear and figures vary according to sources. For example, Greenpeace claims
that Indonesian’s president has asked Barnabes Suebu, Papua’s governor to open
5 million ha of land for conversion into palm oil plantation in a bid to increase
biofuel production.14 Another source based on a Down to Earth (DTE) article quotes
the Indonesian’s Investment Coordinating Board (BKPM) as stating that there are:
Over two million hectares of land in Papua available for palm oil development. Most of this
(1.935 million ha) in spread through nine districts in Papua’s province, with the remaining
150,000 ha in the recently renamed ‘West Papua’ province. BKPM classifies this land as
state and customary/collective land. The BKPM data states that land already taken for palm
oil schemes covers around 90,000 hectares in Papua, and around 30,000 hectares in West
Papua. According to Ministry of Agriculture data.
Since 2006, biofuels have increasingly attracted the Indonesian government’s

interest because of their potential to reduce the country’s reliance on fossil fuels
(Beyond Petroleum 2010). Because Indonesia has long been dependent on fossil-
fuel energy for revenues and to finance development, it has become increasingly
urgent to conserve remaining oil reserves and look for alternative sources of energy.
In 2005, revenue from the oil and gas sector was about US$19.2 billion (24 % of
Indonesia’s GDP). Unfortunately, production levels of Indonesian oil have declined
over the past decade and consumption has increased. As a result, in 2004, Indonesia
became a net importer of oil and the government issued subsidiaries for energy
(Beaton and Lontoh 2010). Based on National Energy Policy in 2006, the Ministry
of Energy set guidelines for the instruction to use biodiesel by heavy industries, as
well as blending targets. The government has actively encouraged investors to apply
for land and industrial licenses. It hoped that by 2010, the biofuel would have cre-
ated 3.6 million jobs in rural areas and helped reduce poverty by 16 % (Ministry of
Energy and Mineral resources 2006; Dillon et al. 2008; Oxfam 2008; Obidzinski
et al. 2012). Apparently, in 2007, the first year that Indonesia’s biofuel policy
account into effect, investment in the biofuel sector was initially significant. Its
development, in late 2007, the Indonesian Association of Biofuel Producers
(APROBI) reported, that 17 biodiesel companies had reduced production or tempo-
rarily suspended operations. In 2008, only five mills were operating, which caused
biodiesel production to fall by 60 %. It is obvious that the decline was caused by the
drop in price of fossil fuels on the international market and subsequently affected
crude palm oil, CPO, which finally made CPO-based biofuels uncompetitive.
The price of CPO on international markets is variable, but recently has been rising.
In March 2008, it peaked at US$1,410 per ton. Throughout 2011, it hovered at
around US$1,000 per ton.
There are rationales supporting high demand of palm oil including rising palm
oil prices (making biofuels economically viable). Indonesia has now become the
largest global producer of palm oil leading Malaysia in 2007, with production of
between 17 and 17.2 million tons and rapidly developing to become 22.6 million
tons by the end of 2011. Another reason is helping reduce greenhouse gases. Many
countries also believe it would help reduce their reliance on fossil fuels. According
to NGOs, Down to Earth reports that the demand for biofuel is also driven by gov-
ernment policy as well as market force and gives an example for the European
Union (EU) which has said that 5.75 % of all vehicles must be biofuel by 2015 as
14
Radio New Zealand International report, October 9, 2007.
Problem Two 163
part of measures to reduce greenhouse gas emissions.15 The EU policy was criticized
by some NGOs in an open letter to the European Union and its citizens have declared
that implementing the targets:
Means that the European Union (EU) will risk breaching its international commitments to
reduce greenhouse gas emissions and protect biodiversity and human rights; because the
proposed targets will, amongst other things, promote crops with poor greenhouse gas bal-
ances, trigger deforestation and loss of biodiversity and exacerbate local land use
conflicts.16
Another rationale highlights that cutting down tropical forests in Papua for palm
oil plantation will eventually affect increased global warming but also destroy some
of rich biodiversity and which are also utilized by their indigenous people in every
aspect of their lives. Therefore, it emphasizes that using the forest resources for
local communities in gathering foods and meals, hunting animals, providing timber
for construction of their homes, medicinal plants, and their cultural and spiritual
significance. As illustrated by Scott Frazier who cites Friends of the Earth (2004) on
the impacts of plantations on biodiversity:
(a) 80–100 % mammal reptile and bird species are lost (when plantations are
established in primary tropical forest).
(b) Fire is often used as a management tool on plantations. This fire can spread to
the surrounding habitats.17
Further critique from Scott Frazier is that palm oil production brings pollution.
Carelessly and copiously applied pesticides, herbicides, and fertilizers plus process-
ing of waste products endanger aquatic and terrestrial flora and fauna. Another cri-
tique launched by the International Crisis Group (ICG) in 2007, reported that “the
social and political tensions generated by natural resources investment have always
been an important element of the Papua conflict. Papua and West Papua’s timber,
estate, and mining are vital to the national economy (income), yet their populations
are poorer than those any other provinces in Indonesia except West Nusa Tenggara.
There are also other concerns including “the potential influx of non-Papuan
Indonesian workers such as from Java, Bugis, Buton, and Makassar.” Recently
Papua is already concerned that they will become a minority as particularly occurred
in big cities such as Manokwari, Sorong Abepura, Sentani, and Jayapura. These
conditions subsequently affect the potential conflict between the local communities
and other migrants.18
In addition, the mega MIFEE (Merauke Integrated Food and Energy Estate) proj-
ect also threatens forest land in Papua, especially in Merauke. Initially in June 2008,
the IPB (Institute of Bogor Agriculture), which had carried out research in terms of
the MIFEE project, said that Indonesia will face a crisis in 2010–2025 because of
15
“Indonesia and biofuel fever,” DTE Newsletter, No. 74, August, 2007.
16
“Pressure mount against EU biofuel targets,” DTE Newsletter, No. 72, March, 2007.
17
Kartikasari et al. 2012. “Threats to Biodiversity,” The Ecology of Papua. Indonesia Series Volume
VI. Jakarta: Obor Press.
18
ICG “Indonesia Papua: A local perspective on the conflict” Asia Briefing No. 66, July 2007.
the lack of sufficient land in Java due to the very rapid increase in population and
industries, which has resulted due to the emergence of nine megapolises in Java. As
a result a decline in the supply of food while the Indonesian population is estimated
to increase to 300 million in 2025. This could lead to famine by 2025 which empha-
sizes the need to find a solution in the form of vast areas of land. Therefore, the
Indonesian President, Susilo Bambang Yudoyono (SBY), in 2009 declared the
establishment of MIFEE aims of feeding “Indonesia and the world” by developing
a food and energy estate such as rice, palm oil, sugarcane, cacao, and soybean in
Merauke.19 Merauke has been designated a national Special Economic Zone (SEZ)
in order to attract the US$8.6 billion of investment needed for the project. MIFEE is
one of the priority programs of the second term of the SBY presidency (2009–
2014). Apparently, to fulfill its ambition, the government of Indonesia invited mul-
tinational companies from the Middle East, Asia, and the United States, as well as
from Indonesia. More than 30 companies such as the Bin Laden Group (Saudi
Arabia), Oman, and the United Arab Emirates confirmed their interest in this
project and have already received concessions from the Indonesian government
(http://en.wikipedia.org/wiki/Saudi_Binladen_Group). From Asia, a Japanese cor-
poration, the Mitsubishi Group (http://www.mitsubishi.com), the Wilmar Group
from Singapore, and LG International from South Korea, From the United States,
International Paper Company, based in Memphis, Tennessee has been in discussions
with the Indonesian Ministry of Forestry concerning developing a mill either in
Kalimantan or in Merauke. Domestic companies such as Medco Group, Artha
Graha Network, Bangun Cipta Sarana, Comexindo, Sumber Alam Sutra, Korindo,
Rajawali Nusantara, Sinar Mas (Kertas Nusantara). and Diegul Agro Lestari as part
of Astra Agro Lestari are also involved.
This project was opposed by Agus Samule, an expert on staff of the governor of
Papua, who said it would be an act of grave injustice because it means that Papua,
and especially Merauke Regency, would be expected to bear all the consequences of
the food crisis in the world and in Indonesia. He frankly said that this burden should
be borne by districts throughout Indonesia, from east to west and from north to
south.20 Actually the strong opposition to MIFEE raised major environmental and
ecological concerns from local NGOs such as SKP-KAM, Foker, SORPATOM, and
AMAN.21 Even AMAN has frankly said against MIFEE that the conversion of cus-
tomary forest land into agricultural estate and utilized by companies subsequently
causes human rights violation on indigenous tribes, radically changing the existing
19
See (http”//www.presidensby.info), accessed source 20 November 2012.
20
See “A Small Paradise That Will Be Annihilated: View From Merauke, West Papua” (http://
westpapuamedia.info 2010/09/05). Accessed December 5, 2012.
21
Office for Justice and Peace of the Archdiocese of Merauke (SKP-KAM); Papua NGOs
Cooperation Forum (Foker LSM); Solidarity for Papuans (SORPATOM); and the Indigenous
People’s Alliance of Indonesia (AMAN).
Problem Two 165
subsistence of local communities.22 This condition led to the Malind tribe, who
finally become minority in their land, because migrant workers who have skills and
better training from other provinces were invited to work in MIFEE. Actually the
conversion of protected forest for agricultural use seems likely as a violation of
regulations in the Forestry Act and led to widespread deforestation in Merauke. This
condition subsequently affects the contradiction in the Government of Indonesia’s
commitment to reduce greenhouse gas emissions by 26 % in 2020. It also raises
questions over a recent US billion dollar REDD (Reducing Emissions from
Deforestation and Forest Degradation) agreement with the Government of Norway
to preserve Indonesia’s rainforests, in particular in Papua.
In contrast, the response from Head of Regency, Johanes Gebze, was positive
regarding the MIFEE project; he was in favor of the need to improve the local
autonomy and in favor of food self-sufficiency. Then, the local and central govern-
ment carried out their own studies and produced a draft for the project. The central
government came up with the idea of a mega project called Merauke Integrated
Food and Energy Estate (MIFEE), along with government regulation No. 20/2008
on National Land Allocation. As a result, the Indonesian president enacted Inpres
No. 5/2008 requiring the adoption of the MIFEE plan as part of provincial land
allocation. In initial planning, the provincial government recommended the alloca-
tion of 5,552 ha for MIFEE, but the Ministry of Agriculture decided that 1.6 million
ha should be allocated for the project. Apparently, for a megaproject an area needs
huge dimensions, imposed on the map of Papua, including not only agricultural land
and transmigration sites which are suitable for food production, but also virgin for-
ests and protected areas including peat, water catchment areas, and even residences,
including the village of the indigenous people, the Malind tribe. Unfortunately, in
the discourse of this project between the Merauke Regency and central government,
there has been virtually no mention on the destiny of indigenous people who live in
the area in terms of how to raise per capita income, to provide a training center, and
for modern equipment and technology for agricultural production.
There were negative responses of an indigenous people such as Malind, Muyu,
and Mandoba, as well as Mappi and Ayu to the project. They frankly said as
“victim” of manipulation and conspiracy of investors and government officers in
order to get the “signature” of head of tribe to release their customary forest land.
The concerns were loudly voiced by the Farmers Association of Indonesia and
AMAN. The Malind tribe which has 50,000 people is one of the tribes most affected
by the food and energy project. Because it impacts on economics, marginalization
of the Malind people in Merauke can only get worse. They will lose their customary
lands as a result of the seizure of their land in the name of development and they will
lose their customary systems and regulations. Finally the identity of the Malind
tribe will gradually be lost along with the destruction of the natural features that are
the symbol of each clan.
22
See paper entitled:” Request for consideration on customary people (Masyarakat Adat) in
Merauke, Papua Province to the United Nations Committee for Erasing Race Discrimination on
April 23, 2010 (http://www.aman.or.id/in/masyarakat-adat/masalah-adat/179.html).
Problem Three
Mining Activities
This section discusses mining activities regarding Freeport in Mount Jaya and
Cyclops forest conservation within the Tablasupa Nickel Mining Company opera-
tion. The first issue is the Freeport Company. The mining activity of Freeport sub-
sequently affects human rights abuse and ecological damage. Freeport’s Grasberg
Company is one of the world’s richest gold and copper mining operations. It is
located in Jayawijaya Regency, Papua, situated on 16,500 foot high, snow-capped
Mount Jaya, a few hundred miles south of the equator in Papua New Guinea. Recent
estimates suggest that the mine has both the third largest reserves of copper, and the
second largest reserves of gold, in the world. Gold production from the mine aver-
ages between 1 million and 1.5 million ounces a year; copper production averages
1 billion pounds a year. The mine employs about 17,000 people, at least 85 % of
them non-Papuans (Robert 1996: 15). According to Bryce (1996), the Grasberg
Mine contains gold, silver, and copper valued at US$50 billion. Politically Freeport
got their concession after the end of the Soekarno regime in 1966 and had close
contact with the New Order regime of Soeharto in 1967. The contract was the first
signed by a multinational corporation with Indonesia’s New Order government. The
contract of work with the government was so written that Freeport has been obliged
to house, supply, and transport any government officials, including members of the
security forces and soldiers, to protect the mining area. As usually happened in
other newly independent countries during the Cold War and beyond, the regime had
come to power with the backing and assistance of the US government, including the
Central Intelligence Agency (CIA), because of its foreign-investment-friendly eco-
nomic policies (Abrash and Kennedy 2005).
Further development between the Freeport Company and the Indonesian govern-
ment has been very close, because of the wealth of Freeport’s mine. This company
is responsible for about two thirds of Indonesian’s annual gold production, and is
regularly among the largest corporate taxpayers to the government. Freeport
McMoran Copper and Gold Inc. reported that it has paid the Indonesian government
as much as US$899 million in financial obligations in the first semester of the
year 2010. The payment is made up of $581 million in corporate income tax;
$137 million in employee income tax, regional dues, and other taxes, $105 million
in royalties, and $75 million in the government’s share of dividend (West Papua
Chronology of Events 2012: 16). The existing of Freeport categorized by the gov-
ernment as of strategic importance to the state exceeds its monetary value, because
the government also shares in the dividend. Even the government recognized both
its wealth and its status as the first symbol of foreign investment confidence in the
Soeharto regime; the Freeport mine has been declared one of ten “national assets.”
It is also considered valuable income for Papua (Irian Jaya), accounting for 88 %
of the province’s nonoil exports (Ballard 2001: 23).
Problem Three 167
In 1971 development of mining areas began and production commenced in 1972.

The production of Freeport mines is 78,000 tons of ore a day. It is equivalent to
7,500 metric tons (mt) in 1972, to 66,000 mt in 1993, and rapidly developed into
220,000 mt in 1998. Unfortunately, waste of mill treatment led to unsustainable
management and thus into pollution. It throws waste directly into the Agabagong
River, which disgorges into the Aijkwa River that flows down to the Arafuru Sea. In
addition the mine dumps 300,000 tons of waste tailings into the Aijkwa River every
day (Rio Tinto’s Shame 2000). As a result, environmental damage occurred, par-
ticularly in the aftermath of a large overbank event at the Aijkwa River in 1990
which saw tailings disgorged over a 30 km2 area of lowland forests. The scene was
described by one observer: “Dead and dying trees are everywhere, their broken
branched protruding from tracts gray sludge…. Vegetation is being smothered by
accumulated sludge that is several yards deep in places…. By the company’s own
calculation 51 square miles of rain forest is expected to be destroyed before the
century is out” (Robert 1996: 16). This condition led to the indication that Freeport,
with its careless exploitation of the environment for more than 30 years, has dam-
aged 30,000 ha of rainforest as well as the Aijkwa River. As a result this environ-
mental damage has affected thousands of local people, primarily the Amungme and
the Komoro, who depend on these natural resources for their food, subsistence,
water livelihoods, and cultural practices (Abrash and Kennedy 2005). In 1977,
indigenous people affiliated with the Free Papua Movement (OPM) issued their
own critique of its environmental record by blowing up one of its ore pipelines.
Thus far, in order to counter the huge critiques on environmental damage,
Freeport Company employed environmental consultants. In 1999 report written for
Freeport, the environmental consultant Montgomery Watson stated that the com-
pany had “incorporated modern, state-of the practice geotechnical stability tech-
niques in sitting and designing the Wanagon and Carstenz (Overburden Stockpiles).”
As a result, just months later, the Wanagon stockpile underwent a massive rockslide
that entered Lake Wanagon, generating a pulse of water that washed downstream
like a tidal wave into the populated valley below. Yet Freeport management ignored
and suppressed consultants’ recommendations to regulate dumping at Wanagon. As
a consequence four workers were killed by the May 2000 wave. The impact of gray
sludge rockslide to downstream killed the rainforest;, the area, more than 80 km
distant from the mine site, was once a source of livelihood for local indigenous com-
munities and now was polluted (Abrash and Kennedy 2005: 6).
Actually there are two large groups of indigenous communities in the Freeport
concession area, the Amungme, in the highland area around the Grasberg mine and
the township of Tembagapura, and the Kamoro, on the coast and the lowland plain
in new towns of Kuala Kencana and Timika; in addition, there are almost 100,000
immigrants, the majority from other parts of Indonesia who have arrived since 1990.
Unfortunately, although the contract of work occurred in 1967, local government
was not motivated to involve local communities to be shareholders as landowners.
By contrast, Freeport paid no rent or royalties to the Amungme, other than the
stipulated “reasonable compensation for dwellings to local inhabitants and cost of
their resettlement.” Therefore, when the mine infrastructure expanded in 1973, and
the township of Tembagapura was constructed, the Amungme of the Wa Valley
continued to protest what they saw as a constant process of encroachment on their
land, without either consultation or adequate compensation. The protest subsequently
affected the January agreement of 1974, which was negotiated at Tembagapura
between Freeport, local communities, Amungme community leaders, and military
government officials, in which Freeport was to construct 19 buildings in the villages
of Wa, Tsinga, and Kwamki Lama and an offer to re-employ Amungme laborers,
including a school and health clinic in exchange for approval by local community
landowners of mining activities. Finally the company responded by injecting enor-
mous sums of money into indigenous communities and also offers a “One Percent
Trust Fund.” which designates 1 % of the company’s annual revenues for aregional
development program. But, unfortunately LEMASA (Lembaga Musyawarah Adat
Suku Amungme/the Amungme Tribal Council) represented by Tom Beanal as leader
of LEMASA refused it. They unconditionally and absolutely rejected the Freeport
offer. LEMASA stated that Freeport must closed its operation because of human
rights violations and environmental damage incurred by company. From this
viewpoint of agreement in 1974, the Amungme leaders did not fully understand the
implications of the agreement; neither were they actually prepared to sign it, and
most of the leaders still alive insist that they came to the meeting prepared to deny
Freeport any further access, but were intimidated into signing the Agreement by the
presence of military officers acting as mediators.
Freeport Company officers have calculated that this mining exploration is a
lucrative business and gain much profit; in 1991, Freeport CEO James Robert (Jim
Bob) signed a new contract of work with the Soeharto regime to exploit the huge
deposit of gold that Freeport had discovered at Grasberg in 1988. There is circum-
stantial evidence suggesting that the deal was full of corruption and collusion for
which the Soeharto regime has become infamous.23 Therefore after getting an
extended contract from the Indonesian government, Freeport Company eventually
sought large injections of foreign capital, provided primarily by Rio Tinto from
Australia, to finance this massive increase in the rate of mining exploitation.
The consecutive protest happened in May 1994 and in March 1996. In 1994 a
wave of defiance began in the Tsinga valley, where a group of some 200 OPM
entered the village of Tsinga and raised the banner of the pro-independence Morning
Star flag. Following the event in November 1994, two shooting incidents occurred
23
There was hard debate in the Indonesian Parliament after the Soeharto regime stepped down in
May 1998 regarding the “re-contract” review between the Indonesian government with mining, oil,
and gas investors. Under the previous contract with investors, huge income was “corrupted” by
high government officials and cronies of Soeharto regime, for instance, regarding the Freeport
Company which includes strategic mining exploration: the Indonesian parliament proposed the
reformation government, in Abdurrahman Wahid’s regime (2000–2001) to make a new contract to
request a bigger share of dividends from 9 % in the 1967 Contract and extension from 12 % in
1991 to become 25–30 % because in previous years, Freeport with products of gold and copper has
been receiving lucrative profits in the international market. This bigger dividend is considered very
significant and aimed at receiving foreign exchange earnings more productive to provide public
funds such as for education and the health care system in Indonesia.
Problem Three 169
along the company road between Timika and Tembagapura resulting in the death of
one Freeport employee and injuries to two others. The army responded even more
severely and subsequently killed about 30 villagers they considered OPM partici-
pants and many Amungme tribe resettlements were destroyed. This event invited
Indonesia’s National Commission on Human Rights (Komnas HAM) investigation
in September 1995 and concluded that identifiable human rights violations had
occurred in and around Freeport’s project area, including indiscriminate killings,
torture and inhuman or degrading treatment, unlawful arrest, disappearance, and
destruction of property. Komnas HAM noted that these violations “are directly con-
nected to the (Indonesian army)….acting as protection for the mining business
Freeport Company” (Ballard 2001: 12).
But in 1996 several thousand villagers launched a protest against Freeport in
Tembagapura, when a Dany man was hit and injured by a Freeport vehicle which
targeted the unpopular security department and over the next few days, the riot
spread to the Timika, where Freeport facilities and the airport were attacked. The
consequences of this riot were four people killed and more than a dozen injured as
protesters damaged Freeport’s equipment. According to the Australian Council for
Overseas Aid (ACFOA) and the Catholic Church of Jayapura Freeport turned a
blind eye while the Indonesian military killed and tortured dozens of indigenous
communities in the area surrounding the mining concession. “Villagers were beaten
with rattan, sticks and rifle butts, and kicked with boots,” one tribal leader told
Catholic Church officials, “Some were tortured until they died” (Ziman 1998). In
response to this tragedy, the OPM took hostage a number of foreign and national
scientists working in Lorentz National Park, resulting in a wave of military repres-
sion across the region, and several more massacres of civilians. It was obvious,
that throughout these events, Freeport facilities were used as bases for military
operations.
The struggle of the Amungme and Kamoro as local indigenous communities not
just to request shutting down Freeport Company’s operation because of human
rights violations and environmental damage. But so far their struggle has become
intimately integrated with Papuans’ territorywide struggle for independence.
Amungme community members support the goals of or are activists in the Free
Papua Movement (Organisasi Papua Merdeka or OPM). Tom Benal and other
Papua community leaders have launched this statement: “Could it be that Indonesian
government is drawn from Papua (Irian Jaya) not by its people but by its natural
resources? The legislative and executive bodies have proven incapable of respond-
ing to the genuine aspiration of the local communities within the context of the
Republic of Indonesia” (Abrash and Kennedy 2005: 9).
The response from President Abdurrahman Wahid, who came to power in late
1999, as the reformation government after Soeharto stepped down, has taken some
steps toward improvement to review re-contract and to hold Freeport accountable
for environmental impacts and human rights violations associated with mining
activities. WALHI, Indonesia’s largest environmental organization, has reported
Freeport in the courts for the company’s failure to provide accurate information
about the environmental impacts of the mine and other cases regarding human rights
violations to the destiny of indigenous local communities.
The second issue regards the Cyclops conservation forest which is part of
forestland area that has been explored by Tablasupa Nickel Mining Company and
other activities. The concession was gotten from the head of Regency Jayapura on
June 29, 2007. Actually Cyclops was appointed as a conservation forest area and
decided issue No. 365/Kpts-II-/1987 by the Ministry of Forestry on November 18,
1987 with width area 22,500 ha (Fig. 7.3). The highest peak of the mountain reaches
1,880 m in this area. Administratively this area is located in the south and north
Jayapura Regency, Sentani, Deppare Regency, and Jayapura City, Papua Province.
They consist of four natural ecosystems in the Cyclops area, namely lowland
rainforest, mountain forest, secondary forest, and grassland. The flora numbers of
this area comprise Pometia sp.,Instia bijuga, Anisoptera sp., Dilennia sp., Querqus
spp., Firmiana sp., Callophylum sp., Myritica sp., Castanopsis sp., dark orchid
(Dendrobium lasiantheum), iron orchid (D. violaceoflavens), anggrek Jamrud
Hitam (D. macrophyllum var. gigantheum), Yellow orchid (D.connotum). tie orchid
(Bulbophyllum sp.), pineapple orchid (D. smilliae), rabbit orchid (D.antenatum),
and pocket orchid (Paphiopedillum violascens). Meanwhile fauna potential consists
of Kakatua Raja (Pobosciger atterimus), paradise minor, Palanger sp., Lorius
domicella, cacatua galerita triton, Dendralagus sp., Goura Victoria, Ornitophera sp.,
Electus rotates, and Casuarius sp., among others (Fedrik et al. 2006).
The Cyclops area was designated as a conservation area, but related to customary
forest rights owned by the Sentani tribe. Therefore land use conflict occurs in this
area. From the government perspective, the strategic Cyclops area is designated for
upstream forest conservation. As it is the source of the water catchment area for
downstream, in order to maintain it, a reforestation program and sustainable forest
management is very urgently needed to be implemented this area (interview on May
20, 2012). But, according to the Sentani tribe who owns this area, the head of tribe
(Ondoafi) on behalf of customary land could utilize this land for selling contracts
for businessmen, for instance, for exploring stone materials. This stone exploration
type C is familiar, appears in the Cyclops area which is illegally explored by the
company. Although the head of tribe and land owners receive profit by selling
contracts to businessmen, the practice led to forest degradation and deforestation in
the long run.
Unfortunately, recently forest degradation in the Cyclops area has occurred
which led to flood, soil erosion, and shortage of water downstream such as in
Jayapura City, Sentani City, and Sentani Lake (for ecotourism). There are some
driving factors of Cyclops forest degradation:
1. The rapid growth of the economy, industrialization, and population, its impact on
land utilization surrounding the Cyclops area border forest land encroachments
for property, housing complex, and resettlement for migrant workers in Jayapura
City. This land encroachment entered into the Cyclops conservation areas; for
instance there are 56 housing units in Harapan village, Ifar Gunung Dayo Baru,
Sereh village, which led to illegal resettlement. Therefore, if regulation does not
exist for illegal settlement on the surrounding Cyclops catchment area it will
eventually affect forest degradation.
Problem Three 171
Fig. 7.3 Cyclops conservation forest area in Jayapura Regency (Source: Google 2014)
2. Shifting cultivation for indigenous people reached 49 households in this area.

These activities are customs from their ancestors, but by cutting trees for their
subsistence, it led to soil erosion and forest degradation. Hence the role of local
government and Forestry Regency Agency must cooperate to relocate indige-
nous people who carry out some shifting cultivations in the Cyclops area.
3. Nickel mining exploration carried out by Tablasupa Company by issuing mining
concessions from the head of Regency Jayapura on June 29, 2007 and also stone
material exploration type C for local businessmen from the head of the Sentani
tribal. This mining exploration subsequently affected forest degradation, flood,
and soil erosion. As illustrated in March 2007, a flood covered Sentani City
(capital of Jayapura Regency) with broken infrastructure, drainage, two bridges,
and roads,which led to transportation being stopped for several days (interview
on May 20, 2012).
Actually there are many critiques from the Forestry Agency, NGOs, and academ-
ics regarding forest degradation in the Cyclops Forest conservation area and how to
carry out rehabilitation, reforestation, and relocation among illegal settlements and
shifting cultivation. According to George Karma, Head of Forestry Agency in
Jayapura Regency the Cyclops area is very vital and must be maintained for strict
conservation as upstream water catchment areas for the Sentani Lake watershed and
water resources for the people in Sentani and Jayapura City. Meanwhile, Marshall
Suabu is head of NGOs Hiroshi Foundation (for maintaining natural resources and
environment) in Jayapura Regency. He offers a solution for the better performance
of Cyclops. He said it is necessary to hold solid “coordination” among local

government in Jayapura Regency with Jayapura City for making an integrated
priority program in Cyclops areas, for example, how to carry out affirmative action
together with reforestation and rehabilitation with actively involve local communi-
ties, academics, private companies, and NGOs. Another priority program must be
performed to relocate illegal resettlement and shifting cultivators which is done by
indigenous people and other inhabitants to other locations (Interview, May 24,
2012). Meanwhile Fritz M. Felle, head of the Sentani tribe, said that until now there
is no integrated management to reduce and even erase forestland encroachment
such as shifting cultivation, fires, illegal logging, stone material and mining explora-
tion, and illegal resettlement. This means that law enforcement for preventing
Cyclops areas led to forest degradation, not yet conducted by local government.
The ecological impact is very serious such as soil erosion, flood, and shortage of
water in the dry time. As told by Gady Batubara, Director of Water Supply for
Jayapura City, the supply of clean water during 4 months (June until September) in
the dry time is a serious threat (Kompas October 20, 2010).
Further critiques were also launched from academics such as J. R. Mansoben and
Enos Rumansara, both anthropologists from Cendrawasih University. They said the
Cyclops area is in a very strategic position to produce clean water in the upper
stream, become a catchment area and carbon sink (O2). Therefore it is necessary to
be well maintained by all stakeholders. So in order to realize this program move-
ment, Cendrawasih University (UNCEN) with local government held a seminar
entitled: “The Safety Program for Cyclops Area and Sentani Lake,” and invited
several stakeholders to the Sentani Festival on June 19–23, 2012. The target of the
seminar output is to launch stakeholders’ consciousness and do affirmative action
by carrying out huge reforestation, forest rehabilitation, and “sterilization” by
relocation of illegal settlement and shifting cultivators (Interview, May 25, 2012).
Concluding Remarks
The operation of large-scale business projects such as mining and estate plantation
(palm oil) and the MIFEE Project (Merauke Integrated Food, Energy and Estate)
mostly captures public interest for migrant workers to get jobs, because the “neolib-
eral economy” has removed the potential for capital, technology, and cash flow to
invest in the regency, district, and rural areas (villages). In the case of Papua, it has
taken the expansion of multinational corporations (MNC) such as Freeport and
LNG projects in the mining sector, Kodeco and Korindo (South Korea), Djajanti
Group, Kayu lapis Indonesia, Hanurata, and Wapoga Mutiara in logging conces-
sion, Sinarmas group, Wilmar, and Astra Agro Lestari in palm oil estates. It is obvi-
ous that the central government policy of giving concessions to multinational
corporations and domestic private companies as well for investment is to get foreign
Concluding Remarks 173
capital, taking huge taxes, foreign exchange earnings from commodities export,
technology transfer, and absorb job creation for workers, for instance Freeport
Company, one of the largest contributors of incomes, job creation, taxpayers, and
dividends for the Indonesian government. The company’s operations led to threats
due to forest degradation, environmental damage, and human rights violations to the
local community.
In contrast the interest of the local community to maintain their customary forest
rights because their subsistence and daily need depend on forest resources was
ignored by government. As an illustration, it raised such problems as the illegal
logging crisis in 2000–2003, Papua which was subsequently affected by forest
degradation, land conflict, and economic marginalization of the local community.
The problems were not tackled by the government because of political manipulation,
collusion, and corruption among the local elite, traders, and the military.
Actually the response of indigenous people throughout protests and demonstra-
tions such as the Sentani in Jayapura, Arfak in Manokwari, Amungme in the upper
stream Tembagapura, and Kamoro in downstream (coastal area) Timika, against the
operation such as the illegal logging, logging concession, and estate plantation and
mining (Freeport), because the companies encroach their forest land without
properly giving any compensation and dividend to the indigenous people, destroy
their ancestor beliefs, for instance, forest, lake, mountain, valley which are regarded
very sacred places according to their beliefs. The continued operation and expansion
of the contract of areas by Freeport eventually affected deforestation, ecological
damage, and economic and social marginalization of indigenous local people.
Therefore, despite recent warnings of forestland conflict, I conclude that govern-
ment interests over forest land resources in Papua for expanding estate plantation
(palm oil and MIFEE Project), logging concession, mining activities, and so forth
that led to revenues from investors including dividends and taxes, foreign exchange
earnings, and so on, is still going on in operation. This conflict eventually occurred,
because the rationale based on the economic gain paradigm for the aim of national
development from the government interests’ viewpoint. In contrast, the Special
Papua Autonomy was issued in 2001 based on giving authority on administrative
decentralization, fiscal, and political affairs to local government. This political
decentralization initially designed led to the practice of democratic values, account-
ability, and transparency management in Papua. Unfortunately, so far the realization
of decentralization on giving an authority in terms of managing natural resources
such as forestry, estate plantation, and mining activities are still at a crossroad,
meaning central government actually still keeps the authority and control of inves-
tors’ permission. As a result, local government currently could not definitely make
decisions on issuing permission and control on concessions, because the central
government still considers that local government officers are not sufficiently capa-
ble and their capacity is limited to manage and control natural resources. The impact
of this policy, the recent development in Papua in the forestry sector, estate planta-
tion, mining activities, infrastructure, and development at large scale includes the
improvement of economic, agriculture, social, education, and health issues of local

indigenous people and are still not yet rapidly developed. It is as a consequence of
embedded conflict interest on forest land utilization and concession among three
party’s interests, central government, local government, and indigenous people,
because there is still a wide gap of interpretation on law, regulation, and realization
in the field.
Chapter 8
Interpretations of Decentralization
by Stakeholders
The Ministry of Domestic Affairs
As mentioned above, the agenda for reformation was democratization, good gover-
nance, and decentralization. Acts No. 22/1999 and No. 25/1999 concerning regional
autonomy and financial balancing significantly changed the authority for managing
various sectors, institutions (DPRD and BPD), personal recruitment staff, and finan-
cial balancing.1 How did the role of the Ministry of Domestic Affairs change due to
these new laws? This chapter focuses on the discussion about the role of the DPRD
in district, the BPD at the village level, public services, and financial balancing. The
monitoring and implementation of these four items lies within the domain of the
Ministry of Domestic Affairs.
The Role of the DPRD (Local Parliament)
The new role of the DPRD of electing and requiring accountability from the local
head of government (the governor at the provincial level and Bupati/district head or
mayor at the municipality level) is a significant change from the previous system.
Under Act No. 5/1974, the regional legislatures had been subservient to the central
government. Heads of local and provincial governments were chosen by the central
government and thus were responsible not to the local or provincial DPRD, but to
Jakarta (Rasyid 2003: 64–65). Thus, Ryaas commented that under the 1974 law,
1
Significant change has occurred in the role of local parliament (DPRD I & II). The function of the
local parliament is to elect the head of government and head of district and to monitor the final
reports annually. At the village level, the role of BPD (Village Representative Board) is to draft
planning, village regulations, and the annual budget and to monitor the head of the village
(Interview with I Made Suwandi, Director of Policy Facilitation and Evaluation of Regional
Autonomy, Ministry of Domestic Affairs, August 7, 2003, in Jakarta).

DOI 10.1007/978-981-287-745-1_8
176 8 Interpretations of Decentralization by Stakeholders
there were no democratically elected heads of provincial or local government. This

centralistic–authoritarian system was maintained through to 1999.
It is written in Act No. 22/1999, article 14 that “[T]he district level is made up of
a DPRD as Legislative Board and a local government as Executive Board.” Article
18 (a) states that the “DPRD has the task and authority to choose Governor/Vice
Governor, District Head/Vice and Mayor/Vice.” In contrast, Act No. 22/1999
granted the DPRDs full authority to elect their own heads of government, thereby
giving regional communities sovereignty over their own political affairs. It was
hoped that with noninterference from the central government, local governments
would freely elect the best leaders. However, this optimism has not proven to be
well-founded. The political behavior of most DPRD members has been inconsistent
and many are involved in money politics. The main problem is that members of the
DPRD are not elected directly by the people, but rather are appointed by their par-
ties. Consequently, over the past few years, control of local politics has passed from
the Department of Domestic Affairs to party officials, rather than to the people, as
was originally intended. Ryaas blames the electoral system, as it effectively insu-
lates members of parliament from the public (Rasyid 2003: 65). As a result, their
main political concerns tend to be personal issues and internal party matters over
community interests and aspirations. In this case, the issue of electoral reform is
therefore crucial to making local politics more democratic and community-focused.
Hence, the demand for directly elected governors, district heads, and mayors should
be seen in the context of the electorate wishing to determine precisely who will
represent them.
The DPRD and regional government leader play a critical role in issuing local
regulations. The DPRD has the authority to initiate, amend, and pass regulations,
whereas the head of government, under Act No.22/1999, is required to approve
them. Therefore, under the new laws, once a regulation is passed by a DPRD and
approved by the head of the government, it becomes effective immediately. A copy
of the regulation should then be sent to the Minister of Home Affairs in the form of
a report only. The role of the minister is to check that each regulation does not vio-
late any higher law or the public interest.
Observing the 1999 general elections, the map of parliamentary membership at
the national as well as provincial and district levels has changed from a thick spread
of Golkar yellow to a more diverse array of parties gaining seats. Only about 10 %
of DPRDs have single-party majorities. This has made rivalry and competition for
top government positions more complex and unpredictable. During the Soeharto
administration, the public could safely predict that Golkar candidates would gain
governorship and district head positions. Currently, not even members of parliament
themselves can be sure of an election outcome. Elections for key positions involve
intensive bargaining between factions, sometimes with surprising, even shocking,
consequences. An example of the dramatic change in the color of the political land-
scape is Jambi province in South Sumatra. In January 2000, Zulkifli Nurdin, a busi-
nessman with no political experience, was nominated for the governorship by the
National Mandate Party (PAN/Partai Amanat Nasional), which had only two repre-
sentatives in the provincial DPRD. Surprisingly, Nurdin defeated his more fancied
The Ministry of Domestic Affairs 177
rival, Hasip Kalimuddin Syam, the previous vice-governor of Jambi, who was
backed by Golkar and its 13 parliamentary members. Finally, Nurdin received 30 of
the 45 votes cast in the DPRD to Syam’s 13 (Rasyid 2003: 66). As a consequence,
soon after the election, 300 Golkar supporters protested against the result and vio-
lently attacked the parliament. The fact that Nurdin was one of the richest men in
Jambi made it difficult for the public to believe that the election had been free from
bribery.
One of the negative impacts of the implementation of decentralization laws in
January 2001 is that the public has become increasingly suspicious of bribery
in local politics, particularly in the elections for local heads of government. The
term “money politics” has become closely attached to almost all governorships as
well as district head and mayoral elections. Few of the local government leaders
elected since January 2000 are free from public allegations of having tried to bribe
DPRD members in order to secure their positions.
Role of the BPD
Not so the case of the BPD (the Village Representative Board). Act No. 22/1999,
article 94, states that a “village is made up of a village government and Village
Representative Board, both are called village government.” Previously, under Act
No. 5/1979, village governments had to conform to a standardized pattern and tra-
ditional governance structures were not recognized. Villages had no autonomy and
were under the direct authority of the subdistrict government; they could take no
decision without the prior approval of a higher authority. As the ex officio chair of
the now discontinued Village Consultative Assembly (LMD/Lembaga Masyarakat
Desa) and Village Community Resilience Board (LKMD/Lembaga Ketahanan
Masyarakat Desa), the village head was in firm control of the village-level govern-
ment. There was no separation of powers, and no system of checks and balances.
This led in many cases to corruption and abuses of power. These clients of the state
heavily monopolized local politics. This situation has changed radically with the
introduction of BPDs. This village parliament consists of 5–13 members elected
every 5 years “by and from villagers.” The BPD has the power to draft village regu-
lations and the annual village budget, and the right to monitor the village head. It
can even propose to the district government the removal from office of a village
head. According to Act No. 22/1999, village governments can now be “based on
origins and customs” (asal usul dan adat istiadat); villages also have the right to
reject development projects if they are not accompanied by sufficient funds, person-
nel, and infrastructure. The village government is thus no longer oriented upward;
the village head has been made accountable to the villagers and must answer to
them at council meetings.
The existence of BPD has the potential to revolutionize village governance, not
only by providing a mechanism for the institution of checks and balances, but also
by revising the old paradigm whereby villagers were merely “objects” of
development projects decided upon elsewhere. Currently, villagers are beginning to

feel that they have both the right and the capacity to exercise democratic authority
over public matters affecting their home communities. During 2000 and 2001, elec-
tions were held in most of Indonesia’s approximately 52,000 villages. If each coun-
cil has an average of 10 members, this means that there are now some 520,000
democratically elected council members who are in a position to act politically. The
BPD has thus diversified local politics, allowing many new people to become
involved in governing their communities and ensuring that village governments are
held accountable. In West Sumatra, for example, the return to a traditional Nagari
structure—a curious mix of Islam, customary law (adat), democracy and top-down
regulations—has been legalized under Provincial Decree No. 8/2000 (Antlov 2003:
80). This Nagari institution discusses the political, economic, and social conditions
of the people in order to find improvements.
Village councils are important learning grounds for community-level politics,
but their political impact beyond the village is limited inasmuch as they cannot
influence regional policy or build linkages to political parties. A very recent devel-
opment promises to address this, namely the emergence of networks and associa-
tions of village governments and councils. Their main function is to act as a pressure
group on behalf of the villages and amplify the voice of villagers in relation to a
district or subdistrict government, or even a political party.
In terms of public services, Act No. 22/1999 devolves the authority for public
services primarily to the district, rather than provincial level—the powers of the
provinces are limited (articles 7 (1) and (2))—as these powers were intended to
improve the quality of public services in the district, subdistrict (Kecamatan), and
village levels. Under the Soeharto administration, for instance, local governments
were not permitted to grant investment licenses and so could not make a direct con-
tribution to budgetary initiatives and solving problems such as unemployment.
Currently, they are able to create jobs through investment and industrial policies. In
the context of investment, government regulation No. 25/2000 makes it clear that,
with the exception of oil, gas, and mining resources containing highly radioactive
components, the authority to grant investment licenses now lies with regional gov-
ernment, where the provincial government is responsible for investments involving
more than one district or municipality (Rasyid 2003: 69).
The reality, however, is different. As mentioned previously, the lack of central
government guidelines to steer local government decision making has created great
uncertainty and tension in the regions, with some local governments promulgating
regulations based on their interpretation of Act No. 25/1999 and government regula-
tion No. 25/2000. Certainly, their actions cause much controversy because, without
proper supervision by the central government, local policies could unwittingly
breach national law and even community interests. For instance, there are hundreds
of new mining, forestry, fishing, and trading licenses, and local governments have
frequently imposed new taxes and charges on businesses that violate existing laws
in order to generate revenue. The Indonesian Chamber of Commerce and Industry
(Kadin) recently found that more than 1,000 local regulations were unfairly burden-
ing the business community, thereby discouraging new investment (Tempo, August
24, 2002). These locally raised taxes and charges are a deviation from the principles
of decentralization laws, which were devised, among other things, to provide a bet-
ter climate for investment and to improve the life of local communities.
Bureaucratic Capacity and Efficiency for Providing Public

Services
The devolution of functions and transfer of many government personnel from the
central to the local level of government has caused the number of local departments
(dinas) to decrease as a result of a merger of units, while the number of new agen-
cies (badan) and offices (kantor) has increased. In fact, the rationale for establishing
dinas, badan, and kantor was to improve the capacity of local government to deliver
services and to strengthen coordination among government institutions. Local gov-
ernments have both merged offices to rationalize staff and created new offices to
absorb the additional personnel assigned to them. The administrative structures that
are being put in place reflect local governments’ decisions as to how best they can
carry out their new functions.
In context with the issue of bureaucratic capacity, local governments are con-
strained by the limited skills and capability of personnel. For example, when civil
servants were transferred from central government agencies to local governments,
the latter had no choice but to absorb them. Excess staff could not be dismissed.
This problem was aggravated by the limited interregional mobility of public ser-
vants. Staff could not easily be absorbed elsewhere because of preferences for
employees who were “native” to a district or province. Apparently, appointments to
certain career positions in the civil service continue to be influenced by political
considerations, further aggravating the shortage of technical skills when these new
recruits lack the required capabilities. Therefore, in order to overcome this problem,
local governments have made considerable efforts to improve the capability of staff
by providing training and education programs and offering placements in graduate
and undergraduate programs. The heads of dinas are expected to have completed a
civil service leadership-training course. There is also a move toward using “fit and
proper” tests or a strict merit system in the selection of key senior officials. In gen-
eral, employees are encouraged to gain higher degrees, although opportunities for
them to do so are limited. But because devolution is creating fierce competition,
civil servants are eager to upgrade their qualifications, even if this means having to
pay for further education themselves.
Local Government
The local government plays a significant role of facilitator in realizing the agenda of
regional autonomy, as a part of political democratization, bridging the national
interest and local needs. There are at least two factors driving the repoliticization of
Indonesian society. The first is democratization, through the freedom of expression
and association of civil society at the grassroots level. The second is decentraliza-
tion, giving local governments broader democratic powers to make decisions on
matters affecting their communities. Decentralization is encouraging communities
to exercise their democratic authority over public matters and at the same time
requiring public accountability from government officers at various levels. Indeed,
one of the promises of regional autonomy is that it will open a space for people to
take an active part in governing their own communities.
This chapter highlights public accountability and citizens’ forums as means of
political democratization at the regional level. The positive impact of “reformation”
is the increase in public participation in the decision-making process. Since the
enactment of Act No. 22/1999, public awareness of the right to demand account-
ability from government seems to have grown, indicated by the growing number of
NGOs monitoring government activities. Hundreds of organizations with names
such as “Government Watch,” “Parliament Watch,” “Election Watch,” “Corruption
Watch,”, and “Judicial Watch” have been created and are actively involved in
observing and evaluating local government as well as national performance. The
mass media is also playing a more significant role in exposing cases of misadminis-
tration, corruption, and collusion, something that rarely happened before (Rasyid
2003: 70).
These new developments have made the principles of public transparency and
accountability crucial to local government in Indonesia. Meanwhile, the legitimacy
of government should be, and indeed is, increasingly being measured through pub-
lic accountability practices, making the DPRD, whose function is to oversee local
government, more sensitive to public opinion. In some cases, a governor, district
head, or mayor has been dismissed by a DPRD largely as a result of public pressure.
One example of this impact that public opinion can have on the DPRD is an event
that occurred in August 2002, when a mass rally in Banjarmasin successfully intim-
idated the South Kalimantan provincial DPRD into sacking the governor, Dahran.
Another indicator of growing public political participation is the creation of what
are variously called social action groups, nonpartisan popular councils, and citi-
zens’ forums (forum warga; Antlov 2003: 78). These are formed around a common
cause by groups of citizens in a town or district, where people are concerned with
environmental degradation, the socioeconomic empowerment of communities,
reforestation, and many other public dilemmas. For example, the Forum for
Prosperous Majalaya (FM2S) was founded in 2000 to promote the interests of the
industrial town of Majalaya, South of Bandung in West Java. Established under the
auspices of local NGOs, FM2S set out to address some of the pressing issues facing
Majalaya, such as communal tension, pollution, and congestion (Antlov 2003:
78–79). The members of FM2S are not elected; its members represent the various
stakeholders coexisting in the town: car drivers, hawkers, factory workers, entrepre-
neurs, shopkeepers, teachers, religious leaders, and others. The first task FM2S con-
sidered was the poor condition of local roads. In just 2 weeks, Rp. 350 million from
local factories was collected to pave part of the road to Bandung. At present, mem-
bers are working on a long-term, comprehensive strategy to prepare a new town
plan; for example, the marketplace and bus station need to be relocated in order to
open up space for pedestrians.
The most notable achievement of FM2S so far are not material, but the increased
understanding and practice of democracy. FM2S has generated a sense of civility in
discussing sensitive matters. Initial meetings were tense and marked by distrust
between the various stakeholders. Today, meetings are held in a much more intimate
atmosphere, even though the participants represent groups that have been in dispute:
car drivers and hawkers, for example, are both demanding access to the township’s
narrow lanes. Despite their differences of opinion, the members of FM2S have suc-
ceeded in reaching agreements and making commitments for follow-up action. The
jargon, prejudices, and stereotyping that characterized early discussions have fallen
significantly.
There are thousands of forum warga (Citizens’ Forum) such as FM2S around
Indonesia where concerned citizens can come together to solve problems affecting
their immediate neighborhoods. Most are formed at the village or subdistrict level,
but there are a few forum warga at the district and municipal level (often known as
forum kota or city forums). These groups have in common a desire to affect policy
making and see public funds reallocated for the benefit of their constituencies. Even
if their members do not wish to become formally involved with political parties,
there can be no doubt that they are nevertheless engaging in local politics. Apparently,
these forum warga (community) are excellent training grounds for wider political
involvement: through them people learn to find rationales and argue a case, compro-
mise, relate to a constituency, and make decisions democratically.
Scholars
General Comments
During the 2 years since the implementation of regional autonomy and financial
balance, there have been many controversies raised at the district and central levels.
There are those for and against the revision of the regional autonomy policy, yet one
thing that is important is making objective judgments and evaluations of the regional
autonomy act, its practice, and implementation at the district level. This evaluation
is necessary in order to understand the commitment of stakeholders to realize the
agenda of decentralization and local autonomy.
In this context, critical comments from scholars and NGOs through evaluation
and judgment on regional autonomy are instrumental in formulating and
accommodating the needs and requests of various local communities and the
improvement of the relationship between the central and district governments.
Syamsuddin Haris, researcher at the Indonesian Institute of Sciences (LIPI),
Jakarta, has commented that in order to create a political and bureaucratic regional
autonomy, two main aspects must be observed. First is democratization in relation
to the existence of checks and balances occurring, such as the local government act-
ing as executive body and the DPRD is the legislative body? The success of regional
autonomy depends on the capability of these branches to accommodate both local
communities’ aspirations and the bureaucratic requirements of efficiency and effec-
tiveness. Second, is this form of democracy empowering people to inspect and hold
the local government administration and civil society accountable?
Haris’s concerns are divided into three elements: a need for debureaucratization
of the government system, moving from elite recruitment to direct elections, and the
urgency of creating local political opposition parties.
1. Debureaucratization:
The bureaucratic phenomenon brought about under the Soeharto regime has
become a significant constraint to the implementation of regional autonomy. The
purpose of regional autonomy is to provide greater public services to local commu-
nities. In this context, bureaucracy means to serve society to improve their lives and
independence. It is ironic that these bureaucratic services are not covered in Act No.
22/1999, or even in government regulation No. 25/2000, the operational guidelines
of Act No. 22/1999. The current trend is that the central government is further
bureaucratizing governmental sectors that should be given to the local government.
The scope and authority of the central government, under government regulation
No. 25/2000, articles 2 and 3, indicates that 257 quantitative authorities categorized
into 25 sectors are controlled by the central government, and authorities given to the
provinces number 111, categorized into 20 sectors (see article 3, verse 5).
2. From elite recruitment to direct elections:
The change in government from the New Order (the Soeharto administration) to
the reformation, through general elections in 1999, did not actually reach all gov-
ernment levels. At the regional level, the political elite of these new parties, who
succeeded in becoming members of the DPRD, have used the reformation momen-
tum to manipulate their strategic positions for their individual and group needs. This
trend is clear from the mutual crackdowns among political elite on district heads or
in the decisions of the chairman of the DPRD that are underlined by money politics.
It is interesting that this negative outcome has been carried out on behalf of reforma-
tion, aimed at crushing an authoritarian regime full of corruption, collusion, and
nepotism (KKN/korupsi, kolusi dan nepotisme).
Haris further explained that Act No. 22/1999 brought about a radical change to
the DPRD, from an element of local government to an independent legislative body.
This change was clearly seen as one of the driving factors for local political elite
behavior. In this context, the central government does not decide who will become
governor, district head, or mayor, yet local political elites do not represent their
constituents either, and are often contrary to their local communities’ wishes.
Consequently, a gap is growing between people’s aspirations and those of the local
political elite. Mass protests and riots in front of DPRD buildings and fires in politi-
cal party branch offices are a result of this conflict of interests. If these trends con-
tinue, there is no hope for the implementation of truly democratic regional autonomy.
Local political party members feel no responsibility for their constituents because
the parties carry out their recruitment without consideration for their constituents.
The solution to this, according to Haris, is to institutionalize direct elections at
the provincial, district, and municipal levels, for executive and legislative members.
The general election must use a district system, where constituents have direct
access by their vote to decide their representative, requiring greater accountability.
This system could prevent the raising of local “small kings” with a tendency for
becoming involved in corruption, collusion, and nepotistic practices at the regional
level.
3. The urgency of creating local political opposition parties:
One of the problems in the implementation of regional autonomy today is that
there is no institution able to guarantee that the central government shall consis-
tently uphold the regional autonomy act or that local government consistently pro-
vides public services, and are accountable for their actions. However, the existence
of local parties with local supporters seems to the central government to be a threat
to national integration.
Therefore, in order to realize autonomy, it is time for the people to establish
locally based political parties. These parties must be based on the spirit of inclusive-
ness and pluralism in order to prevent local parties becoming a means for separatist
movements, although the Supreme Court (Mahkamah Agung) should have the
authority to liquidate local parties for any violation of the law. In a general election,
local parties can follow the national election, but without national representative
members, aiming for the legislative seats at the regional level. This would be more
conducive to a regional legislative body that is in touch with the aspirations of its
citizens, because its members would be directly elected by the people of that area.
The members of this local government would be more careful with their policies
and behavior when their constituents can monitor and hold them accountable at the
next general elections.
An alternative suggestion is that of Arbi Sanit, a lecturer at the faculty of Social
Studies and Politics, University of Indonesia. He said that Act No. 22/1999 focuses
on the government/bureaucratic sector and other sectors, such as politics, econom-
ics, social cultural issues, and religions are not considered in the implementation of
regional autonomy. In terms of these issues, local governments have no say in the
policies and management of the fundamental economics, political order, and social
life in their respective regions, as they are completely within the realm of the central
government. At most, local governments are involved in political, economic, and
social management in their interpretations of tasks through the devolution of author-
ity. The aim of maintaining these fundamental aspects at the national level is said to
reduce the burden placed on local governments. However, local governments never
work on separate divisible sectors. Consequently, local governments are not able to
coordinate the progress in their districts in many sectors of community life and
improve public services for their people.
Arbi further commented that in the economic sector, centralization of banking
institutions takes people’s funds from the local to the national levels. Local people
then effectively find it difficult to obtain credit from banks because of the bureau-
cracy involved. In the political sector, centralization of political parties has effec-
tively influenced local politicians to pay more attention to national (Jakarta) political
struggles than local issues. In the social sector, local people do not develop their
businesses independently because they face qualified human resources and educa-
tional skill constraints. These tendencies have continued through the early stages of
regional autonomy launched in January 2001 until now, and certainly revision of
implementation is required. This current condition continues because, as explained
by national stakeholders, the central government is worried that strong local govern-
ments will threaten the integrity of national unity. It is also the case that the central
government is reluctant to lose its economic, resource, political, and social base in
the regions.
The best practice is for needs of local governments and local people’s aspirations
for their rights, justice, and prosperity to be well managed, with the role of the cen-
tral government as facilitator between local governments and their people, actively
accommodating and finally realizing program actions at the regional level.
Syarif Hidayat, a researcher at the Indonesian Institute of Sciences (LIPI),
Jakarta, agreed with Arbi Sanit that one of the fundamental steps needed to be taken
by national stakeholders in managing the central and local government relationship
is to reformulate decentralization from administrative decentralization to political
decentralization. He then went on to say that the current problem is that the refor-
mulation of the definition of decentralization effectively brings with it basic conse-
quences. One of these consequences will be greater emphasis on devolution of
power rather than delegation of authority, which is currently used in the implemen-
tation of Act No. 22/1999.2 This devolution of power means broader access to vari-
ous sectors and greater authority to manage resources independently for local
governments (articles 7, 10, and 11).
Syarif also said that regional autonomy must be formulated based on the civil
society perspective rather than the state perspective. As Mawhood said, “A freedom
which is assumed by a local government in both making and implementing its own
decisions” (Haris 2001). This statement, in the context of government administra-
tion, is often defined as: “rights, authority and local accountability to manage their
own households.” Meanwhile, in terms of civil society, regional autonomy must be
defined as civil society’s rights to obtain chances and equal treatment on their
expressions and to undertake their interests vis-à-vis government, or to control local
government administration actively.
Therefore, an effort to reformulate the decentralization and regional autonomy
concepts is important, because with a strong understanding of the basic concept,
decentralization and regional autonomy will be able to create a democratic govern-
ment system. Vincent Ostrom describes this system as “the features of a system of
2
For further information, see Syarif Hidayat,’ Evaluasi UUNo. 22/1999: Tinjauan Kritis atas
Konsep Hubungan Kekuasaan Pusat-Daerah (Evaluation on Law No. 22/1999: A critical review on
power relationship concept between central-local government), in Syamsuddin Haris et al., Loc
Cit, pp. 37–38.
governance that would be appropriate to circumstance where people govern rather

than presuming that governments govern”.
Syarif put forward a second alternative, which is to carry out the reformation
approach on the implementation concept. At an operational level, the implications
of decentralization in Act No. 22/1999 are limited to changes in implementation,
not a review of the law. So far, the approach used tends to emphasize the central
government perspective as the main decision maker on quantity, space, and scope of
what should be carried out by the local government. This should change, however,
so that the main tasks of many sectors should be devolved to local government. The
role of the central government then will only be as facilitator and assisting in
regional aspirations. Meanwhile, local governments must actively initiate, and have
ambitions for development, by setting up many leading sectors to sell to investors.
Comments on the Forestry Sector
We must also consider the debate between adat communities and the government in
the interpretation of the new Forestry Act. In article 5, item (1), it is written that
there are two types of forests: state forest and rights forest. In article 5, item (2), it
is said that state forest, as mentioned in item (1), includes adat forest. Meanwhile,
adat communities consider that adat forests must be separate from state forest, with
their own boundaries, and the government must recognize customary forest rights
of adat communities before an independent Indonesia.
Jeffrey Y. Campbell, researcher and program officer on the environment and
development at the Ford Foundation in Jakarta said that the large number of claims
on forest resources and customary forest rights from adat communities has emerged
since the start of the reformation era (1998–). This response has occurred because
of the historical social and economic marginalization of adat communities under the
Soeharto administration, causing land disputes in the outer islands between HPH
holders and local people. Many heads of adat communities argued that their tradi-
tional rights and their forests were neglected, especially since Indonesia’s indepen-
dence. They have actively asked for the legitimization of national law in public
forums such as the 1999 Archipelago Adat Community Congress in Jakarta,
attended by 250 adat representatives from all islands of the archipelago. Frustration
with the national law was expressed in this forum, which requested the government
to decentralize natural resource control through the provision of regional autonomy
and a wider local autonomy. In most cases, the request was for complete indepen-
dence and separation from the Indonesian nation.
There are many interesting cases where adat communities, such as Termudak
village, Nenek Limo Hian Tinggi, and Nenek Empat Betung Kuning, in the bound-
ary National Park Kerinci Seblat, Jambi, South Sumatra, have succeeded in their
claim for adat forest through the district head in 2002. In Indonesia, a few forest
management programs in remote areas are de facto managed by local people, who
have practiced agroforestry (Sistem Wanatani), such as in Krui, West Lampung,
with 29,000 ha of resin trees. This agroforestry system is supported by the ICRAF/
International Center for Research in Agroforestry and other NGOs consider it to be
a valid example of sustainable forest management conducted by local people.
Meanwhile, Wahyudi, Secretary General of the Department of Forestry, agreed
to allocate customary forest rights to adat communities as long as they can prove
that the land is a part of their adat institution and decisions are abided by.
Unfortunately, according to Wahyudi, there have been no new customary forest
rights requests to the Department of Forestry since the 1999 AMAN/Aliansi
Nasional Masyarakat Adat Congress (interview, on August 8, 2003).
The negative aspect of these land conflicts is that local people have directly acted
to blockade and confront HPH holders. They have often used criminal acts, provo-
cation, and intimidation (including arson of HPH camps) in order to force HPH
holders to fulfill their requests for compensation for forest degradation. Apparently,
because of this, the head of APHI (The Association of Indonesian Forest Concession
Holders) has been actively involved in discussing a draft government regulation in
recognition of adat communities to identify and accommodate adat claims. Most
HPH holders have determined that should they wish to continue operating their log-
ging activities, the best option is to cooperate with adat communities, discussing
forest comanagement or participative mapping to decide their customary forest
rights.
Chip Fay and Martua Sirait, researchers at ICRAF (the International Center for
Research in Agroforestry), Jakarta, mentioned that in November 1998, reformist
groups from the Department of Forestry and NGOs commented on Ministry of
Forestry Decree No. 677/1998 revising the Social Forestry program previously cov-
ered by Ministry of Forestry Decree No. 622/1995. Unfortunately, this new decree
does not clearly recognize customary rights and traditional agroforestry systems.
ICRAF and CIFOR researchers joined with Djamaluddin, former Minister of
Forestry, to discuss and propose a new policy on social forestry to the Minister of
Forestry (Muslimin Nasution) with a special focus on traditional agroforestry sys-
tems and adat communities.
This draft proposal is based on the experience of the agroforestry resin gardens
in Krui, started while Djamaluddin was Minister for Forestry. In January 1989,
Djamaluddin signed a Ministry of Forestry Decree that was a breakthrough in for-
estry reform, where 29,000 ha of state forest were placed under the management of
the adat community of Krui. The policy was the basis of a research study over sev-
eral years, proving to be a viable form of sustainable forest management. The state
forest status was never changed, but the Ministry of Forestry, for the first time, cre-
ated a forest management classification based on an existing agroforestry commu-
nity system, calling it an “area with special destination.” Another important factor
was that Djamaluddin placed the accountability of the management on the existing
adat institution of the Krui communities. This draft regulation recognizing adat
communities in state forests could be used to consider the possibilities for all
forests.
In December 1998, Djamaluddin again met with the Minister for Forestry
(Muslimin) to discuss the recognition of agroforestry and adat forests. This meeting
was also attended by ICRAF and CIFOR members. Djamaluddin explained that
there are several methods for managing social forestry (Hkm): the existing social
forestry pioneered by Djamaluddin as Minister for Forestry and those practiced by
traditional adat communities. Muslimin accepted both approaches on forest man-
agement and asked his senior staff to cooperate with Djamaluddin, CIFOR, ICRAF,
and other NGOs who wished to develop this method to create a draft decision on
adat (SK adat) in 6 months.
This first draft on an adat policy was called zero draft. It considered several ques-
tions. What does adat community mean? What procedure should be used to recog-
nize adat communities? What rights should adat communities have that the
government can recognize and how can these rights be ensured? How will the gov-
ernment overcome conflicts that emerge as a consequence of overlapping rights,
particularly in production forest areas, where the government has issued HPH (Hak
Pengusahaan Hutan) and HTI (Hutan Tanaman Industri) Concessions.
The definition of adat community in draft zero was taken from the government
regulation on the Krui project. Adat community means a traditional community that
is embedded, has an adat institution, and where an adat law is still obeyed, whereas
adat land is a certain area that has been determined by adat, the community, declares
law and its existence to the government.
This draft also declared the establishment of a permanent commission at the
national and district level, made up of both government and nongovernment repre-
sentatives. The national commission, located in the Department of Forestry, would
develop criteria for a community to obtain recognition from the government as an
adat community. Meanwhile, the district commission will be established by the dis-
trict head and give recommendations on whether communities who request recogni-
tion have fulfilled certain criteria decided by the national commission.
Unfortunately, this zero draft of people’s property rights on customary forests
has not yet been implemented due to several difficulties. First, the problem is still in
the determination of state forest boundaries. Second, there is some debate as to
whether adat communities should be able to articulate their own forest territories
with clear concessions or with no concessions to other stakeholders, or adat land
should never formally be recognized in state forests, and other stakeholders’ rights
must be recognized. Third, the draft had to pass through a long bureaucratic process
within the Department of Forestry, eventually failing due to time constraints as the
reformation government was replaced by another government.
NGOs (Nongovernmental Organizations)
In the 1980s, the Soeharto government officially declared a forestry zone system,
which classified most land in the outer island as state forest. This policy is regarded
as the largest “occupation” in Indonesian history. Seventy-eight percent of Indonesia,
or 140 million ha, with a population of 65 million dependent on these areas, came
under the authority of the Department of Forestry.3 This policy simply erased cus-
tomary rights, neglecting thousands of customary groups living in and around these
zones, even considering them as illegal dwellers. As a result, logging forest conces-
sionaires (HPH), Industrial Forest Plantation (HTI/Hutan Tanaman Industri), pro-
tected forest zones, and transmigration sites were widely carried out on customary
land, causing widespread social conflict as locals still practiced their customary
laws or traditional laws in natural resource management.
When Soeharto stepped down in May 1998, public forums were held to discuss
the redefinition of the role of the state. Aceh and Papua pressed for independence,
and other provinces pressed to become federal states. Habibie’s administration, as a
transitional government, was considered illegitimate and an independent general
election was called for. However, it became clear that the established members of
the previous administration would maintain strategic positions in political and eco-
nomic affairs. Therefore, the nongovernmental movement (ORNOP/Organisasi
Non-Pemerintah) began to focus on political advocacy, concentrating on special
issues such as agrarian and forestry reform. There subsequently emerged an advo-
cacy group on forestry reform consisting of a coalition between three NGOs.
The role of Kudeta (Koalisi untuk Demokratisasi Pengelolaan Sumber Daya
Alam/Coalition for the Democratization of Natural Resource Management) was to
establish a coalition of 82 Indonesian NGOs, groups, and student organizations.
This coalition requested the transitional government to allow local people to carry
out natural resource management. The student movement contributed the early
color to this coalition (Kudeta) by launching huge demonstrations in front of the
National Parliament (DPR) and Department of Forestry in June 1998. Many dem-
onstrators shouted slogans at the main entrance of the Department of Forestry build-
ing, calling for the government to
1. Redetermine state forest boundaries, acknowledge customary communities, and
recognize their full rights.
2. Restructure state institutions responsible for the environment and natural
resource management.
3. Transform all development efforts to community-based natural resource
management.
Kudeta criticized the Soeharto regime for deforestation and forest degradation,
the economic crisis, and the marginalization of people in Indonesia. Kudeta
specifically blamed the New Order regime for natural resource mismanagement
(Haryanto 1998: 63). The Soeharto regime had allowed the exploitation of 64 mil-
lion ha of production forest by the state Forestry Company (Perhutani/Inhutani) and
the private sector, which was clearly unsustainable.
The Ministry of Forestry senior staff met the heads of the demonstrators and
briefly discussed their claims. The Ministry of Forestry invited representatives to
take seats on a Forestry Reformation Committee being established. Yet this invita-
3
Chp Fay and Martua Sirait, “Mereformasi Para Reformis di Indonesia Pasca Soeharto” (To reform
among reformists post Soeharto), in Resosudarmo et al., Loc Cit, pp.156–157.
tion was refused, with the rationale that the transitional government was
illegitimate.
The largest demonstration held by Kudeta was in June 1999. Hundreds of dem-
onstrators requested the Ministry of Forestry to withdraw the new draft Forestry
Act, submitted to Parliament (DPR) in April 1999. They demanded the Ministry of
Forestry redraft the Forestry Act in an open and transparent process. The group
continuously held demonstrations in front of the DPR until they were permitted to
discuss the issue with natural resource commission members in the DPR.
Another group interested in community forest advocacy was the FKKM (Forum
Komunikasi Kehutanan Masyarakat/Social Forestry Communication Forum). This
forum was established on September 23, 1997. The founders consisted of indige-
nous NGOs, lecturers and students, and proreformation forestry officers. FKKMs
effectively advocated on behalf of local communities living in and around state
forests. FKKM has a broader base than Kudeta; their activities are more focused on
critical development issues, forestry policies, and advocating for sustainable natural
resource management. The protests were more focused on media instruments and
meetings with Forestry Department officers, including Ministry of Forestry and
National Parliament members. Financial support for the forum came from the Ford
Foundation, and FKKM included all groups and individuals concerned with forestry
issues in Indonesia; in the early days, some Department of Forestry officers and
private companies were members of FKKM. In mid-1998, FKKM became a pioneer
in providing a new vision for forestry in the new administration.
According to FKKM, real reformation occurred after the central government
officially declared the failure of previous forest management practices. The forum
then suggested using a new political, social, economic, and ecological paradigm for
sustainable forest management. The result of this meeting was a paper entitled “The
Starting Point Toward a New Era of Forest Management.” This promising document
accommodated a democratic vision, justice, and advocacy for forest management,
based on natural resources and the existing ecosystem. This critical document
requested the government to discard its focus on “wood management” and redirect
its concerns to “ecosystem forest management,” requiring a radical change in the
forest management approach toward procommunity, decentralization, and public
accountability. Specifically, FKKM suggested a reorganization of the Department
of Forestry and revision of Forestry Principles Act (UUPK/Undang-Undang Pokok
Kehutanan) No. 5/1967. San Afri proposed that the Directorate General of Forestry
Logging Management (Hak Pengusahaan Hutan) be erased in order to reduce
excessive logging trends. Instead, forest management that emphasized conservation
and protection should be practiced. He stated that a Directorate General of
Conservation on Forest Resources should be established in order to ensure this.
To achieve this aim, FKKM carried out cooperative research, with symposiums
and mutual visits among participants. This meant that FKKM could regularly com-
ment on the direction of new forestry policies, sometimes holding open discussions
with the Ministry of Forestry. The FKKM attempted to develop a new forestry law,
but this process was full of disappointments. The Department of Forestry reforma-
tion committee initially held consultations on a new draft law, which was eventually
defeated by a draft law produced by the Department itself, without consultation. In

response, FKKM members held intensive, inclusive, and transparent discussions to
draft a law on natural resource management to be included in the forestry sector.
FKKM members put forward these results to a committee on natural resources
management in the parliament and lobbied for their adoption. The lobby empha-
sized the illegitimacy of the Forestry Act put forward by the Department of Forestry,
and discussion on this draft law was hot. In June 1999, Djamaluddin Suryohadikusumo
and Emil Salim, the former ministers for forestry and environment, held press con-
ferences inviting the parliament not to adopt the draft law submitted by the
Department of Forestry. They stated that the Department of Forestry draft did not
reflect a significant change from the old law, because it negated customary rights
and emphasized wood exploitation rather than ecosystem forest management. Both
former ministers and NGOs strongly requested the passing of the draft law be post-
poned until the establishment of a new government and members of National
Parliament. This failed, however, and the Department of Forestry draft was passed
by the National Parliament and became the Forestry Act in September 1999.
A third organization to be involved is JAPHAMA (Jaringan Pembelaan Hak-hak
Masyarakat Adat/Adat Community Rights Advocacy Network). In a meeting in
Toraja district, South Sulawesi, in 1993, heads of adat communities and NGOs
agreed to establish JAPHAMA. The result of this meeting was a consensus to pro-
mote the use of the terminology “adat/traditional community.” This terminology
refers to a community that has maintained property rights, customs, and traditional
institutions, and was chosen in response to that used by the government for identify-
ing these communities as underdeveloped societies (Masyarakat Terasing or
Masyarakat Terbelakang), which they considered humiliating.
JAPHAMA aims to highlight human rights violations widely suffered by adat
communities. Members of the network focus attention on national policies that con-
tradict adat community interests and support their efforts to obtain recognition for
their customary rights. ILO Convention 169 (International Labor Organization) on
adat communities and tribes was translated into Indonesian by JAPHAMA and rati-
fication of this convention was strongly lobbied. In the first year of running,
JAPHAMA succeeded in consolidating their network and improving public aware-
ness, particularly among the media, on many issues faced by adat communities in
Indonesia.
In early 1999, JAPHAMA and related NGOs held “adat communities” meetings
throughout Indonesia. The National Congress of Adat Communities held in Jakarta
in March 1999 was subsequently followed by a series of regional meetings. The
meetings involved heads of adat communities and representatives of political groups
and were entitled: “Improving the Bargaining Position of Adat Communities.” It
was attended by 200 representatives of 121 ethnic groups, each respective group
demonstrating their traditions through exhibitions and discussed issues such as the
existence of adat communities, customary forest rights, land rights, transmigration,
and laws. The meetings attracted national media attention and ministers were invited
to hear and discuss participants’ concerns. Political parties were also invited to
explain their political programs for adat communities before the upcoming general
elections. At the final meeting, participants formed an organization called AMAN
(Aliansi Masyarakat Adat Nusantara/Nusantara Adat Communities Alliance), with

47 persons appointed to create an Alliance Council, an executive committee, and
five working items to be run for a period of 3 years.
Timber Concessionaires
The head office of APHI (The Association of Indonesian Forest Concession

Holders) is located in Jakarta. APHI had more than 460 forestry concession holders
during the 1990s, reducing to 315 units after the reformation era. According to
APHI officers, decentralization since January 2001 has not changed much, but its
implementation must be divided into two parts: all forestry regulations must be
clear on implementation in the center and the districts, and law enforcement must be
consistent and nondiscriminatory. This must be implemented in the field for the
concept of sustainable forest management (SFM) to be realized and to prevent ille-
gal logging, which will have a further impact on wood as a raw material for the
forestry industry (interview with APHI officer, August 8, 2003).
Nowadays, there is a wide practice of illegal logging in many districts of
Indonesia. This illegal logging threatens the existence of the forestry industry. APHI
officers have said that the association is facing two problems: illegal logging and
wood smuggling (penyelundupan). These problems are emerging because local dis-
tricts are inconsistent in the issuance and control of IPPK/HPHH licenses and law
enforcement is arbitrary, causing overlogging in many HPH areas. Therefore, the
price of legal wood is becoming more expensive, and illegal wood is cheaper.
The wood is smuggled overseas to countries including Malaysia, China,
Singapore, and Vietnam, which then act as wood launderers for their own plywood
industries. It was recently reported that four foreign ships were docked at Nabire
and Fakfak, Irian Jaya, loaded with thousands of cubic meters of Merbau logs worth
more than Rp. 52 billion. These logs were to be exported to China, but were confis-
cated by the police (Kompas, February 6, 2004). According to Wijono, Director
General of Forest Protection and Conservation in Jakarta, the weakness in overcom-
ing illegal logging and log smuggling is in management coordination between the
central and local governments, and weak law enforcement (interview with Wijono,
June 9, 2004). He further commented that many cases of log smuggling and illegal
logging were not able to punish the major actors in the courts, only the workers in
the field. Wijono gave an illustration, describing the case of the Qing Ann, which
transported 4,625 m3 to China from Simelu Island, Aceh. The captain of the ship
was sentenced to 5 months in jail and charged Rp. 15 million, whereas the ship was
returned to its owner (Kompas, February 6, 2004). The price of plywood in China
per cubic meter (US$230) is lower than that of Indonesian plywood (US$350) on
the international market. Certainly, this challenge from China in terms of price will
threaten the Indonesian plywood and forestry industry as a whole in the near future.
Therefore, the head of APHI has requested the government seriously to tackle and
crush major actors in illegal logging and wood smuggling. In line with this state-
ment, the head of the Indonesian chamber of commerce, Mohamad Hidayat, invited
businesses and the government to cooperate in formulating an industrywide policy

to prevent disharmony.
According to APHI officers, an annually Logging Plan (RKT) quota determined
by the Department of Forestry alone is not wise. The RKT released by the depart-
ment was 20 million m3 in 2002, reduced to 6.9 million m3 in 2003, and 5.7 million
m3 in 2004. There are two reasons given by Forestry officers: to launch a “soft land-
ing” policy, in order for the forestry sector to recover to be more productive in the
consolidation period (2003–2007); and monitoring forestry industries that are inca-
pable of using raw materials to stop operation or that might import wood from
overseas (interview with Secretary General of Department Forestry, August 8,
2003). In APHI’s opinion, the best solution is that the government carries out public
audits of forest capacities for timber production, where the potential planning and
management is done with the provincial perspective included. For example, in East
Kalimantan, forest industries demand 3 million m3 whereas the capacity of this
province is set based on field research, so the RKT quota is 1.4 million m3 (2003).
According to Fachmurniddin, the head of the Division of Manpower, East
Kalimantan Province, this quota will threaten about 53,633 jobs in the forestry
industry if actually implemented. In the meantime, there is, as yet, no plan from the
manpower office on how to deploy these workers to another sector (Kompas,
February 6, 2004).
Riza Suarga, APHI deputy director of the advocacy team, explained that there
are regulations issued during the reformation era that contradict one another. These
regulations are seemingly looked at as the weakness point and temporarily could be
cancelled and responded to for judicial review. Therefore, HPH holders and large
timber traders who want to contravene the law find those weak points to exploit,
such as using law enforcement officers for illegal logging in protected forests and
even using IPPK for forest clearing. This has negatively impacted on the forests,
raising the deforestation rate to 1.5–2 million ha per annum.
There are three weak points concerning illegal logging. First is the weakness of
data sources in terms of illegal logging practices. Second is that the priority opera-
tion target (PTO) for illegal logging is not clear, because it lacks valid data, infra-
structure, and qualified human resources. Third is that illegal logging must be
clearly defined and must be understood by all parties. What has been happening
over the last 4 years is that the understanding of illegal logging is being warped.
There are many cases now in which there has been such a change in the definition
that illegal logging has considered its activities legal..
Meanwhile, Nana Suparna, a representative of Alas Kusuma Company (HPH
holder), is of the opinion that the rise in illegal logging has occurred because of
greater demand than sustainable supply in the forestry industry. Several solutions to
this overdemand for timber were as follows:
1. To improve control and the implementation of consistent law enforcement
2. To develop wood production and improve the quality of wood processing in
sawmills
Ministry of Forestry 193
3. To intensify and disseminate the idea of industrial forest plantations (HTI) by

private businesses and cooperatives, financially supported by the reforestation
fund
Ministry of Forestry
The role of the Ministry of Forestry is significant and centrally based on the 1967
Forestry Act. The minister has the authority to distribute land and issue forest-
logging concessionaires (HPH/Hak Pengusahaan Hutan). Several scholars criti-
cized the issuance of HPH without the active involvement of local people and adat
communities to prevent land disputes. This was clearly centralized, where the min-
ister managed all forestry issues.
This same central role has also been emphasized in Forestry Act No. 41/1999.
According to article 4 on forestry authority, all forests within the Republic of
Indonesia, including all natural wealth, are to be controlled by the state for the pros-
perity of the people. In article 4, item 2, it is written that the forestry authority men-
tioned in article 4, item 1, provides authority, for the government (Ministry of
Forestry) to
(a) Manage forestry issues, forest areas, and forest production
(b) Settle the status of areas as state, production, conservation, or other forest areas
(c) Manage and determine the legal relationship between people and forest and
also to manage legal deeds on forests
In article 4, item 3, it is written that the state forestry authority must consider
local communities and the legal rights of adat so far as these rights are maintained
and do not contradict national interests.
During the reformation era, an important initiative of the Minister for Forestry
(Muslimin Nasution) was the creation of a Reformation Committee on Forestry and
Estate Plantations (KRKP/Komite Reformasi Kehutanan dan Perkebunan) in June
1998. This independent institution was given the aim of giving recommendations
for the forestry reformation process. The members of the committee came from
universities, NGOs, the forestry industry, and the Forestry Department. The estab-
lishment of this committee invited serious debate among NGOs, as they were
reluctant to recognize the legitimacy of this regime. Their reasoning was that the
transitional administration was not constitutional until a new general election was
held.
During July and September 1998, the main task of the committee focused on four
items that had been directly requested by the Minister for Forestry:
1. To draft a new vision on forest management
2. To provide recommendations for the restructuring of the Department of Forestry
3. To draft a law on managing production forests, focusing on a beneficiary man-

agement approach
4. To draft a new Forestry Act
In the last quarter of 1998 until early 1999, this committee carried out field
research and consultations with NGOs and local governments. In Jakarta, members
of the committee requested to monitor policy development and trace the status of
their recommendations. It was clear that there were internal groups in the Department
of Forestry also designing new regulations, particularly production forest regula-
tions and a draft Forestry Act.
Habibie signed government regulation (PP/Peraturan Pemerintah) No. 6/1999
on production forests on January 29, 1999. This regulation substituted PP. No.
2/1970, which determined who may or may not be allowed to log natural forests.
The new regulation was totally different from the draft proposed by the KRKP
committee. NGOs actively involved in advocating forestry reform, such as FKKM,
KRKP, Kudeta, and the World Bank were surprised with this new regulation. The
main criticisms were that PP. No. 6/1999 did not overcome overlapping rights in
state forests, offering only a small chance for local people to claim their rights, and
still treated forests as sources of timber production only rather than as complete
ecosystems. In conclusion, many observers in civil society determined that PP. No.
6/1999 was just government rhetoric and did not reflect true reformation spirit.
Meanwhile, other analysts, namely Untung Iskandar and Agung Nugraha, criti-
cized the Department of Forestry, which recently is still trying to protect “central-
ization” of forest management. Due to being centralistic on forest management for
three decades (1968–1998), it eventually had an effect on critical accumulation
problems that could not resolved by central government (especially the Department
of Forestry), and led to forest degradation and deforestation (Iskandar and Nugraha
2004: 88–96). Their critics see this as an incapability of the Department of Forestry
to overcome critical problems such as deforestation issues, which annually reach
1.6–3.8 million ha (equivalent to 43 million ha in 2000s), to crush illegal logging,
and land tenure conflicts on forest resources management between government and
customary local people. The scientists comment that the solution to solve these
problems, “decentralization” of forestry management must be realized by the
Department of Forestry and transfer of authority on forest management to local
governments, based on Forestry Act No 41/1999 and regional autonomy Act No.
22/1999.
In line with the above critics on the realization of decentralization, other scien-
tists Soetarto et al. (2001) comment, “The formal and informal processes of decen-
tralization that are now occurring in Indonesia have far-reaching implications for
forest management and for the livelihoods of communities living in and around
forested areas”.4 On the positive side, experience from other countries suggests that
4
Soetarto, Endriatmo et al., 2001. Decentralisation of Administration, Policy Making and Forest
Management in Ketapang District, West Kalimantan, CIFOR, ACIAR, DFID, Bogor, pp. vi.
Ministry of Forestry 195
decentralized systems of forest management often lead to more sustainable and

equitable use of these resources, as decision makers are physically located closer to
where their policies will be implemented (Conyers 1983). Obviously, in case of
Indonesia, decentralization in the forestry sector still is rhetoric and is not being
implemented thus far, since the reformation began in 1998 until now.
Chapter 9
Problems in the Decentralization Process:
Illegal Logging Practices
Illegal logging has pushed Indonesia’s forest sector into a state of chronic ecological
crisis. These logging activities increasingly flourished in “forestry concession”
areas (HPH) during the Soeharto regime (1968–1998), but remained within tolera-
ble levels as a part of “politically organized corruption” (Mulholland 1999). With
the stepping down of Soeharto on the 21st of May, 1998 and consequent political
fragmentation, disorganized corruption emerged in forestry, among other sectors,
and further exacerbated the intensity and scope of illegal logging in protected for-
ests, but also conservation areas (Ross 2001).
Since 1998, “disorganized illegal logging” has been increasingly facilitated by
the inherent weaknesses in Indonesia’s law enforcement process. As an illustration,
after the Kalimantan’s forest had been widely exploited, most “crooked timber
merchants-brokers” (cukong) redirected their energies to exploiting Papua’s forests.
According several prominent nongovernmental organization (NGO) studies, namely
Telapak and Environmental Investigation Agency (EIA), “more than 300,000 m3 of
Merbau trees were smuggled illegally from Papua to China and India on a monthly
basis” (Kompas, February 18, 2005). These illegal logging and smuggling practices
in Papua involved a “multinational syndicate” comprising actors from such coun-
tries as Indonesia, Singapore, Malaysia, China, and, India, to name a few. As a
result, ever since 1998 the Indonesian government loses more than US$4 billion or
Rp. 36 trillions in tax revenue from forestry (Kompas, August 5, 2001).
The seriousness of illegal logging and smuggling in Indonesia’s forestry sector has
also not gone unnoticed by the international community. However, through a Letter of
Intent (LOI), dated January 15th 1998, the IMF-sponsored liberalization of log exports
in Indonesia, IMF, did not help reduce tropical forest degradation. This was because
its implementation took place in the context of unstable sociopolitical conditions,
dysfunctional law enforcement, and an ongoing process of decentralization.
The paradox of this policy is that it produced several unintended consequences;
one being the increase in exporting activities associated with illegal logging. It is
useful in this context to demonstrate how large log smuggling is from Indonesia to
neighboring countries.

DOI 10.1007/978-981-287-745-1_9
198 9 Problems in the Decentralization Process: Illegal Logging Practices
Consequent log shortages, which could have been used as raw materials in
domestic wood production, have led to significant subsidization of the development
of wood industries in other parts of the world such as China and Malaysia. According
to the latest economic data available, wood imports from Indonesia to China have
risen dramatically; from approximately 31,000 m3 in 1997 to 1.14 million m3 in
2001. This growth has been largely based on illegal logging and smuggling prac-
tices in Indonesia (Kompas, February 18, 2005). By 2006, China’s export competi-
tiveness, specifically in terms of the price of plywood products, has fared much
better than that of Indonesia’s. According to I Ketut Kaler Ginaputra, head of the
Indonesian Panel Wood Association (Apkindo), the price differential between
China and Indonesia favors China by US$120 per cubic meter. Based on ITTO
(International Trade Timber Organization), Indonesian log exports to Malaysia reg-
istered to the account of 578,390 m3. But the Department of Forestry’s registration
found just 7,860 m3. It was ironic, because since 1990 Malaysia suffered a critical
deficit of millions of cubic meters for the wood industry. Based on Malaysia’s reg-
istration, in 1999 log consumption reached 28 million m3, and forest production
supplied 21 million m3. In 2000 the log consumption deficit reached more than 7
million m3. In addition to Indonesia, Malaysia also imported logs from Gabon, East
New Guinea, and Myanmar; the total amount does not reached 20,000 m3 annually
(Kompas, August 5, 2001).
This smuggling has caused a loss of billions of US dollars in foreign exchange
earnings for the Indonesian government. Ironically, this condition of smuggling
does not register in the Department of Forestry and Department of Trade and
Industry Indonesia. Malaysia as a neighboring country is very seriously involved in
“wood laundering,” because many wood traders from Indonesia and Malaysia coop-
erate in smuggling woods from Indonesia to Malaysia and other countries such as
China, India, and Singapore.
The chapter discusses the definition and scope of illegal logging and analyzes
illegal logging in different districts, national parks, and conservation forests.
Emphasis is also given to causes of illegal logging and their wider implications for
forestry industries and local people.
Definitional Overview
The definition of Illegal logging is still highly debated. The Law No. 41/1999 does
not provide clear definitional parameters in relation to the concept of illegal log-
ging. Basically, illegal logging can be defined as the harvesting of logs in contraven-
tion of formal laws and regulations. These laws and regulations are designed to
prevent the overexploitation of forest resources and to promote sustainable forest
management (ITTO 1997). In accordance with this definition, illegal logging may
include logging activities in protected and conservation areas, the logging of pro-
tected species, such as Ramin (Gonystylus bancanus) and Kayu Ulin (Eusideroxylon
zwageri), logging outside concession boundaries, which includes activities ranging
Illegal-Logging Stakeholders and Practices 199
from extraction of more than the allowable harvest, removal of oversized or

undersized trees, to harvesting in areas where extraction is prohibited such as catch-
ment areas, steep slopes, and river banks. According to Forestry Law No.
41/1999,“Every person is prohibited from using and occupying forest area illegally”
(Section 50, Sub-Section 3a). And “Every person is prohibited from stealing from
forest area, whether in protected forest and conservation areas” (Section 50,
Sub-Section 3b).
The sections enshrined in the Forestry Law No. 41/1999 focus on forest produc-
tion and utilization. From a theoretical point of view, there are three conceptual
approaches pertaining to illegal logging. First, wood cutting in state forests without
permission/agreement from the state authority is categorized as “criminal action.”
Illegal logging, according to Forestry Law No. 41/1999, is categorized as “orga-
nized crime” and this is also mentioned in Presidential Instruction number 5/2001
on April 17, 2001 regarding “Illegal Log crushing and Distribution on Legal of
Forest Products”. Second, wood cutting which contravenes Forestry Law. And, last
but not least, wood cutting, conducted outside of forestry concession areas, and also
other areas that are claimed as customary right forests.
Illegal-Logging Stakeholders and Practices
There is a specific grouping of stakeholders that are typically found to operate in the
classification of illegal logging actors. These actors include HPH holders, commu-
nities who live close to the forests, and other stakeholders who have no permission
concerning forest utilization and production, especially in terms of wood products.
Illegal logging activities involve actors directly and indirectly. Actors who
directly carry out such practices include, for instance, wood cutters, capital holders,
and transportation services providers, whereas actors indirectly linked to these ille-
gal activities include, in particular, state officials who “turn a blind eye” to illegal
logging practices and do not effectively enforce the law in relation to those crooked
actors involved in illegal logging. Therefore illegal logging practices are insepara-
ble from the role of stakeholders, even if these roles are linked to circumscribing
illegal forestry activities. But this phenomenon happened because of financial
advantages and collusion with government bureaucrats.
There are multiple causal factors behind the emergence and prevalence of illegal
logging. First, in the early years of Soeharto’s New Order regime, as suggested by
Mulholland and Thomas (1999), the reorganized nexus of relationships between
political power, military, and business led to, among other things, the flow of patron-
age in the form of “forestry concessions” (HPH) to favored businessmen. More
specifically, since the late 1960s, large forest concessions were given to particular
businessmen who, via rent-seeking activities (Hidayat 2004), had successfully
gained access to the political market and cultivated what Mulholland and Thomas
(2002) refer to as a “competitive advantage;” that is, they had close ties with former
President Soeharto or other power holders high up in the state apparatus. The awarding
of concessions was made with little regard to local people’s forest and land rights.
People whose traditional rights were mostly ignored carried out “unofficial” log-
ging within forest concessions. This problem was definitely not one of prevalence
as it came to be in the 1980s and 1990s, because local military and police officers
were, in an ad-hoc fashion, willing to enforce some laws and regulations. This will-
ingness was related to their strong loyalty to the central government, which resulted
in part from the income they received from their connection with legal harvesting
activities. Over time, regulatory and policy manipulations led to “overcapacity” of
sawmills and plywood production facilities. Overcapacity led to overharvesting,
which further degraded the ability of forests to produce a sufficient supply of trees
for logging.
Second, prior to official decentralization, there has been a rise in local control
resulting from a decrease in central authority, a situation created by the political and
economic uncertainty. Since the year 2000 a special law was created to permit such
local officials as districts heads and governors to grant small-scale forest conces-
sions. Both these changes have not only led to legal harvesting on a massive scale,
but also its “evil twin” illegal logging (Casson and Obidzinski 2002). In some parts
of Kalimantan, local people are now resigned to the fact that their forests will be
completely converted to nonforest use in a matter of years.
Third, the current situation is the so-called unstable security condition. This phe-
nomenon is indicated by the lack of law enforcement among legal apparatus. In
contrast, the implementation of Local Autonomy Act No.32/2004 gives rise to the
conflict of interest regarding the “natural resources” management among central
and local government, particularly in the forestry sector. The current weakening of
central authority has left a power vacuum in provinces that have forest resources
such as East Kalimantan, Central Kalimantan, West Kalimantan, Riau, North
Sumatra, and West Papua. The disappearance of a central elite may merely be
replaced by corrupt networks at the provincial and local levels that may dominantly
be occupied by local elites.
Walhi’s observation in 2001 provides supporting evidence that the causes of ille-
gal logging are located in searching wood consumption to cover the lack of “over-
capacity” of wood industries. This condition affects the reduction of natural forest
quantitatively and qualitatively. In contrast, wood industries rapidly grow con-
stantly, particularly the pulp and paper industries in the 1990s. Therefore, the growth
of wood industries resulted in a wide “gap” between supply and demand. The
imbalance between demand and supply were the main causes of “illegal logging.”
Model of Illegal Logging
Casson and Krystof’s opinions supported Walhi’s observation and Dudley’s opinion
on causes of illegal logging. They further said that illegal logging is driven by macro
economic considerations such as processing overcapacity, inefficiency, flawed pric-
ing, rent seeking, and general sociopolitical ills such as patronage and corruption
alone (Casson and Obidzinski 2002: 213).
Model of Illegal Logging 201
In this context, this investigation endorses Dudley’s “system dynamics” approach

in relation to the analysis of illegal logging. It is believed that this framework could
guide meaningful discussion of realistic policy options. The system dynamics can
portray mental models of illegal logging, which various groups reported in the lit-
erature or in person. The system dynamics is an approach to modeling that empha-
sizes causal relationships between variables, as well as feedback from consequences
of actions back to the causes of those actions. In this case, Dudley presented a pro-
gression of four qualitative models to describe how the problem of “illegal” logging
evolved in Indonesia. These models are based on preliminary ideas as to how factors
affecting illegal logging evolved to the point that created the situation we find today.
The first model represents a somewhat idealized view of a well-managed timber
industry working in cooperation with the government. Sustainability of the resources
is an important issue. The second model represents the role industry had in subvert-
ing sustainability for the sake of additional and more immediate profits. The third
model attempts to explore how, during the Soeharto administration, a timber indus-
try largely controlled by Soeharto’s family and friends and supported by the military
managed to exaggerate this control by industry. The fourth model examines linger-
ing effects of the Soeharto legacy that tend to exaggerate other factors leading to
illegal logging at the local level (Dudley 2002: 361–369). In this matter, I would like
to confine two models that represent the figure in Soeharto’s New Order regime and
post-Soeharto era or familiarly called the reformation era, when illegal logging rap-
idly developed in this era.
The first model is in terms of timber management in the Soeharto regime. The
relationship between Soeharto’s power and timber interests is more clearly illus-
trated in Fig. 9.1. A portion of Soeharto’s power resulted from the strong support he
received from the military, and a portion of that support was due to Soeharto’s pro-
viding timber concessions to the military and to the lobbying power of the timber
industry. In addition, as the involvement of the Soeharto family and associates grew,
their influence on forest policy became dominant, providing for policies that further
enhanced their own wealth and thus further strengthened their role in the industry.
These relationships weakened the role of the balancing loops, particularly those
policies related to sustainability of forest resources.
As these factors further strengthened the role of the centrally controlled wood
products industry, resentment began to build in the rural forested areas. The amount
of dissatisfaction with central forest policy grew, but people were largely unable to
do anything about it. To a certain extent, illegal logging was also a part of the cen-
trally controlled system. Selective enforcement and insufficient monitoring allowed
timber harvesting outside formally agreed-upon terms for forest concessions, lead-
ing to the degradation of the forest resource base. In a sense, this type of illegal
logging can also be viewed as a manipulation of policy by industry.
In contrast, Soeharto gave concessions of HPH to military, police groups, and
also bank facilities, regulations, and marketing to wood processing mill holders.
Among big conglomerates many own processing mill industries and master the
wealth of centrally controlled timber interests. Although dissatisfaction within com-
munities in forest areas grew, efforts at locally controlled illegal logging during the
Soeharto period were kept in check by the relatively powerful police and military.
Wealth of Centrally
Controlled timber Wood processing mills
interests holders
Demand policy
For log supply
Strength of
Soeharto and Local people’s
Support from
associates Dissatisfaction
military and police
with central forest
policy
HPH holders
HTI holders Illegal logging
On Conversion forest
Protected and conservation
forest
Consequences
Forest degradation
Fig. 9.1 The Power of Soeharto to strengthen control of timber interests (Source: this figure origi-
nally inspired from Dudley’s paper, but it has been modified (See Dudley, Richard G, Dynamics of
Illegal Logging in Indonesia, pp. 366))
Note: : Support of the Soeharto regime by power and financial access
: The access of instruction (power) and authority to supply
: This line shows the causes of “illegal” logging activities
The second model in terms of “timber management” is reviewed on illegal log-

ging at the local level after the resignation of the Soeharto regime. With the fall of
Soeharto, some of the model components disappear, some become less important,
and yet others become more important. These changes are illustrated in Fig. 9.1.
Apparently, these model components representing the strength of Soeharto and his
associates and support of Soeharto by military and police have been removed.
As central government power diminished, there was an initial hope that “decen-
tralization” would permit some form of sustainable forest management with bene-
fits remaining in the local area. This hope turned to concern as reports of rampant
illegal logging started to come in from all parts of Indonesia. This section examines
factors that caused illegal logging to flourish at the local level and allowed illegal
logging to expand so rapidly. There are two driving factors of this condition: eco-
nomic factors of normal supply and demand related to the logging industry, and
factors related to entrepreneurs and their influence on, and collusion with, local
politicians and elite leaders.
At the community level, as illustrated in Fig. 9.2, what matters most is the provi-
sion of jobs and income, particularly in economic crisis. The willingness to work
illegally is strongly influenced by the fact that one’s neighbors and friends are also
Empirical Analysis of Illegal Logging 203
Wood Processing Demand of

mill holders
Of Wood supply
elements of police Timber traders Local

and military support elites/politician
Local area
Sawmill holders
Community support Dissatisfaction with
- central forest policy
For sustainable
forest management
+
Amount of illegal Willingness of villagers

logs harvested by To work illegally
Chainsaw workers
Protected and
Conservation forest
Fig. 9.2 Removal of central controlling timber interests and takeover by villagers and community
perspective (Source: See Dudley, Richard, Dynamics of Illegal Logging in Indonesia,
pp. 367–369)
Note: : The line of authority to request demand and supply (illegal wood)
: Community support for sustainable forest management (−). It is minus
: Local area dissatisfaction with central forest policy (+). It is plus
: Mutual cooperation in order to get respective benefits
: This line of access on forest exploitation
working illegally. As more people work illegally in forests and sawmills, that source
of income becomes acceptable.
Although the lobbying power of central timber interests decreased, the wealth of
these interests and the resentment against them did not disappear. Consequently, dis-
satisfaction of significant local area remained and continued to grow. At the same time,
the major constraints on illegal logging—the support of Soeharto by military and
police—disappeared. It seems likely that residual timber involvement by military and
police may tend to support, rather than limit, illegal logging. In any case, the police and
military retained only limited power and thus were largely unable to enforce the law.
These factors all conspired to set the framework for a large amount of illegal logging.
Empirical Analysis of Illegal Logging
Illegal logging, which came to prominence during the period of the Soeharto regime,
centered on politically allocated HPH forestry concessions centered in West
Kalimantan’s forestry sector. As emphasized in the previous section, a major type of
illegal logging practice is the purchasing of illegal logs by HPH concession holders.
This practice is usually performed by HPH holders who have either completely
exhausted the stock of trees in their forestry concession through overexploitation, or
have a smaller forest concession compared to the amount of production they are
allowed to perform. So, for example, on-paper concession documentation may indi-
cate that the HPH holder will produce around 50,000 m3, but in reality the potential
production is only 35,000 m3. Therefore, to fulfill the production target of 15,000 m3,
the HPH holder purchases “felled wood” from the society and claims it as part of his
HPH. This practice also highlights that HPH holders cooperate with local people in
illegal logging activities.
The timber industry, initially consisting of plywood and sawmill operations, grew
rapidly in the 1980s, and then was accompanied by the development of pulp and paper
industries in 1990s (Hidayat 2004). According to the Forestry Department’s Planning
Agency, by 1999 domestic wood consumption had reached 58.24 million m3, and the
capacity of legal wood production reached an annual average 25.36 million m3. As a
result, a gap of approximately 32.88 million m3 occurred between production/supply
and consumption/demand. Similarly, Walhi (NGO) reported that the wood industries
annually consumed 100 million m3, within 51.1 million m3 for domestic consumption,
and 48.9 million m3 for export. But, at the same time, official domestic woods supply
production annually reached 21.4 m3. This formal production originally came from
HPH concessions, IPK/Wood Utilization Permissions from land clearing, IPHH/IPPK.
From this point of view, timber industries suffered from a problem of overcapacity of
approximately 78.6 million m3 or an equivalent 70 % annually. This means that seven
out of ten units of wood were illegally harvested (Ginting 2001b).
It was not uncommon for “crooked timber merchants” (cukong kayu) to be
covertly supported by some elements from local communities. Raw materials from
these activities not only contributed to downstream production throughout the
region but also in Java. However, after the economic crisis hit Indonesia hard in
mid-1997, illegal logging spread far more prolifically into protected and conserva-
tion forest-based areas.
Locals, hard-hit by the crisis and on subsistence wages from farming activities or
even unemployed, also had a significant financial incentive to cooperate with cukong
kayu as “lumberjacks.” The involvement of locals in illegal logging activities is not
only based on the fact that they see it as a promising profession in the future, but
they also obtain “instant cash” to fulfill their family needs.
Furthermore, the modus operandi of activities undertaken by exclusive groups of
lumberjacks, cukong Kayu, and local officials has had striking similarities wherever
it has occurred in West Kalimantan. The lumberjacks and other illegal logging
workers are also usually equipped by chainsaw, daily necessities, and even locally
made guns. With political fragmentation after 1998, corruption and collusion has
become increasingly disorganized and has exacerbated the illegal logging problem
in the forestry sector. Howard Dick (2002:18) aptly describes the changes Indonesia
has recently experienced:
Restored mass political parties, which allow for some participation in national politics, but
formal legal institutions scarcely, apply. Money and connections are everything, and here
the population at large is at a hopeless disadvantage.
Empirical Analysis of Illegal Logging 205
Consequently, in terms of forestry, the intensity and concentration of illegal

logging and smuggling in West Kalimantan has worsened in such areas as in
Ketapang, Kapuas Hulu, Bengkayang, Sambas, and Sintang. The target areas are
concentrated in protected and national parkland. In Ketapang district, for example,
Gunung Palung National Park (TNGP) is one of the target areas. Illegal logging
activities have been carried out there for at least 4 years. At least 80 % of TNGP’s
90,000 ha was destroyed by 2,000 chainsaw-wielding lumberjacks. These actors
erected temporary camps and a water channel (alias “log pond”) to transfer logs into
a nearby watershed (Daerah Aliran Sungai/ DAS). From the watershed, logs were
then transported to a saw-mill processing plant which in turn transformed the logs
into timber beams and boards. For a day it was estimated that 200–400 logs were
processed from TNGP area (Kompas, August 5, 2001).
Tanjung Puting National Park (TPNP) in Pangkalanbun, Central Kalimantan was
another target area for illegal logging. Almost 50 % of TPNP’s 410,000 ha were
destroyed. Since 1999, as a HPH holder in this area, Tanjung Lingga Group has
been deeply involved in illegal logging (Tunas, Vol. 1, No.8, February 2003). This
business group’s involvement was confirmed when, in 2002, three of its cargo ships
containing 25,000 m3 of logs, and heading to China were captured by a Marine
patrol (AL/Angkatan Laut). From a subsequent investigation, not only Tanjung
Lingga Group had been involved, but also a member of the Parliament with the
initials AR. As a consequence, Indonesian NGOs criticized the central government
and the Directorate General for Forest Protection and Natural Conservation because
they failed dismally to safeguard TPNP’s forest and biodiversity including such tree
species as Ramin (Gonystylus spp.) and Meranti (Shorea bractleota).
Widening the scope of analysis even further, over a 7-year period, from 1980 to
1987, statistics showed that more than 7.6 million m3 of Ramin were logged in
Indonesia’s forest concessions, an amount exceeded only by Meranti. Since the
early 1990s, as the supply of such species has become scarcer, production has fallen
precipitously to 489,000 m3 in 1997. Demand for Indonesian Ramin and Meranti
comes from such top export markets as Taiwan, Japan, Singapore, Hong Kong, the
United States, Italy, and the United Kingdom. Italy’s tradition as a center for the
furniture manufacture makes it Europe’s largest importer of Ramin, whereas the US
market has grown recently partly due to the increased use of Ramin for futons and
picture frames.
In Leuser National Park (LNP), Aceh Province, which consisted of 890,000 ha
of state-protected conservation forest, illegal logging has also taken place. This con-
servation area is rich with biodiversity, high-profile mammals such as the orang-
utan, Sumatran tiger, Sumatran rhinos, bears, elephants, and leopards. Of the 10,000
plant species recorded in the West Indo-Malayan region, it is estimated that 45 %
are found in LNP’s ecosystem. Since 1998, there have been 13 illegal loggers oper-
ating, with sawmills, in this region. Consequently, about 40 % of this conservation
area has increasingly become a target of ecological damage. With military and
police support, illegal actors, including Medan Remaja Timber Company and other
local cukong kayu, have been actively exploiting the emergent local government
power vacuum. These criminal groups see anarchy as an opportunity for additional
financial advantage and do not hesitate stirring up conflict in local communities on
whatever issues are topical as long as it furthers their narrow interests especially in
relation to illegal logging.
In Jambi, South Sumatra, such national parks as Berbak, Bukit Tiga Puluh
(TNBT), and Kerinci Seblat (TNKS), covering approximately 870,250 ha of pro-
tected and conservation forest, have also suffered the devastating effects of illegal
logging activities. For the period 1997–1998 in Berbak National Park, for example,
30,000 ha of forest, well-known for its rich biodiversity and Meranti trees, was
destroyed by illegal logging. Authorities managed to track down more than 20,000
of Berbak’s logs in the Kumpeh Hilir subdistrict (Kompas, April 21, 2005).
The rampant nature of illegal logging in Jambi has also been accompanied by the
emergence of at least 200 illegal sawmill processing plants in many of Jambi’s dis-
tricts. Naturally such processing plants accommodated illegal logging production.
According to Sujatno, head of the Provincial Forestry Agency, illegal sawmill pro-
cessing plants require 6,000 m3 per year of raw materials from the upstream forestry
industry. So this means, calculating for 200 units, there is an input requirement of
approximately 1.2 million m3 per year. This figure is much larger than the one cal-
culated for Jambi’s Annual Work Plan (Rencana Karya Tahunan, RKT) in forest
cutting, which totaled 1.1 million m3. Based on these comparative calculations,
Sujatno believes that illegal sawmills in Jambi should be shut down, because they
extremely endanger the forest condition (Kompas, August 5, 2001).
The fight against illegal logging has certainly been an uphill battle in Jambi as in
many other provinces, but it is at least slowly moving in the right direction. Jambi’s
Governor Zulkifli Nurdin issued Decision No. 488/2000 on December 12, 2000 to
attempt to regulate wood industries more effectively in Jambi and, at the same time,
to eradicate illegal logging. Zulkifli and other local state officials also have been
busily disseminating information about illegal logging activities and making swift
and unexpected raids and/or investigations in different areas. In a CIFOR seminar in
2002, it was even revealed that the People’s Wood Production Licenses (IPKR/Izin
Pemungutan Kayu Rakyat) and the Forest Wood-Production Licenses (IUPHHK/Izin
Usaha Pemungutan Hasil Hutan Kayu) of 500 ha were often illegally expanded to
5,000 ha/license (Kompas, March 26, 2003).
District, provincial, and central governments have all only started to officially
acknowledge its existence through the publication of official statistics especially
after 1998. In East Kalimantan, for instance, local economic and political interests
have provided the means for such recognition in the form of exceedingly vague and
permissive legislative framework aiming to facilitate an easy inclusion of formal
logging activities into the formal sector. Research carried out by Casson and Kriystof
reported that in some of East Kalimantan’s districts such as Berau, Malinau, and
Pasir, showed that by May 2000 there were a total of 72 sawmills in operation.
Earlier government reports, back to 1995, had stated that there were only 30 active
sawmills operating in the area.
In the year 2000, these 72 sawmills produced approximately 133,000 m3 of pro-
cessed timber. Nonetheless, despite being officially recognized, all these sawmills
could also be said to be illegal because they lacked the required permits and relied
on illegal timber inputs. In the majority of cases, these logging groups employed
Illegal Logging Activities 207
Table 9.1 Estimated legal and illegal log production in East Kalimantan (m3/year)
Legal production, illegal log production, and total production
HPH Unit Official Prod. Camp (unit) Illegal Prod. Camp (unit) Total Prod.
Berau 8 798,000 186 160,000 194 958,000
Malinau 10 422,540 31 17,000 41 439,540
Pasir 3 74,578 114 94,000 117 168,578
Total 21 1,295,118 331 271,000 352 1,566,118
Cf. Casson and Krystof
Abbreviation: Prod production
manual logging techniques. In the year 2000, a total of 133 illegal logging camps
were found in the districts of Berau (186), Malinau (31), and Pasir (114).1 Altogether
these logging camps were thought to have produced approximately 271,000 m3 of
processed timber in 2000, or close to a quarter of the official log production (1.3
million m3) reported for the same year (Table 9.1).
Illegal Logging Activities
In March 2000, the provincial forestry department reported that there were only six
legally recognized mills producing plywood, 315 sawmills producing processed
timber, and 22 mills producing moulding in Central Kalimantan. Altogether, these
mills consumed a total of around 1.5 million m3 of timber from January 1999 to
January 2000. Like the sawmills operating in East Kalimantan, most of these saw-
mills sourced their timber from illegal logging operations. Moreover, the provincial
government reported that there were, at the very least, 190 illegal sawmills operat-
ing in Central Kalimantan, excluding Barito Utara and Barito Selatan. Most of these
sawmills could be found in Kotawaringin Timur, Kotawaringin Barat, and Kapuas.
These mills were thought to have consumed at least 155,750 m3 of timber from
January 1999 to January 2000. This is approximately 11 % of the total timber vol-
ume consumed by official sawmills operating in Central Kalimantan between
January 1999 and January 2000 (Table 9.2).
Tables 9.1 and 9.2 are based on observations made by Casson and Krystof in
the field. Illegal logging has increasingly become a legitimate set of practices,
supported and encouraged by district and provincial governments. This develop-
ment has occurred in Central Kalimantan because recently amended decentraliza-
tion laws allow the Kotawaringin Timur district council to issue a specific
regulation (Perda/Peraturan Daerah No. 14) concerning effective legalization of
illegal logging; thereby attempting to generate an additional stream of tax revenue
for local government.
1
For further information see Casson, Anne and Krystof, Obidzinski, Loc Cit, pp. 2138–2139.
Table 9.2 Estimated legal and illegal timber production in Central Kalimantan, 2000 (m3/year)
Legal Prod. Illegal Prod. Total Prod.
Industry Capacity Unit Prod. Unit Prod. Unit Prod.
Sawmill 1,660,706 315 757,569 190 155,750 505 913,319
Plywood 495,000 6 628,325 n.a. n.a. 6 628,325
Moulding 276,070 22 92,851 n.a. n.a. 6 92,851
Total 2,431,776 343 1,478,745 190 155,750 533 1,634,495
Source: Cf Casson and Krystof, pp. 2139. See Provincial Forestry Agency (1999) in Central
Kalimantan
Abbreviation: n.a. not available, Prod production
Countermeasures to Stop Illegal Logging
Taking proactive steps to overcome our massive deforestation of tropical forests is

important. The destruction of tropical forests has implications for economic, eco-
logical, and natural resources damage while local communities have access to for-
ests. Currently, illegal logging occurs not only in production forests, but has spread
to conservation and protected forests and even national parks.
In terms of external efforts, the Department of Forestry has begun cooperation
efforts with the Head Office of the National Army (Mabes Tentara Nasional) in
crushing illegal logging on January 15, 2003. This cooperation was broadened to
include the Directorate General of Protected Forests and Natural Conservation
Areas (PHKA) and the Office of the Navy (Mabes Angkatan laut) (Tunas, Vol. 1,
No. 8, February 2003), eventually producing eight confiscated ships, containing
26,564 m3 worth of logs from the Wanabahari operation in 2001, and with the
Central Office of the Police, with the Wanalaga operation. The estimated revenue
from this confiscation was Rp. 63.6 billion with a subsequent five ships of illegal
wood confiscated in 2002 containing 2,500 m3, wood totaling 11,300 m3, with an
estimated government revenue of Rp. 447 billion.
At the same time, the Indonesian government conducts diplomatic cooperation
with other countries. Aiming to promote MOU (Memorandum of Understanding)
with foreign countries, such as the MOU signed with the United Kingdom on April
18, 2002, with China on December 18, 2002, and with Japan on June 24, 2003, in
the framework of crushing illegal logging and illegal trade in logged timber and
wood products. The target of these cooperation initiatives is to monitor and prevent
illegal wood exports.
As an illustration, the actual condition of tropical forests and the illegal logging
practice is currently as follows:
First, destroyed, or not fully functional forests reached 43 million ha from a total
Indonesian forest area of 120 million ha, with annual deforestation in the last 4
years reaching 42.1 million ha. Second, illegal woodcutting and black market wood
consumption reached 50.7 million m3 per year, with financial losses annually reach-
ing Rp. 30.42 trillion. Not to mention the ecological damage such as to biodiversity,
the loss of endangered species, and other natural resources. Third, excessive wood
Proposals Provided by NGOs 209
smuggling has occurred from West, Central, and East Kalimantan; Central Sulawesi;
Riau; Jambi; North Sumatra; and even West Papua to export to special destinations
such as Malaysia, China, Vietnam, Hong Kong, and India reached 10 million m3
annually. Fourth, forest-destroying in the border areas has occurred (West and East
Kalimantan, Sarawak, and Sabah). Deforestation in West Kalimantan reached
250,000 ha per annum and East Kalimantan reached 150,000 ha.
As an illustration, the northern coast of Java (Pantura/Pantai Utara Jawa) has an
illegal logging absorption of 500,000 m3/month, with monthly shipping around
500–700 units, with a government financial loss of Rp. 450 billion per month or Rp.
5.4 trillion annually.
Proposals Provided by NGOs
There are many comments from NGOs on the problems of illegal logging and pos-
sible solutions to these problems. Walhi (Wahana Lingkungan Hidup Indonesia),
located in Jakarta, suggests fundamental reforms in forestry by carrying out “mora-
torium logging”. Moratorium means a temporary stop on log exploitation in order
for forests to recover. This moratorium is considered necessary in order to then start
again, with a complete forestry reform aimed at sustainable forest management. The
aim of moratorium is “to re-structure the wood industries to designed levels which
could produce sustainable wood.”
The moratorium will bring multiple benefits to natural forest resource manage-
ment recovery and sustainable wood industries.2
1. Providing a political and ecological space for natural forests to rest and prevent
tropical forest degradation
2. Giving the best opportunity to monitor timber tracking, hold independent log
audits, and catch up with illegal loggers through satellite monitoring
3. Providing an opportunity to manage the forestry industries, tenure rights on for-
est resources, and develop nonwood productions
4. Correcting the timber market distortions by opening wide wood imports, so that
the domestic price of wood is competitive with world prices
5. Carrying out restructuring and rationalization of wood-processing industries to
correct the overproduction of these industries, so that only the efficient and
healthy wood industries can continue and compete
6. Obliging wood industries to use their raw materials efficiently
7. Encouraging the pulp and paper industries to build industrial timber plantations
(HTI/Hutan Tanaman Industri) seriously.
Forest Watch Indonesia (FWI) in Jakarta has said that illegal logging is a critical
problem and the efforts of the government to crush this issue seem partial and not a
2
Ginting, Longgena, ‘Hutan Hancur, Moratorium Manjur’ (Deforestation and Moratorium
Recover), Walhi, Jakarta, 2001, pp. 3–4.
cohesive integrated solution. They commented that to understand illegal logging

accurately, we must understand the grassroot problems, namely corruption and the
weakness of law enforcement. Without these two aspects overcome, illegal logging
cannot be resolved.
Although many operations have been carried out, so far they have all failed. This
is because most members of TNI (Tentara National Indonesia/Indonesian National
Army) and Polri (Polisi Republik Indonesia/Indonesian Police) are actively involved
in forestry crimes, particularly illegal logging. Therefore, in many cases the master-
mind cannot be caught in police and army operations, just operators and members
in the field are caught and exposed in the mass media, while there has been no sig-
nificant change to illegal logging management.3
Hapsoro, Director of Telapak Indonesia, Bogor, has said that generally the gov-
ernment has a lackluster response to considering illegal logging issues because it is
categorized as a sectoral issue. This means that illegal logging is still categorized as
a forestry issue, not a comprehensive issue, and even considered to be a civil society,
other department, or other country’s responsibility.
Although the Ministry of Forestry and Commander of TNI have cooperated in
handling illegal logging issues since this year (January 2003), it seems a bit late,
considering that the government has had a commitment with CGI since 2000 to
crush illegal logging. However, in terms of progress, Telapak is happy that some
efforts have been made to coordinate efforts and say that this must continue in order
to overcome illegal logging. For instance, Tanjung Putting National Park has been
threatened by illegal logging since the end of the 1990s. Telapak’s investigation in
1999/2000 found that illegal logging activities were systematically supported by big
timber barons such as the Tanjung Lingga Company. This company cuts valuable
trees such as Ramin (Gonystylus) and Meranti (Shorea bracteolata) by using local
people and outside workers. This means that should the locals or outsiders be
caught, it does not reflect on the company itself.4
FKKM, in Yogyakarta, emphasizes overcoming illegal logging through interna-
tional cooperation with many consumer countries. At the very least, friendly coun-
tries have issued their commitments not to purchase illegal wood from Indonesia,
and the Indonesian government is aiming to start a mass movement for nontrading
of illegally logged timber in the international market in upcoming years. Should this
occur, it would drastically reduce the amount of illegal logging exports.5
Domestically, FKKM suggested systematically implementing a policy change
on forest exploitation, changing the orientation from timber extraction to forest
resource management and forest ecosystem management. Forestry bureaucrats still
3
Manurung, Togu, ‘Fakta Menunjukan bahwa Pemerintah tidak Mampu’ (The fact shows that
government is not able to crush illegal logging), Warta FKKM, Vol. 6, No. 6, June 2003, pp. 9.
4
Hapsoro, Director of Telapak Indonesia, “Penebangan Tanjung Puting ada Dalangnya” (Tanjung
Puting National Park Cutting there is main actor), in TUNAS, Vol. 1, No. 8, February 2003, pp. 8.
5
Musa, Adie Usman, “Illegal Logging Tanpa Solusi” (Illegal logging without solution), in Warta
FKKM, Vol. 6, No. 6, June 2003, pp. 3.
Measures Taken by the Ministry of Forestry 211
tend to consider forests as sources of wood and do not see other benefits from non-
wood productions and do not think of the long-term benefits, thinking only of rev-
enue or foreign exchange earnings as capital to repay Indonesian foreign debts.
The characteristics of timber extraction are as follows:
1. Wood cutting in natural forests for the purpose of house construction and raw
material for wood industries.
2. There is no systematically planned action to carry out the reforestation
program.
3. The aim of forest management is to exploit wood production for the benefit of
companies. In this matter, local people’s social welfare and ecological conditions
are neglected.
Therefore, to escape from the old orientation, Hasanu Simon offers forest
resource management which emphasizes natural resource management that aims at
realizing economic, social, and ecological functions for community development.6
Forest production is used for the local, regional, national, and international markets,
producing various commodities such as rattan, resin, ginger, medical plantations,
fruits, honey, and much more. This would provide employment opportunities for
local communities, improving their economic and social conditions. The character-
istics of the program are as follows:
1. An orientation towards forest management not only for the financial benefit of
the company, but for people’s interest at large.
2. The main target is not just wood production for construction or the wood indus-
tries, but all functions of the forest, with priority on local community needs.
3. Forest management based on a multiculture, with attention to the physical condi-
tion of certain areas and social economics and culture of local communities.
4. An efficient agroecosystem management system, which prioritizes productivity,
sustainability, stability, and equitability in order to obtain maximal production
while used by all stakeholders.
5. A participatory planning system with maximal orientation towards people’s
interests and the environment. The development planning system is used in an
integrated manner, working both vertically and horizontally.
Measures Taken by the Ministry of Forestry
The steps taken domestically by the Ministry of Forestry in an effort to crush illegal
logging are as follows:
6
Hasanu Simon is advisor and member of trustees of FKKM (Forum Komunikasi Kehutanan
Masyarakat). He (Simon) is officially registered as senior lecturer in the Faculty of Forestry, The
University of Gadjah Mada, Jogyakarta.
1. To publish Ministry of Forestry decree No.541/Kpts-II/2000, which replaces

Ministry of Forestry decree No. 05/Kpts-II/2000, stopping the temporary author-
ity provided for governors and district heads/mayors to issue small-scale HPH or
IPHH/Izin Pemanfaatan Hasil Hutan/Forest Production Utilization Permissions.
The issue of Ministry of Forestry decree No.541/Kpts-II/2000 was enhanced by
government regulation No. 34/2002 regarding “Forest Order, Forest Management
Planning Arrangement and Forest Utilization,” which determines the manage-
ment authority for forest utilization permissions and forest production.
2. The Ministry of Forestry has consolidated this with the launching of a policy to
reduce the Annual Working Plan (Rencana Kerja Tahunan RKT) to about 6.9
million m3 in 2003. This reduction is drastic, because in previous years 20 mil-
lion m3 was issued. The Secretary General of Forest Production, Wahyudi
Wardoyo, explained that the aim of the policy was to overcome the overproduc-
tion in the wood industries, making them more efficient, accountable, and trans-
parent, to practice sustainable forest management (Interview, August 8, 2003).
3. To publish Ministry decrees No. 1132/Kpts-II/2001 and No. 292/MPP/
Kep/10/2001 between the Ministry of Forestry and Ministry of Industry and
Trade. These decrees are aimed at stopping log exports, further enhanced by
government regulation No. 34/2002, which strictly prohibits log exports from
Indonesia. This policy has contributed to the development of international log
smuggling, causing a reduction in the price of logs on the international market.
APHI has criticized that the log export ban trial launched by the government is
only valid for 6 months and should be extended for a period of at least a year, in
order to really affect overseas consumers (MIKI, third edition, 2001: 5).
4. A Ministry of Forestry high officer mentioned that the problem of illegal logging
and trade of illegally harvested timber has been complicated by underlying inter-
nal and external factors, such as poverty, unemployment, corruption, an imbal-
ance in supply and demand for forest products, and international market demand.
To overcome these factors, the government has developed three approaches,
namely: improvement of forest management and administration; improvement
of people’s welfare, through, among others, development of social forestry; and
promoting effective law enforcement by strengthening coordination among
enforcement institutions and judiciaries.7
These steps directly and indirectly reduce illegal logging and illegal trade,
domestically and overseas. The implementation of the policy seems to have
improved the price of plywood on the international market, which in mid-2002 went
from US$200–230 to US$400–450 per cubic meter.
7
Wahyudi Wardoyo’s paper entitled: “Remarks by Secretary General at the Ministry of Forestry
Republic of Indonesia on the First Meeting of Asia Forest Partnership” (AFT), Tokyo, November
11, 2002.
Intergovernmental Measures 213
Intergovernmental Measures
Illegal logging in Indonesian forests is difficult to crush, as many factors causing

illegal logging are not prevented. This occurs because of collusion between govern-
ment apparatus and timber traders. These factors are all related to the legal system
and law enforcement.
Frankly speaking, if law supremacy is not practiced, it is very difficult to over-
come illegal logging and wood smuggling, which totally affect the government’s
revenue disadvantage. To overcome illegal logging and wood smuggling cases, it
was proposed to bring the problem to the ITTO (International Tropical Timber
Organization) forum in Yokohama, but this proposal was eventually cancelled,
because ITTO is not categorized as a court and police institute.
World internationals request “hard sanctions” for illegal logging actors. In con-
trast, they still receive illegal wood smuggling, because the price of wood is rela-
tively cheaper than from formal wood exports. In this matter, the Indonesian
government should have an active and radical stance in launching international
trade diplomacy. This stance is for the purpose of national interest.
This aforementioned is necessary for an Indonesian government launched joint
cooperation in combating illegal logging with vital consumers of wood such as
European communities, Japan, China, South Korea, the United States, and even
with neighboring countries such as Malaysia and Singapore, where currently both
countries have been identified as wood-laundering illegal logging from Indonesia.
According to Tahrir Fathoni, head of information in the Department of Forestry,
Indonesia has an agreement for joint cooperation with some countries such as the
United Kingdom as of April 2002, Republic of China’s People (RRC) in December
2002, and Japan in June 2003 (warta fkkm, Vol.6, No. 6, June 2003).
This chapter focuses on analysis and comments in terms of joint cooperation in
combating illegal logging and the trade in illegally logged timber between the govern-
ment of Japan and the Government of the Republic of Indonesia. The meeting of joint
cooperation and agreed for signature held in Tokyo on June 24, 2003, attended by
Megawati, President of the Republic of Indonesia and his cabinet, especially the
Minister of Forestry (Mohamad Prakosa). From the Japan side, it was attended by
Prime Minister of Japan Junichiro Koizumi, Ministry of Foreign Affairs (Yoriko
Kawaguchi), and Ministry of Agriculture, Forestry and Fisheries (Yoshiyuki Kamei).
It shares the views and intention to promote cooperation between the two coun-
tries in combating illegal logging and the associated trade in illegally logged timber
and wood products as follows:
1. The cooperation will be conducted with the following objectives:
(1) Combating illegal trade of illegally logged timber and wood products by the
efforts of both countries on the bases of the shared view that illegally har-
vested timber should not be used, the principles of equality, mutual respect,
and the mutual benefit and utilization of cross-sector and wide-ranging
means at all levels.
(2) Improving forest law enforcement for controlling the associated illegal trade
and illegally harvested timber and wood products.
(3) Improving economic opportunities for local communities in order to reduce
associated illegal trade and the illegally harvested timber and wood
products
(4) Increasing awareness of the threats that forest crimes and forest destruction
pose to our future environmental, economic, and social well-being.
(5) Promoting sound forest practices toward sustainable forest management.
2. The cooperation will focus on the following areas:
(1) Development, testing, and implementation of the system for verification of
legal compliance in due course to be applied throughout Indonesia and
Japan, in respect to timber and wood products imported directly or indirectly
from Indonesia.
(2) Encouraging involvement of civil society in the effort to combat associated
illegal trade and illegally harvested timber and wood products particularly in
monitoring the implementation of the system for verification of legal
compliance.
(3) Joint development of systems for timely collection and exchange of data on
timber and wood products trade between the two countries.
(4) Effective collaboration between enforcement agencies and the networks in
the two countries, aiming mutually to provide information on the application
of the relevant laws and regulations of the respective countries.
(5) Human resources development including expert training as well as basic and
higher education to strengthen the implementation of sustainable forest
management.
3. The cooperation will be conducted in accordance with the laws and regulations,
and within the budgetary appropriations of the respective countries.
4. In order to guide the implementation of the contents of this joint announcement,
both sides, when appropriate, will jointly establish an action plan including a
timetable for the implementation of parts of he contents contained herein.
5. Both sides will jointly review the implementation of the contents of this joint
announcement in due course.
6. The cooperation will be initiated on the date of signature and will continue until
it is terminated either by joint decision of both sides or by either side giving writ-
ten notice to the other.
7. Any matters arising out of the interpretation or implementation of this joint
announcement will be settled amicably by consultation between both sides.8
8
The achievement of the Ministry of Foreign Affairs of Japan, “Joint Announcement of the
Cooperation in Combating Illegal Logging,” June 24, 2003, Tokyo.
Discussion 215
Discussion
I would like to discuss several interrelated actions: improving the legal system and
law enforcement, the socioeconomic empowerment of local people, an awareness
campaign for deforestation and the environmental damage it causes, and campaigns
for the practice of sustainable forest management. These actions are the essence of
the joint announcement of 2003 on a framework for cooperation in combating ille-
gal logging and trade of wood products between the government of Japan and the
government of the Republic of Indonesia. Certainly, because these actions are con-
centrated around domestic problems, there is greater emphasis on the Indonesian
government’s involvement in overcoming and crushing the fundamental factors
driving illegal logging. The focus of this discussion is to review the above actions in
terms of their effectiveness in the field. It is the basic premise of the writer that
should these issues be effectively addressed in the field, illegal logging, which is
currently widespread in Indonesia, will gradually decline, if not disappear in the
near future.
The first issue is that of the legal system and law enforcement for illegal logging.
It seems that the legal system and law enforcement are the weakest of these actions
in terms of practice in the field. To overcome this problem, on April 24, 2001, an
Indonesian presidential instruction placed great emphasis on crushing illegal log-
ging. The president encouraged all governmental sector parties to crush illegal log-
ging. Certainly, the Ministry of Forestry held the main responsibility for carrying
out the presidential instruction in cooperating with and coordinating other govern-
mental offices to handle illegal logging. The Ministry of Forestry cooperated with
the Indonesian Police Headquarters (Polri), the Ministry of Justice (Kementerian
Kehakiman), and Attorney General’s Office (Kejaksaan Agung) in order to redefine
the criteria and impact of illegal logging and then interpret these definitions into
law, execution by judges of hard sanctions without discrimination, including an
understanding that it is the supporters of illegal actors, rather than the actors them-
selves, who are the main actors.
Should this legal system actually improve and not be corrupted, the next step is
to realize law enforcement at the political upper levels. Any high-level officers of
government institutes who support and are actively involved in illegal logging must
be dealt with according to the law. The start of this sort of investigation and prosecu-
tion might be to concentrate on the actors identified by the investigation of Telapak
and the Environmental Investigation Agency (EIA) in 2000, such as Abdul Rasyid,
Kamsia and Aang Gunawan and Tamba. These large illegal actors must become a
priority of the courts as examples for others involved, or interested in becoming
involved, in illegal logging.
The second issue is that of the socioeconomic empowerment of local people. In
fact, since the very beginning of the Soeharto administration, which adopted
Forestry Act No.5/1967 and launched “HPH Concessions,” the forestry sector has
been a dilemma for local people. This is because the Soeharto government did not
recognize the customary forest rights of locals, leading to many land disputes.
Certainly, this policy is attributed by academics and NGOs as the main factor caus-
ing the socioeconomic marginalization of locals living in and around forests.
Although the Ministry of Forestry instructed that all HPH holders must carry out the
HPH Bina Desa Program (Village Empowering Program), these programs in prac-
tice are not accompanied by public accountability and transparency and are cor-
rupted by village and HPH officers. The programs then tended to fail, having a
limited impact on improving the socioeconomic situation of local residents.
The solution to this is an empowerment program with two approaches: recogni-
tion of the customary forest rights of local people, and macro mapping to redefine
the borders of lands between state and customary rights forests. In my opinion, in
recognizing customary forests in order to reduce land disputes, local communities
should have the security needed to utilize their lands as capital for production.
The government must provide public services to all Indonesian citizens.
Therefore, in the agricultural, fishery, and forestry sectors, good governance in the
provision of land reform and land rights, bank credit, and the dissemination of infor-
mation on how to improve production, management, and marketing are a must.
These programs should be a priority in order to ensure the empowerment of local
people.
Forest Reform No. 41/1999 actually recognizes the customary forest rights of
locals. However, until recently, the government was reluctant to release many state
forests for conversion into customary rights forests. The government of the
Philippines, Department of Environmental and Natural Resources, in 1993 launched
a policy and created a “Certificate of Ancestral Domain Claim/CADC,” issuing 2.5
million ha in 1994–1998 (almost 20 % of Philippine state forest). I believe that the
Indonesian government should consider the Philippine government’s determination
and penalty process for customary forests in order to prevent national conflict and
empower the socioeconomic condition of local communities in Indonesia.
The third action is a campaign for raising awareness of the environmental dam-
age caused by deforestation. Illegal logging has become a critical problem, identified
as one of the most dominant factors causing deforestation, as it is carried out not
only in production forests but also in protected and conservation forests, such as the
national parks of Tanjung Puting, Kutai, Kerinci Seblat, Lauser, and Gunug Palung.
Therefore, the role of the Ministry of Forestry in actively carrying out an aware-
ness campaign regarding the impact of deforestation on the environment to other
forest stakeholders such as NGOs, HPH holders, wood industry owners, local com-
munities, and citizens at large is important. If these campaigns are successful in
actively involving public interests simultaneously with an improved legal system
and law enforcement, then it should follow that the amount of illegal logging will
fall drastically.
The fourth action to be discussed is a campaign for the practice of sustainable
forest management. I think sustainable forest management is the key word for the
continuity of the forest industry in Indonesia. Based on many reports on sustainable
forest management:
1. Sustainable forest management is based on resource management for the benefit
of all people. The familiar slogan is “forests for the people.” This means that for-
Conclusion 217
est management must include all people in the vision, mission, and implementa-
tion of the management, with resources used for the benefit of all. Local
communities are to be the central actors, with direct access to the forest manage-
ment, becoming the main consideration of forest resource management.
2. The Ministry of Forestry is the organizer and facilitator within this framework,
where local people and other forest stakeholders have equal and open access to
management, creating public accountability and transparency on forest resources
management.
3. The professionalism of those carrying out all aspects of forest management is
constantly improved upon. The devastation of forest ecosystems is partly caused
by the ignorance of forestry apparatus of the characteristics and behavior of eco-
systems, both the traditional wisdom and western education concerning forest
management and wood production.
4. The forest management information system is based on local community inter-
ests. In previous years, these systems were catered towards the government and
private sector interests only. A change must be realized whereby more attention
is given to local interests.
Conclusion
(a) Decentralization is a transfer of power from the central to subnational levels in

terms of the authority to plan, make decisions, and manage public functions.
There are two perspectives of decentralization considered in Indonesia, namely
the political and administrative, and decentralization practices currently empha-
size the administrative rather than political perspective.
(b) The Indonesian government created Acts No.22/1999 and No.25/1999 on
“regional autonomy” and “fiscal balancing between the central and local gov-
ernments” as a part of the decentralization policy. Act No. 22/1999, chapter 4,
article 7 (1) emphasizes the authority of local governments (Kabupaten/district)
in all fields of governmental affairs, except foreign affairs, defense, and secu-
rity; the judiciary, monetary, and fiscal matters; religion; and other authorities.
(c) Decentralization of the forestry sector, based on Act No. 41/1999, has three
focuses. First is the recognition of customary forest rights; second, there are
more actors in forest management than before; and third, forest utilization is
aimed at benefiting all stakeholders by maintained sustainability.
(d) The Ministry of Domestic Affair’s domain in decentralization focuses on three
reforms based on Act No.22/1999. First is reforming the role of the DPRD
(local parliament) in electing and requiring accountability from the head of the
government (the governor at the provincial level and the Bupati/head of district
or mayor at the district level); second is reforming the role of the BPD (Village
Representative Board) in which members are independently elected by villag-
ers and not appointed by the head of the village; and third is to trust the local
government to manage and improve the quality of public services at the district,
subdistrict, and village levels.
(e) One of the realizations of decentralization in the forestry sector was the issu-
ance of Ministry of Forestry regulation No.310/Kpts-II/1999, “Guidance on
Forest Wood Production Concessionaires.” This regulation aims to (1) stimulate
local governments to actively participate and be accountable for forest manage-
ment, and (2) to improve the welfare of people who live in and around forests.
Unfortunately, many district heads (Bupati) manipulate this target by issuing
more HPHH and IPPK for cooperatives and individuals in order to obtain larger
local revenue. The number of HPHH/IPPK has rapidly increased in the last 2
years (2000–2002). In Malinau, Bulungan, Nunukan, and Kapuas Hulu, IPPK
permit holders have transported far heavier equipment to the area than they
could possibly need to log the area allocated them. However, the critical prob-
lem is the income generation from issuance of HPHH and IPPK.
(f) One of the targets of decentralization, according to the Ministry of Domestic
Affairs, is to improve public services for every citizen. Under the Soeharto gov-
ernment, local governments were not permitted to grant investment licenses and
so could not make a direct contribution to solving problems such as unemploy-
ment and budgetary initiatives. Currently, under Act No.22/1999, local govern-
ments are able to create jobs through investment and industrial policies.
However, several academics have criticized some of the public services pro-
vided by bureaucrats at the district level. The corruption and low dedication to
the provision of public services must be drastically improved through the adop-
tion of this policy, with more emphasis on the principles of good governance,
public accountability, and transparency.
(g) The role of academics and NGOs in criticizing the implementation of decentral-
ization conducted by the Ministry of Forestry and the Ministry of Domestic
Affairs is significant, through the research and suggestions of more efficient and
effective alternatives for considering the political, social, economic, and eco-
logical aspects of sustainable forest management. They are also watchdogs of
forest management implementation and advocacy for forest stakeholders still
without much voice.
(h) Illegal logging is currently a very serious problem. There are two major factors
causing the emergence of illegal logging: overdemand of wood compared to
supply capabilities and the weak implementation of law enforcement on the
main actors of illegal logging. The Indonesian government has prioritized poli-
cies of diplomacy with strategic countries in order to attain joint cooperation in
combating illegal logging and illegally logged timber and wood products trade
to minimize illegal logging practices. As illegal logging is one of the main fac-
tors causing deforestation, I believe that this will drastically reduce this prob-
lem in Indonesia.
(i) Several alternatives have been suggested by NGOs for overcoming illegal log-
ging. One of these is to launch a moratorium logging policy, in order to structur-
ally reduce overcapacity of wood industries to designed levels, finally producing
sustainable wood production levels.
Part V
Local Responses to Forest Management:
A Case Study of East Kalimantan
In Indonesia, forests are treated as a natural resource to be exploited for their eco-
nomic value. Under the Soeharto government, “economic development” became the
main ideology with a growing awareness of the potential of forest resources. The
Soeharto government provided the necessary capital, investment, foreign exchange
earnings, and employment in the initial stages, and issued policies concerned with
the utilization of forest resources for “commercial” purposes, as a basis for eco-
nomic development. The policies emphasized logging, trade, timber production,
and processing development in the sawmill, plywood, and pulp and paper
industries.
The exploitation of Indonesian forests through logging proceeded throughout
this period at a great rate. HPH (Hak Pengusahaan Hutan/Forestry Logging
Concessions) formally operate under the Foreign and Domestic Investment Act No.
1/1967 and No. 6/1968 and Basic Forestry Law No 5/1967. These laws permitted
private companies to provide capital investment to the forestry sector, in coopera-
tion with the government, within specific logging concession areas in the outer
islands. Local people living in and around these forests were not permitted access to
these areas or even to utilize nontimber forest products, as the government no longer
recognized their customary forest rights. This policy certainly invited the socioeco-
nomic marginalization of local inhabitants and created many land disputes between
logging concession holders and local inhabitants.
What has this meant for the local people? There are several categories of local
people that need to be clarified in order to discuss this topic. First, there are the
indigenous people, born and living inside and around the forests. Then, there are
those local people who depend upon the HPH holders for their livelihood. Second,
there are those who work within the nontimber agricultural sector such as in the
rattan, rubber, rice, or fruit production sectors.
This part focuses on three chapters. Chapter 10 discusses the existence of HPH
and the forestry industry in East Kalimantan and how they contribute to the regional
income (PDRB) and create employment opportunities for local communities.
Meanwhile Chap. 11 discusses the livelihoods of local people in Muara Gusik vil-
220 V Local Responses to Forest Management: A Case Study of East Kalimantan
lage from primary subsistence (rice) and secondary sources of income such as rat-
tan, rubber, and kayu gaharu (Aquilaria malaccensis). In addition, land disputes
between the ITCI Company and local people in the reformation era and the socio-
economic function of timber and rattan traders from the village, subdistrict, to the
provincial level. Chapter 12 discusses logging concessions, coffee plantations, and
coffee traders from the village, subdistrict, and district to the provincial level in
Bengkulu and Palembang.
Chapter 10
Logging, Forestry Industry, and the Regional
Economy
The Development of HPH and Forestry Industry
Under the first Pelita (Pembangunan Lima Tahun) (Five-Year Development), 1967–
1969, only two foreign investment companies were registered within the forestry
sector in East Kalimantan. The rapid development of foreign and domestic invest-
ment in the forestry sector began during the Pelita I to Pelita III (1969/1970–
1983/1984) periods, where investment in the forestry sector reached 33.9 % of total
investment in East Kalimantan. For example, in 1981/1982 there were 105 logging
concession holders, with a total forest size area reached of 11,812,000 ha. This
investment rapidly decreased to 2.97 % of total investments under Pelita IV
(1984/1985–1988/1989) (Table 10.1) until Pelita V (1989/1990–1993/1994) pro-
vided for no new projects, only extensions on previous projects, with the level of
investment amounting to 0.82 % of total investment in East Kalimantan.
The government provides logging concessions in 20-year periods, with further
extensions dependent on performance. The first concessions were given to Jamaker
Company in 1967 in the Bulungan district and Porodisa Trading Industry in 1968 in
Sangkulirang. In 1981/1982 the number of logging concessions issued rapidly
increased to 105, with the total logging area allowed covering 11.8 million ha. Until
31 March 1991, the number of logging concession holders in East Kalimantan
totaled 108, with a total logging area of 12 million ha, or an average of 111,
976,85 ha per HPH. Of these 108 HPH, 22 were nonactive (Fig. 10.1). The State
Forestry Corporation (Inhutani) possessed logging concessions for 2.4 million ha,
and of the largest private companies, ITCI received concessions to log 601,700 ha,
Kiani Lestari, 350,000 ha, Santi Murni (Alas Helau), 330,000 ha, Kayan River
Timber Products, 325,000 ha, and Hanurata, 299,000 ha. Meanwhile, the smallest
logging concession was held by Nata Marga Jaya for 18,000 ha.1
For further information in terms of ‘Logging Companies’ in East Kalimantan, see HPH dan
1
Ekonomi Regional: Kasus Kalimantan Timur (Forest Logging Concession and Regional
Economics), Jakarta: Walhi, 1993, pp. 8–12.

DOI 10.1007/978-981-287-745-1_10
222 10 Logging, Forestry Industry, and the Regional Economy
Table 10.1 The development of forestry sector investment in East kalimantan (Million rupiah)
Period P PMDN PMA P PMDN + PMA Total E. Kal P
Prior to Pelita – 19,452 2 19,452 19,452 2
Pelita I–III 69 284,805 57,350 2 342,155 1,009,141 138
Pelita IV 9 47,110 15,528 – 62,639 2,105,423 66
Pelita Va – 51,052 1,150 52,202 6,375,635 41
Source: Coordinating Board for Provincial Investment in East Kalimantan, 1989
Notes: P project, E. Kal Total East Kalimantan (amount and projects)
PMDN Penanaman Modal Dalam Negeri (Capital Domestic Investment)
PMA Penanaman Modal Asing (Foreign Capital Investment)
a
Until December 1991.
140
120
100
80
60
40
20
0
Year
1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998
Active Total
Non-Active The Width

(100000ha)
Fig. 10.1 Development of HPH and area in East Kalimantan (Source: Dinas Kehutanan Propinsi
Kalimantan Timur, Dalam Angka (Provincial Forestry Agency), 1999/2000; Walhi 1993, Loc Cit)
Note: In the Soeharto administration, fiscal year in Indonesia starts from April and finishes in
March (April 1, 1968–March 31, 1969)
In 1990/1991, from a total logging concession area of 12,093,500 ha, 3,437,000 ha

(28.42 %) consisted of permanent production forest and 4,668,300 ha (38.60 %)
limited production forest, 2,935,000 ha (24.27 %) of converted forest, 990,200 ha
(8.19 %) of protected forest, and 63,000 ha (0.52 %) in conservation forest. The
amount of protected and conservation forest included in logging concessions were
27.31 % and 3.20 %, respectively, based on TGHK/Tata Guna Hutan Kesepakatan
(Forest Plan Agreement) in East Kalimantan. However, the TGHK map previously
used for forestry resource planning was not accurate, and an evaluation of the
The Development of HPH and Forestry Industry 223
Table 10.2 Forest areas in East Kalimantan based on TGHK and revised RePPProt map
Forestry category TGHK/km2 % RePPProt/km2 %
Conservation forest 19,690 9 37,210 19
Protected forest 36,260 17 55,320 28
Limited production forest 48,260 23 33,230 17
Permanent production forest 55,130 26 9,900 5
Conversion forest 51,920 25 58,480 30
Others 180 <1 2,920 1
Total 211,440 100 197,060 100
Source: RePPProt, 1987; HPH dan Ekonomi Regional: Kasus Kalimantan Timur (HPH and
Regional Economy: A case study of East Kalimantan), Jakarta: Walhi, 1993, Op Cit, pp. 14
Notes: TGHK Tata Guna Hutan Kesepakatan (Forest Plan Agreement), RePPPROT Program
Perencanaan Fisik Regional untuk Transmigrasi (Regional Physical Planning Programme for
Transmigration)
TGHK map by RePPPROT (Regional Physical Planning Programme for

Transmigration) has found many incorrect forestry borders. RePPProt finally pro-
posed to revise the forestry borders, using more accurate data, and this revised
RePPProt map indicated that the total amount of logged forests was 19,706,000 ha.
Meanwhile, the size of permanent production forest and limited production forest
based on the TGHK map are 5,513,060 and 4,826,100 ha, respectively, whereas the
revised map by RePPProt shows 990,000 and 3,323,000 ha, respectively (Table 10.2).
Based on RePPProt studies carried out in forestry areas in Sumatra, Kalimantan,
and Irian Jaya (Papua), conservation and protected forests have drastically decreased,
including the national parks in Kutai, East Kalimantan. The main underlying factors
for such degradation are illegal logging, conversion into agricultural land, and land
occupation by newcomers.
In 1980, a joint ministerial decision (SKB/Surat Keputusan Bersama (Joint
Decision Ministerial Letters) No. 317/Kpts Um/5/1980, No. 196/Kpb/V/80 and No.
182/M/SK//5/1980 concerning the obligation of ‘timber supply’ for domestic needs
and log exports) by the Ministry of Agriculture, Ministry of Trade and Cooperatives
and Ministry of Industry was strictly implemented. The main impact was to limit
and eventually ban (1984) the exporting of logs. The purpose of this ban was to
encourage the growth of the domestic timber processing industry. In fact, a timber
processing industry policy had been launched since a Forest Agreement (FA) and
Logging Concession Decision (SKHPH) had been issued, however, because this
joint ministerial decision was issued and immediately followed by another joint
ministerial decision, involving three Directorate Generals of Forestry, various
Industries Directorate Generals, and the Domestic and Foreign Trade Directorate
General (No.78/Kpts/Dj/I/1981, No.054/DJAI/SK/IV/1981, No. 051/DAGRI/KP/
IV/81, No. 07/DAGLU-33/KP/IV/81), regarding an ‘Integrated Industry
Improvement’, with an emphasis on plywood, managerial skills of logging conces-
sion holders, and the limitation of log exports, these decisions had a much more
serious impact on the overseas timber processing industries dependent on Indonesian
Table 10.3 The ten large holding groups for logging concessions and the timber-processing
industry
Log concession
Groups (ha) Timber industries
Inhutani I 2,422,000 Idec Timber Abadi; Inhutani Samarinda; Inhutani Juata;
Inhutani, Nunukan;Inhutani Sesayap; Kenahutani
Kiani Lestari 841,000 Kalimanis Plywood; Kalhold Utama Plywood; Santi
Murni Plywood; Kiani Lestari
Sumalindo Lestari 687,000 Sumalindo Lestari Jaya Dharma Satya Nusantara
Jaya
Rodamas Timber 637,000 Tirta Mahakam Ply timber
Kal.Coy
Sumber Mas 590,000 Meranti Sakti Indah Plywood; Kayan River Indah
Timber Plywood; Sumber Mas Sawmill
Harjohn 577,000 Kayu Alam Perkasa Raya
Kayu Lapis 483,500 Kayu Lapis Indonesia
Indonesia
Barito Pacific 481,000 Tunggal Yudi Plywood; Hutrindo Palaran Plywood; Bina
Timber Segah Utama Plywood; and Sangkuliran Bhakti
Dayak Besar 462,000 Daya Besar Agung Plywood; Daya Agung Wood
Timber
Inne Donghwa 356,000 Inne Donghwa; Balikpapan Forest Industry
Source: Dinas Kehutanan Propinsi Kalimantan Timur (Provincial Forestry Agency), 1991
log supplies.2 On the other hand, domestic logging concession holders were also
much more able to develop their timber processing businesses. At this time, invest-
ment in timber processing in East Kalimantan rapidly increased. Under Pelita I
(1969–1974) to Pelita III (1979–1984), 16.25 % of total investment in East
Kalimantan was put towards the forestry industry, increasing to 24.56 % under
Pelita IV (1984–1989). Under Pelita V (1989–1994) until December 1991, timber
processing industry investment reached 6.8 % of total investment in East Kalimantan.
As foreign timber processing companies found it more difficult to find their raw
materials, they would cooperate with domestic logging concession holders, creating
synergy holding companies. Table 10.3 indicates ten large holding groups, based on
logging concession areas and their branches. This grouping of logging and timber
processing companies was based on shareholders and the mutual advantage of
cooperation, aided by the existence of Ministry Forestry Decision No. 195/
Kpts-IV/1984 regarding ‘Grouping of Logging and Timber Processing Industries’
in order to construct integrity within the forestry industry.
The development of the timber processing industry in East Kalimantan rapidly
increased within one decade 1979/1980–1989/1990. For example, sawmill factories
2
The impact of the ‘log ban’ suffered a total decreased of ‘wood processes industries’ in Taiwan
from 156 to become 25 units, in Japan from 406 to 105 units and South Korea from 60 to 6 units.
See Wibisono, Christianto, PDBI (Pusat Data Bisnis Indonesia), A Profile of Indonesian Forestry
Business Featuring Timber and Wood Based Industry, 1989.
Employment 225
(Penggergajian kayu) in 1979/1980 totaled 55, with a capacity of 930,700 m3,

whereas plywood factories totaled 4 and produced 244,700 m3. However, by
1989/1990 there were 104 factories (48 owned by logging concession holders and
56 separately owned), producing 1,643,190 m3, whereas the number of plywood
factories increased to 26, with a capacity of 1,940,681 m3.
Employment
How many people were absorbed into the forestry industry? The number of logging
workers in 1970/1971 was 3,216, rapidly increasing in 1979/1980 to 24,341. This
growth of employees inherently followed a growth in forestry sector investment
under Pelita III (1979–1984) of Rp. 163,990 (million), or 16.25 % of total invest-
ment in East Kalimantan (Rp. 10 milliar). Meanwhile, timber processing industries
absorbed 2,089 workers in 1981/1982, increasing in 1984/1985 to 19,339. However,
with the introduction of the ban on log exports in 1984, the number of loggers dras-
tically decreased to 10,906 in 1984/1985, and timber processing workers increased
to 19,339. By 1990/1991, the total number of workers in the forestry industry
reached 50,641, namely, 14,320 loggers and 36,321 in the timber processing indus-
try.3 Unfortunately, migrant workers from Java, Bugis, and Banjar have dominantly
worked in logging and timber industries, compared with the local Kutai and Dayak
peoples.
Available data from the Regional Forestry Department, East Kalimantan, in
1990, explained that 10,268 (1.94 %) forestry industry workers were absorbed in
1985/1986, and 14.320 (1.74 %) in 1990/1991. Meanwhile, timber processing in
1985/1986 absorbed 18,057 (3.41 %) workers and in 1990/1991, 36,321 (4.43 %),
of total employment absorption. For example, the agricultural sector in 1985
absorbed 251,915 (47.55 %) and in 1990, 355,269 (43.30 %). This was followed by
trade, hotels, and tourism in 1985, with 74,787 (14.12 %) workers and in 1990,
191,242 (23.31 %) workers. In term of returns to investment, domestic and foreign
investment in the forestry and timber processing sector shows a decreasing trend, as
the ratio of new employment to per capita investment fell over the period. Under
Pelita I to Pelita III, every Rp. 100 million invested in the forestry sector provided
employment for 9 persons. This decreased under Pelita IV to just 6 workers per Rp.
100 million (Table 10.4). On the other hand, within the timber processing industry,
every Rp. 100 million invested created 11 new positions under Pelita I to III,
decreasing to 3 new jobs under Pelita IV (Walhi 1993: 26–27). However, it must be
remembered that logging and timber processing jobs are categorized as ‘direct
employment’, yet there is also ‘indirect employment’, created because of forestry
industry development.
Badan Pusat Statistik Kalimantan Timur (Statistic Bureau Agency in East Kalimantan), 1990 and
3
Dinas Kehutanan Propinsi Kalimantan Timur (Provincial Forest Agency), 1990; Walhi 1993, Op
Cit, pp. 25–26.
Table 10.4 Quantity of workers and employment ratio per Rp. 100 million investment value for
forestry sector and timber industry in East Kalimantan
Period Forestry Timber industry
Investment Employment Ratio Investment Employment Ratio
Prior to 19,452 1,434 7.372 – – –
Pelita
Pelita I–III 342,155 30,956 9.047 163,990,1 16,536 10.083
Pelita IV 62,639 3,477 5.551 517,025 14,373 2.780
Pelita Va 52,202 1,229 2.354 419,765 5,065 1.207
Source: Board of Investment in East Kalimantan Province, 1990; Walhi 1993
Note: Ratio: Rasio (Ind): it means reason
To get ratio: 30,956: 342,155 × 100 = 9.047
Information: aUntil December 1991
Production and Timber Processing
From 1969/1970 until 1990/1991, logged forests in East Kalimantan totaled

2,877,469 ha, or an average of 130,794, ha every year. Meanwhile, total log produc-
tion was 133,641,248 m3, or an average per year of 6,074,602 m3.4 Additionally, if
log production from converted forest was estimated to be an average of 0.5 m3/year,
then log production from production forests averaged at 5,574,602 m3/year. Log
production from production forest was higher than the total volume from natural
forests, at 4.7 million m3 per year. This indicates that natural forest exploitation in
East Kalimantan by logging concessions over the past two decades (1970s–1990s)
cannot be categorized as sustainable forest management.
Prior to the ban on log exports, log production from 1975/1976 until 1979/1980
on average increased 4.09 % per year. When the limitation on exports was put in
place from 1980 until 1984, log production was gradually decreased by an average
of 6.85 % per year, with the most drastic decreases occurring in 1980/1981 and
1981/1982, by 41.67 % and 38.7 %, respectively. Finally, in 1985, when the com-
plete ban was in place, log production development subsequently increased by
10.62 % per year from 1985/1986 until 1989/1990 (Figs. 10.2 and 10.3).
Before the log export restriction, logs were the main export product in East
Kalimantan. From 1975/1976 to 1979/1980, the amount of logs exported averaged
88.80 % of total production per year. Throughout the 1970s, East Kalimantan
accounted for one third to one half of Indonesia’s log production. This phenomenon
was familiarly called the abandonment of banjir kap, a system of cutting and
extracting timber that used human labor, the higher river water levels during the
rainy season, and the adoption of capital-intensive methods that involved the use of
chainsaws for cutting, heavy machinery for extracting, and trucks and boats for
transport. Most of the workers were Javanese immigrants.5
4
For further information in terms of log production and width log areas, See Provincial Forest
Agency East Kalimantan, 1990; Walhi, op Cit, 1993, pp. 18.
5
Inoue, Makoto, ‘Republic of Indonesia: Natural Environment and Economy’, in Japan
Environmental Council (ed.), The State of Environment in Asia 1999/2000. 2000, pp. 89.
Production and Timber Processing 227
300 120.00
250 100.00
100 thousand m3
200 80.00
thousand ha
150 60.00
100 40.00
50 20.00
0 0.00
1975 1980 1985 1989
year
The Width Area (thousand ha)
Log Production (100 thousand m3)
Fig. 10.2 Log production in East Kalimantan (Source: Provincial Forestry Agency, 1990)
Note: Fiscal year in Indonesia starts annually in April (1975), ending in March (1976)
For example, in 1976 the area is 241,225 ha
Log production is 9,166,557 m3. Production Development is 25.70 %
In 1975 log production is 7,292,661 m3
To determine production development (%) = 9,166,557 – 7,292,661 = 1,873,896
1,873,896: 7,292,661 × 100 = 25.69 %
%
50
40
30
20
10
0
-10
-20
-30
-40
-50
1975 1980 1985 1989
Fig. 10.3 Log production development in percentage (Source: Provincial Forestry Agency, 1990)
When the log export ban was issued in 1984, log production from East Kalimantan
was only sold on the domestic market in order to support the development of sawn
timber and plywood exports from East Kalimantan and other provinces. The
Provincial Forestry Service (Kanwil Kehutanan Kalimantan Timur) recorded that
2.500
millionM3 2.000
1.500
1.000
0.500
0.000
1987 1988 1989 1990
year
Sawn timber Capacity Plywood Capacity
Realization Realization
Fig. 10.4 Capacities and realization production of sawn timber and plywood (Source: Provincial
Forestry Agency of East Kalimantan, 1987–1991)
the domestic log trade from East Kalimantan from 1985/1986 till 1990/1991 aver-
aged 88.88 % of total log production, with the remaining 11.12 %, or an equivalent
of 0.6 m3/year, was registered as unused. Total logs processed in timber processing
industries in East Kalimantan averaged at 3,951,924,80 m3, or 70.60 % of total log
production.6
The plywood industry production from East Kalimantan always increased from
year to year. In 1990/1991, plywood production reached 1,973,547 m3, with a pro-
duction capacity registered at 83.24 %. This shows us the rapid increase compared
with 1987/1988 where production capacity was 1,451,291 m3 (Fig. 10.4).
Meanwhile, sawn timber development was slower than plywood production. For
example, in 1987/1988, 461,910 m3 from a total capacity of 1,749,836 m3, or an
equivalent of 26.40 % of total capacity, was produced. This even decreased in
1990/1991 to 299,804 m3 from a total capacity of 1,242,534 m3 (24.13 %).
Plywood exports grew from year to year. Since 1981/1982, plywood production
in East Kalimantan has played a significant part in regional income (PDRB) and
employment for local people (Figs. 10.5 and 10.6) in East Kalimantan. In 1989/1990,
plywood exports reached 91.88 % of total production, whereas sawn timber
decreased in 1990/1991 to just 3.78 % of a total production of 299,804 m3.
The logging of natural resources without a complementary reforestation program
affects forest loss (degradation and deforestation). There was a lack of information
6
Log, which is processed in sawn timber and plywood industries accounted on log unit of wood
processing production, namely 100 m3 sawn timber is equivalent to 1.82 m3 of plywood and
2.30 m3 log.
Production and Timber Processing 229
8.00 900
7.00 800
6.00 700
600
US$1 million
1 million m3
5.00
500
4.00
400
3.00
300
2.00 200
1.00 100
0.00 0
1979 1980 1981 1982 1983 1984
Year
Log volume Foreign Exchange
(1 million M3) (US$ 1 million)
Fig. 10.5 Foreign exchange from log production (Source: Provincial Forestry Agency of East
Kalimantan, 1990)
2,000 800
1,800 700
1,600
600
1 thousand M3
1,400
US$1 million
1,200 500
1,000 400
800 300
600
200
400
200 100
0 0
79
80
81
82
83
84
85
86
87
88
89
90
19
19
19
19
19
19
19
19
19
19
19
19
year
Sawn timber Volume Plywood Volume

Foreign Exchange of Wood Processing
Fig. 10.6 Foreign exchange from sawn timber and plywood (Source: Provincial Forestry Agency
of East Kalimantan, 1990)
on reforestation in East Kalimantan, however, the Provincial Forestry Service data

indicate that the reforestation program under Pelita III (1978–1983) was planned at
5,682 ha, but only realized a reforestation of 3,048 ha with various plants such as
Pinus, Dipterocarpus, Agathis, Albizia falcataria, and Mahoni (Swietinia
mahagoni). This reforestation program eventually failed because some of the plants
Table 10.5 Reforestation activities in East Kalimantan 1984/1985–1990/1991 (ha)

Activities Target Realized Percentage
Greening 1,859 1,859 100
Reforestation of HPH (ex-Logging) 31,466 31,466 100
Replanting of TPTI 77,642 26,693 34.38
Planting of HTI 89,349 53,475 59.85
Total 200,317 113,495 56.66
Source: Dinas Kehutanan Propinsi Kalimantan Timur (Provincial Forestry Agency of East
Kalimantan), 1991
Abbreviation: TPTI Tebang Pilih Tanam Indonesia (Selective Cutting and Planting), HTI (Hutan
Tanaman Industri) (Industrial Timber Plantation)
were burned. Under Pelita IV (1983–1988), realized reforestation reached

113,495 ha from a total target of 200,317 ha (Table 10.5).
Regional Income from Forestry Industry
There are many parts to the regional financial income budget (APBD/Anggaran
Pendapatan Belanja Daerah), derived from: (1) regional original income
(PAD/Pendapatan Asli Daerah); (2) tax and nontax provisions; (3) central govern-
ment funding; (4) and the remainder from former regional financial income budgets.
This section analyses the potential income of East Kalimantan from logging activi-
ties and forestry sector funding, including taxes and nontax shares. The potential
funding of logging activities is derived from timber values. Previous studies of eco-
nomic timber values (rente ekonomi kayu) shows that the government institution
(the Ministry of Forestry) just receives 17 % of economic timber values from total
natural forest timber utilization in Indonesia.7 In the case of East Kalimantan, this
potential reached US$12.2 per cubic meter in 1988. In reality, economic timber
values collected from the forestry sector was just 7 % per m3.
The government of Indonesia decides on five ways to take economic timber val-
ues from logging production (Table 10.6). Formerly there were eight ways, but after
the implementation of the log export ban in 1985, three schemes were erased,
namely IHHT (additional income of forest production), the special contribution for
domestic forestry industry development, and the tax on foreign workers in the for-
estry sector.
From these taxes and tariffs on logging production in 1977/1988–1988/1989, the
total funds from the forestry industry averaged 68.86 % compared with the regional
financial income budget (APBD) of the same year. Meanwhile, the central govern-
ment's fund averaged a rate of 54.80 %. So, if 100 % of economic timber values
from logging production in East Kalimantan in 1988 (US$112.2 per cubic meter)
7
Mubariq, Ahmad (1992), Rente Ekonomi dan Eksploitasi Hutan Alam (Economic Timber Values
and Natural Forest Exploitation), Report by Walhi, pp. 1–2.
Regional Income from Forestry Industry 231
Table 10.6 Various tariff and taxes of forestry industry

Various of
contribution Principal and taxes tariff Distribution
Logging Rights Rp. 1,500 for Papua/ha 30 % for Central Financial–Treasury; 70 %
Contribution (IHPH) and Rp. 3,000 for other for provincial
provinces/ha
Forest Production 6 % is counted based on 30 % for provincial (Level 1) 15 % for
Contribution (IHH) domestic forest values district (Level II); 20 % national forestry
development; 15 % for regional forestry
development; 20 % for PBB (for land and
property taxes)
Reforestation Fund US$10/m3 log; US$1.50. 100 % for forestry department
(DR/DJR) m3 chip timber
PBB (Land and Rp. 1,000 ha, Taxes tariff: 9 % for collecting fee; 10 % for State
Property Taxes) 5 % from tax values; Taxes Financial Treasury; 16.2 % for provincial;
taken: 20 % from all sale 64.8 % for district
values
Grading and Rp. 400/m3; 40 % is 100 % for forestry department
Scatting charged if performed by
own forestry industry
Source: Walhi (1993), HPH dan Ekonomi Regional (Logging and Regional Economic of East
Kalimantan Study), pp. 33
were multiplied by log production in 1987/1988 and in 1988/1989, the total amount
of the potential economic timber values from logging production in that year would
be equal to double the regional financial income budget (APBD) in the same year
(Fig. 10.7 and Table 10.7).
From Table 10.6 we can see that total taxes and forestry contributions for East
Kalimantan collected from 1975/1976 until 1988/1989 were Rp. 425,243,474,000
(billion). When entered into the regional financial income from the forestry sector,
it totals 119,406,316,000, or 28.08 %. So, the average contribution rate from taxes
and forestry contribution to regional income was 23.87%, with the highest contribu-
tion occurring in 1977/1978 (54.64 %) and the lowest in 1985/1986 (5.92 %).
The smaller amount was received by the regional government because it received
only those taxes considered unnecessary. For example, regional incomes from for-
estry contributions were 70 % from IHH, 70 % from IHPH, and 80 % from
PBB. However, the greater income comes from the reforestation fund and grading
and scatting (100 %), which is the more valuable income, and is taken by the central
government.
In terms of effectiveness in collecting funds, the regional government realized a
less than potential collection. For example, from 1975/1976 to 1988/1989, accord-
ing to formal regulations, the regional government should have received Rp. 153
billion, but the real amount was only Rp. 119 billion (effectiveness of collection
77.74 %). This means that there was corruption among forestry officers in collusion
with logging concession holders of around Rp. 34 billion.
80,000
Forestry Contribution (Rp1 million)
70,000
Regional Revenue from Forestry Contribution
60,000
50,000
Rpmillion
40,000
30,000
20,000
10,000
0
75 76 77 78 79 80 81 82 83 84 85 86 87 88
19 19 19 19 19 19 19 19 19 19 19 19 19 19
year
Fig. 10.7 Forestry and regional income from forestry contribution for PDRB (in Rp. 1 million)
Note: in 1975 forestry contribution reached Rp. 7,038,497 billion
In 1975 regional income from forestry contribution reached Rp. 3,297,233 billion
Source: Biro Pusat Statistik Jakarta (Statistical Bureau Agency), Jakarta, 1988; Dinas Pendapatan
Daerah Tingkat I Kal-Tim (Regional Financial Income Agency of East Kalimantan Province),
1989; Dinas Kehutanan Kalimantan Timur (Provincial Forestry Agency), 1988; Walhi (1993), Op
Cit, pp. 83–84)
Table 10.7 Comparison of Year Potential economic timber values APBD

potential economic timber
1987/1988 137,924,736 62,592,864
values and APBD of East
Kalimantan (Rp. 1,000) 1988/1989 152,342,457 72,202,596
Source: Dinas Kehutanan Kalimantan Timur (Provincial
Forestry Agency), 1988; Dinas Pendapatan Daerah Tingkat I
Kal-Tim, 1989 (Regional Financial Income Agency of East
Kalimantan). Walhi (1993), Ibid, pp. 34
Regional Economic Growth and Social Welfare
Economic growth is a basic indicator of economic development, particularly in

developing countries. In this case, real economic growth is not similar to economic
development. So, the concept of gross national production (GNP) and gross domes-
tic production (GDP) as indicators to evaluate economic progress is still debated.
However, these concepts (GNP/GDP) are still widely used, at least to indicate basic
economic growth. The term GDP at a regional level is familiarly called PDRB
(Produk Domestik Regional Bruto/gross regional domestic production), which is
Regional Economic Growth and Social Welfare 233
calculated based on total additional values of gross production that arise from all
economic activities in that region.
The PDRB for East Kalimantan is one of the highest in Indonesia, followed by
Riau and Jakarta. From data available for the period 1971–1990, PDRB plus Migas
(oil and liquid natural gas), based on the 1983 constant price rapidly grew at an
average of between 0.01 % and 0.48 %. Meanwhile, PDRB without Migas grew at
an average rate of between 0.02 % and 1.22 %. In the case of logging
contributions/HPH with Migas for PDRB in the period 1971–1990, the average
growth rate was 5.49 %. The highest contribution reached was 8.66 % in 1971–
1974, and in 1976–1990 the contribution decreased to 4.70 % and the lowest
occurred in 1982 with about 2.83 %. If the Migas sector is excluded, then the con-
tribution percentage of HPH reached 21.83 %. Contributions above 20 % were
attained during the period 1971–1981, with an average of 26.86 %. However, this
decreased to 14 % during the period 1982–1990, with the lowest occurring in 1990,
when it contributed to only 11.86 %.8
The impact of logging contributions upon PDRB, without Migas, compared with
the other four largest sectors, can be seen in Fig. 10.8. During the period 1971–
1981, logging was ranked second after the trade, hotel, and tourism sector. In 1982,
logging was third, exceeded by the transportation and communication sector.
However, during the period 1983–1984, the logging sector was second again,
because the transportation and communication sector rapidly decreased production;
between 1985 and 1990, the logging sector continued to decrease production
although the industry sectors grew as they included timber processing industries.
However, the PDRB as an indicator of economic progress and development has
invited many critiques. One of the main factors is that the PDRB only provides a
picture of the larger economic activities in one region without consideration for who
is really performing and enjoying the benefits of these productions. In this case, the
logging contribution to PDRB, which could be considered fairly large, does not
describe who has received the most foreign exchange money earnings, or who are
the logging and forestry conglomerates in this industry. Therefore, to strengthen the
analysis, we consider two other approaches: evaluating the employment absorption
by logging and timber processing industries, and considering the local community
income in terms of spending and consumption data collected by BPS (Bureau of
Statistics) in 1984, 1987, and 1990.
The first approach has been discussed above, with a positive correlation between
the logging and timber processing industries on regional income and employment
absorption. For example, logging absorbed 15,394 workers in 1974/1975, increas-
ing in 1979/1980 to 24,341, whereas the timber processing industry in 1985/1986
absorbed 18,057, increasing in 1990/1991 to around 36,321 workers.
However, when we consider the spending and consumption data of the local
community, it was found that the amount spent on food during the period 1980–
1984 decreased. In 1980–1981 it decreased by around 1.32 %, and in 1981–1984,
by 5.33 %. Yet, during the period 1984–1987, the percentage spent on food increased
Walhi (1993), Op Cit, pp. 39–40.

8
50
45
40
35
percentage
30
25
20
15
10
5
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
year
Agriculture Trade, Restaurant, Hotel others
Logging Transportation,
Communication
Fig. 10.8 The four largest sectors and other contribution for PDRB of East Kalimantan
Note: PDRB: Produk Domestik Regional Bruto (Gross Regional Domestic Production)
Other sectors are: mining, industry, electricity, water and gas, construction, bank and financial
institution, house rent, services, etc.
In 1981 four sectors (agriculture, logging, trade, restaurant, hotel and transportation/communica-
tion) w contributed 82.81 % of PDRB and other sectors contributed 17.19 %
(Source: Kantor Statistik Propinsi Kalimantan Timur (Statistical Agency of East Kalimantan),
1989)
by around 3.28 % and decreased again during the 3 years of 1987–1990 by 1.66 %
(Table 10.8).
It can be seen in Table 10.9 that during the period 1987–1990, those people with
an income of Rp. 60,0009 or above spent an decreasing amount of their income on
food, whereas those with and income below Rp. 60,000 spent an increasing amount
of their income on food items. This means that those with lower incomes experi-
enced a worsening in their spending capacity, whereas those earning higher incomes
experienced an improvement. There are four probable reasons for this higher spend-
ing on foodstuffs by lower income earners: (1) a decrease in income; (2) a stable
income, but a price rise of foodstuffs; (3) the rise in income is slower than the rise
in food price; or (4) the improvement in income is still of subsistence grade.
9
Local community’s income per month around Rp. 60,000–100,000 but average Rp. 60,000. If we
compared with US$ (dollar) kurs rate into rupiah in 1987 was 1,643.85 and 1,842.81 in 1990. See
Pacific Exchange Rate Service on Foreign Currency Units Per 1 US$ (dollar; http://fx.Sauder.ubc.
ca; accessed March 14, 2014).
Regional Economic Growth and Social Welfare 235
Table 10.8 Consumption share of food and nonfood

Material category 1980 1981 1984 1987 1990
Food 66.01 65.33 60.00 63.28 61.62
Nonfood 33.90 34.47 40.00 36.72 38.38
Source: BPS: Pengeluaran untuk Konsumsi Penduduk (Spending for Community Consumption),
1984, 1987, and 1990
Table 10.9 Consumption (percentage) for food and nonfood in East Kalimantan
Monthly spending category (1987) (1990)
Food Nonfood Food Nonfood
10,000–14,999 76.65 24.50 78.74 21.26
15,000–19,999 72.64 27.36 75.28 24.72
20,000–29,999 67.79 33.21 71.52 28.48
30,000–39.999 64.35 35.65 66.34 33.66
40,000–59,999 59.10 40.90 62.54 36.46
60,000–79,999 56.79 43.21 55.81 44.19
Source: BPS: Pengeluaran Untuk Konsumsi Penduduk (Spending for Community Consumption)
1984, 1987, and 1990
How have the logging and timber processing industries impacted upon local
peoples’ social welfare?
As mentioned above, the logging and timber processing industries have had a
positive impact upon local peoples’ social welfare. Local people can work in the
forestry industry, thereby improving their opportunities for consumption spending.
The forestry sector also largely contributed to the regional financial income budget.
However, the critical problem is that the flow of money was restricted to the PDRB
(Gross Regional Domestic Production), not the provincial or district levels, which
means that most of the income is enjoyed by logging and timber industry conces-
sion holders and government bureaucrats as well as the provincial and district for-
estry agencies, due to corruption, leading to a loss of about Rp. 34 billion from
1975/1976–1988/1989 from forestry contributions. At the same time, the greatest
number of workers in the forestry sector is Javanese, Bugis, and Banjarnese
migrants, with only a few indigenous people, namely Dayak and Kutai, working in
this sector. How then, has the social welfare of the indigenous peoples who mostly
live in and around the forest village, improved? In order to answer this question, a
microeconomic analysis was carried out based on a case study result in Muara
Gusik village. This village is located in the border areas with the ITCI Company,
which has a logging concession area of more than 600,000 ha.
Chapter 11
Livelihood of Local People in Muara Gusik
Village
A microeconomic analysis was carried out based on a case study in Muara Gusik
village, Bongan subdistrict, Kuta Regency.1 The focus of the analysis was the eco-
nomic activities of the village, namely primary subsistence and secondary subsis-
tence incomes from plantations such as rattan, rubber, and fruit. The land dispute
between the local people and logging concession holder and the role of “Program
Bina Desa Hutan” (Forest Village Programs), conducted by the ITCI Logging
Company to empower local villagers in Muara Gusik is also discussed.
Why do a greater number of indigenous people, living in local villages around
the forest, tend to face socioeconomic marginalization? There are two reasons for
this: first, the Soeharto administration did not recognize local peoples’ “customary
forest rights” and so they have no access to the forest in order to utilize forest prod-
ucts, both timber and nontimber, and second, local people and logging concession
holders often have land disputes concerning these customary forest rights. Certainly,
these land disputes have an impact upon the local peoples’ economic marginaliza-
tion, because they cannot utilize that land for their own economic activities. This
phenomenon is illustrated by Al Gedicks when he says that “There are about 250
million native people worldwide, many of whom live within or on the margins of
tropical forests in Southeast Asia, Central and South America, and Central Africa.
They depend upon the forests for their food, medicines, clothes, and building mate-
rials. However, the extensive and accelerating exploitation of the rainforests for
timber, logging concession, minerals, oil, hydroelectric energy, plantation of agri-
culture makes them ‘the most seriously threatened’ habitat of indigenous peoples.”2
1
Muara Gusik village, where field research was carried out for the first time in September 1996, is
administratively entered in Kutai Kertanegara district. Recently, since decentralization was begun
in January 2001, the Bongan subdistrict, included Muara Gusik village entered in West Kutai dis-
trict, the capital of which is Barongtongkok. The second field work was carried out in March–May
2002 to study the development of the local community in terms of their livelihood, land conflict,
and forest resources management.
2
Al Gedicks, The new Resource Wars: Native and Environmental Struggle against Multinational
Corporations, London: Black Rose Books, 1994, pp. 27–29; For further information, see Burger,

DOI 10.1007/978-981-287-745-1_11
238 11 Livelihood of Local People in Muara Gusik Village
This participative field research was conducted in September 1996 and from
March to May in 2002. Many techniques were used to obtain data for this research:
first, library research of books, journals, and previous research results related to this
area. Second, 32 interviews were held with many local respondents and key infor-
mants. Third, guided interviews focusing on related subjects were conducted. Muara
Gusik village was selected for field research because: (1) it is located on the border
with a logging concession area (ITCI Company), thereby affording an understand-
ing of how far local people could utilize timber and nontimber products for income
generation activities; (2) a land dispute between community members and the log-
ging concession holder was occurring; and (3) the ITCI Company is considered one
of the logging concession holders that appears to pay attention to the environment
and local inhabitants.
Description of Research Area
Gusik is the name of the river that flows in front of this village from Meratus
Mountain, the highest mountain on the border between South and East Kalimantan.
There are three access routes to the village: (1) about 5 h by land in good weather,
using public transportation of medium-sized buses and Toyota Kijangs from
Samarinda to Muara Gusik; (2) about 4 h by private transportation from Balikpapan,
Kenanga, where the ITCI Company branch office is located, along the logging com-
pany’s roads; or (3) about 6 h by water transport on the Mahakam river from
Samarinda to Muara Muntai, followed by another 3 h from Muara Muntai to Bongan
and Muara Gusik village by Ces boat (medium-sized boat).
Historically, the Gusik community came from the Gusik site, located 15 km
away from what is now the center of the village, identified by many Lamin sites
(long traditional houses). This community has been removed twice: first in 1910,
during the Dutch colonial era, they were moved by the Dutch administration in
order to facilitate the provision of educational and other activities; then in the 1960s,
upon the request of the Indonesian Armed Forces, to protect them from the Ibnu
Hajar separatist rebellion (Map 1).
Demographically, the 898 members of this village consist of 480 men and 418
women, forming 197 households. The majority of the population is of Kutai ethnic-
ity and they embrace Islam as their religion.3 There is only one migrant Balinese
Hindu family, teaching in the elementary school. In terms of geography, the village
land is registered to be 19,249 ha, consisting of: 14,440 ha of customary rights
Julian (1987), Report from Frontier: The State of the World’s Indigenous People, London: Zed
Books.
3
In the subdistrict Bongan and villages that categorize it, most of the people are Muslims. It refers
to the Kutai kingdom which mastered the greatest part of the coastal area and a part of hinterland
of East Kalimantan from the eighteenth to twentieth centuries. The capital of Kutai is Tenggarong
(interview with head of village, March 23, 2002).
Secondary Sources of Income 239
forest, 650 ha of rice fields, 1,600 ha of plantations (rubber and rattan), 1,200 ha of
swamp land, and 1,359 ha residential areas and fruit gardens.
Secondary Sources of Income
The following description outlines the secondary sources of income from such
products as rattan, rubber, and aloe timber (Kayu Gaharu) cultivation that act as
additional financial support for community income.
Rattan
Rattan is the most reliable product for the Muara Gusik community. The tradition of
planting and selling this product has been carried out for generations. Because of
the importance of rattan, most households have a rattan garden. According to one
respondent, the average community member owns 3 ha of rattan. Only the ex-village
chief owns 8 ha. The total area of rattan gardens owned by community members is
around 550 ha.
The planting season for rattan seeds is during the rainy season, from October to
February. This is because the garden grounds become soft, thereby becoming easier
to plant seeds. Usually the planting technique is to dig a hole with 2–3 rattan seeds
placed in each hole, with each hole about 4 m apart. The rows are also placed 4 m
apart from each other so that people can walk between the rows. Therefore, 1 ha of
land can usually be divided into 100 block times 4 m, and the total rattan seeds
required are about 120–150. Farmers face several obstacles to growing rattan: first,
wild pigs usually eat the young leaves of 8–12-month-old rattan; second, wild mon-
keys usually tear off the leaves and tips, leaving the rattan bare; third, the farmers
must spend at least one night a week guarding the rattan from wild animals from
when it is 1–3 years old, and fourth, the price of rattan during the harvest season is
sometimes low.
Rattan is categorized as a plant with a long harvest period, that is, about 8–9
years, with every hectare producing 2–3 tons. There are various types of rattan, such
as Sega (Calamus caesius), Sega Batu, Sega Dahab, Sega Merah, Kotok, Jelayan
(Calamus ornatus), Jahab (Calamus trachycolus), Pulut Merah (Daemononorop
crinita), Botet (Khortalsis schapigera), Ohot (Korthalsis robusta), Semambu,
Manao, Jepung, and Jelapang. The leading production of rattan in Muara Gusik is
Sega Batu, Sega Dahab, and Jelayan. Rattan productivity varies according to type of
land, as mountainous topography produces better results; that is, on average about
1 ha can produce 3 tons, with a diameter of 100 cm, whereas flat ground produces
less, that is, only 2.5 tons. After waiting 8–9 years the farmers usually cut the rattan
when the price is high. All members of the household assist in cutting the rattan,
which is usually in the forest. Every person can carry about 50–65 kg of rattan on
his or her back from the garden to the river, about 1–2 km. After piling the rattan on
the riverside, it is then taken by a Ces (motorized boat) from the harvest area to the
village settlement.
What Is the Market Network?
The distribution chain of the rattan trade usually starts after the rattan has been
stockpiled at the village. The next step is the small, village-level traders. Empirical
field evidence indicates that small traders, apart from being shopowners, also have
the trust of larger traders in the subdistrict (Kecamatan), such as in Muara Kedang
(Bongan) and Muara Muntai. There are three small traders in Muara Gusik village.
The shops in the village function to provide the consumption needs of the farmers
and take (pay for) the rattan when it is harvested. They also lend money beforehand,
if necessary. These village-level small traders usually each have capital of around
Rp. 7–10 million. During the harvest, each small village trader can supply about 3–4
tons of rattan to subdistrict level traders by Ces boat. There are two subdistrict trad-
ers in Muara Kedang and two in Muara Muntai, and they invest capital of around
Rp. 50–75 million. The subdistrict traders also have the trust of larger traders at the
provincial level, who are also their moneylenders. They usually send about 20–30
tons of rattan each harvest to provincial rattan traders in Samarinda. However, there
is also one subdistrict trader who can send a rattan truck to Banjarmasin traders.
The provincial rattan traders in Samarinda usually have capital of around Rp. 1 billion
and more, because they must handle larger stockpiles of rattan from many subdis-
tricts in West Kutai, such as in Muara Pahu, Damai, and Muara Lawa.4 These rattan
traders find their capital from Bank Pembangunan Daerah Kalimantan Timur
(Regional Development Bank of East Kalimantan) and other private banks.
In terms of ethnicity, the Kutai dominate small village and subdistrict trading, as
the majority of the population is in Muara Kedang (Bongan) subdistrict. However,
at the provincial level (in Samarinda), the large traders are mostly Banjarese and
Chinese. The large traders at the provincial level control the distribution of manu-
factured rattan. They provide the furniture companies in Samarinda and Kutai
Kertanegara, but the majority of rattan production is sent to Java, to the central rattan
factories in Surabaya, Cirebon, Kudus, Bekasi, and Banjarmasin (south Kalimantan),
that each on average take in hundreds of tons of rattan, investing up to Rp. 800
million–Rp. 3 billion.
According to respondents in the village, most of the rattan manufacturing in East
Kalimantan is not accompanied by development of the furniture industry at the
regency level (Kutai Kertanegara) and Samarinda. Should the furniture industry
grow and develop, the price of manufactured products would rise and certainly
bring prosperity to the village farmers. The price of rattan once reached Rp. 750/kg
4
Interview with Ade Cahyat, a head of Yayasan Sistem Hutan Kerakyatan Kalimantan Timur
(Social Forestry System Foundation in East Kalimantan), April 4, 2002; See Improving the Rattan
Resources Management and Trading System in Kalimantan, YSHK, 2001.
Secondary Sources of Income 241
in 1988. According to respondents, this occurred because the harvest of natural

rattan decreased and foreign demand for manufactured rattan, particularly from
Singapore, Taiwan, Hong Kong, and Japan, rose. This, of course, occurred before
the ban on manufactured rattan exports in the end of the 1980s. However, from 1995
to 1996, the price for 1 kg of rattan at the village level was only Rp. 250 and rose to
Rp. 300 at the subdistrict trader level. Whereas at the provincial level, large traders
could obtain Rp. 600 for 1 kg, going up to Rp. 1,100 at the interprovincial level in
Surabaya, Cirebon, Jakarta, and Banjarmasin.
This unstable price influences the farmer’s enthusiasm to guard and tend their
rattan plants. In field observation, if rattan cultivation is arranged professionally
from start to finish, it will create many employment opportunities and increase
farmers’ incomes. The question is how to empower the rattan farmers at the lowest
level to improve their quality of life, so that they are no longer exploited by the
middlemen or small traders at the village level, who usually have lent money and
basic necessities to them on the provision that they sell their rattan to them upon
harvesting. This problem can be overcome through district or regency cooperatives
with good management, involving investment, marketing, and appropriate technol-
ogy to develop the rattan furniture industry.
Considering this, apparently rattan, considered superior by the members of the
community, still cannot improve the quality of life of the community. This is not
helped by the long growth period requiring 8–9 years from planting to harvesting.
For example, if every hectare of rattan produces only 3 tons, and each family house-
hold owns 3 ha, they will produce 9 tons. The price of 1 kg of rattan in 1996 was
about Rp. 250 in the village, so they would have received 9 tons × Rp. 250.00- = Rp.
2,250,000. This means that every household received Rp. 21,395 per month, which
is still not enough for a proper standard of life on top of the basic necessities in the
village.
Rubber
Muara Gusik farmers, whose entire land for rubber cultivation covers 350 ha, con-
sider rubber as an inheritance from their grandparents since the 1960s. The sizes of
the rubber trees are on average 30–40 cm in diameter and usually produce 10–15 kg,
sapped once every 2 weeks. In the afternoon the women and men carry the sap from
the trees in baskets. Over several days the rubber sap dries and thickens into small
circles (100–150 cm in diameter).
Village-level rubber middlemen go to the farmers and buy their product at Rp.
800/kg. The middlemen, who are usually Kutai, take the product by river in the
rainy season and by land (truck) in the dry season to Bongan (Muara Kedang) and
sell to district sublevel middlemen at Rp. 950/kg. From the district, the rubber is
then carried to the provincial level (Samarinda and Banjarmasin) and sold at Rp.
1,300–1,400/kg. At the higher levels, hundreds of tons of rubber are supplied to
Surabaya and Jakarta for tire factories. At the interprovincial level, traders of
Chinese heritage play a major role.
According to several respondents, village middlemen are usually from Muara
Gusik. They obtain their finances and goods for the shop from subdistrict-level mid-
dlemen. This trading network for rubber, as described above, has been established
for years. This village and subdistrict (Kecamatan) middlemen network has impli-
cations of “patronage” investment, as facilities and goods in the village stores are
offered to the farmers before harvesting and then the traders pay a cheap price for
the farmer’s rubber as “repayment.” A phenomenon such as this, according to
respondents, is to the “detriment” of farmers’ incomes. However, it is extremely
difficult to overcome this social reality because of the powerlessness of the farmers
in controlling their finances, appropriate technology, and marketing.
There are several obstacles to farmers developing rubber plantations. First,
because land is scarce and they are still in conflict with the ITCI Company concern-
ing the status of their traditional land, they cannot expand their rubber fields.
Second, the trees require about 20–25 years before they can start being harvested.
Third, the price of rubber is often unstable, sometimes falling below Rp. 500/kg,
which is the minimum price required in order to maintain a profit. Fourth, because
the rubber fields are considered secondary income, the trees are not cared for in a
professional manner.
Apparently, this product is as yet unable to “improve” the prosperity and quality
of life of Muara Gusik farmers. The money from the sale of rubber is used by the
majority of farmers for primary needs such as food and clothing. According to
respondents, the money from rubber production cannot yet be allocated to savings
for education, health, and building religious facilities.
Aloe Resin (Aquilaria malaccensis) (Kayu Gaharu)
A side-business for farmers more “beneficial” than finding hardwood (Kayu Ulin)
for building roofs is aloe timber resin. Although these two types of timber have
almost disappeared from the surrounding forest of Kutai Regency, the farmers are
still optimistic that they can continue to find them. Aloe timber resin is more benefi-
cial to farmers because the price per 1 kg in 1995–1996 was around Rp. 900,000
compared to 6 years before where the price was only Rp. 175,000–200,000
(in 1989).
According to respondents, aloe timber resin is collected by groups of farmers.
These groups consist of four or five people, as they must enter about 10–15 km into
the forest and walk a radius of about 40–50 km. Therefore, it is not just basic provi-
sions such as rice, sugar, oil, salty fish, coffee, tea, and cigarettes that must be pro-
vided for, but also, the family is left alone in the house for 2 weeks. Financially,
every household must prepare about Rp. 75,000–100,000 (an allocation of Rp.
70,000 for those in the house and Rp. 30,000 for the one going into the forest). As
a group, the money contributed is determined by the leader of the group–around Rp.
The Reformation Period 243
30,000–40,000–and is held by a trustworthy person to buy food and other necessary

goods such as torches and cutting equipment.
The business of finding aloe timber is considered risky, not just from wild ani-
mals in the forest, but devils and spirits that inhabit the forest as well. Even so, still
many community members carry out this business. According to one respondent, it
is because the profit is large if someone is successful in finding this tree. The profit
comes from the technique used for collecting aloe timber resin that is, cutting to the
heart of the tree trunk, as it is the black and aromatic heart of the aloe timber tree
that is the primary product for perfumes and incense (derived from gum benzoin).
Usually only about 1 or 2 tree centers from maybe 10 tree trunks found, can be used.
One aloe timber tree might produce around 55–65 kg from the heart. However,
according to respondents, there are those that reach 75–100 kg, if the tree is large.
This type of aloe timber is in demand among the Chinese ethnic groups living in
Kutai and Samarinda and even in Surabaya. The traders at the village level, such as
Haji (Abdul), are happy to pay Rp. 900,000/kg for aloe timber. After the primary
product is taken to Samarinda, it can be sold for about Rp. 1,100,000–1,200,000/kg.
If successful, the profits for each household are usually about 4–5 million Rupiah
and the head of the group receives 6 million Rupiah. If they obtain 100 kg at a price
of Rp. 900,000 (1995–1996), they will receive Rp. 9,000,000. The majority of the
profits will be used to build a house. From interviews with members of these types
of groups, it was indicated that their houses were the result of this Kayu Gaharu.
Yet, since the ITCI Company has come increasingly closer to the river spring with
its logging (at the foot of Meratus Mountain), aloe timber trees have become harder
and harder to find. In this case, more and more young households still live in their
parents’ home, because it is becoming more difficult to find a “fortune” from aloe
timber in order to build a house.
The Reformation Period
The second field research was carried out from March till May 2002 in Muara Gusik
village. This field research used active participant observation to observe respon-
dents over the 2-month period. Guided interviews were then used for the analysis of
relevant issues. The interviews were held with 25 informants, both villagers and
others, whose main work was as timber traders, rattan farmers, chainsaw timber
cutters, truck drivers, and the like. At the subdistrict level (Muara Kedang), inter-
views were carried out among rattan and timber traders. Meanwhile, at the provin-
cial level, interviews were conducted with large rattan and timber traders, Provincial
Industry Agency officers, Forestry officers, and NGOs actively involved in rattan
trade activities.
This subsection focuses on the discussion of three significant issues: the process
of compensation for the land dispute between the local people and the ITCI
Company; the role of timber workers, their profile, and economic network, from
village and subdistrict level to provincial level; and last, the role of rattan traders
and their profiles from the village and subdistrict level to the provincial level.
Land Dispute Compensation
There are two approaches to discussing the compensation issue. The first approach
is to consider the internal factors, through regulation and forest decree interpreta-
tions. The reformation period is characterized by the fall of the Soeharto regime,
followed by Forest Reform Act number 41/1999. The main element of this forest
reform is explicitly to admit the customary forest rights of local inhabitants.
Therefore, in terms of land disputes, chapter XIII, section 75, verse 2, says: “the
solution to forestry disputes outside of the court is required to reach consensus
regarding the amount of compensation to be paid by respective actors.”5 Apparently,
this new Forestry Reform Act inspired the Governor of East Kalimantan to write a
letter on January 9, 2000, to the ITCI Company requesting compensation to be paid
to the Muara Gusik community. The Forestry Reform Act and letter from the
Governor of East Kalimantan encouraged the ITCI managers to consider providing
compensation for the land dispute since the 1990s.
External factors that prompted the discussion of compensation were a set of
events launched by the Muara Gusik community. In May and June 2001, the local
community blockaded ITCI’s logging equipment, preventing any logs being
extracted from the area considered under dispute. A Daihatsu Hiline Bravo No. 51
KT.1705 BC, belonging to the ITCI Company was confiscated by local people on
June 9, 2001. The Muara Gusik community requested payment for the release of
this car of Rp. 10 million on August 2000. A Community Village Assembly
(Lembaga Masyarakat Desa) meeting on June 15, 2001, requested compensation
of the amount Rp. 1 billion, for the loss of their customary rights forest area
(14,440 ha), annexed by the ITCI Company in the 1990s.
Both these internal and external factors prompted the holding of an ITCI manag-
ers’ meeting, which finally decided on a form of compensation for the Muara Gusik
community and other villages such as Jambuk, Pringtali, in which land disputes had
previously occurred between the company and the local inhabitants.
The monetary compensation was registered on July 10, 2001, in front of notaries,
on behalf of M. Rasyid Umar SH, in Balikpapan. The money transfer to the local
inhabitants was carried out on June 25, 2001 in the Muara Gusik village office,
witnessed by the head of the subdistrict of Bongan, police, and army subdistrict
agencies (Koramil/Polsek), the District Forestry Agency, the head of the village, the
head of the local adat, and other community members. There were two significant
points of agreement: (1) the ITCI Company must provide local people with the
opportunity to log and utilize waste timber from previous company logging in their
5
See Law No. 41/1999 on “Forestry,” Secretary of General Department of Forestry, Jakarta, 1999,
pp. 38.
“customary rights forest,” and local inhabitants would also have the responsibility
to maintain a sustainable forest management system within said area; and (2) should
any further conflicts arise in upcoming years, the ITCI Company and the Muara
Gusik community must give priority to the consensus approach to conflict
resolution.
The final agreement for compensation was that Muara Gusik communities
receive Rp. 650 million, Jambuk, Rp. 450 million, and Pringtali, Rp. 350 million.
In the case of the Muara Gusik community, this money was distributed to many
parties based on consensus among the village head, head of Adat, and other com-
munity leaders. First, “A” category of 11 households each received Rp. 7.4 million.
This “A” category was those original indigenous people still living in the village and
formerly directly related to the customary rights forest. The second, “B” category,
with a total of 115 people, each receiving Rp. 3.5 million, respectively, were the
grandchildren of immigrants to Muara Gusik. The third, “C” category, with a total
of 55 people, received Rp. 2 million each, and were the descendents of migrants
who married Muara Gusik people. Other allocations provided were for the construc-
tion of a mosque (Rp. 10 million) and for a grave garden (Rp. 5 million).
The majority of people spent this compensation money on housing rehabilitation
(21 units), buying new land, small electric generators for house lamps, Ces (motor-
ized boats), chainsaws (6 units), sawmills (2 units), and placed as savings in the
bank. This initial expenditure totaled almost Rp. 200 million. The Muara Muntai,
which is considered to be the nearest large shop, 3 h by Ces from Muara Gusik
village, experienced a large increase in sales at that time. At the same time, the small
village shopkeepers, who previously received only Rp. 30,000 a day, received a
daily income of Rp. 60,000–70,000, and the larger shops received almost Rp.
650,000–750,000 per day.
Socioeconomic Function of Timber and Rattan Traders
Economics is defined as the science that studies how individuals, firms, the govern-
ment, and other organizations make choices, and how those choices determine the
ways in which the resources of society are used. Stiglitz said, “Much of economics
analysis is based on the assumption of rational choice, that people weigh the costs
and benefits of each possibility. This assumption is based on the expectation that
individuals and firms will act in a consistent manner, with a reasonably well-defined
notion of what they like and what their objectives are, and with a reasonable under-
standing of how to attain those objectives.”6 In the case of timber and rattan traders
at the village, subdistrict, and provincial levels, the rationality assumption is taken
to mean that they make choices and decisions on production, marketing, and profit
in pursuit of their own self-interest. Different people will, of course, have different
6
For further information, see Stiglitz, Joseph E, Principles of Micro Economics, New York,
Stanford University Press, 1993, pp. 28–30.
goals and desires, but, regarding their economic interest, profit is necessary in order
to survive in the trading game. Apparently, every actor is aware that he has to coop-
erate in order to build an economic network. Thus the “credit” (loans) that large
traders contribute to subdistrict traders, which is then loaned to village traders and
finally to rattan farmers, is identified as a common way to create economic net-
works, ensuring the attainment of products and therefore, profit.
This subsection discusses timber and rattan traders from the village, subdistrict
levels, to provincial (Samarinda) levels, based on the political and social geography
of the respective actors. In Samarinda city, there are 17 registered large rattan trad-
ers, of whom 14 are still active in business and 3 are nonactive. There is also an
NGO actively involved in guiding rattan farmers in the marketing of their products,
known as P3R (Perkumpulan Petani dan Pengrajin Ratan/Association of Farmers
and Rattan Craftsmen) whose office is located in Samarinda. This organization aims
to improve rattan trading and the socioeconomic condition of rattan farmers and
other actors, considering also the problem of Kedang Pahu watershed, which pro-
duces rattan at almost 2,500–3,000 tons per year.7 There are also 61 registered tim-
ber traders in Samarinda city, most (55) of them active, with 6 inactive. Their capital
and timber products differ in size and quality, dependent on their individual skills at
enlarging their economic networks of subdistrict timber traders.
Function of Timber Traders
As mentioned above, the ITCI Company provides opportunities to Muara Gusik

members to collect timber and waste timber in their customary rights forest. This
agreement encourages timber trade activities in the village, although only two tim-
ber traders are as yet registered.
Profile of Village Timber Traders
First Village Timber Trader
The first person who began timber trading was Majeni. Majeni currently acts as
head of the village. This position is very significant, with power and influence
among local villagers. He was elected as head of the village in 1995. Majeni is origi-
nally from Muara Gusik, was born in 1946, but completed his elementary and sec-
ondary schooling in Samarinda with his uncle. He returned home to his village,
married a village girl, and now has six children. He said that they cannot only col-
lect timber in their customary forest, but also in an area where a forest fire occurred
7
Interview with Ade Cahyat, head of P3R (Perkumpulan Petani dan Pengrajin Ratan), on April 10,
2002, in Samarinda. The P3R is set as the “communication forum” among large rattan traders and
rattan farmers from upstream to downstream, and is aimed at rattan development in East
Kalimantan. The P3R is a branch of SHK (Sistem Hutan Kerakyatan/Social Forestry System).
(almost 51,000 ha burnt in 1997/1998). These two chances encouraged Majeni to

become a timber trader, besides also being the head of the village. In order to
become a timber trader, he needed to use his own capital of almost Rp. 20 million,
plus a Colt Diesel 150 PS/2001, sawmill equipment and workers, chainsaw workers,
and a truck driver. He also owns land of almost 1,500 m2 for a sawmill operation and
a small building where he and other workers can stay. The total number of workers
in his timber company is about 12 permanent workers and 7 nonpermanent workers.
How Does His Production and Marketing Work?

He says that there are two ways of obtaining various local timbers, such as Meranti
(Shorea bracteolata), Arraw (Maranta orundinacea), Kapur (Dryobalanops cam-
phora), Bengkire (Trema orientale), Ulin (Eusideroxylon zwageri), Kayu Putih
(white timber), and Ipil (Intsia amboinensis). One, he brings almost 4–5 m3 of tim-
ber per day by his truck from his logging areas. Two, he buys timber sold by other
independent chainsaw workers. For example, Kapur and Bengkire timber is worth
Rp. 300,000 from the forest area. He pays workers (tukang pikul) Rp. 75,000–
100,000 per cubic meter to carry the logs from the forest to an area where they can
be loaded onto his truck, depending on how far they must be carried. However, in
the village, the price becomes Rp. 400,000–450,000 per cubic meter. These timbers
are finally processed in his sawmill to produce beams and timber chips, flooring
boards, and the like. For example, the size of a local board (Kayu Ulin/hard timber)
is 250 × 12, and Balok (a beam of hard timber) 400 × 10. Hard timber is mainly used
in housing construction among rich men and for government offices and big ports to
prevent erosion from seawater, whereas Ipil timber is used for furniture and usually
sent to South Sulawesi and used by the Bugis for their houses. Bengkire timber is
used for window and door frames.
The total production of his sawmills averages 100 m3/month. In summer, this
increases to 200 m3/day, because while the road is dry, the truck can bring more
timber from the hinterland to his sawmill site, and the chainsaw workers can work
longer hours. The majority of his sawmill production, such as flooring, beams,
boards, and timber chips is sold in Muara Gusik village. Other buyers are from
Muara Kedang (the capital of Bongan), Muara Muntai, Loa Janan, and even from
Samarinda city. The price of hard timber for balok (beams) per cubic meter reaches
Rp. 450,000, and for hard timber boards (papan), Rp. 650,000 per cubic meter.
Meranti, Kapur, Arraw, and Bengkire sell at about Rp. 400,000–Rp. 450,000 per
cubic meter. Majeni is not interested in taking his timber products to Samarinda
because the cost of six police and army inspection posts from Muara Gusik to
Samarinda is about Rp. 500,000–Rp. 600,000 per truck, one way. Then, the profit
margin is very small for small trucks.
Subdistrict timber traders, such as in Bongan/Muara Kedang and Muara Muntai,
can sell Meranti, Kapur, Arraw, and Bengkire at Rp. 550,000–Rp. 600,000 per cubic
meter, hard timber boards for Rp. 950,000 per cubic meter, and beams for Rp.
850,000 per cubic meter, whereas Bengkire, Meranti, and Kapur beams reach Rp.
800,000 and boards, Rp. 900,000 per cubic meter.
Profit and Implications

Majeni is responsible for the wages of three sawmill workers (almost Rp. 2 million)
Rp. 200,000 for accommodation necessities, for example, rice, oil, coffee, sugar,
and so on per month, and the head of the sawmill workers is paid Rp. 600,000 per
month. The driver and kernek (driver assistant) receive Rp. 550,000 and Rp. 250,000
respectively. The chainsaw workers are paid according to how much timber they log
per week, often receiving from Rp. 1 to 1.2 million per month, because they stay
overnight in the forest usually for 21 days per month. Sometimes, there are also
independent chainsaw workers who sell their products to timber traders based on
the market price. Majeni says that after all of these payments, he receives Rp. 4–5
million rupiah per month from his timber trading. However, it is more important to
him that he can create job opportunities for local people and improve their incomes.
The implications for the village since village timber trade operations have been
in running is that the number of small shops has increased rapidly from 5–6 shops
in 1996 to 11–12 shops in 2002 as the purchasing power among local people has
increased. Muara Gusik village members’ expenditure per month per capita is now
Rp. 80,000, when it was previously (1996) only Rp. 45,000. They spend Rp. 45,000
(69 %) on food and Rp. 35,000 (31 %) on nonfood items. The number of television
owners has risen from 6 households in 1996 to 26 in 2002. The number of gen sets
(electric machine generator) for lighting houses has also risen from 7 to 31. Majeni
can also pay his monthly credit for his truck to the dealer shop in Samarinda of
almost Rp. 2,500,000 per month. The remainder of the money, he puts in a savings
account at Bank BRI in Muara Muntai for other necessities for their family
(Fig. 11.1). He will need to hold a wedding ceremony for his daughter, as she has
graduated from secondary school (SMP) and will marry this year.
Profile of a Contract Chainsaw Worker
Iyal is a chainsaw worker. He was born in Muara Kaman, about 3 h by Ces from
Muara Gusik village. He learnt the trade from his brother, Iyan, who has great expe-
rience in this type of work. He initially came to Majeni as a timber trader in 2000.
He was paid by Majeni almost Rp. 2 million, which he spent on a new chainsaw in
Sebulu district worth Rp. 2.5 million. He says that his first chainsaw cost Rp. 6 mil-
lion in Samarinda.
He carries out logging in the forest, usually with a group of 6–7 persons: 3 peo-
ple from Muara Gusik and 4 from Muara Kaman. Before entering the forest and
spending 21 days there, he prepares equipment, such as a kompor (stove), 2 boxes
of noodles, tea, coffee, sugar, rice, salt, fish, oil, pepper, lights, and so on. They cut
many different species of timber, but the most valuable is Kayu Ulin (hardwood).
There is a special group who make Sirap from Kayu Ulin, while the other members
Fig. 11.1 Wood and monetary flow of timber traders at village level
Note: Cost, production, and timber trading activities per 2 months
Profit = production − cost
(Wood) (Money)
Actor 1 is Majeni
Production = 200 m3 × Rp. 450,000/m3 = Rp. 90,000,000,
His profit is Rp. 90 million – Rp. 80 million = Rp. 10 million (per 2 months)
Actor 2 is Dantau
The mechanism of operation as timber trader one
His production reaches 150 m3 and his profit is Rp. 8 million
make balok (beams) and papan (boards). Every day they cut almost 2 m3, per week,
12 m3 and finally, within 3 weeks (21 days), they produce about 36 m3. The village
timber trader buys at about Rp. 300,000 per cubic meter, so they will receive a total
of Rp. 10,800,000. This amount, divided for 6 members, with extra for the head of
the group, means that each chainsaw worker receives Rp. 1.5 million, and the head
of the group usually receives Rp. 1.8 million. The remainder of the money, Rp.
200,000, is used for necessities while they stay in the forest.
In the case of Iyan, half of his income is spent on paying his chainsaw equipment
credit and other daily necessities for his family, and the rest he saves in the bank.
As a chainsaw worker, there are many dangers to be faced. There is the possibility
of contracting malaria during the dry season, and in the rainy season, the land is
muddy and the trees are wet, creating very dangerous conditions for logging.
Second Village Timber Trader
Dantau (DT) is the other timber trader in Muara Gusik. He was born in 1966 in
Muara Gusik and has been a teacher at the elementary school (SD) since the 1990s.
He also acts as the village secretary and has worked together with Majeni (MJ) since
1995. His father was formerly the head of the village and head of Adat for the
Muara Gusik community. He formerly studied in SPG (Teachers Training School)
in Tenggarong, the capital of Kutai Regency, graduating in 1987 and in 1990, formally
registered at the Education Agency in Kutai to be a teacher. He married Hayati in
1990, has two sons, and the family lives in Muara Gusik. As a village-level timber
trader, he owns capital of around Rp. 15–20 million in cash, plus a Colt Diesel
150PS/1996 truck, 1,000 m2 of land, and a small building for his 10–12 workers. He
also bought a second-hand sawmill set in Samarinda in 2000 for Rp. 3.7 million.
Production and Marketing Process
He has a logging site 71 km inside the ITCI logging area, whereas the head of the vil-
lage (MJ) has a site 42 km in. He obtains Blambangan timber8 from the forest, which
requires special size cuts for beams and boards. Boards require 20 × 20 × 400, whereas
beams need a 6 × 15 × 400 cut. He also receives various timbers such as Kayu Ulin,
Kapur, Meranti, and Bengkire from many independent chainsaw workers. He pro-
duces about 20 m3 of Kapur and Meranti and 20–30 m3 of Kayu Ulin monthly. He also
produces 20 m3 of 11 × 2.4 × 200 flooring per month. Flooring is divided into two
kinds: rap flooring, which is sold for Rp. 1.2 million per cubic meter and grate floor-
ing, which is sold at Rp. 1.4 million per cubic meter. Because Dantau’s products are
special, he takes orders from about three timber traders in Samarinda. Therefore, in
terms of marketing, he has long-term contracts to supply these traders.
Profit
After total operation costs are calculated and salaries paid for 12 workers, Dantau
receives Rp. 3.5–4 million every month. He spends half of his earnings on improve-
ments to his house and daily necessities for his family, such as food, education, and
health. The other half is placed in a savings account at BRI in Muara Muntai. As a
teacher, he has ambitions that his two sons will be able to continue their education
at universities in Samarinda and Java. Therefore, he plans to save for their future
educational fees.
Profile of Subdistrict Timber Traders
There are three timber traders in Bongan subdistrict (Muara Kedang). According to
interview responses, there are three constraints they face to developing their busi-
ness. First, they have no direct access to forest areas, compared to local timber
8
The term “Blambangan timber” is local terminology among village timber traders. It means that
timber derived from forestland is unfinished yet. This timber must be processed again in the saw-
mill, based on their needs. For example, it is used for making beam and board (Interview with
Dantau, on March 29, 2002).
traders, such as in Muara Gusik and Jambuk. Therefore, they find it rather difficult
to obtain large stocks of timber products. Second, they lack capital for transporta-
tion equipment and land for stockpiling timber. Third, obtaining a Sako (legal
permission for logging) from the Regency Forestry Service is too bureaucratic a
procedure and requires a long time to process.
First Subdistrict Timber Traders
Kaslinur (Ks) and Evah (Ev) are relatively new timber traders. They married in
1992 and now have two children. The eldest son is in third-year elementary school,
and the second son is 4 years old. Kaslinur graduated from high school (SMA) in
Muara Muntai, and his wife, Evah, graduated from Economic Senior High School
(SMEA) in Samarinda.
Ks and Ev began as timber traders in the mid-1990s. They specialized in logging
and beam and board production. Evah learned the business from her father, H. Atai,
who was a leading timber trader and thus has many contacts in the business. In
Bongan, her family is rich, has large shops, two motorized boats, and many children.
Therefore, Ks and his wife initially prepared capital of around Rp. 40–50 million, a
Ces, log stockpiling area, and workers to bring logs from the hinterland to Jantur.
She (Eva) says to be a timber trader at the subdistrict level requires much capital
and connections with many heads of villages and timber traders at the village level,
for raw materials (Fig. 11.2). Therefore if the heads of villages need cash for their
family’s wedding ceremony, Haji (pilgrimage), or educational fees, they provide it.
Usually she provides between Rp. 5–7 million cash for each beforehand. The log-
ging concession admittedly might be in their traditional forests, as the price for
logging in these areas is fairly cheap: around Rp. 165,000–170,000 per cubic meter.
Obtaining logs in remote areas, such as Tanjung Soke (3–4 h from Bongan by a
Ces), is usually carried out in the rainy season (October–February), while the river
water is rather high. To bring logs from this hinterland to the final station in Juntur
(near Muara Muntai), usually requires a large ship to pull one rakit (a group of logs)
of 25–30 logs and 8 workers to accompany it. For example, from Tanjung Soke to
Juntur an estimated 6–7 h by ship at a speed of 10 km/h is required, costing Rp.
200,000 per rakit and a Ces operation cost of Rp. 100,000. Each worker is paid Rp.
35,000 (8 × Rp. 35,000 = Rp. 280,000), costing in total almost Rp. 580,000–600,000
per transport.
Profit
Their total profit per month is about Rp. 7–10 million during the rainy season and
about Rp. 4–5 million during the dry season. They spend half of this profit on
strengthening their capital for buying various timbers from village traders, such as
Muara Gusik, Jambuk, and Resak village traders, 20 % on their family’s basic
necessities of food, education, and health and the remaining 25 % is placed as
savings in the BCA bank in Samarinda.
Workers/Cu Transportation
Log care Bank
stomary cost
forests
Cost/Rp120 School
million
Profit
/Rp10
240 units log ACTOR 1 million
Producti Eva Clinic
on/Rp.1
30 million
Provincial Social
Timber &
Plywood factory
Fig. 11.2 Wood and monetary flow of timber traders at subdistrict level
Note: (Wood) (Money)
Profit = production − cost
Timber traders at the subdistrict level actively operate for 6 months in the rainy season. Because of
the flood it is easy to transport timber from hinterland to the Mahakam River
Actor 2 is Zarkasyi. The mechanism operation is the same
He receives profit Rp. 4–5 million per month
Second Subdistrict Timber Trader
Zarkasyi (Zk) was born in Bongan in 1958, married a Jembayan lady in 1987 and
has three children. His timber trade business is considered small compared to the
above traders, as he has capital of Rp. 15–20 million, one Ces, and a small boat with
20 PK. He began this business in 2001, as he was previously a Ces driver, carrying
passengers from Muara Muntai to Bongan and Muara Gusik.
He says, in terms of timber trading, he takes many raw materials, such as boards
and beams of Kayu Ulin, Bengkire, Meranti, and Kapur, from village timber traders
in Muara Gusik, Jambuk, and Resak. He has good relations with village traders
and so might take the timber first and pay after 2 weeks. During the dry season,
while timber production is high, he trades in 25–30 m3/month and during the rainy
season, 10–15 m3. He takes these timbers from village areas by truck and Ces along
the river.
He receives a marginal profit from his timber business. He sells hardwood beams
in Bongan for Rp. 500,000–550,000 and boards for Rp. 700,000 per cubic meter.
Among his buyers are Bugis from Muara Muntai and Kutai. He also takes raw mate-
rial from Penawai village, about 18 km from Bongan, which he managed to start by
providing Rp. 5–8 million in porsekot (cash in hand) to the head of the village for a
logging concession. The head of the village has a personal customary forest of
almost 20 ha. Since the end of 2001, he has transported logs twice a month by Ces,
with each rakit containing 30 logs and accompanied by 6 workers, from Penawai to
Jantur. He pays a total of Rp. 450,000 for each transport from Penawai to Jantur. He
says that he obtains a higher profit from logging than timber trading, receiving about
Rp. 2–2.5 million per month, whereas his timber business only produces Rp. 1–1.5
million per month.
He spends half of this profit on his family’s necessities, such as basic needs,
educational fees, and health. Thirty-five percent he provides for strengthening his
capital and 15 % is put in a savings account in BRI Bank in Muara Muntai.
He notes that in order to develop subdistrict level trading and logging businesses
and create employment for local inhabitants, the local government (West Kutai
Regency) must support the provision of low-interest loans from government banks,
such as BRI and BNI, and the Industry and Trade Agency in West Kutai needs to
pay more attention to promoting and supervising timber traders in carrying out
their business.
Provincial-Level Large Timber Traders
First Timber Trader
Iswadi (Isw) is the youngest of the provincial timber traders. He was born in 1973 in
Samarinda, went to elementary and secondary school in Samarinda, and then con-
tinued his studies at a senior high school (SMA) in Solo, Central Java. He went on
to university to study at the faculty of Foreign Languages (Akademi Bahasa Asing)
in 1996 in Jogyakarta and graduated in 1999. His father, Haji Usri, has five children:
two sons and three daughters. H. Usri is Banjarese and was born in Kota Bangun,
Kutai Regency in 1951. Previously he was a leading timber and rattan trader with a
company called UD Rotan Mas. He now has 12 permanent workers and 10 nonper-
manent workers. The head office of Rotan Mas Company is located in Loa Bakung,
Samarinda. This company has a special port and large docking yard for medium-
sized ships that bring rattan and timber from the Mahakam hinterland.
Now his company has been taken over by his two sons (Fitri and Iswadi). Fitri is
married with two children, and Isw is still a bachelor. Their major trading is in tim-
ber, rattan, and salty fish. The company’s capital stands at around Rp. 1–1.5 billion,
consisting of a large storehouse (gudang), port facilities, sawmill machine, two
trucks, two operation cars, and cash of Rp. 350 million. To back up the company’s
finances, they have a good relationship with private banks such as BCA (Bank
Central Asia) and Danamon as well as the state banks BNI and Provincial
Development Bank (Bank Pembangunan Daerah/BPD).
The Production Strategy

Iswadi mentioned two methods for obtaining timber: creating good relations with
subdistrict timber traders and heads of villages and receiving timber from indepen-
dent timber traders who sell their products through his port. These individual timber
traders previously had good relations with his father. He provided “soft credit” of
around Rp. 10–20 million per individual for subdistrict timber traders in the Sebulu
and Kutai districts. His main trader he provided with a Colt Diesel/PS/1999 for
transportation of timber from Sebulu to Samarinda and also chainsaw equipment. In
Sebulu, the Sumalindo Company (a large logging concession holder) has 7,000 ha
of logging area and the village timber traders might collect timber in waste
forestlands.
He receives various timbers such as Meranti, Kapur, Bengkire, Kayu Ulin, and
Arraw from his clients. Some of these timbers are unfinished, and some are boards
and beams. The price of hardwood (Kayu Uliin) in the village is about Rp. 600,000–
650,000 per cubic meter, while Bengkirai, Meranti, and Kapur sell at about Rp.
500,000–550,000 per cubic meter. The company produces about 200–300 m3 of
finished timber per month. The main constraints to his business operation, he says,
are: there are many “illegal contribution fees” taken by police and military along the
road (from Sebulu to Samarinda, and the truck must pass seven police inspection
posts and has to pay more than Rp. 35,000 per day); during the rainy season, his
truck is difficult to operate, as the road is muddy in the village and there is lack of
support from the state bank for low-interest loans.
Profit and Use

Iswadi has many clients in Samarinda: plywood factories, housing construction
companies, and government officers building provincial infrastructure such as
schools, health centers, and offices (Fig. 11.3). After paying his workers and
Workers/ on Lend
Customary money/log Bank
Transportaion forest
cost
Cost/Rp.500 School
million
Produc
tion/rp. Profit
Sawmill 570 ACTOR 1 Rp.70 Hospital
process million Iswadi million
Social
Plywood
factories
Fig. 11.3 Wood and monetary flow at provincial level per month
Note: Profit = Production − Cost
: (Wood) : (Money)
In the dry season timber traders at the provincial level could receive more than 500 m3 of timber
operation costs, he receives Rp. 20–30 million per month. He spends almost 25 %
on strengthening his capital, 20 % on repayment of loans, 25 % as savings in the
bank, 20 % for family necessities and 10 % on social expenditures such as building
mosques, educational institutions, and orphanages.
Second Timber Trader
Haji Landang is one of the most successful Bugis timber traders. Currently he owns
two timber trading housing companies, with capital of more than Rp. 1.5–2 billion.
He was born in Soppeng, South Sulawesi in 1952 and came to Samarinda in 1975.
He started his business of small timber trading in 1979, met his wife, Sumarni, from
Madiun, East Java, and married in 1980 and currently has five children. The eldest
is now in her third year of study at the Faculty of Forestry, Mulawarman University.
As a Muslim, he says, he is obliged to conduct the pilgrimage to Mecca with his
wife in 1992.
He presently has capital of more than Rp. 550 million, three Colt Diesel trucks
for operations, sawmill machines, 12 permanent and 5 nonpermanent workers, two
storehouses, and an office. He admits that he has a good relationship with the state
bank, and so managed to obtain a bank loan in 1995 from Bank Exim of about Rp.
150 million and in 2002 he obtained a loan from Bank Mandiri of Rp. 300 million
to build a storehouse insured for Rp. 800 million, because his previous company
storehouse burnt down once and he suffered a loss worth more than Rp. 250
million.
Production Strategy
Haji Landang says that to obtain timber for two storehouses, it is necessary to imple-
ment a good strategy. Therefore, he maintains good relations with village and sub-
district timber traders, providing those in the area with customary rights forests with
“soft credit” of around Rp. 6–8 million per individual and also lends trucks for
transportation to the head of each group. His business network has spread out
from Kutai to the East and West Kutai Regencies. His total production reaches
300–350 m3/month and sells to consumers at a rate of 10–12 m3/day during the
busiest periods.
His customers are government projects for offices and infrastructure, private
companies such as large sawmills, housing constructors, and provincial and district
officers, as well as ordinary people in Samarinda. However, his most important
clients are timber traders from East Java (Surabaya and Gresik), who buy 30–45 m3
and ship them to Surabaya.9
9
The prices of various timbers between Samarinda and Surabaya vary a great deal. Therefore,
many timber traders from East Java wish to buy directly in Samarinda. For example, a beam of
Profit
The total profit for his two storehouses, after calculating all costs, is Rp. 55–60
million per month. He spends almost 35 % on repaying his loan with Mandiri Bank,
30 % on strengthening his capital base, 25 % for family needs, and 10 % for social
needs such as building mosques, educational institutions, and orphanages.
The following is a representation of the timber trader networks from the village
to the provincial level to plywood factories (Fig. 11.4).
TimberTraders Java:Cirebon, Export

Bank Provincial Level Surabaya,etc. Overseas
(Samarinda)
Timber traders
BRI Sub-district
Sub-district
Bank (others)
(Bongan)
Timber traders Village

Village (Muara (Others)
Gusik)
Farmers Farmers
Fig. 11.4 Timber traders and their networks from village to provincial level
Note: (Timber) (Money)

Source: This figure is based on field research observation in the village level, subdistrict, and pro-
vincial level in March and April 2002
hardwood in Samarinda costs Rp. 850,000 and in Surabaya reaches Rp. 1.7 million/per cubic meter
(Interview on April 5, 2002).
Function of Rattan Traders
Village Level
The First Rattan Trader
Aspon is categorized as one of the richest men in Muara Gusik. He has owned a
large shop since the 1970s, selling everything from petroleum to gasoline, oil, basic
necessities, and cosmetics, with a daily income of Rp. 650,000–700,000. He has
also acted as a village rattan trader since the 1970s. He was born in 1950 in Muara
Gusik, married in 1963, has only one daughter and is now a grandfather.
He personally goes with his Colt Diesel PS 150/1999 to “Pasar Pagi” market in
Samarinda to buy the various basic necessities, has good relations among traders in
the city, spends almost Rp. 10–12 million per shopping expedition, and works with
his staff in his shop during the daytime. Therefore, he can accurately calculate the
transactions occurring and profit from each day. Also having only one child, who is
now married, he has no major family fees to pay.
In terms of his rattan trading, Aspon allows many customers to pay for goods
after 2 weeks or a month. Therefore, many chainsaw workers and rattan farmers
from Muara Gusik, Jambuk, and Pring Talik are consistent customers at his shop.
He says that during the Soeharto regime, while the ITCI Company was strong and
local people were strictly forbidden to enter their forest, his income decreased.
Before, in 1996–1997, his shop income was around Rp. 300,000 per day, whereas
now, in 2001–2002, it has increased to Rp. 700,000 per day.
Rattan Trader
As mentioned above, Aspon’s shop allows rattan farmers to pay for their basic
necessities afterwards. Specifically rattan traders can pay for these goods in their
rattan after the harvest. During the 1970s and 1980s, he usually received 7–10 tons
of rattan from village rattan farmers each month, yet during harvest season, he gets
almost 12–15 tons a month. The leading types of rattan in Muara Gusik and Jambuk
are Sega (Calamus caesius), Jahab (Calamus tracbycolus), and Manao (Calamus
manan). Before 1985, the price of rattan was Rp. 1,700–1,850 for one dry kilogram,
because of the high demand for the export of rattan to overseas markets, such as
Singapore, Hong Kong, Taiwan, and Japan. However, after the Indonesian govern-
ment launched a ban on rattan exports in 1985, the price of rattan fell. During the
1990s he was no longer interested in being a rattan trader, because the margin of
profit was too small. He says that in 1996 the price of rattan in the village was only
Rp. 200–300/kg. Also, in 1997/1998 a forest fire destroyed 80 % of the rattan farms,
so now, the new rattan farms are only 3 years old and harvesting will be in 2008.
He would also buy sirap10 (made from Kayu Ulin) from local people. During the
1970s, the price of one pack of sirap was Rp. 450–500. He would trade around
150–200 packs of sirap per month for both Muara Gusik and Jambuk villages. He
would transport the rattan and sirap, he says, by his boat to large rattan traders in
Samarinda every month, where he could sell 1 kg of rattan for Rp. 2,300 and Sirap
at Rp. 700–750 per pack. He did not send to subdistrict rattan traders, because the
margin of profit was too small.
Profit and Use

The net profit, after cost of transportation and operational cost are calculated, in
terms of rattan, selling 15 tons per month in the 1970s, reached Rp. 650,000, and in
the 1980s was Rp. 550,000 per month. This profit at that time was considered high,
because he says his new boat cost Rp. 4 million. Sirap profits per month reached Rp.
450,000–550,000, for an average sale of 200 packs per month. He would spend 60
% of the profits on buying almost 2 ha of land for growing rubber trees in Muara
Gusik. This land currently has 450–500 trees, and will be ready for harvest in 2004.
Thirty percent of his profits were spent on strengthening his shop capital and 10 %
as a social donation (Fig. 11.5).
The Second Rattan Trader
Albet was formally the head of the general affairs section in Muara Gusik village.
He was born in the village in 1951, married a Jambuk lady in 1977, and has three
children. As a farmer, he usually goes to his land to cultivate rice, rattan, and fruits.
He owns 4 ha of rattan, and in 1995 and 1996 he acted as a village rattan trader with
capital of about 3 million and a loan of Rp. 5 million from a subdistrict rattan trader
in Bongan. Although he has no shop in the village, other farmers trusted him to buy
their rattan. He says that in 1996 and 1997 the production of rattan in Muara Gusik
and Jambuk was high, therefore in the dry season he could collect almost 15–20
tons of rattan per month. During the rainy season, he collected about 10–12 tons per
month. Unfortunately, in 1997/1998, the rattan farms suffered from a forest fire,
destroying the majority of rattan in Muara Gusik and Jambuk. Recently planted rat-
tan gardens are only 3 years old, so the first harvest will not be until 2007 or 2008.
He provided persekot (cash in hand loans) of about Rp. 300,000–400,000 per
individual rattan farmer, and during the harvest they would sell their product to him.
Near his house, he has a wide yard and weighing equipment (alat timbangan) with
which to calculate the weight of the rattan. In 1996/1997, the price of rattan was Rp.
250 in the village. He would transport the rattan twice a month, 2 h by Ces, to the
10
Terminology: Sirap means “roof” for housing, originally made from Kayu Ulin (hardwood)
material. This material (sirap) usually used villagers and district inhabitants among East Kalimantan
people.
Workers/ Transportation Money lend/ Bank
Customary forest Cost farmers
(Rattan)
Daily
Necessities
The Reformation Period
Cost/Rp.12
million
School
Production
20 tons/ Rp ACTOR1 Profit
Reprocess:
10.56 Aspon Rp.1.4
basic quality
milion million
Health
Care
Sub-district
District trader Buying
land
Fig. 11.5 Rattan and monetary flow at village level

Note: (Money) (Rattan)
Farmers carry on harvesting rattan they cultivated for around 7 years
Rattan traders at the village level buy rattan production from farmers twice per year
The second actor is Albert
He produces 12 tons of rattan per month
His profit is around Rp. 1–1.5 million per month
259
subdistrict rattan trader (Sy), with each load of 5–7 tons. In Bongan, the price of
rattan was Rp. 300/kg.
Profit and Use

He would receive Rp. 1–1.5 million after operation costs were deducted, and during
the harvest season his profit would reach Rp. 6–7 million. He spends almost 40 %
on family necessities, 30 % was placed in a savings account in BRI Bank in Muara
Muntai, and 30 % for repaying the loan from the subdistrict trader.
Subdistrict Level
Suryansyah, since the 1970s, has been a timber trader. However, since the 1980s, he
has also acted as a rattan trader. He owns a shop providing basic necessities for the
community and in 2000 was appointed the head of Muara Kedang village. Muara
Kedang village is in a very strategic position, located in the Bongan subdistrict on
the river. Suryansyah was born in 1950 in Muara Muntai, 2 h by Ces from Bongan.
His parents had nine children and came from Banjar, migrating to Muara Muntai in
1949. He finished secondary school in Muara Muntai in 1968, married a Kutai lady
in 1974, now lives in Muara Kedang, and has ten children and three grandchildren.
Production and Marketing
During the rattan harvest, he usually obtains rattan from village rattan traders in
Muara Gusik, Jambuk, Pering Talik, Tanjung Soke, and Penawai. He once attained
a stock of 100–120 tons of rattan in 1990/1991. However, the quality of rattan is
usually low, because most of the rattan is still wet and must go through a drying
process. He provides persekot (cash in hand) of around Rp. 4–5 million to village
rattan traders in order to obtain rattan continuously. His original capital in the 1980s
was around 30–40 million in cash, two Ces, 8 permanent and 4 nonpermanent work-
ers. This rapidly grew to Rp. 70–100 million in 1991–1995. Regarding financial
support from Bank BRI in Muara Muntai, he was once offered Rp. 5–6 million in
2001, but refused, as this was too small an amount to cover his rattan operation. Yet
a large rattan trader provided him with a loan in 1995–1996 of Rp. 20–25 million.
He supplies 70–80 tons of rattan per transport during the harvest to large traders
(Sas, Sal) in Loa Bakung, Samarinda.
Profit and Use
The price of rattan in 1983–1984 in Bongan reached Rp. 1,900–2,000/kg, which he

sold in Samarinda for Rp. 2,250–2,300. At that time, he would receive Rp. 6–7 million
in profit per month during the 4–6 month rattan season. However, after the fall in price
from 1996 to 2002, where in Bongan the price of rattan fell to Rp. 300–350 and he
Workers/Custo- Transportation Money lending/

mary forests ( Cost farmers
Rattan) Bank
Credit
Cost/ Rp .
100 million
Daily
necessities
Production/
Reprocess 120 tons/ Actor 1
Middle Rp.110 Suryansyah School
Profit/Rp
quality million
10 million
Health
Care
Provincial
Rattan traders
Social
Fig. 11.6 Rattan and monetary flow at subdistrict level

Production of rattan trading is usually practiced for 6 months by a subdistrict trader
could only sell his rattan in Samarinda for around Rp. 400–450/kg, this profit margin
also fell. Since the 1997/1998 forest fire in Muara Gusik and Jambuk, rattan has
become more difficult to trade in. However, in March 2002, he once collected 15–20
tons of rattan from village rattan traders and made a fair profit, as the price of rattan
had increased to Rp. 800–900/kg. He made a gross profit from his transaction in
March 2002 of almost Rp. 8–9 million, but had to use this profit for his Colt Diesel
truck and to pay his workers their fee of Rp. 1 million. He spent 30 % of his net profit
on repaying his loans with the bank and large traders, 20 % on strengthening his
shop capital, 30 % placed in a savings account in Bank BRI, Muara Muntai, 15 % on
family necessities, educational fees, and health and 5 % on social donations (Fig. 11.6).
Production of rattan trading was usually practiced for 6 months for a subdistrict
trader.
Provincial Level
The First Rattan Trader
Haji Salmansyah was born near Melintang Lake, in Kota Bangun in 1938. His par-
ents originally came from Banjar, migrating to East Kalimantan in the 1930s. He
has seven brothers and two sisters. He attended elementary school in Kota Bangun
and came to Samarinda in 1970. In fact, H. Salman is the eldest brother of H. Usri
and H. Usra, famous rattan traders in Loa Bakung, Samarinda. He has married twice.
First, with a lady from Kota Bangun in 1962, who gave him four children; then he
married a Samarinda girl, who also gave him four children. The eldest son attends
University of Merdeka, in Malang, East Java, studying in the Faculty of Sociology
and Politics. He conducted the Haji (pilgrimage to Mecca) twice with his wife in
1990 and 1993.
Business and Rattan Production

He began the rattan trade in the 1980s and is quite familiar with both the rattan and
salty fish trade. His company assets amount to around Rp. 2.5–3 billion, with cash
in 1999–2001 of Rp. 400–500 million. His assets consist of one large storehouse,
two trucks, a car, and three office workers, and 11 permanent and 8 nonpermanent
workers. As a provincial-level rattan trader, he has good relations with financial
institutions, such as the state banks (BRI and BPD-Kal-Tim). For example, in 1998
he obtained a loan from BRI of around Rp. 150 million.
He obtains his rattan through subdistrict rattan traders in the Muara Pahau dis-
trict, Muara Calung, Damai and Blayan. These subdistricts are the largest rattan
producers in East Kalimantan. He provides loans of around Rp. 10 million per indi-
vidual, and there are five traders who receive Rp. 30–40 million. Therefore, he says
that during harvest time, especially in the dry season, he receives from his local
traders 150–200 tons per month, buying rattan from farmers and local rattan traders
at the market price.
The local traders usually use river transport along the Mahakam River, which
takes about two days from Muara Pahu, paying the unofficial police fees. He says
that with the reformation era (1998 until now) the attitude of the police is similar to
that during the Soeharto regime, maybe worse. He then reprocesses the rattan after
receiving it, until the Sega rattan looks yellow and the Pulut Merah looks red.
Among his customers is the Mirnawati Rattan Company, owned by Haji. Salman,
which is well known by large buyers in Java, Surabaya, Cirebon, and Bekasi.
There are many constraints in the rattan business, he says: (1) excessive taxation
and bureaucratic procedures; (2) a lack of credit from state banks for rattan traders;
(3) the contribution fees taken by the police and the military for transportation; and
(4) there is no forum of communication for discussing rattan trade issues among
provincial government bureaucrats, rattan traders, bank officers, academics, NGOs,
and rattan farmers.
Marketing and Profit

From 1990 to 1993, he sent almost 150–160 tons of rattan per month to Tawau,
Sabah (East Malaysia), because the market price was competitive. In fact, this was
illegal, because the Indonesian government banned rattan exports in 1985. He
received a profit of around Rp. 50–75 million per month during this time.
The most important market for his rattan is Java, which absorbs thousands of
tons, especially Cirebon, as it absorbs about 60 % of total rattan production in
East Kalimantan. He sends various types of rattan, such as Sega (calamus caesius),
Pulut Merah (daemononorops crinita), Pulut Putih (calamus Sp), Jahab (calamus
trachycolus), and Jelayan (calamus ornatus). For example in 1996–2001, he sent to
Cirebon (West Java) 50–60 tons per month (65 %) and 25–30 tons (35 %) of his
production to Bekasi.
The difference in prices makes the profit. For example, Sega rattan, after process-
ing costs Rp. 2,700/kg, Pulut Merah, Rp. 19,000, Pulut Putih, Rp. 8,000–8,500,
Jahab, Rp. 4,800, and Jelayan Rp. 5,500 in Samarinda. Yet in Cirebon, Sega sells at
Rp. 4,000–4,500, Pulut Merah, Rp. 27,000, Pulut Putih, Rp. 18,000, and Jelayan
Rp. 8,000/kg.
He has contacts with Haji Abidin (Abd), a famous rattan distributor with assets
of more than Rp. 3.5 billion. Haji Abd’s rattan company is one of the largest, with
two storehouses in Tegal Wangi, Cirebon. These storehouses have a rattan stock
capacity of 600–700 tons, distributing the rattan based on orders by many rattan
factories in Cirebon and Bandung. Haji Abd always informs Haji Salm of upcoming
orders by telephone, and pays by transfers to his bank account after 2 weeks or a
month. The whole rattan business is running well, but sometimes the transfers are
late, making it difficult for him to improve upon his business.
The total profit, after deducting operational costs, is about Rp. 150–175 million,
but sometimes reaches Rp. 200–250 million during a good harvest and when the
price is high. He spends 35 % of his profit on repaying his bank loan, 30 % on fam-
ily necessities, educational fees, and health, 30 % on empowering his capital and 5
% for social donations (Fig. 11.7).
The Second Rattan Trader
Haji Sasi Saemi is categorized as a young rattan trader. He was born in 1954 in Kota
Bangun, Kutai Regency and attended elementary and secondary school in Kota
Bangun. His father is Haji Ayan, brother of Haji Salmansyah. He came to Samarinda
in 1980 and joined with Haji Usra and Haji Usri for almost 5 years (1980–1985) in
timber and rattan trading. Then, from 1985, he started his own individual business,
building a storehouse on the Mahakam riverside in 1987. His business is considered
one of the three largest, after Haji Usra and Haji Zan. Currently, his capital as rattan,
timber, salty fish, and rubber trader is Rp. 3–3.5 billion. His storehouse (gudang) is
estimated to be worth Rp. 700–800 million, he has three Colt-Diesel 150/1999
trucks, two personal cars, a sawmill machine, and has Rp. 700 million in the bank.
Currently he runs his “Ikan Mas” company with two secretaries and 10 permanent
and 5 nonpermanent workers.
Transportation
Money lending/farmers Workers/wage
Cost Bank
(rattan)
credit
Empower
Cost/
capital
Rp.600
million
Daily
Production/ necessities
Rattan Process: 250 ton/ Profit
ACTOR 1
High quality Rp 800 Rp200
Salmansyah
million million
School
Health
Care
Rattan industry Centers
Java: Cirebon, Suraba-
Ya, Bekasi, Kudus,etc. Social
Fig. 11.7 Rattan and monetary flow in provincial level

The profits come every three months, because rattan trading is practiced four times annually
among large rattan traders
Actor 2 (Haji Sasi). His rattan production reaches 300 tons per month
His profit reaches Rp. 300 millions per 3 months
Actor 3 (Haji Zaenal). His production reaches 400 tons per month
His profit reaches Rp. 500 millions per 3 months

As a trader he usually uses banking institutions to support his business. So he ini-
tially requested credit from BNI Bank in 1987, receiving Rp. 25 million. His rela-
tionship with the bank grew until in 1990 Bank Pembagunan Daerah Kal-Tim
(Regional Development Bank) gave him credit of Rp. 150 million, increased in 1995
to Rp. 200 million, and again in 1999 to Rp. 300 million. He used this credit to
obtain rattan from subdistrict timber traders and other actors. He maintains his
trader relations in Damai, Muara Pahu, Muara Lawa, and Melak districts, providing
them with cash loans based on their production capacity. If they are traders with
potential he says, he gives them Rp. 15–25 million per individual, but if they are
mediocre traders, around Rp. 10–12 million. He says that rattan traders in the 1980s
and the early 1990s were still dominated by the Chinese, yet after 1994, this trade
was taken over by the Banjarese, and there are only one or two Chinese traders left.
His production during the rattan harvest reaches 300–400 tons per month. He
maintains stocks of various types of rattan such as Sega, Jelayan, Botet (Khortalsis
schapigera), Denek (Calamus Sp.), Pulut Merah, Pulut Putih, Ohot (Korthalsis
robusta), and Kehes (Calamus Sp).
He recommends local farmers to plant more Pulut Merah on their rattan farms as
this rattan grows rapidly in East Kalimantan and has a high market price. He has at
least 200–250 tons in stock every month. He buys rattan from local traders based on
market price, but must provide a good service to village and subdistrict rattan trad-
ers. If they sell their product to his storehouse, Haji Sam provides them with a
restroom and special kitchen equipment for 3–5 days. Traders can freely use these
rooms and kitchens while they carry out their shopping and visit relations in
Samarinda and the surrounding district. This family approach has been run for a
long time, so they consider him as a part of their family. Chinese traders have never
conducted this kind of family approach and the provision of soft loans.
He sends the greatest part of his rattan to Java. He contacts his colleagues, Haji
Abidin and H. Hatta in Cirebon to send his rattan and sometimes he visits Cirebon,
Banjarmasin, and Bekasi to personally see the real market conditions and price. For
example, in 1995–1996 he sent about 40–50 tons of Pulut Merah and 75–100 tons
of Sega per month, and he sent almost 25–30 tons to Banjarmasin and 50–60 tons to
Bekasi. However, if there is an order from Cirebon, Bekasi, or Banjarmasin, he is
prepared to provide 250–300 tons of his stock to these markets.
Profit
Profit is important to Haji Sasi Saemi in order for his business to expand and
provide employment for local people as well as to pay his taxes. He obtained a net
profit in 1995–1996 of around Rp. 150–200 million, in 1998, around Rp. 300
million, and in 2001, Rp. 400 million every quarter. He spends 37 % of his profit on
repaying his bank loan, 33 % on empowering his capital, 25 % on family necessi-
ties, and 5 % on social donations such as for education institutions, mosques, and
orphanages.
The Third Rattan Trader
Haji Zaenal (Znl) is the first largest rattan trader in Samarinda. He was born in
Samarinda in 1947. His father is from Banjar and his mother is Dayak. After finish-
ing his studies in secondary school and a middle technology school (STM), he con-
tinued studying at the Surabaya Institute of Technology (ITS) in 1967. Unfortunately,
he did not graduate, as he returned to continue his father’s forestry business (logs
and rattan) in 1968. Haji Znl’s Company is called “Arus Mahakam,” and this com-
pany’s core business is logs, rattan, salty fish, shops, and construction, with assets
worth around Rp. 5–6 billion. The company owns two large storehouses, four Colt
Diesel/1999 trucks, two operational cars, and 3 secretaries, and 15 permanent and
11 nonpermanent workers. He married a Samarinda girl in 1970 and has six children.
All of his children have or are studying at university: four attend a university in
Jogyakarta, two are studying at Mulawarman University, and one of them is con-
tinuing a Masters degree in Urban Planning at Gadjahmada University in Jogyakarta.
As a businessman, he has good relations with banking institutions. In 1994–1995
he received a loan from Bank International Indonesia (BII) of Rp. 1 billion, in 1999
from Bank Mandiri, Rp. 1.5 billion and from Bank BPD Kal-Tim in 2000 around
Rp. 5 billion.

As mentioned above, Haji Zaenal has been actively involved in the business since
1968. When “Banjir Cap” occurred in the early 1970s, there was a huge increase in
logging and the Regional Financial Income of East Kalimantan rapidly increased.
His was one of many logging companies seeking “customary forest rights” in the
hinterland, such as in the Long Iram, Barong Tongkok, and Muara Pahu districts. He
would provide “Persekot” (cash loans) to the head of Adat and local timber traders
in return for the local logging concessions. He has also made contracts with many
plywood factories and exporters to attain access to their log production. This con-
tinued until the government ban on log exports in 1985. In the mid-1970s and 1984
he obtained profits of around Rp. 120–150 million per year from this business.
When the reformation era began in 1998, a new regulation was created that pro-
vided the Head of the Regency (Bupati) to allow cooperatives and individuals to
have access to logging concessions, 100 ha in size. Haji Zaenal took this chance to
work with cooperatives and individuals in the villages of Long Iram, Long Bagun,
and Muara Pahu for logging, while creating a log supply contract with Sumalindo
Company. Over a period of 3 years, he supplied 10,000 m3/month of various types
of timber such as Meranti, Bengkire, Kapur, and Ulin to Sumalindo and sent
15,000 m3/month to Surabaya. He sold Meranti timber at Rp. 700,000/m3 and Ulin
at Rp. 1,300,000 to Sumalindo Company. The total capital for this business required
Rp. 13 billion and he obtained a net profit of around Rp. 1.4 billion over the 3 years.
His relations in the log business supported the creation of a rattan business net-
work. He provided around Rp. 600–700 million in soft loans to local farmers and
rattan traders, spread throughout both regencies of West Kutai and Kutai Kertanegara.
He says that he has more that 50–60 households as clients, with each household
receiving around Rp. 15–20 million, and potential local traders can reach Rp. 40–50
million. He receives various types of rattan, but the greatest stocks in his storehouse
are Pulut Merah, Pulut Putih, Sega, Jahab, Kotok, and Botet. During the harvest, he
usually receives 300–350 tons of rattan per month and at least 280 tons per month
during the rainy season. He buys from farmers at the same price as other large trad-
ers. The rattan from farmers and local rattan traders is still half wet, so his workers
process the rattan until dry and mature, and then send it on to Java. When subdistrict
and village rattan traders and villagers come to Samarinda to sell their product, his
company in Loa Bakung receives them as family. They can stay in the camp near the
office and are provided with a room and kitchen for cooking, so that they can spend
almost a week shopping in Samarinda before they return home to their village. This
family approach has been run a long time, since his father before him and, he says,
is one method to maintain good relations.
Profit
In 2000, he received a net profit from his rattan business of Rp. 500 million, increas-
ing in 2001 to Rp. 600 million. He spends about 40 % on repaying his two loans in
banks Mandiri and BPD Kal-Tim. Another 30 % is used to empower his capital, 20
% on family necessities, and 10 % on social donations, such as mosque construc-
tion, educational institutions in many villages, and to support poor families in pay-
ing their children’s educational fees.
The rattan and timber economic network from farmers to large traders is very
interesting. There seems to be a large problem where rattan farmers are the majority
and do not attain enough of a profit when they are forced to sell their product under
market prices by village rattan traders because the cultivation time for rattan is
almost 8 years, from their planting until harvesting. In terms of cultivation and mar-
keting, there is no assistance from the local government and no loans provided by
state banks (BRI, Bank Pembangunan Daerah) to farmers. In contrast, village rattan
traders obtain financial support from subdistrict traders, and large rattan traders
have access to state and private banks. The large rattan traders obtain a lucrative
profit from this trading because they master the capital, production network, and
marketing at the interprovincial level, such as the large Java rattan industry.
On the other hand, village timber traders cannot directly sell in the open market,
and therefore their position is weaker. They are not dependent on subdistrict timber
traders in terms of capital and market, because sometimes they have direct contact
with large timber traders from Samarinda and can sell their products at a good price.
The largest constraint for village traders is a lack of access to credit from state banks
in order to empower their capital and production. At the same time, subdistrict tim-
ber traders have their own markets and clients for their log and timber trading and
also have relations with state banks. This is also the case with large, provincial-level
timber traders, who are finding a lucrative profit, provided by big capital and mar-
keting. However, the most critical problem for timber trading, which all timber trad-
ers will suffer from in the near future is a lack of timber as their raw material,
because many timber traders exploit these timber products from local peoples’
customary forest rights without being inherently responsible to replant the areas
they log.
The following is a scheme of rattan trader networks from rattan farmers, to vil-
lage, subdistrict, and provincial-level traders to rattan factories in Java (Fig. 11.8).
NGO Initiatives in Developing Rattan
Indonesia has the third largest tropical forest after Brazil and Zaire, characterized by
rich biodiversity, including 250 of the 600 rattan species in the world. Of these 250
species, Kedang Pahu watershed in West Kutai Regency has 44 species, 32 % of
them cultivated, and the remainder in the Kalimantan tropical forest and about 48 %
are traded (Saragih 2000).
Provincial Level Market: Java: Export:

Rattan Traders Surabaya, Foreign
Bank Cirebon, etc. countries
Bank Sub-district Level

Sub-district Level
BRI (Others)
(Bongan)
Village Level Village Level

(Muara Gusik) (Others)
Farmers
Farmers
Fig. 11.8 The scheme of rattan traders and their networks from village to provincial level
Note: : Direct access : The line for connecting with a financial institu-
tion (bank)
Source: Observation based on field research in Muara Gusik village, Bongan subdistrict, and
Samarinda in March and April 2002
Indonesia is also one of the largest rattan producers in the world, about 80 % of
total rattan production comes from Indonesia. This rattan is collected from the for-
ests of Kalimantan, Sulawesi, Sumatra, and Papua (Irian Jaya). The Department of
Forestry carried out a survey of 15 provinces of Indonesia in 1986 and concluded
that annual cutting of rattan was 696,900 tons, where South Sulawesi produced 35
%, Central Sulawesi 15 %, West Kalimantan 13 %, East Kalimantan 10 %, Aceh,
6 %, Nusa Tenggara Barat (NTB) 5 %, Central Kalimantan 3 %, Bengkulu 3 %, and
Lampung 3 %.11
In East Kalimantan, two regencies are the largest producers of rattan, namely
West Kutai Regency in Kedang Pahu watershed and Pasir Regency. The population
in Pasir Regency was 267,960 people in 2000, and West Kutai had 129,456. An
estimated 80 % of people over 10 years old are farmers in West Kutai. Rattan was
the main source of livelihood for people in Pasir Regency, but there has been a great
deal of conversion of rattan farms and forests to oil palm plantations, resulting in a
declining number of rattan producers in this area. Kedang Pahu watershed is still a
strong rattan production area. The population in the watershed area is dominated by
the Dayak Benuaq tribe, part of the Dayak Luangan tribe who come from the Barito
River hinterland which is currently part of Central Kalimantan (Wijono 1995). This
Dayak Luangan tribe has a tradition of cultivating rattan in secondary forests.
11
See Erwinsyah (1999) Government Policy and it impacts upon rattan concession in Indonesia,
Jakarta: Natural Resources Management Project, pp. 17.
The annual rattan production from Kedang Pahu and other subdistricts such as
Damai, Muara Pahu, and Barong Tongkok is nearly 2.5–3,000 tons (interview with
Cahyat, Ade, 3 April 2002). SHK Kaltim12 conducted a survey of production real-
ization on dry-raw rattan and showed that production reached 2,457 tons for Pahu
Dayaq watershed in 1998, but decreased in 1999 and 2000. Rattan production in
East Kalimantan was 2,158 tons in 1995, decreasing in 2000. The Provincial
Forestry Agency of East Kalimantan and SHK Kaltim data estimated that rattan
trade using official documents was 19.7 % and the remaining 80.3 % were not used.
These data, however, do not reflect the real trade conditions (Cahyat 2001).
Apparently, much of the rattan is unofficially sold to Mahakam. Based on the
Provincial Forestry Agency report, rattan production from Mahakam for 1998/1999
periods was 1.8 million tons (Table 11.1).
Conception of Idea and the Project
From the above explanation rattan production in East Kalimantan especially in the
West Kutai Regency, Kedang Pahu watershed has a large potential. However, rattan
farmers’ lack of management in production and marketing is a major restriction to
the development of this industry. Therefore, NGOs such as SHK are attempting to
empower rattan farmers in terms of management, training, capital, and even market-
ing. From June 4 to 6, 2000, a rattan workshop took place in Samarinda. The work-
shop was hosted by the Samarinda-based NGO, Plasma, and participants consisted
of representatives of rattan-collecting communities from different parts of
Kalimantan, a representative of the lamp industry in South Kalimantan, and other
groups. This workshop was aimed at, first, identifying the key issues involved in
rattan cultivation and related aspects of community forest management, processing,
Table 11.1 Official and real Year Official Real estimation

estimations of rattan trade in
1995 2,158.31 10,955.94
East Kalimantan
1996 1,431.03 7,264.14
1997 1,028.95 5,223.09
1998 1,891.89 9,603.53
Average 1,627.54 8,261.68
Source: Dinas Kehutanan Kaltim (Provincial
Forestry Agency). Estimations based on
SHK – East Kalimantan’s Survey (2000)
12
SHK (Sistem Hutan Kerakyatan/Social Forestry System) is one of the NGOs actively involved in
rattan development among stakeholders in East Kalimantan. The head office of SHK is located in
Samarinda.
and trading and second, to discuss ways to improve the income situation of rattan
producers on the island through the barter marketing of resources.
This June workshop was followed up by a preparation process for improving rat-
tan resources management and the trading system in Kalimantan, implemented with
a small grant from DFID.13 In this framework, the following activities were carried
out: a baseline survey on socioeconomic conditions, market research, and analysis
of government policies.
SHK Kaltim (East Kalimantan) organized a follow-up meeting in Samarinda on
January 17 and 18, 2001. Participants included those who attended the June work-
shop as well as government representatives, traders, and academics. This workshop
discussed the draft master plan (MP) and proposal. The outcome of the discussion
has been incorporated in this proposal, whereas the draft MP is still being
elaborated.
SHK Itself has Facilitated in Its Establishment
• An intervillage alliance consisting of eight communities in the Kedang Pahu
watershed, a forest area of about 1,600 km2, it currently aims at developing
community resource management plans and has a mandate to mediate conflicts,
particularly those in relation to the use of natural resources.
• Setting up an information network that uses radio for the sharing of intervillage
and intravillage information and the SHK Kaltim (Kalimantan Timur/East
Kalimantan) office in Samarinda. This information is valuable in terms of
updates on market prices for different commodities, among which is rattan.
• The establishment of a “Rattan Communication Forum” (RCF) is a medium for
rattan traders and producers to communicate with each other and solicit policy
support from the government (especially the central government). RCF is a
voluntary and self-funded forum and carries out meetings at least once a year.
• Credit unions were established in four villages, aimed at assisting the community
in savings and credit and providing education in household economic manage-
ment. At the moment there are about 260 members, with generated funds of
about Rp. 80 million (Cahyat 2001: 5).
Market Analysis
Although Kalimantan and other outer islands produce rattan as raw material for
furniture, Java is dominant in rattan processing industries. According to data from
the Forestry Department in 1998, 51.8 % of rattan processing industries are located
in Java, such as Cirebon, Bandung, Bekasi, Tangerang, Sidoarjo, Surabaya, and
13
DFID (Development Forum on International Donor), this NGO originally was British, and
focuses on “financial and management” support of nontimber products including rattan. SHK
cooperated with DFID in carrying out research on rattan farmers in the Kedang Pahu subdistrict in
2000–2001.
Conclusion 271
Table 11.2 Rattan manufacturing industries in Indonesia

Number of industries Semi-finished product Finished product
No Region Number % of Total (ton/year) % of Total (ton/year) % of total
1 Sumatra 50 8.56 43,906 7.09 34,049 6.38
2 Java and Bali 303 51.88 216,766 34.98 416,924 78.13
3 Kalimantan 87 14.90 94,011 15.17 54,217 10.16
4 Maluku 1 0.17 – – 300 0.06
5 Sulawesi 135 23.12 260,735 42.08 28,168 5.28
6 Nusa Tenggara 8 1.37 4,220 0.68 – –
Barat
Total 584 619,638 533,638
Source: Cf in Cahyat (2001), Improving the Rattan Resource Management and Trading System in
Kalimantan; See also Erwinsyah (1999)
Kudus. Sulawesi is second, with about 23.1 % of the industries and Kalimantan is
third at 14.9 %. The largest rattan producers are East and Central Kalimantan, but
the industry is concentrated in South Kalimantan. Semi-finished products are
dominated by Sulawesi (42 %), followed by Java and Bali (34.9 %) and then
Kalimantan (15.2 %; Table 11.2).
Apparently, there are three arguments for the concentration of industries in Java.
First is the acceleration of economic infrastructure development in Java, such as
banking, roads, and ports, in comparison to the outer islands. Second is the greater
skilled labor available in Java for rattan processing industries. Third, centralization
of the government has caused much of the bureaucracy to be concentrated on Java.
Conclusion
1. There is a positive correlation between the development of logging concessions

and forestry industries in East Kalimantan with regional economic growth and
employment growth among local inhabitants. For example, an investment of Rp.
6.3 trillion during Pelita V, created a regional financial income budget (APBD)
of about Rp. 119 billion in 1988/1990 (28 %) and employment in 1985/1986 of
about 28,325, increasing to 50,641 in 1990/1991.
2. The negative implications of logging concessions for local inhabitants living in
and around forest areas are that their “customary forest rights” were often
annexed by logging concession holders, causing them to suffer economic and
political marginalization.
3. The reformation era (2001) has improved the political and economic standing of
local inhabitants, through the paying of compensation and memorandum of
understanding (MOU) between local inhabitants and logging concession hold-
ers, as local inhabitants are again allowed to use their “customary rights forest”
for agriculture and timber utilization.
4. The socioeconomic function of timber and rattan traders at the village, subdistrict,
and provincial levels, stimulates the economy for local inhabitants, through
capital cash flow and employment. The role of institutions such as P3R (Rattan
Farmers Association), under the umbrella of NGO SHK (Sistem Hutan
Kerakyatan/Social Forestry System), is required to improve the production,
management, and marketing of rattan production. This institution also encour-
ages large rattan traders to cooperate with local farmers on sustainable rattan
management.
Discussion
East Kalimantan was familiarly well known as the largest “timber producer” from
the end of the 1970s until the 1990s. For example, in 1978 this region produced 10
million cubic meters of logs. The number of logging concession holders grew to 73
companies in the 1990s, controlling 10.6 million ha of forest. The foreign exchange
earnings obtained from this industry reached US$595 million, and created 10,268
jobs in 1985, increasing to 14,320 in 1990. The forest industry contributed 42.7 %
of the regional income in 1978, although this decreased in 1988 to only 12.4 %.
Among stakeholders of forestry industries, apparently HPH holders, plywood
and sawmill owners are the biggest actors and dominantly occupy these industries.
Meanwhile, the state as the owner of forest production land acts as the second larg-
est actor and receives sufficient income. On the other hand, local people who live in
and around the forest act as a marginal actor. It is because of two reasons: in the
Soeharto government era “customary forest rights” were not recognized by govern-
ment; and the impact of this policy was that “land disputes” occurred between
local people and HPH holders. The consequences of this dispute were that local
people could not produce on their lands and eventually affected economic
marginalization.
How do they survive in their villages? In terms of the Muara Gusik people where
a case study was carried out in 1996 and 2002, they survived from paddy rice plant-
ing as a primary of their subsistence. They also planted rubber, rattan, and fruits.
Local people have acted as rattan traders at the village level since the 1970s. They
obtained their capital usually from rattan traders at the subdistrict level (Kecamatan).
They usually have a strategy to have an access of rattan production by opening their
shops to lend “money” and materials such as rice, oil, sugar, cakes, and soap for
local people. At harvesting time of paddy rice and rattan villagers sell to the shop-
keeper, here acting as rattan trader. The rattan trading network operation began a
long time back in the 1960s until now, in which the big traders in the province are
dominantly the Banjarese people. Apparently, big rattan traders enjoy this system
and achieve a bigger role because they have access to bank facilities and a marketing
network with rattan industries in Java, such as Cirebon, Surabaya, and Tangerang.
In terms of “timber trader” at the village level in Muara Gusik, it started in 2001,
when the ITCI company allowed local people to work on “waste timber” (Limbah
Discussion 273
Kayu) in their former customary forest rights. The pattern of timber trader and rattan
trader is totally different in operation. Timber traders got capital independently.
They own by their own efforts. Also they employ workers for chainsaw operation,
truck drivers, shoulders’ timber (Tukang pikul Kayu), and timber machine workers
based on the contract system. In this case, timber production, which is owned by
timber traders at the village level, might be sold to any timber buyers, who directly
come from the province, district, and subdistrict. This system of trading is more
open and based on normal price.
Part VI
Local Responses to Forest Management:
A Case Study of Bengkulu
Chapter 12
Logging, Coffee Production, Distribution,
and Markets in Bengkulu
Bengkulu province has a forest area of around 920,640 ha, covering about 46.54 %
of the total land mass. The provincial administration of Bengkulu, located in South
Sumatra, stretches 567 km from West Sumatra (Padang) to the border of Lampung
province in the south (Map 1). National parks, natural conservation, and protected
forests in Bengkulu cover 696,924 ha, or 76 % of the total forest area (Fig. 12.1).
These forest areas are generally located along the length of the Bukit Barisan
Mountain range, the upstream regions of the majority of rivers in Bengkulu province,
which are vitally important for the population living in downstream regions.
The Role of HPH
HPH holders are major actors in production forest areas, totaling 469,217 ha. There
have been five HPH holders in Bengkulu from the 1970s to the 1990s (Table 12.1).
These HPH provide logging for sawmill and plywood industries in the province
(Table 12.3), which supply both the domestic and overseas markets, producing
approximately 235,612,513 m3 from 1968 to 1988. The development of log produc-
tion from 1978/1979 to 1979/1980 increased more than 100 % (Fig. 12.2). However,
in the last 4 years until 1983/1984, log production declined after a joint ministerial
decision produced an export ban on logs (Fig. 12.3).
What is the relationship between HPH development and employment levels in
Bengkulu? In general, the relationship is positive, with 402 registered employees in
1983/1984, consisting of 377 domestic workers and 25 foreign employees.1
However, forest areas have suffered great pressure from local community interests,
with conflicts over borders, illegal logging, and the opening of coffee plantations
still occurring today. These conflicts have arisen from insufficient attention paid to
1
For further information, see Rencana Umum Kehutanan Propinsi Daerah Tingkat I Bengkulu
(General Plan of Forest Sector in Bengkulu Province), 1984–1999, pp. 59.

DOI 10.1007/978-981-287-745-1_12
278 12 Logging, Coffee Production, Distribution, and Markets in Bengkulu
Permanent (Elephant Centre

Production Forest Training)
4% 1%
Limited Production
Forest
20%
Natural and
Conservation
Forest:
48%
Protecting Forest
27%
a. Sanctuary
(Wild Life)
1%
b. National
Park
44%
c. Recreation
Forest
2%
e. Hunting d. Forest Park

Forest area 0%
2%
Fig. 12.1 Size of forest area based on function in Bengkulu (Source: Minister of Forestry Decree
Number 420/Kpts-II/1999, see Rencana Induk Rehabilitasi Hutan dan Lahan Propinsi Bengkulu
Tahun 2003–2007 (Master Plan of Forest and Land Reforestation in Bengkulu Province 2003–
2007), pp. 8–15)
Table 12.1 Forest logging concessionaires (HPH) in Bengkulu

Name of company Area (ha) Logging permission
1. Dirgahayu Rimba 126,000 439/Kpts/Um/7/1978
2. Sari Balok 36,000 175/Kpts-IV/1985
3. Bina Samktha 85,000 438/Kpts/Um/7/1978
4. Maju Jaya Raya Timber 80,000 422/Kpts/Um/8/1974
5. Bengkulu Raya Timber 84,000 645/Kpts/Um/10/1978
Source: Provincial Forestry Agency, Bengkulu 1985. See Monografi Kehutanan (Forestry
Monograph) Bengkulu province, 1990, pp. 31
The Role of HPH 279
2,000
1,500
1,000
500
0
Pelita I Pelita II Pelita III Pelita IV Peilita I-IV
(1968-1973) (1973-1978) (1978-1983) (1983-1988)
Fig. 12.2 Log production in Bengkulu (1,000 m3) (Source: Monography of Provincial Forestry
Agency, in Bengkulu, 1990, pp 31. @ Pelita: Pembangunan Lima Tahun (Five years development))
400000
350000
300000
250000
200000
150000
100000
50000
0
Pelita I Pelita II Pelita III Pelita IV Total
(1968-1973) (1973-1978) (1978-1983) (1983-1988)
Log Sawmill
Fig. 12.3 Wood export realization in Bengkulu province (m3) (Source: Monography of Provincial
Forestry Agency, in Bengkulu, 1990, pp. 32)
the social, economic, and ecological dimensions of those societies living in and
around forests and a lack of implementation of forestry law enforcement.
These pressures have led to the creation of 78,724 ha of “critical” land in forest
state areas (data of 2000 of forest conditions in 1998), with forest degradation
occurring to 4,000–5,000 ha annually.2 In 2000, it was recognized by the govern-
ment that critical lands in unproductive forest in Indonesia had reached 27.8 million
ha (equivalent to 59 % from production forest; Sardjono 2004: 6). The larger part of
these critical lands has been occupied by shifting cultivators, forest squatters, HPH
holders, and even a part has been claimed for customary land rights. The use of
2
This interview with head of Forestry Agency in Provincial level on February 17, 2003.
traditional shifting cultivation has been reduced due to structural changes to the
village economy, state policies in the forestry sector, spontaneous migration, and
transmigration and other factors.
Forest Squatters
The formal state definition of a forest squatter is a “person who illegally conducts
farming activities or utilizes forest products in state forest areas, causing forest deg-
radation, as well as those who live in and around forest areas” (Siswono Yudohusudo
1993).3 According to this view, only the state has the authority to carry out forest
management and forest production, based on the 1945 Constitution, chapter 33, and
Forestry Act Number 5, 1967. Therefore, all activities carried out in forest areas
(natural forest, conservation forest, protected forest, production forest, etc.) by the
local community without formal permission from the state is categorized as
illegal.
The total number of registered forest squatters in 1993 was 1,725,439 families
(Indonesian national survey). In the case of Bengkulu, the total numbers of forest
squatters were 17,254 families with an estimated 45 % (7,900 families) living in the
Rejang Lebong district. This is most likely because the soil in this district is fertile
for coffee plantations. The majority of forest squatters moved from the southern
section of Bengkulu (Mana districts) and south Sumatra (Pagar Alam and Lahat) to
the Rejang Lebong district to cultivate coffee.4
Forestry Act Number 41/1999 states that the size of forest area must be at least
30 % of the size of the watershed (Daerah Aliran Sungai). In the case of Bengkulu,
considering forest status and function, the percentage is less than 30 (interview,
February 18, 2003). For example, due to three decades of excessive logging by HPH
holders and no reforestation program, the condition of production forests is terrible.
Also, some production forest areas have been converted to coffee plantations.
Meanwhile, protected forests suffering forest degradation from overuse have
reached a total of 50,667 ha. It is hoped that a rehabilitation program for protected
forests can consider two aspects: that the 50,667 ha of severely degraded protected
forests be reprotected, with a reforestation program of 2,000 plants/ha; and the spe-
cial plants used for reforestation are hardwoods such as Keruwing (Dipterocarpus),
Belian/Onglen (Eusideroxylon Zwageri), Kayu Manis (Glyeyrrhiza glabra), and
Lamtoro Gung (Leucaena Leucocephala).
3
This definition of “forest squatter” is referred to in the speech of the Minister of Transmigration
and Forest Squatter Resettlement (Siswono Yudohusodo) in 1993. See Alternative Model to Solve
Forest Squatters from Social and Cultural Perspective, Jakarta, LIPI-PMB, 1996, pp. 3.
4
Batu Bandung village, which was previously entered in the Kepahiang subdistrict, currently since
2001, it entered the Bermani Ilir subdistrict, Rejang Lebong district. This estimation of “forest
squatters” (perambah hutan) reaches around 350–450 heads of family. They occupy thousands of
hectares of protected forest area such as in Bukit Besar and Bukit Melintang (Interview with for-
mer head of Batu Bandu village, February 21, 2003).
The Role of HPH 281
Reforestation Program
The reforestation program in Bengkulu, which began in 1976, has reforested

23,000 ha of land, and yet has not been successful. The failure of the reforestation
program, with a planned reforestation of 40,000 ha, was mainly due to the occupa-
tion of land by forest squatters, lack of reforestation expertise, a lack of appropriate
budget allocation, inferior seed quality, and other external factors. These problems
must be addressed if systemic changes in reforestation or alternatives to reforesta-
tion are to be carried out.
In general, in order to overcome this problem, a reforestation program for forests
and critical land is required, aimed at recovering the optimal ecosystem watershed
(Daerah Aliran Sungai/DAS) in every administrative local government of the
upstream regions. This would encourage a balance between human activities and
the provision of natural resources.
The BPDAS/Balai Pengelolaan Daerah Aliran Sungai Ketahun Office (The
Ketahun Board Management of Watershed) has carried out “reforestation”
throughout many watershed areas, such as 400 ha of Pinus Merkushii Junghuhn in
Bukit Jumpi in 1980–1981, 657 ha of Pinus Merkushii in 1981–1982 in Kepahiang
sub-district, 1,100 ha of Sengong (Albizzia chinensis) and Lamtoro Gung (Leucaena
leucocephala) in 1982–1983 in Bukit Dendan, Kepahiang, 472 ha of Petecina
(Parkia javanica)5 in 1984–1985, 500 ha of Acacia mangium in 1985–1986 Ujan
Mas subdistrict and 400 ha of Acacia mangium in 1988–1989 in Bukit Air Selimang
(interview, February 18, 2003). However, a new method was introduced by BPDAS
in 2001, familiarly called “community-based forest management.” Ministry of
Forestry Decree Number 31/Kpts-II/2001 on the realization of “Social Forestry”
regulated this method. These “social forestry” programs targeted the prevention of
soil erosion and water conservation in the watershed upstream regions as well as
empowering the socioeconomic position of local inhabitants. In chapter one, item
(1) mentions that the aim of “social forestry” is state forests with a forest manage-
ment system aimed at empowering local inhabitants, and forest functions. Chapter
two, item (2) states that forest areas, which can be determined as “social forestry”
management areas are protected, or production forests.
One such program carried out in this new manner was the planting of 109,200
Kemiri (Aleurites moluccana) in 2,075 ha around “Bukit Daun” protected forest
from July to December 2002. In 1998, JICA (Japan International Cooperation
Agency) had recommended this program in a visibility study on “Social Forestry”
in the Musi upstream region, which Bukit Daun comprises. The program was held
in the Rejang Lebong district and divided into four UPP (program realization units)
5
These are trees with similar group and function such as Lamtoro Gung, Petecina, Ipil-ipil,
Kemlandingan, and Selong, which categorized Leucaena leucocephala. The benefit of these trees,
namely to greening the environment, to prevent critical land, because of erosion and terracing, and
other functions, such as their leaves are used to feed animals such as goat, sheep, cattle, and the
like. See Soerodjotanojo, Membina Usaha Perkebunan Lamtoro Gung (To guide Lamtoro Gung
Plantation), Jakarta: Balai Pustaka, 1983, pp. 12–13.
Table 12.2 Farmers group review at Air Selimang in December 2002

Number Farmers group Heads of families Width (hectares)
1 Tani Makmur 25 33
2 Sinar Harapan Maju 39 44
3 Wana Kemasyarakatan 30 27
4 Tunas Harapan 20 23
5 Sinar Pagi 21 19
6 Sekundang II 26 29
7 Selulun 20 35
8 Harapan Maju 43 63
9 Karya Tani 20 40
10 Perhumas 27 37
11 Serai Serumpun 17 26
12 Sekundang I 20 21
13 Setia Kawan 22 20
14 Wono Tirto Sari 24 29
Total 354 446
Source: The Ketahun Watershed Board of Management, December 2002
consisting of seven villages, namely Air Selimang, Kandang, Kelilik, Tebat Monok,
Ujan Mas, Tanjung Alam, and Air Lanang.6 The program divided the 1,507 local
inhabitants into 61 farmer units. The aim of social forestry development is to encour-
age agribusiness and agro-industry systems on a commercial scale, covering all
production segments from harvesting to marketing, conducted by social forestry
cooperatives or other actors. Tables 12.2 and 12.3 show the size of the program
One of the government’s policies in “social forestry” management is to encour-
age social participation. This program aims to improve forest production, the
incomes of the local community, and ecological maintenance. Therefore, with
social participation of forest management, it is hoped that a positive interaction
between the local community and their environment will be realized.
Coffee Plantations
There is a positive correlation between forest degradation in protected forest areas

occupied by forest squatters and coffee plantations. Many forest squatters from the
southern part of Bengkulu and South Sumatra communities (Pagar Alam and Lahat)
seek fertile land for coffee plantations in production and protected forests in the
6
Social Forestry Development program allocated in Bengkulu Province for fiscal year 2002. This
program is to plant multipurpose trees such as Kemiri, Pinang, Jengkol, Durian, Pinus, Mahoni,
Sengon, and so on. The benefit of this program will be advocating social and economic communi-
ties, to prevent soil erosion and to conserve water. See Balai Pengelolaan Daerah Aliran Sungai
Ketahun, Bengkulu, December 2002.
Coffee Plantations 283
Table 12.3 Farmers group review at Tebat Monok, Kandang, and Kelilik in December 2002
Number Farmers group Heads of families Width (hectares)
1 Tunas Muda I 12 18
2 Tunas Muda II 26 23
3 Tunas Muda III 22 21
4 Tunas Muda IV 25 37
5 Tunas Muda V 25 38
6 Tunas Muda VI 23 28
7 Melati 16 14.50
8 Karya Sepakat 19 20.50
9 Tiga Srangkai 24 30.50
10 Sinar Jaya 22 24
11 Taruna Ingin Maju 23 24.50
12 Suka Maju 32 40
13 Sepakat 21 29
14 SSKB 32 50
15 Pelita Harapan 27 30
16 Mulya Baru 27 35
17 Tunas Datang 19 29
Total 385 492
Source: The Ketahun Watershed Board of Management, December 2002
Rejang Lebong district. The existence of forest squatters and illegal logging are
identified as one of the greatest factors of forest degradation, causing soil erosion
and flooding, in many districts in Bengkulu. As illustrated by an article in the Rakyat
Bengkulu newspaper on February 16, 2003, soil erosion has occurred in Air Barus
and Air Punggur in Bukit Besar (part of a protected forest). These forest areas are
situated in the Bermani Ilir subdistrict, in which 17 persons died and 10–15 cottages
on coffee plantations were damaged on February 7, 2003 due to flooding.7
This incident, because of soil erosion, occurred in protection forest and among the
victims were migrant farmers from south Bengkulu (Manna district).
Types of Coffee Estates
In Indonesia there are three characteristics of coffee management, namely commu-

nity estates, state estates, and private estates. Small farmers control community
estates with land from 1 to 15 ha in size. The majority of coffee species in this area
are Robusta, as Robusta has the ability to prevent many illnesses and does not
require intensive care. The postharvest management is generally sun drying.
This type of estate is generally characterized by a lack of capital, technical skills,
7
Interview with village officer on February 21, 2003 in Batu Bandung village.
and equipment management. Therefore, the quality of this coffee production is

unqualified. In the case of Bengkulu province, the community estates produce the
greatest amount of coffee compared with private and state estates, as private and
state estates are small in number. Meanwhile, private estates cultivated by private
sectors are located in the northern section of the Rejang Lebong district, and state
estates of coffee plantation cultivated by State Corporation Business (BUMN) are
located in many districts in Bengkulu province.
Development of Coffee Estates
Bengkulu has become a leading coffee producer in Sumatra and the majority of
production is sent to Palembang and Lampung for large provincial-level coffee
transactions, as these two provinces have a good economic infrastructure, with
banking facilities and ports. Only a small amount is sent through Bengkulu port. A
report in 2001 by the Provincial Agency for Trade and Industry stated that from
total coffee exports of 450,000 tons in 1995, Bengkulu received almost
US$1,033,125 in foreign exchange earnings (Fig. 12.4). Therefore to encourage
coffee development in Bengkulu, there are focuses on mainly two factors. First, the
government of Bengkulu will have to cooperate with private sectors for establishing
infrastructure such as roads, port, and banking facilities in order to attract investors
to invest their capital in Bengkulu. Second, the government has to launch incentive
policies among coffee farmers and coffee traders from the village level to the pro-
vincial level in order to obtain credit facilities, law interest, low price for using port,
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1995 1996 1997 1998 1999 2000 2001 2002 Total
Volume (thousand ton) Value (thousandUS $)
Fig. 12.4 Coffee production and foreign exchange earnings in Bengkulu (Source: Provincial
Agency for Trade and Industry Office 2001)
Coffee Plantations 285
security, and marketing their coffee plantations. Apparently, if these two approaches
are realized in coffee development, the coffee sector will progress.8
Four districts in Bengkulu province, Rejang Lebong, North Bengkulu, South
Bengkulu, and Bengkulu, Municipal City, are most intensive in coffee growing.
Of these four districts, Rejang Lebong has the largest area of coffee plantations.
The development of coffee in Bengkulu province during 1991–1995 can be seen in
Fig. 12.5.
In general, the size and number of community estates in Bengkulu fell by about
1.44 % annually. From 1991 to 1995, total coffee areas of 90,975 ha reduced to
85,762 ha. The reduction in coffee-producing areas occurred in Rejang Lebong at a
rate of 6.61 % annually. Meanwhile in the south and north of Bengkulu district it
grew around 1.42 % and 5.01 % annually. The development of coffee in Bengkulu
province is, in general, in line with the development of the size of coffee plantation
areas (Fig. 12.6).
In the period 1990–1994, there was a reduction in coffee production of about
3.02 % annually, from 45,000 tons in 1990 to 39,714 in 1994. This reduction
occurred in the Rejang Lebong district at a rate of 5.96 % annually. In 1994, the
largest coffee-producing area could be found in Rejang Lebong, at 34,745 ha, pro-
ducing 22,978 tons of coffee, about 56.25 % of total coffee production throughout
Bengkulu, where the main type of coffee plantation was the community estate. The
Kepahiang subdistrict was categorized as the largest coffee-producing area in 1994,
with 3,249 ha producing 4,000 tons, growing to 8,700 tons by 1998. From this
50,000
40,000
area ha
30,000
20,000
10,000
0
1991 1992 1993 1994 1995
year
Rejang Lebong South Bengkulu
North Bengkulu
Fig. 12.5 Development of coffee plantations (ha) (Source: Provincial Forest Agency, 1995; See
Studi Kelayakan Pembentukan Pasar Lelang Komoditi Kopi di Bengkulu (Proposal Study of
Coffee Commodity in Bengkulu), Center for development study, Bogor Institute of Agriculture,
1996, pp. 15)
8
Interview with staff of research development in Industrial Agency in Provincial level, on February
21, 2003 in Bengkulu.
35,000
30,000
25,000
20,000
ton
15,000
10,000
5,000
0
1990 1991 1992 1993 1994
year
Rejang Lebong South Bengkulu
North Bengkulu Municipal Bengkulu
Fig. 12.6 Development of coffee production in Bengkulu Province (ton) (Source: Provincial
Forest and Plantation 1994)
condition, in fact, local government planned to build a “coffee auction market” in

1999 in the Kepahiang subdistrict, for three reasons: to encourage fair business
among coffee traders; to give incentives to coffee trading by giving credit, guidance,
soft regulation, and marketing among coffee traders; and to develop local govern-
ment regional income by promoting coffee trading in this district.9
Production Systems
Robusta coffee is generally produced in a monocultural pattern in the Kepahiang

subdistrict. The individual farmers themselves through seed breeding collect new
seeds for the regeneration of aging coffee plantations. The first harvest occurs when
the plantation is about 3 years old. The maintenance of coffee plantations in this
subdistrict is not intensive. The coffee plantations are relatively narrow and the
seeds are derived from local stock. Therefore the productivity of these plantations in
general is small, with only a few farmers reaching more than 1 ton per hectare.
In the Rejang Lebong district, especially in Kepahiang, coffee is the main crop,
planted by the majority of local farmers from the Rejang ethnic group. Meanwhile,
many migrants from South Bengkulu (Manna) and South Sumatra plant coffee in
protected forests. These coffee plantations can be seen from the flatland up to the
mountainous areas. The Rejang ethnic group also plant secondary crops of ginger,
rice, fruits, and chili. The main harvest for coffee occurs around May to August
annually. The plantation owners usually carry out the harvesting; however, if the
coffee plantation owner is busy, he or she can hire workers for around Rp. 12,000
per day.
9
Interview with staff of Industry Agency in district Rejang Lebong on February 24, 2003.
Livelihood of Local People in Batu Bandung Village 287
Livelihood of Local People in Batu Bandung Village
Description of Research Area
Batu Bandung village is located in the upland regions of the Kepahiang subdistrict.
This village is about 90 km from Bengkulu. It takes about 4 h by bus at a cost of Rp.
10,000 from Bengkulu to the village. When decentralization was realized in 2001,
in an aim to promote better public services and social welfare among local com-
munities, the administration of Kepahiang was divided into three subdistricts:
Bermani Ilir, Tebat Karai, and Ujan Mas. A large number of the Rejang ethnic group
living in this area is attempting to turn Kepahiang into a special district (Kabupaten)
in the near future (interview on February 20, 2003). However, currently Batu
Bandung village is within the boundary of the Bermani Ilir subdistrict (see Map).
The village borders Bengko village, the Sindang Kelingi subdistrict to the north,
Batu Kalung and Limbur Lama, the Bermani Ilir subdistrict to the south, Batu Kalung
village to the west and Sosokan Tabak, the Bermani Ilir subdistrict to the east.
Geographically, Batu Bandung village covers 4,942 ha of land, divided into gin-
ger (almost 550 ha) and fruit and other plantations (350 ha). Coffee plantations
cultivated by local people total 3,692 ha, and rice fields total 350 ha, although the
production of rice is only for personal use within the community. Migrants from
south Bengkulu and south Sumatra, mostly in Renah Kurung, Air Barus, and Air
Punggur, cultivate the remaining lands of almost 4,942 ha. Pematang Lekat, Air
Les, and Talang Tige are also within the administrative boundary of the village. The
largest production of coffee in the Kepahiang subdistrict is located in Batu Bandung
village. Each harvest, from May to August, this village contributes thousands of
tons of coffee to Kepahiang coffee traders. The village is 5 km long and 3 km wide.
Every household in Batu Bandung owns 2–5 ha of land for agriculture, and a few
own 5–10 ha.
Demographically, Batu Bandung village consists of 923 households: 2,927 men
and 2,708 women (Table 11.13). The majority of the population belongs to the
Rejang ethnic group and embraces the Islamic religion, with five large mosques and
eight small mosques (Musholla) within the district (Fig. 12.7).
Health, education, shops, and market infrastructure include one main Community
Health Center (Puskesmas) with two nurses and one doctor, two subcommunity
health centers in Talang Tige and Sosokan Taba, six elementary schools, comprising
five state elementary schools and an Islamic school (Ibtidaiyah), one state second-
ary school and one private Islamic secondary school. Every Wednesday, from 7:00
am to 12 noon, there is an open market where basic necessities from rice, sugar, oil,
fish, meat, fruits, vegetable, clothes, and kitchen implements are sold. The majority
of sellers/traders in this open market come from outside the village. The buyers are
the local workers and plantation owners, who usually walk about 5–10 km to reach
the market. There are also 18 permanent shops: five relatively large and three small
shops that also sell daily necessities. Local community members characteristically
own these shops.
800
700
600
500
400
300
200
100
0
0-6 7 - 12 13 -18 19 - 24 25 - 55 56 -
Man Woman
Fig. 12.7 Batu Bandung population distribution by age (Source: 2002 Village Survey)
Primary Subsistence: Coffee
Coffee is the main crop for the majority of the Batu Bandung community. There are
two main reasons for this: Batu Bandung village is located in a mountainous area,
so the conditions are fertile for growing coffee, there is a strong tradition of coffee
growing among the people, and the normal price for coffee provides a sufficient
standard of living for Batu Bandung peasants.
Generally the Robusta species of coffee is planted in this village, and cultivation
is conducted without the use of fertilizers. The farmers plant 3,000–3,500 trees on
every hectare and harvesting begins 3 years after planting. With the first harvest,
farmers normally obtain between 1.5 and 2 tons of coffee every hectare and the
second harvest, in the fourth year, which is familiarly called “Panen Agung” (the
great harvest) tends to result in 3–3.5 tons of coffee for every hectare.
During the harvest, around 12,000–15,000 tons of coffees are produced. This
harvest usually occurs annually between May and August in Batu Bandung (inter-
view, February 20, 2003). The greatest part of the harvested coffee is now brought
to the Kepahiang subdistrict, as the road from Air Punggur, Ranah Kurung, and Air
Barus to Batu Bandung village is relatively good. However, before 1996, half of the
coffee was brought through “Bengko” and finally sent to Curup and Palembang,
where the larger coffee markets are situated.
With every household owning at least 2 ha of coffee plantations, each harvest
produces about 4 tons of coffee per household. In 1995, when the price of coffee per
kg was Rp. 5,000, local farmers in Batu Bandung procured about Rp. 20,000,000
for their harvest.10 Yet the best price attained was during the reformation era (1998),
10
The normal coffee price is Rp. 5,000/kg. At this price, farmers can make a normal profit and have
an annual expenditure for their needs. If the price is under Rp. 5,000, for example Rp. 2,500–3,000
as occurred in 2000/2001, the farmers suffer a disadvantage from coffee production (Interview,
February 24, 2003).
Livelihood of Local People in Batu Bandung Village 289
where the price reached Rp. 17,000/kg.11 In this year, both farmers and coffee trad-
ers at the village, subdistrict, district, and province level attained great advantages
and were very prosperous. This prosperity produced two changes in lifestyle. First,
there was an increase in modern technology products, where many local farmers
could buy such products as TVs, refrigerators (Kulkas), motorcycles, and even cars,
and coffee traders at the village level (ulo-ulo) could afford to buy two cars, such as
the Colt Diesel 150 Ps and 1996 Toyota Kijang. In the case of Batu Bandung village
in 1998, almost every household could buy these products. As explained by some
informants, on Sundays cars and motorcycles crowd the street in Batu Bandung vil-
lage and even sometimes traffic jams will occur, because almost all households wish
to travel to the cities (Kepahiang, Bengkulu and Curup; interview, February 25 and
26, 2003). Second, the purchasing power of local people rose. This was indicated by
the local shops, shops in Kepahiang and even in Curup and Bengkulu cities being
quickly sold out of materials. Unfortunately, only a few farmers placed their money
in savings accounts in banks, anticipating a fall in prices in the near future. The price
of coffee then fell below Rp. 5,000 in 2000/2001, reaching a low of Rp. 2,500–3,000/kg.
This seriously disadvantaged local farmers, who were mostly forced to sell their
newly bought valuable materials in order to prevent falling into bankruptcy.
What About the Secondary Crops?
The lesson of the economic crisis was taught to local farmers from 2000 until the
beginning of 2003, while the price of coffee stayed below Rp. 5,000/kg. During this
period their incomes were too low and their lifestyle changed again, creating social
transformations in two main ways among the people of Batu Bandung. They have
been forced to work on their own land without hiring the workers who formerly
worked on their coffee plantations, and they increased their use of other plantations,
such as Jahe (ginger), chili, fruits, and rice within and around their coffee planta-
tions, thereby intensifying land use. It was hoped that these secondary crops would
assist them in improving their reduced income generating powers. As told by the
former head of the village, since 2001 he has planted more secondary crops such as
rice, jahe, green chili, and fruits. He has then used the income from these secondary
crops in addition to and sometimes as a substitute for his primary income from
coffee production.
The village usually cultivates the elephant ginger species (Jahe Gajah). The
farmers produce 1.5–3 tons of ginger for every hectare, with harvesting taking place
after 8 months of cultivation. The result of a good harvest is about 30 tons of ginger
for each hectare. More ginger can be produced during the rainy season than the dry
season. The farmers of Batu Bandung can contribute thousands of tons of Jahe and
their elephant ginger is so well known, it is sent to Kepahiang, Bengkulu, Curup,
11
The price of coffee reached Rp. 17,000–18,000/kg when the Soeharto regime stepped down in
May 1998. When the “economic crisis” of Asia occurred, including Indonesia, the price of the
dollar rapidly increased into Rp. 18,000/US$.
and Palembang, and even to the far-away Medan market. One farmer mentioned that
when he planted ginger in 1990–1991 using 1 ton of seeds, he produced 10 tons of
ginger, which he sold at Rp. 600/kg, producing a net profit of Rp. 3.5 million. He
used this money to pay his son’s school fees at university in Bandung and bought a
1991 Honda Astrea at a cost of Rp. 1.5 million. The price of ginger rapidly increased
to Rp. 1,250/kg in 1995, Rp. 1,400/kg in 1999, and Rp. 1,500–1,800/kg in 2001.
However, the price differs between old and young ginger. For example, old ginger
in January 2003 reached Rp. 1,600–1,700/kg, whereas young ginger was only Rp.
1,100/kg. One village ginger trader (ulo-ulo) usually buys ginger from local farmers
based on orders from subdistrict traders in Kepahiang and Curup. In February 2003,
while the price of young ginger was Rp. 1,200/kg, he sold his ginger to Kepahiang
traders at Rp. 1,350, gaining a profit of Rp. 150/kg.12
Rice Production
The majority of rice fields are nonirrigated, with only 25 % of fields with an irriga-
tion system. Since the economic crisis, farmers have diligently worked on their
paddy fields, using the IR 64 seed species. Rice is usually harvested twice a year,
with the harvest taking place three and a half months after planting, producing 3
tons of rough paddy (gabah) per hectare of nonirrigated rice and about 4 tons per
hectare from irrigated rice fields. The price of rice in February 2003 was Rp. 2,300–
2,500/kg, whereas rough paddy was Rp. 1,200–1,300/kg.
One informant explained that the rice produced is not sold, but used for private
household consumption.13 This model of rice production has the positive aspects of
utilizing fallow fields that were formerly not cultivated and provided further support
for households in reducing their need to buy rice, as it is the primary staple food of
the household.
Coffee Traders
Profile of Village Coffee Traders
Village-level coffee traders (ulo-ulo) play a significant role. This role requires good
human relations skills, as they deal with both local farmers and subdistrict-
(Kecamatan) as well as district- (Kabupaten) level coffee traders. Village coffee
12
The mechanism of Jahe (ginger tea) trade based on “truth”. Village traders usually get ginger tea
from farmers. The payment system to farmers takes about a week because village traders also wait
for their money from subdistrict traders (interview, 27 February, 2003).
13
Village farmers work in their paddy fields supported by their family and no migrant workers. In
2000, the paddy field activities became more intensive among farmers of Batu Bandung because of
the economic crisis. These rice productions are consumed for their own meal and not sold
(Interview, February 20, 2003).
Coffee Traders 291
traders usually also own a shop and provide cash loans to farmers when required.
They do not take interest on loans as Islamic law strictly forbids it.
There are 12 registered coffee traders in Batu Bandung village (Interview,
February 20, 2003). Currently, eight are actively involved in the coffee trade, and
the remaining five are inactive, because they are bankrupt. I carried out field research
by conducting in-depth interviews with three village coffee traders regarding micro-
economic issues of production, capital, distribution (marketing), and the use of
profits.
First Coffee Trader
Yazid14 was born in Batu Bandung village in 1959. His parents were originally from
this village, although his father received a fairly good education in a school in Bukit
Tinggi, West Sumatra. Unfortunately, Yazid did not completed his elementary
schooling, with the reason being that education is very expensive. During the 1970s,
life as a farmer was very difficult and his parents’ incomes from agriculture were
insufficient to cover his and his eight brothers’ educations. At that time, there was
only one elementary school in the village, and many of his friends also did not com-
plete their elementary schooling. Only a few graduated from elementary school and
continued their studies in secondary school in Kepahiang. After leaving school,
Yazid assisted his parents on their 8–10 ha of coffee plantation. Yazid married a
Lebong woman in 1978 and currently has three children. His first child, a son,
dropped out of school after completing his second year at secondary school. He is
now married with one daughter. The second son is in his second year of studies at
the Technology and Industry Department APRIN in Jogyakarta. The third child, a
daughter, graduated from high school in Curup in 2002.
Capital
Yazid worked as a farmer from 1978 to 1984, opening and planting 4 ha of coffee in
Ranah Kurung near Bengko. In 1981 he carried out his first harvest receiving about
8 tons of coffee. He spent his money for capital as “coffee village collector.” He
initially studied the coffee trade industry from a friend in Bengko, and became a
coffee trader first in Bengko in 1985, trading 20 tons of coffee a day. His initial capi-
tal was Rp. 75,000 and his promise to sell the other farmers’ production. Yazid
would then pay the local farmers after receiving his money from the subdistrict cof-
fee traders. By 1985 he was able to open a small shop as well, providing basic
necessities such as rice, sugar, oil, soap, tobacco, and cakes. The farmers would also
be able to buy these necessities on loan, repaying after their harvest. Farmers who
14
The names of informants, which are registered on “coffee traders” from village to provincial
level are real names. There are two reasons: to know conditions in the field better, and to keep from
false names, as it is difficult to trace back. The writer has permission to mention the names.
borrowed from Yazid in order to buy goods from his store would submit their coffee
produce to Yazid. After a week, the farmers would receive their sales profit from
Yazid, reduced by the amount they owed his store. In 1987 the BRI (Indonesian
Peoples Bank) branch in Kebon Agung provided Yazid with a Rp. 750,000 loan,
which was increased in 1988 to Rp. 1.2 million. Yazid used this credit to expand his
capital base for buying coffee from farmers. He returned his credit on time, so the
banker agreed to provide him with more credit in 1989, in the amount of Rp. 7.5
million. With this money he bought a 1985 Toyota hardtop at a cost of Rp. 3 million
and a Suzuki Carry pickup at Rp. 2.5 million. He then utilized these cars for trans-
porting his coffee from the village to the subdistrict traders.
Production Strategy and Distribution
As mentioned above, the coffee harvest occurs only once a year, from May until
August (4–5 months). Yazid managed his shop with Rp. 6–7 million in capital to
fulfill farmer’s basic needs and open credit during the hard times of the year. Then,
at harvest time, the farmers would give their coffee harvest to Yazid to sell. Yazid
also owns a coffee processing machine, costing Rp. 50/kg of processed coffee. In
1985, while he acted as a coffee trader in Bengko he dealt with 20–25 tons of coffee
a day, which by 1989 was around 35 tons a day. While in Batu Bandung during the
1990s, he traded coffee from local farmers of around 30–40 tons. Yazid would send
this coffee to coffee traders in Kepahiang and Curup and be paid after a week, with
a profit margin of around Rp. 30–35/kg. One of his relatives is a Chinese coffee
trader called Hongi who owns Gunung Selatan Company in Curup. He would some-
times provide Yazid with a credit of Rp. 3–5 million for 3 months during the 1980s,
requiring that Yazid send his best quality coffee to his company.
After Soeharto stepped down in May 1998 and an economic crisis occurred in
Indonesia, the price of coffee increased to Rp. 17,000/kg. Many coffee farmers and
traders from the villages went to gold shops in Kepahiang and Curup, as their pur-
chasing power had increased by such a large amount. In the case of Yazid, he col-
lected almost Rp. 200 million from coffee trading.
Use of Profit
Yazid was a very successful coffee trader at the time, and spent the greatest part of
his profit on buying two cars and one motorcycle in 1998. He spent Rp. 15–20
million on a marriage ceremony for his son and also bought 18 tons of extra
coffee from farmers as savings. Unfortunately, in 1999 the price of coffee reduced
to Rp. 12,000/kg and then Rp. 2,500–3,000 in 2000/2002.
This low price meant that Yazid suffered a big loss of capital, and he was forced
to sell his two cars. He was forced to sell his stock of 18 tons of coffee at a very low
price and he still has a credit of almost Rp. 6.5 million with BRI Bank in Kepahiang
in 2002. Both his son at university in Yogyakarta and his daughter, after graduating
Coffee Traders 293
from high school in Curup, could no longer continue their studies. They are currently
at home, hoping for an improvement in the price of coffee in the near future.
Second Coffee Trader
Haji Zulkifli was born in 1941 in Batu Bandung and has seven brothers. He is 62
years old and is an influential man in the local community. Among the village coffee
traders, Haji Zulkifli is the eldest. He did not finish elementary school; however he
has a strong sense of the coffee business. He married a South Bengkulu woman in
1957 and has three sons and three daughters. One of his sons is at university
(UNISBA) in Bandung and two of his daughters have graduated from high school.
As a farmer, Haji Zulkifli opened 2 ha of coffee in 1960 and 3 ha in Pematang Lekat
and Tebat Rimbun in 1964. In the first harvest season he received 3 tons per hectare
and the second reached 4 tons.
Capital
He then sold 3 ha in 1978, receiving Rp. 8 million. He used this money as capital to
become a coffee trader and for opening a shop (Toko Manisan).15
He also bought a 1975 Colt T120 at a cost of Rp. 4 million. Haji Zulkifli has a
good relationship with Hongi, one of the big coffee traders of the Gunung Selatan
Company in Curup. Hongi lent Haji Zulkifli Rp. 24 million in 1979, which Zulkifli
used as capital in his coffee trade, sending his coffee to Hongi. In 1986 Haji Zulkifli
received Rp. 10 million credits from BPD (City Development Bank) Curup.
Coffee Production and Distribution
The local commodities usually traded are coffee and jahe (ginger). Haji Zulkifli
utilized two strategies for attaining coffee for trade: first, he lent money to farmers
without interest of between Rp. 200,000 and Rp. 500,000; second, his shop was
used for “lending” materials to villagers. During the harvest, farmers would usually
send their coffee for sale, which Haji Zulkifli would then send to Hongi in Curup.
For example, in 1975 he sent 3 trucks (4 tons of coffee a truck), in 1979/1980, this
increased to 4–5 trucks and 6 trucks in 1985/1986 to Gunung Selatan Company.
With each transaction he received a net profit of Rp. 30–50/kg. His truck was not
fully inspected upon reaching Hongi’s shop, because Haji Zulkifli’s coffee was con-
sistently of good quality. He consistently dealt with Hongi until the company was
closed in 1989. When the Gunung Selatan Company closed, Haji Zulkifli changed
15
The words “Toko Manisan” are familiar and is used in Batu Bandung village for naming shops.
In fact, this shop provided basic needs for villagers such as rice, oil, soap, cigarettes, cakes, fish,
soybeans, and so on (Interview, February 27, 2003).
to trading with Haji Darus, one of the four major coffee traders in Kepahiang, from
1991to 1997. Haji Zulkifli also traded in ginger. During the harvest, he would trade
1–2 tons per day, sending the produce to Palembang. With ginger, he received a net
profit of Rp. 60/kg. Haji Zulkifli was also actively involved in sending coffee and
ginger by his car to Curup, Palembang, up to Medan.
Use of Profits
Haji Zulkifli spent most of his profits on strengthening his capital base, which stands
at around Rp. 40–70 million. He also owned two Colt Diesel trucks and a bus. The
trucks were used for transporting coffee from the village to Kepahiang and Curup.
Meanwhile, the bus carried passengers from Batu Bandung to Kepahiang and
Curup. He also bought a 1984 model Honda Accord at Rp. 25 million in 1996 for
his family. As a Muslim, he also carried out the pilgrimage to Mecca with his wife
in 1999. He prides himself that his profits were spent on his pilgrimage and educa-
tional fees for his children. He told me that whether any of his children obtain a
Bachelors certificate or not, he is glad that one or at least two of them ever got to
university level. His plan for the future is that in 2003 he will return to becoming a
coffee trader, while the price of coffee has increased to more than Rp. 5,000/kg.
Third Coffee Trader
Dedy Irawan is the youngest and largest trader in the village. He was born in May
1978 in Batu Bandung and is currently 25 years old. His father, Haji Tjiden, was a
famous farmer with 20 ha of coffee plantation land and also a trader in the village,
and has moved to the Kepahiang subdistrict. He has one brother and three sisters.
His elder brother has graduated with Bachelor’s degree in economic management
from UNPAD (Pajajaran University) in Bandung in 2000. He has worked as a gov-
ernment officer in Curup district since 2002. Meanwhile, Dedy the second son, did
not complete his high school certificate (Sekolah Menengah Atas/SMA), only com-
pleting the first class. Dedy decided to support his father as a farmer in 1992, open-
ing 2 ha of coffee in 1995 at Air Sembat. During the first harvest in 1995, he only
received 1 ton of coffee per hectare, and in the second year he received 1.5 tons per
hectare. He sold his coffee of 3 tons at a price of Rp. 4,500/kg.
In 1992, he married a village girl, but afterwards divorced with no children. He
married for the second time in 1995, a girl from Pasmah, Lahat District, and South
Sumatra. He currently has one daughter in second year at elementary school.
Capital
Dedy’s father provided the initial capital of Rp. 3 million, while Dedy had Rp. 4
million in private savings in the bank from his coffee production. This capital was
used for shop construction and the buying of materials. In 1996 he formally opened
Coffee Traders 295
his shop in the village. Because of his good relationships with other farmers and
capital base, his shop is currently considered the largest, with Rp. 20 million in
capital and many farmers using him as their trader. In 1998 Dedy received Rp. 25
million in credit from the BRI Bank in Kepahiang. At the same time, Danamon
Bank, also in Kepahiang, gave him Rp. 30 million in credit to expand his capital. He
returned all his credit to these two banks and currently has savings of Rp. 50–60
million.
Coffee Production and Distribution
Dedy uses three methods for attracting farmers to trade with him: first, his shop as
a means of providing credit to farmers for basic needs such as, rice, sugar, milk, tea,
soap, and cakes in the dry season; second, a coffee machine Yanmar (Mesin Hiler),
bought in 1987 at a cost of Rp. 2 million for processing coffee. During the harvest,
this machine processes 3 tons of coffee per day at a price of Rp. 50/kg; and third, he
provides no-interest cash credit to farmers. For example, in 1996 he spent Rp. 10
million to cover 20 households, increasing his credit to Rp. 17 million in 1997 and
Rp. 35 million in 1998/1999 for 50 households. However, when the price of coffee
decreased in 1999–2000, he only provided Rp. 15 million in credit.
Along with his good relations with subdistrict coffee traders in Kepahiang, he
has succeeded in trading, in 1996, 5–6 tons of coffee per day and in 1998, 10–15
tons per day. Altogether, he could now collect 250 tons in one coffee season, with a
net profit of Rp. 40–50/kg.
Dedy is a creative trader. He collects 15–20 tons per day of ginger during harvest
time. However, he only buys ginger from farmers if there is a demand from subdis-
trict traders because ginger is a speculative commodity to him, as the price rises and
falls inconsistently and also there is a large variation between the prices of old and
young ginger. For example, in 2001 young ginger cost Rp. 1,400/kg and old ginger
Rp. 1,600/kg. In 2003 (February) young ginger cost Rp. 1,200/kg. Dody sells to
subdistrict traders at Rp. 1,400, with a net profit of Rp. 100/kg after transport costs.
In 2001 he collected 450–500 tons per month, with a profit of Rp. 3.5–4 million
from the ginger trade annually. However, in 2002 he suffered a decrease in the
ginger trade of 350 tons per month. He considers the profit from ginger to be very
little compared to the coffee trade.
Use of Profits
In 1997, he obtained a profit of Rp. 20 million from his coffee and ginger trading as
well as the coffee processing. He spent half of this profit on increasing his capital
and the rest on buying a Colt Diesel Engkel truck to transport coffee from the village
to the subdistrict level traders. When the price of coffee increased in 1998 to Rp.
17,000/kg, Dedy collected Rp. 150 million in one season (May–August). With this
profit, he opened two savings accounts in 1998, one of Rp. 40 million in Danamon
Bank and the other of Rp. 50 million in Bank BRI. He also bought 8 ha of land at a
cost of Rp. 40 million. In 1999 he bought another 6 ha of land for coffee production
and a 1998 model Suzuki Futura pickup truck for Rp. 36 million. Unfortunately,
when the price of coffee decreased in 2000/2001 to Rp. 3,000/kg, his net profit also
decreased to Rp. 25–30 million per coffee season. He spent this profit plus the sav-
ings in his bank in order to buy a Daihatsu Taft GT (4 × 4 models) for Rp. 60 million.
This car is used for family transport. In 2003 he is optimistic that the price of coffee
will rise again. He says that in March the price of coffee reached Rp. 4,800/kg and
the price would need to rise to Rp. 5,000/kg in order for coffee stakeholders to real-
ize any profit and production be maintained.
Dedy also spent some of his profit for social donations such as building of
mosque, and school facilities. As a Muslim, he intends to carry out a pilgrimage to
Mecca with his wife (Fig. 12.8).
Money lending/ Workers/ Transportation

Wages Cost Bank
Coffee farmers
Credit
Buying
Car
Cost/
Rp.80 million
Buying
Production Profit/ Land
Reprocess 150 tons/ ACTOR 3 Rp.40
Rp120 Dedy million
Basic Quality
million
School
Coffee traders
Sub-District
(Kepahiang ) Social
Fig. 12.8 Coffee and monetary flow at village level

Note: (Money) (Coffee)
Coffee Production annually happens from May–September (5 months)
Profit received by coffee traders every month in coffee season
Actor 1 is Yazid
His coffee production reached 40 tons per month in coffee season
He makes a profit of Rp. 10 million per month in coffee season
Actor 2 is Haji Zulkifli
His coffee production reached 48 tons per month in coffee season
He makes a profit of Rp. 12 million per month in coffee season
Coffee Traders 297
Subdistrict-Level Coffee Traders
The role of coffee traders in the Kepahiang subdistrict is very strategic. First, from
a geopolitical perspective, Kepahiang is located in the upland region of the district
and in the middle of the traffic line between Curup (the capital of Rejang Lebong)
and Bengkulu (see Map). Second, coffee traders in Kepahiang are actively involved
as facilitators of coffee trading and provide credit without interest to ulo-ulo (village
coffee traders) in some productive villages such as Batu Bandung, Sosokan Taba,
Ujan Mas, Bermani Ilir, and Air Punggur. There are around 12 Rejang coffee traders,
one Chinese and three Acehnese traders. All of the five large coffee traders are of the
Rejang ethnic group.16
First Coffee Trader
Haji Aksah was born in 1959 in Bengkulu. His father originally came from the
Kembang Sri subdistrict. His parents were not very rich and their children only
completed secondary school, including Haji Aksah. Thereafter, Haji Aksah worked
with his uncle for almost 3 years as an assistant coffee trader. After he had acquired
enough knowledge on coffee trading, he borrowed capital of Rp. 500,000–2 million
from his uncle and began working as an independent coffee trader. Currently, he is
considered among the four largest coffee traders in Kepahiang and has capital of
around Rp. 1.5 billion in the form of cash in the bank, cars, two shops, land, a house
in Jakarta, and another one in Bengkulu. In 1978, Haji Aksah married a Kepahiang
girl and has one daughter and a son. His daughter is currently in her fourth year
studying economics at Trisakti University in Jakarta and is married with one
daughter. His son graduated from the Faculty of Computer Technology at Binus
(Bina Nusantara University), Jakarta. He is also married and works as an assistant
coffee trader for his father.
Capital, Production, and Distribution Strategy
As he began his career under his uncle’s tutelage, Haji Aksah has a strong knowl-
edge of the coffee trading network and has many connections with local farmers.
He began by dealing directly with local farmers in villages in order to buy coffee.
With his capital in 1984 of Rp. 1.5 million, he collected coffee at 8 tons per day during
the harvest, increasing in 1986 to 15 tons per day and finally to 350–400 tons per
month. He built a coffee warehouse (gudang) in 1986 and had a good relationship
through his uncle with Hongi, the leading exporter of coffee (from 1986 to 1989).
16
The survey carried out by the Industry and Trade Agency of Rejang Lebong District in 1985/1986
of 15 coffee traders in Kepahiang. The result has identified that in the coffee season, Kepahiang
contributed 90,000 tons annually (250 tons per day; interview on February 27, 2003).
Haji Aksah informed me that Hongi was a good trader, who had supported him by
providing him with Rp. 5 million in credit in 1986, and a further Rp. 20 million in
1988. Bank BRI in Kepahiang also lent him Rp. 15 million in 1986, increasing in
1988 to Rp. 25 million and Rp. 35 million in 1989. All these loans he returned by
1990 and he then received another Rp. 50 million.
Haji Aksah in 1988–1989 increased his production to 25 tons of coffee per day.
He traded 700–790 tons per month, distributing to Hongi in Curup, with a profit of
Rp. 60/kg. Haji Aksah was then seen to be a newly successful coffee trader, with
profits reaching Rp. 65–80 million in one coffee season. He spent his profits on
building his coffee warehouse in Kepahiang, buying a Colt TS and strengthening his
capital base in 1988–1989. In 1990, he bought a Colt Diesel 150 PS. When Hongi
stopped his operations in 1989 and opened an Arabica coffee plantation in Lebong
Selatan District, Haji Aksah found a new large coffee trader in Palembang to
trade with.
During the 1990s, Haji Aksah became one of the leading coffee traders in
Kepahiang. In addition to maintaining a good relationship with farmers, banking
institutions, and coffee traders at the provincial level, he owned Rp. 110 million in
capital for coffee trading. In the 1990s, he traded 20 tons of coffee per day, reaching
600 tons a month to the Palembang Jaya Company in Palembang.17 In 1990, the
price of coffee was Rp. 1,200/kg, while in 1992–1993 the price was Rp. 2,800/kg.
During this period, he received a profit of Rp. 30–50/kg. In 1996–1997, his profit
reached Rp. 120–125 million.
During the coffee price boom of 1998, Haji Aksah started providing credit with-
out interest to village coffee traders. He then received 150–200 tons of coffee per
day and during the harvest (May–August) he collected 20,000–24,000 tons. The
greatest part of his produce was distributed to Palembang Jaya, with smaller amounts
distributed to other companies such as Aba, Nontji, and Atang. His profit from the
coffee trade in 1998 was around Rp. 500 million. He spent 40 % of this profit on
strengthening his capital base, his savings in BRI Bank reached Rp. 120 million and
the rest of his profit went toward the houses in Bengkulu and Jakarta, 1.5 ha of an
orange orchard, and 3 Puso trucks for coffee transportation as well as the pilgrimage
to Mecca. He contracted 6 semi- permanent workers and 8 drivers and their
assistants (kernect). The truck drivers and their assistants received 20 % of total
coffee loading.
In 1999, Palembang Jaya closed and Haji Aksah turned to Lampung for his cof-
fee distribution because the infrastructure is there for coffee trading in terms of
banking institutions, large traders, and port facilities, and because the transportation
system to Lampung is currently safer than to Palembang. Also, the Lampung coffee
brokers are better equipped than those in Palembang.
17
Palembang Jaya Company was a newcomer in coffee trading in 1990, after Gunung Selatan
Company stopped in 1989. The head office of this company is located in Palembang, Karang
Anyar. This company was one of the branch businesses of Darmala Group, one of the 20 biggest
Chinese conglomerates in Indonesia.
Coffee Traders 299
In 2001, Haji Aksah bought a Toyota Kijang Krista for family transportation
through credit from a Toyota dealer in Bengkulu and in 2002 he also bought a Colt
Diesel 150 PS for coffee transportation. He says that his bank savings provided the
money required for this. He is still optimistic in 2003 that the price of coffee will
rise from its current Rp. 4,800/kg in March, because the normal price for coffee
stakeholders is Rp. 5,000/kg.
Haji Asrai was born in Tapak Gedug, in the Kepahiang subdistrict in 1949. His
parents as farmers had three sons and were not rich, but Haji Asrai graduated from
secondary school. He then acted as a farmer and supported his father in the village.
He married a village girl in 1967 and currently has seven children, four sons and
three daughters and nine grandsons. He began his career as a coffee trader in 1969,
trading 500 kg/week, gradually increasing to 2 tons per month. Currently, Haji
Asrai is one of the four leading coffee traders in Kepahiang with capital of more
than Rp. 600 million in cash and cars, shops, land, and more, worth Rp. 1 billion.
He began trading coffee by visiting many central villages with the potential to pro-
duce coffee. In 1972, he collected 2 tons of coffee a week, increasing to 8 tons in
1973 from villages such as Nati Agung, Karang Tengah, and Tapak Gedug. He first
obtained capital formally from Haji Sohel, a big trader in Kepahiang. Haji Asrai
spent his profits on building a shop in Kepahiang in 1984, leading to a greater capac-
ity for trade, and an increase to 10 tons of coffee per day.
In 1984 he began trading with Hongi, sending almost 80 % of his trade to Hongi
and 20 % to Palembang Jaya. In 1987, Hongi gave him credit of Rp. 20 million to
strengthen his capital base, and Bank BRI gave him from Rp. 25 million to Rp. 150
million during the 1990s. He used this credit to provide loans to 40–50 households
in 1992, increasing to 90–102 households in 1998. There are six permanent workers
in his company, with their wages based on the regional minimal wage of Rp. 14,000,
as well as providing a personal health insurance.
At the end of 1997, early 1998, when the price of coffee drastically increased,
Haji Asrai sent coffee to big traders in Lampung, such as Alam Jaya Company and
traded 50–60 tons per day in 1998, decreasing to 20–25 tons per day in 2000–2002
when the price of coffee fell. The largest profit he attained occurred in 1998, when
the price increased to Rp. 17,000/kg. At this time, his total profit was Rp. 400–500
million in the year. In 1997, he spent his profit on the pilgrimage to Mecca with his
wife. In addition, he bought land, two trucks for coffee transportation, and a Colt
Mitsubishi for family recreation.
Third Coffee Trader
Haji Juliantoni was born in 1958 in Batu Bandung to a Rejang family. He graduated
from high school in Curup and began his career as a truck driver for one of the cof-
fee traders in Kepahiang. He married his high school sweetheart in 1976 and now
has six children: five sons and one daughter. One of his sons has graduated with a
Bachelor’s degree in management and accounting from Padjadjaran University—
Bandung in 2002. The second son, after graduating from high school in Curup,
works for the Curup local government. Haji Juliantoni currently has assets amount-
ing to Rp. 800 million in two shops, a house, two trucks, one Toyota Kijang, and
savings in the bank.
Haji Juliantoni’s career as a trader began with the large trader, Hongi, offering him
Rp. 5 million as basic capital in 1986. He bought coffee from many villages, such
as Batu Bandung, Bermani Ilir, and Ranah Kurung. During the coffee season, he
began by buying 2–3 tons of coffee per day, increasing to 8–10 tons per day with his
growth of capital, selling almost 90 % of his coffee to Hongi. He believed that
Hongi trusted him because his coffee was always of a good quality. He spent some
of his profits of Rp. 12 million in 1986 on a car worth Rp. 9 million, land in Bengkulu
city for building a house in 1989, and for building a house as rental property in
Kepahiang.
He opened a shop providing basic necessities in Kepahiang in 1987. This shop
provided credit to village level coffee traders (ulo-ulo). Through smart trading and
good relationships with village-level coffee traders, he attained access to good qual-
ity coffee. When Hongi closed his company in 1989, Haji Julianto used his relation-
ship with Palembang Jaya and other big traders in Curup and Lampung to continue
trading. He spent his profits on buying a Colt Diesel PS with a down payment of Rp.
18 million and 2 years credit, using this truck for transporting coffee from the vil-
lage to the sub-district and the major cities.
He sold his Toyota Kijang Super for Rp. 18 million in 1993 and took a loan from
BRI Kepahaiang of Rp. 30 million, using this capital to loan to village farmers.
In 1994–1995 he traded 30–40 tons of coffee per day during the harvest season.
In 1998, when the price of coffee dramatically increased, he collected 40–50 tons of
coffee per day and made a profit of almost Rp. 120 million. He spent his profit on
buying a Suzuki Escudo (2000 cc), taking the pilgrimage to Mecca with his wife in
2000 and paying the school fees for his children in high school and university.
However, during 2001–2003 when the price of coffee was below Rp. 5,000, he
informed me that these years were a very difficult time for coffee traders to maintain
their operations (Fig. 12.9).
Coffee Traders 301
Coffee traders Transportation

Workers/Wage
village Cost
Bank
Credit
Cost/
Rp.1
Buying
billion
Car
Production/ Buying
Reprocess: Profit
20,000 tons/ ACTOR 1 House
Middle Quality Rp.
Rp.1.5 Aksah
500
billion million
School
District Traders Health

Provincial Traders Care
Fig. 12.9 Coffee and monetary flow at sub-district level

Profit is Rp. 500 million per month in coffee season (May–September)
Actor 2 is Haji Asrai
His coffee production reaches 15,000 tons per month in coffee season
He makes a profit of Rp. 400 million
Actor 3 is Haji Juliantoni
His coffee production reaches 8,000 tons per month in coffee season
He makes a profit of Rp. 120 million
District Level Coffee Traders
There are around 13 district-level coffee traders in Curup. The majority of these
traders are of the Chinese ethnic group and those traders actively involved in coffee
trading comprise around 75 % (10 traders).18 During the 1980s, the Gunung Selatan
and Palembang Jaya companies were the largest coffee traders in Curup in terms of
capital, coffee storehouses, and networks with farmers. However, during the 1990s,
Atie, Sopa, Sutopo Cahyadi, Anuang (Edy Yanuar), and Bengkulu Jaya replaced
their former positions and are categorized as the largest companies.19 The bulk of
coffee that enters Curup District comes from many subdistricts, namely Kepahiang,
18
Interview on February 28, 2003 with staff on Industry and Trade Agency in Local Government
(Curup).
19
Hongi as the owner of the Gunung Selatan Company could collect 250–300 tons per week in
the 1980s.
Bermani Ilir, Sindang Kelingi, Ujan Mas, Taba Karai, and Bengko-Padang Ulak
Tanding (Fig. 12.10). Three subdistricts, namely Bermani Ilir, Kepahiang, and
Padang Ulak Tanding are identified as the largest coffee producers in Rejang
Lebong.
First Coffee Trader
Atie is of Chinese ethnicity. He was born in Jambi in 1949 and has a secondary
school (SMP) certificate. In 1975, when he was 26 years old, he married a Chinese
girl in Jambi and has three sons. The first son has graduated from the Bandung
Institute of Technology in 2000, and the second son has graduated from the
University of Tarumanegara in Jakarta with a degree in economics in 2002. The
third son is still in fourth-year elementary school. Atie arrived in Curup in 1983 as
a shop goods trader. He provided cakes, bread, sugar, rice, milk, and other products
for many of the shops in Manna (South Bengkulu), Bengkulu City, and Curup dur-
ing the period 1983–1993. He took up the career as a coffee trader in 1994 and is
currently categorized as one of the biggest four coffee traders in Curup, with more
than Rp. 2 billion in assets, namely a large house and coffee warehouse/gudang,
savings in the bank, trucks and a Toyota Kijang, coffee plantation, land, and more.
Capital, Production and Distribution Strategy
Atie was already familiar with the banking institutions as a shop goods trader, so
when he entered the coffee trade in 1994, the Bank Central Asia (BCA), Danamon,
and BNI were willing to provide him with credit. In 1995 he obtained a loan of Rp.
50 million from BNI, in 1999, Rp. 150 million, and in 2001, Rp. 500 million. He
gave credit to coffee farmers in the form of cash from between Rp. 100,000 to Rp.
1.000,000, charging the farmers 2.5 % per month or 20 % per year, whereas Atie
Company only charged 15 % per year. He developed a credit line of Rp. 80 million
for 800 households and in 2002–2003 increased this to Rp. 400 million for 1,300
households. The majority of coffee farmers indebted to him are located in Curup,
Lubuk Kembang, Suka Datar, Talang Gambir, and other subdistricts. Atie received
5 tons of coffee per day during the harvest season in 1994, building up to 6 tons per
day in 1995. He further improved his trade during 1996–1997 to 7–10 tons coffee
per day (250–300 tons per month).
During 1994–1998 he sent his coffee to Palembang Jaya Company. In 1994 he
was sending one truck a week, building to twice weekly in 1995. This meant an
average of 40 tons (one truck contains 5 tons) a month, which grew again to 50–60
tons a month in 1996–1997, receiving a marginal profit per kg of around Rp. 30–35.
He spent more than 40 % of his profits on strengthening his capital base as 40 % of
his loans to farmers had still not been returned. Meanwhile 30 % of his profits were
spent on his family’s health and education and 30 % was use for repaying his loans
from the bank.
Coffee Traders 303
Market:
Provincial Level Palembang, Bengkulu, Export to Foreign countries:
Lampung Japan, etHongkong,
Germany, etc.
District Level District Level

(Curup) (Lubuk Linggau)
Sub -District Sub-District

(Kephiang) (Padang Ulak
Tanding (Bengko)
Sub-District Some Villages Coffee Production:

(Bermani Ilir) Renah Kurung
Air Barus
Air Donok
Pematang Lekat
Air Punggur, etc.
Some villages Coffee Center:

Batu Bandung
Sosokan Taba
Sosokan Baru
Tebat Ritan, etc.
Fig. 12.10 Coffee traders and their networks (village, subdistrict, district, and provincial).
Note: : Direct Access
Source: This field research was carried out twice. It was first conducted in Batu Bandung, Bandung
Baru, and Bengko villages, Kepahiang subdistrict in 1996. It was then carried out again in February
and March 2003 in Batu Bandung village, Sosokan Taba, and Talang Tige villages, Bermani Ilir
subdistrict
When, in 1998, the price of coffee reached Rp. 17,000/kg he was trading 55 tons
of coffee per month and received a profit of Rp. 200–300/kg from Alam Jaya
Company in Lampung. That year he made a profit of Rp. 560–600 million and
repaid all of his loans to the banks of around Rp. 278 million, and 30 % went to
strengthening his capital base. He told me that coffee trading is much like gambling
as the price fluctuates so much, so coffee traders constantly face changing profits
and losses. When, in 1999, the price of coffee decreased to Rp. 12,000 and then
drastically fell in 2000–2001 to Rp. 7,300/kg and again in 2002–2003 to below Rp.
5,000/kg, he was strongly disadvantaged and many of the loans he had provided to
farmers have not been repaid. He personally took out loans of almost Rp. 250
million with BCA and BNI Bank in 2002 and although the price of coffee has risen
to Rp. 4,700 in 2003, this is still not profitable enough. However, Atie is optimistic
that coffee trading in 2004 will be better this year, because of economic growth and
increasing demand for coffee.
Sutopo Cahyadi was born in 1959 in Curup. He is Chinese Indonesian and his origi-
nal name is Fung Waipo. His father is Fung Yu and originally came from Canton,
China, migrating to Padang in 1925 and working as a carpenter. He moved to Curup
in 1950, married a Chinese girl in 1952 and they had six sons. Sutopo is their eldest
son. Fung Yu began his career as a shopowner and coffee trader in Curup in the
1970s. He initially began as a local coffee trader, selling to Gunung Selatan and
Palembang Jaya companies. When his father died in 1994, as the eldest son, Sutopo
(Fung Waipo) took over his father’s business. Sutopo graduated from secondary
school in 1974 in Curup. He initially worked as a shopkeeper in 1975, then moved
to Palembang in 1977–1978 and worked in a gold shop. In 1984 he returned to
Curup and worked in a photography shop. He married a Chinese girl from Palembang
in 1995 and currently has two daughters and one son. Sutopo has about Rp. 1.8
billion in capital in the form of a house, shop, coffee plantations, trucks, cars, and
savings in the bank.
Sutopo as a newcomer to trading says that he studied coffee trading from his father
and other smart coffee traders. His father (Fung Yu) was a traditional trader, never
borrowing from banks in order to expand his capital. Although he was very strict in
terms of money, he was very kind to his workers, always paying their salaries and
providing them with their rights. As a new generation, Sutopo has a different style
of leadership to his father. He expanded his capital base by approaching a bank and
received a loan of Rp. 25 million from the BRI Curup branch in 1989 at an interest
of 22 % per annum. He also obtained a loan of Rp. 75 million from BCA at 21 %
interest. From 1990 to 1996 he had good relations with the Palembang Jaya office
Coffee Traders 305
in Palembang. During these years, Sutopo obtained a loan from his Palembang Jaya
partner for coffee trading with the provision that he sends his best quality coffee to
Palembang Jaya.20 Sutopo uses these loans to both strengthen his capital base and
provide loans to coffee farmers in order to obtain their coffee.
Sutopo uses his shop to provide credit to farmers for buying basic necessities as
well as providing direct loans to local farmers at 15–16 % interest. He also receives
coffee from many subdistrict traders in Kepahiang, Bengko-Padang Ulak Tanding,
and Ujan Mas. The majority of farmers he provides loans to are from the Curup
subdistrict, such as Talang Gambir, Lubuk Kembang, Suka Datar, Air Kurung,
Jambu Keling, and villages. In 1987 he gave loans to 300–350 households totaling
30 tons of rice and Rp. 45 million. This allocation of credit developed in 1988 to Rp.
60 million and 40 tons of rice for 450 households. Unfortunately, still unreturned
loans to local farmers amounted to around 20–30 % in 1990–1996. He traded 3 tons
of coffee per day during the harvest season in 1987, rapidly increasing this to 5–6
tons in 1988–1989. From 1990 to 1992 he traded in more than 8 tons per day, send-
ing his produce to Palembang Jaya. Although the margin of profit received was
small at around Rp. 25–30/kg, he made around Rp. 70–80 million in 1992. He spent
40 % on repaying loans to the banks and 30 % on strengthening his capital. The
remaining 30 %, Sutopo spent on his family’s education and health.
When the price of coffee reached Rp. 17,000/kg in 1998, he was trading in
120–150 tons of coffee per month during the harvest season, sending 4 trucks per
week to Palembang Jaya, with a profit margin of Rp. 500/kg, therefore making Rp.
390–410 million that year. He spent his profit on repaying BCA about Rp. 200
million and strengthening his capital, and the rest was spent on his family’s educa-
tion and health. When Palembang Jaya closed at the end of 1998, he traded with
Eliana Company, a new big trader in Lampung. He frankly admits that in 1999–2001
he lost much because the price of coffee was fluctuating so much, therefore, he still
has an outstanding loan of almost Rp. 70 million in 2002. He intends to repay this
loan with his fresh profits from this year, 2003.
Third Coffee Trader
Tiui and Iui were both born in Curup in 1962 and 1964, respectively. Both brothers
built the Darmayani coffee trading company in 1996. Tiui and Iui graduated from
elementary school in Curup and their father owned a shop providing basic necessi-
ties. Tiui worked with his uncle in Jembatan Besi, Jakarta, from 1984 to 1988, as a
clothes shopkeeper. He returned to Curup and worked a further 5 years with Sopa,
a large coffee trader (1990–1995) in the coffee marketing and production division.
He utilized his knowledge from those 5 years to build his own coffee trading
20
This “trust” by receiving money transfers from Palembang Jaya Company, was through bank
institution transfers from Rp. 100–300 million. This “coffee trading” scarcely happened among
Chinese ethnic based on mutual trust in trading. This relation obliged Sutopo to send at least twice
per week for the best quality of coffee (Interview, on March 1, 2003).
company, called Darmayani. He married a Rejang girl in 1989, currently has four
children and his eldest son is in the second year of secondary school. As a new-
comer to coffee trading, his assets are estimated to be about Rp. 1 billion in the form
of two houses, coffee plantations, and a coffee processing machine, two trucks, and
one L 300 Mitsubishi Deluxe.
As a former worker of the Sopa trading company, he is familiar with coffee trading
in terms of borrowing from banks, creating farmer networks, and marketing. Tiui
received his initial capital of Rp. 2 million from BRI bank in 1997 at 22 % interest
per month, however, his major capital is his relationships with coffee farmers, he
says. He further strengthened his capital by borrowing Rp. 200 million from BCA
in 2002. He and his brother began as village coffee traders in the Samberejo subdis-
tricts of Suban, Simpang Naka, and even Bengko from 1996 to 1998. They gave
loans to 10 households, growing to 150 households of anywhere from Rp. 100,000
to Rp. 1,000,000. Darmayani Company only charged 10 % interest a year. They
began with an initial trade of around 2–3 tons of coffee per day during the harvest
season in 1996. When the price of coffee was booming in 1998, they were trading
in 58 tons of coffee per month, making a profit of Rp. 450–500/kg and distributing
to Palembang Jaya Company. When Palembang Jaya closed in 1999, he contacted
BW (Budi Wahana) Company, which has replaced Palembang Jaya since 2001,
sometimes sending their coffee to Lampung. They made a profit of Rp. 250–300
million in 1998 spending 40 % of their profit on repaying loans, 30 % on strengthen-
ing their capital base, and 30 % on educational fees and health facilities for their
families.
In 1999, they bought two coffee processing machines for Rp. 15 million, pro-
cessing 100–200 kg/month. This produce is sold in many markets in Lubuk Linggau,
Curup, and Bengkulu. Unfortunately, when the coffee price fell to Rp. 7,300 in
2000–2001, he lost almost Rp. 178 million. It occurred because of the difference in
price between buying and selling. For example, in February 2003, he lost Rp. 10
million, because of the price fluctuation. He knows that the normal price of coffee
is above Rp. 5,000. With this standard price, coffee traders and farmers could obtain
profits (Fig. 12.11).
Provincial-Level Coffee Traders
The role of provincial-level coffee traders is significant, as they provide large capital
and infrastructure such as banking institutions, ports, and networks for export mar-
kets. There are three provinces: Palembang, Lampung, and Bengkulu, which are the
bases for coffee exporting. There is one registered coffee export company in
Coffee Traders 307
Money Lending/ Transportation

Workers/Wage
Coffee farmers Cost
Bank
Credit
Cost/ Rp.
800 million
Buying
Car
Production/
Reprocess: ACTOR 1 Profit
400 tons/
Medium quality Atie Rp.400
Rp.1.2
billion million School
Coffee Traders
Health
Provincial Level
Care
Fig. 12.11 Coffee and monetary flow at district level

Coffee production usually occurs in May–September. Then coffee traders get the profit almost 5
months
Actor 2 is Sutopo (Fung Waipo)
His coffee production reaches 250 tons per month in the coffee season
He makes a profit of Rp. 70 million per month
Actor 3 is Tiui
His coffee production reaches 80 tons per month
He makes a profit of Rp. 30 million per month
Bengkulu and seven companies in Lampung.21 This field research was carried out in
February and March 2003 and limited to Palembang. Based on a report by AEKI
(Coffee Exporters Association of Indonesia) in Palembang in 2003, of the twelve
members of AEKI, only six are actively involved in coffee exporting.22 During the
1980s and 1990s, the coffee exporting role of Palembang Jaya Company was sig-
nificant and has since been transformed into the BW (Budi Wahana) Company.
21
In fact, Bengkulu province is the largest coffee producer in Sumatra. Because this province
lacked infrastructure facilities such as banking, port, and political will of the provincial govern-
ment the main coffee trading transferred to Lampung and Palembang (Interview, March 2, 2003).
22
The export realization of coffee production in 2001–2002 registered 3,660 tons. This total
amount was drastically decreased, when compared with the export figure of 33,804 tons registered
during 1997–1998 (Interview with staff of AEKI, on March 4, 2003).
First Coffee Trader
The Palembang Jaya Company was built in the beginning of the 1970s as a branch
of the holding company, Darmala Group, whose head office is located in Jakarta.23
Palembang Jaya deals in all agricultural products, including coffee, in Sumatra.
This company was supported by banking institutions, large capital in billions of
rupiah, qualified workers, a very large trading network, and about 2 ha of coffee
warehouses.
Production and Distribution Strategy
In order to obtain coffee produce from many cities, Palembang Jaya had branches in
Curup, Lahat, and Kepahiang. Sadikin and Ahin headed the company and each
branch was supported by 20 workers with the job of buying coffee and providing
loans to coffee traders.24 In 1974, Palembang Jaya in Curup received 20–25 tons of
coffee per day, rapidly increasing in 1975–1976 to around 30 tons and again in
1978–1979 to 50–55 tons. In the 1980s, Curup’s branch alone bought 67–70 tons
per day or an equivalent of 2,100 tons per month. Many coffee traders in Curup,
such as Gunung Selatan, Sopa, Bengkulu Jaya, Sutopo, and Atie had good relations
and were partners of Palembang Jaya Company in the 1980s and 1990s. Meanwhile,
in Kepahiang, Palembang Jaya also had relations with local coffee traders such as
Haji Sohel, Haji Asrai, and Haji Rahmat. In the 1980s, Palembang Jaya usually
bought around 250 tons of coffee per day during the harvest season, increasing to
300 tons per day in the 1990s. This amount of coffee trading placed Palembang Jaya
in a significant position compared with other actors in Palembang, such as Kharisma,
Inti Baru, Niagara, and Mangkubumi, which on average traded 50–70 tons of coffee
per day.
As a large trader and well-known player in coffee trading, Palembang Jaya
always maintained a high quality of coffee and good relations with importing coun-
tries. All coffee from the district and subdistrict coffee traders were selected again
and dried. This coffee was usually exported to the United States of America, Japan,
Hong Kong, Germany, and Australia. The system of payment was through bank
transfers from importer countries to the Palembang Jaya Company bank account,
located at the head office in Jakarta.
Unfortunately, this significant role ended in 1999, when the Darmala Group suf-
fered an economic crisis in 1997. In 1999, Darmala Group has taken over by BPPN
(National Banking Recovery Board) because of huge debts to the government and
many assets of the group were sold by BPPN, including the Palembang Jaya office.
The sale was made to the BW (Budi Wahana) Company in 2000.
23
See Robinson, Richard (1986), Indonesia: The Rise of Capital, Australia, Allen & Unwin.
24
This interview held on February 27, 2003 on Palembang Jaya Company’s role in 1980s–1990s
based on Ahien, a former head of coffee storehouse in Curup and Palembang. It is difficult to
interview former managers of this company, because it has been liquid since 1999.
Coffee Traders 309
The BPPN has an obligation to pay compensation to Palembang Jaya workers,

who have worked more than 20 years. It agreed to pay 12 months of their wages and
other bonus. In case of Ahien, as head of storehouse, he received Rp. 23 million in
2000. Currently, Ahien and his family removed to Curup and opened a shop for
selling materials and other meals.
As discussed above, the BW (Budi Wahana) Company bought Palembang Jaya in

2000 and has operated as a large provincial trader since 2001 in Palembang and
Lampung. The company’s capital is around 10–12 billion Rupiah, provided by
banking institutions. Historically, Budi Wahana is a member of the Bumi Waras
holding company, with its head office located in Jakarta. The Bumi Waras Holding
Company is concentrated in real estate, banking, manufacturing, and agricultural
production.
Production and Distribution Strategy
Agustinus, familiarly known as “Acong,” has a Chinese ethnic background and was
appointed as the manager of the Budi Wahana Company in 2001. He was born in
Palembang in 1949 and graduated from high school. He formerly worked as a cof-
fee trader before joining the Budi Wahana Company. He provides loans to district-
level coffee traders, while maintaining a higher price for coffee than other actors
and utilizing the former connections of the Palembang Jaya Company. Based on
Acong’s report, during the harvest season in 2001, the company bought 1,500–
2,000 tons of coffee per month, rapidly increasing in 2002 to 2,000–2,700 tons. The
company exports more than 50 % of its produce twice a month to European coun-
tries, mainly Germany. About 30 % of its produce is sold to the United States of
America. The system of payment is through letters of credit, meaning that the Budi
Wahana Company opens a domestic bank account and the letter of credit is sent
directly to the bank account after the material (coffee) arrives in the target country’s
ports, with a margin of profit of Rp. 60–75/kg. For example, in 2001 the company
received more than Rp. 400 million, due to the unstable price of coffee. However, in
2002 they received Rp. 200 million—half the profit of the previous year—because
the price was below Rp. 5,000/kg.
Agustinus explained that some constraints faced by the company at the moment
are: (1) the international coffee market fluctuates depending on international
demand, (2) there is a lack of relations with some coffee traders at the district level
as the company is still considered a new actor in coffee trading, and (3) the company
is not registered in AEKI in Palembang (Fig. 12.12).
Coffee Traders/ Transportation

Workers/Wages
Money landing Cost
Bank
Credit
Cost
Rp.12 billion Buying
Car
Production
Reprocess: 45,000 Actor 1 Profit
High Quality Tons/Rp. PalembangJaya Rp.3 Agri--
15 Company billion Culture
billion
Export countries: Store

United States, Japan, House
Hongkong, Germany,etc.
Fig. 12.12 Coffee and monetary flow at provincial level

Coffee production of Palembang Jaya Company in coffee season reaches 45,000–50,000 tons
Actor 2 is Budi Wahana Company
His coffee production reaches 3,000 tons per month
This company in coffee season collected 15,000–20,000 tons
It gets a profit of Rp. 400 million per month
Conclusion
1. Currently most protected forests and parks in Bengkulu are threatened by degra-
dation. There is a positive correlation between forest degradation and the inten-
sive logging of forests by HPH holders and forest squatters in many districts in
Bengkulu, especially in the Rejang Lebong area. The main reason for the log-
ging of forest trees in protected forestland is to obtain new land areas for expand-
ing coffee plantations.
2. The implication of forest degradation is environmental disasters such as floods in
the rainy season, lack of water in summer, and soil erosion in some subdistricts
in Bengkulu. For example, landslides occurred on February 7, 2003 in coffee
plantation areas in Air Barus and Bukit Besar, Bermani Ilir subdistrict, killing 17
people.
3. Kepahiang and Bermani subdistricts, where field research was carried out in
February and March 2003, are located in the Rejang Lebong area. It is estimated
that more than 30 % of coffee plantations are located in the protected forest of
Discussion 311
the Rejang Lebong District. Based on a report from the Provincial Industry and
Trade Agency (2001), in 1997, Bengkulu exported 1,350,000 tons and received
foreign exchange earnings of US$1,699,543, rapidly developing in 1998 to
become 2,063,000 tons with earnings of US$2,597,900.
Discussion
1. The study clarified how the traders stimulated coffee trade. For example, the act-
ing of coffee traders or ulo-ulo at the village level (Desa) are contributing to cash
capital by giving “credit” on money and basic needs and assisting in marketing
their coffee production among coffee farmers. The task of coffee traders at the
subdistrict level (Kecamatan) is to facilitate pooling “coffee production,” giving
“credit” for coffee traders at the village level. The bigger role of coffee traders is
at the district level (Kabupaten) where they own more capital, management, and
networks. They have access to bank facilities. The extension of capital reached
Rp. 1–2 billion to subdistrict and even village traders, thus they could pool coffee
production more than coffee traders at the subdistrict level. Former Gunung
Selatan Company exhibited this role, which was located in Curup in 1970s and
1980s. Meanwhile, the task of coffee traders at the provincial level (Propinsi) is
very significant. This role by such traders as Palembang Jaya and Budi Wahana
Company which were the leading managements from the viewpoint of planning,
organizing, capital, and their access to bank facilities and international market-
ing networks could absorb the entire coffee production from coffee traders at the
district level. These companies were also at the provincial level after a whole
coffee production was obtained and reprocessed it in order to be qualified pro-
duction. These productions were totally exported to the overseas market such as
Germany and Italy in Western Europe, the United States of America, and Japan.
This coffee trading is as much as “gambling” because the price of coffee is
uncertain based on US dollar fluctuations. Therefore, the rise and fall of coffee
traders occurs at any time.
2. Coffee traders have their own strategies to obtain coffee production and “get
profit”. For example, a coffee trader at village level launches his three
strategies.
First is his shop as facilitating farmers’ needs. The farmers might take materi-
als such as soap, sugar, oil, rice, and cigarettes in summer time. Second, he gives
“credit” with cash money to farmers who need, but “no taking interest,” because
the majority of coffee trader actors are Rejang ethnic and they embrace the
Islamic religion, which strictly forbids taking interest on money in trading.
Third, at harvest time, farmers need cleaning machines such as Yanmar (Mesin
Hiler) for their coffee production. In this matter, a coffee trader at village level
serves this machine for farmers and charges Rp. 50/kg.
Coffee traders at the subdistrict level have their own strategies. They launch
their strategies to collect coffee production by giving credit with no interest to
coffee traders at the village level. At harvest time, many coffee traders at the vil-
lage level send their production to coffee traders at the subdistrict level. Many
coffee traders at the subdistrict level send their production to their loyal clients
such as the Gunung Selatan Company in the early 1980s and to Palembang Jaya
in 1990s. They consistently supplied their clients with a normal price in order to
maintain “truth” from coffee traders at the district and provincial levels as well.
Meanwhile, coffee traders at the district level are predominantly Chinese eth-
nic. They also have their own strategies. They launch their first strategy to use
their shops to distribute “credit” to local farmers by serving their needs such as
sugar, oil, rice, cakes, cigarettes, and so on. Their second strategy is to distribute
“credit” by cash money to coffee farmers and coffee traders at the subdistrict
level with special “interest” around 15 % per year. Therefore at harvest time,
farmers and coffee traders have to return their credits by sending coffee produc-
tion to coffee traders at the district level. They also make good relationships to
gain access to marketing and capital with coffee traders at the provincial level in
Palembang and Lampung. This relationship is always maintained by coffee trad-
ers at the district level to ensure their coffee production is always smooth in
marketing and makes a profit.
3. The strategies of coffee traders at the provincial level give “credit” with cash
money and take a little interest and “facilitate” a good access to coffee traders at
the subdistrict and district levels. On the other hand, “reprocessing” coffee pro-
duction is very urgent for big coffee traders in order to improve more qualified
production. These strategies are implemented because many foreign buyers
abroad need the best quality of coffee production. Otherwise, foreign buyers
refuse their productions.
Part VII
Conclusions and Recommendations
Chapter 13
Conclusions and Recommendations
1. State Policy on Forest Resources Management During the Soeharto Regime. The
Soeharto government could be characterized as a strong regime. Soeharto central-
ized control over natural resources, such as oil, fishery, mining, and timber, and
exploited them for political patronage and personal benefits. This condition, from a
“political ecology” approach, occurred because the formation of government
administration was authoritarian and an economic paradigm was the orientation.
The initial policy of his government in terms of forestry considered the sector as an
area open to exploitation for economic benefit, without any consideration for the
public interest, concentrating on the benefits to decision makers and capital holders.
The forestry sector, which was a large potential resource, became a target for obtain-
ing foreign exchange earnings and job creation. Government planners and forestry
bureaucrats did not consider the ecological perspective, leading to widespread
deforestation from mismanagement of forest exploitation, ecological damage, the
degradation of local customary forest rights, land disputes, and marginalization of
local people in forest resource management (Fig. 13.1).
This was exacerbated by a lack of law enforcement and effective legal imple-
mentation, leading to a proliferation of noncollusive corruption1 during the Soeharto
regime. In return for granting access to logging concessions, Indonesian-Chinese
businessmen granted timber industry shares to the Soeharto family and contributed
massive funds that Soeharto used for off-budget spending to further political objec-
tives. The military also benefited from noncollusive corruption by selling their influ-
ence to secure favored access to forests for favored business entrepreneurs.
Logging development under the Soeharto government increased from 18 HPH
holders, covering 2 million ha in 1968 to 101 HPH in 1972, covering 31 million ha,
1
Noncollusive corruption describes corruption in which the government demands a bribe for legal
activities, such as obtaining a logging permit. Noncollusive corruption thus drives up costs for the
private sector with unofficial costs. See J. Smith (et al.), “Illegal logging, collusive corruption and
fragmented governments in Kalimantan, Indonesia,” in International Forestry Review 5 (3), 2003,
p. 294.

DOI 10.1007/978-981-287-745-1_13
316 13 Conclusions and Recommendations
Government Ministries Governor

Regulations
Dept.of Dinas
Parliament Forestry DT I
Centralized Government Laws/Acts
Economic Paradigm
Provincial Head of
Forest Agency District
(Kanwil)
Local People (UPT)
Unrecognized
Customary forest District
Rights practices Forest Agency
(Dinas) (UPDT)
Fig. 13.1 Institutional perspective of forest management under the Soeharto government
Note: : Direct influence
: Consultation
: Direct Authority (Command)
and again to reach 657 HPH covering 69 million ha by the 1990s. The four prov-
inces of East Kalimantan, Central Kalimantan, Irian Jaya (Papua), and Riau obtained
more than 50 % of their regional basic income (PAD/Pendapatan Asli Daerah) from
the forestry sector during the 1980s.The benefits from this growth in the logging
industry are two: creating employment opportunities for approximately 450,000
workers by the 1990s and contributing to national foreign exchange earnings of
US$2 billion in 2000.
This book has examined the broader aspects of state–business relations as direct
actors and their impact on the forestry industry, for it is widely accepted that this
industry, especially the plywood industry, has played an important role in creating
employment opportunities and generating foreign exchange earnings. There were
two key strategies for the development of the plywood industry from the mid-1970s
to the 1990s. First, the government emphasized and supported the integration of
plywood processing in forestry. These policies succeeded in building up the ply-
wood industry and finding a greater market, thereby placing Indonesia as one of the
largest plywood exporters in the 1990s. Second was banning the import of plywood
and providing economic incentives for the private sector in the form of credit,
import and export tax reductions, low loan interest rates, export facilities, and dip-
lomatic marketing with foreign countries. The government encouraged an increase
in the role of Apkindo (Indonesian Panel Wood Association) and MPI (Indonesian
Timber Communities) to consolidate and intensify access to foreign markets. These
policies succeeded in turning Indonesia into one of the largest plywood exporters in
the 1990s.
The development of industrial timber plantations (HTI) was brought about
because of a lack of wood as raw material for the growing forestry sector. There
were three approaches in HTI planting, namely: HTI for pulp, HTI for handicrafts,
and HTI for transmigration. The development of HTI from 1990/1991 until 2002
13 Conclusions and Recommendations 317
registered 2,867,222 ha, meanwhile wood production reached 16,101,614 cubic

meters annually. The main actors in the creation of industrial timber plantations
(HTI) were the government, represented by the State Forestry Corporation
(INHUTANI) in the outer islands, and private companies. Joint Cooperation agree-
ments require that the government hold 40 % and private companies 60 % of shares
(Fig. 13.2).
The government requires every pulp and paper company to plant 200,000–
300,000 ha of industrial timber plantation (HTI) or provide the equivalent to 10 %
of total capital invested in local infrastructure. This regulation is based on the gov-
ernment policy that every pulp company must be self-sufficient in order to fulfill
their wood requirements without logging conservation and protected forests.
Indonesia plans to become a major pulp and paper producer in the Asia Pacific
region. In 1990, Indonesia had 41 factories, rapidly increasing in 1998 to 81 facto-
ries, with a total production capacity of 8.3 million tons of paper/year, reaching 9.1
million tons of paper/year in 2001. The most serious challenge to the realization of
this ambition is: (1) an insufficient production of wood as raw material for the for-
estry industry in upcoming years; (2) the economic crisis Indonesia has suffered
since the end of 1997 until now seriously devaluing Indonesian reforestation funds,
which have been manipulated and misused. Several NGOs have criticized the lack
of strong action by the government towards illegal logging, wood laundering by
neighboring countries, collusion and corruption between HPH holders and bureau-
crats, the weakness of law enforcement, the lack of reforestation, the lack of a strong
TPTI system (Indonesian Selective Cutting and Replanting), and manipulation of
Centralized State: Businessmen:

Government Ministry of HPH: Natural Forest
Agriculture HPHTI: Industrial
Ministry of Timber Plantations
Forestry
Direct Actors: (1983-now)
State
Market:
Businessmen
Domestic
State: Export
Businessmen:
Ministry of Plywood
Industry Sawn Wood
Chip Wood Results:
Pulp and Paper Foreign Exchange
-
earnings
Job Creation
Transfer of -
Technology
Fig. 13.2 Direct actors in forest management under the Soeharto government
Note: : Direct influence
: Request licensing
: the final result
Internal Factors:
Forest Miss -
management
HPH Holders
Conglomerations
HTI Fund
Indirect Actors: Over Capacity of
Analysts/Academics Critics Wood Demand
NGOs Failure in
on Land disputes
Local People Sustainable
Forest
Management
External Factors:
Transmigration
Palm Oil
Paddy Rice Projects
A lack of law
enforcement
Fig. 13.3 Analysts/academics, NGOS, and local people comment on deforestation

Note: : Direct access
: Final results
reforestation funds by other stakeholders for the level of deforestation seen today
(Fig. 13.3).
2. Movement of Each Stakeholder Related to Deforestation. Indirect actors in
encouraging deforestation are the international financial institutions such as the
World Bank, International Monetary Fund (IMF), the Asian Development Bank
(ADB), and also bilateral aid. As discussed in Chap. 2, one of the proximate causes
of deforestation was a program such as transmigration projects run in Indonesia
from the 1970s to the 1990s, which opened 1.7 million ha of agricultural land and
transported some 8 million people to the outer islands. The target areas for transmi-
gration projects were usually production forest. The transmigration program
received financial backing from international agencies, particularly the World Bank.
Todd Martens (1989) argues that “The World Bank did not properly consider the
environmental consequences of financing development projects and consequently,
Bank financed projects often created more problems than it resolved.”2 Other infra-
structure projects, such as dams, irrigation, roads, hydroelectric, palm oil planta-
tions, pulp and paper also received contributions from actors such as the IMF and
ADB. Expansion of palm oil plantations is approximately the largest single com-
mercial force behind deforestation today. The area covered by these plantations
grew from 843,000 ha in the mid-1980s to nearly 3 million ha in 1998. From a
political ecology perspective the grants from the international financial institutions,
encourages greater Indonesian dependency on international aid. Then developing
2
See Todd K Martens,“Ending tropical deforestation: What is the proper role for the World Bank?”
in Harvard Environmental Law Review, Vol. 13, No. 2, 1989, pp. 489–493 (cited in the Pacific
Affairs 1993–1994: 516).
Companies: Driving factors:

Direct Actors
Log, HPHTI, Forest miss-
State
Plywood, Sawn management
Businessmen
wood, Chip Wood, Over capacity of
Pulp wood demand
Lack of reforestation
Deforestation
Indirect Actors: Transmigration
World Bank Palm oil Conversion of
IMF Hydroelectric dam production forest
ADB Roads, Irrigation, Illegal logging
Pulp Critical land
To developing
Bilateral Aid:
Countries: Paying debts
Advanced Countries
Indonesia,
Brazil, etc.
Fig. 13.4 Problems of deforestation

Note: : Direct Influence
: Direct Access into effect
: Final results
countries such as Indonesia create large debts with these institutions, forcing them
to repay debts at high interest rates, creating even further destruction of the environ-
ment in an effort to repay these loans with interest. For example, William Wood
(1990) argues that “Japan among the developed countries plays a very significant
role in Indonesian deforestation. Indonesia’s need to obtain foreign exchange to
service debts to Japan is an important economic factor driving destructive forest
practice.”3 Meanwhile, Colchester (1986) points out the role of international finan-
cial institutions such as the World Bank and the International Monetary Fund, which
have provided policy advice and set financial conditions that encourage deforesta-
tion (Fig. 13.4).4 For people who depend on the forests for their livelihoods, such
degradation means a loss of dignity and independence, security, livelihood, and
health.
3. Implications from Deforestation on the Environment. There are growing num-
bers and impacts of forest fires, climatic changes, and depletion of biological spe-
cies, floods, droughts, and water pollution, causing high economic, ecological, and
social damage. For example, forest fires in 1997 destroyed close to 627,280 ha:
41 % of peat moss, 26 % of small and large plantation, 16 % of national parks and
conservation forest, 13 % of industrial forest plantation and production forests, and
3
See William B. Wood,“Tropical deforestation: Balancing regional development demands and
global environmental concerns,” in Global Environmental Change, Vol. 1, No. 1, December 1990,
pp. 23–26.
4
Colchester, Marcus, “Banking on disaster: International support for transmigration,” in Ecologist,
Vol. 16, No. 2/3, 1986, pp. 61–67.
4 % of reforested land. At least 20 million people were directly and indirectly

affected by the smoke pollution from these forest fires.
Economic issues in terms of transportation were also greatly affected, as daily
mean visibility was below 3 km for at least 50 days. If only domestic airports are
closed for 313 days, then the total recorded financial loss is around Rp. 9.3–31.3
billion.
An ITTO study on biological diversity in Bentuang National Park, Karimun,
West Kalimantan, in September 1997, looked at the effect of the haze on the bio-
logical assimilation process. It concludes that the impact from lack of sunlight
causes the assimilation process for carbohydrate and organic networks to be con-
strained. This further affects biological plant growth.
The increase in occurrences of acid rain, floods, and other changes in water
chemistry, brought about by the ash from forest fires were apparently the main fac-
tors that triggered the explosions in populations of Aeromonas Hydrophilia,
Staphyloccus, and Pseudomonas that caused an epidemic of skin infections among
fish populations of the Mahakam River. These diseases also caused serious health
problems for dolphins (Fig. 13.5).
4. Forest Reform Policies in the Reformation Era. The reformation era had a
totally different style of forest management compared with the Soeharto govern-
ment. During the reformation era, the government directed actor efforts towards
improving good governance, such as greater democratic values, accountability,
transparency, and participation. However, during the transition period from the
Soeharto regime to the reformation era (1999–2004), the government became weak
and politically unstable. Indonesia had three presidents within 5 years, East Timor
province broke away, and separatist movements in Aceh and Irian Jaya (Papua)
rose. On the other hand, the reformation era, which emphasized “Regional
Autonomy” Act No. 22/1999 and No. 25/1999 on “a fiscal balance between central
Affect on Environmental
Problems:
Forest Fires
Water Pollution & Famines
Depletion of Biological
Forest Degradation and Species
Deforestation Climate Changes
Flood and Drought
Local People:
Economic Marginalization
Poverty and Health
Fig. 13.5 Impact of deforestation on the environment and local people

Note: : Direct access
: Direct impact on local people
and district governments,”,has not been realized yet. Decentralization is a transfer

of power from the central to subnational level in terms of the authority to plan, make
decisions, and manage public functions. This decentralization has the potential to
accelerate developments in many sectors, particularly the forestry sector. In line
with the spirit of the reformation era, the Indonesian government issued Forestry
Act No. 41/1999 and government regulation No. 25/2000, which emphasizes the
authority of the province as an autonomous region, and No. 34/2000, which consid-
ers the capacity of primary industry permissions for wood production. The role of
the central government (through the Ministry of Forestry) gradually shifted from a
centralized direct control to allowing formulating, regulating, facilitating, and
supervising norms, standards, and criteria of the forestry sector on the local govern-
ment. The regional income from the forestry sector for the local government
increased, with local governments receiving 80 % of the Forest Resources Provision
Fund (PSDH/Penerimaan Sumber Daya Hutan) and another part of the reforestation
fund being divided 40:60 between local and central government, respectively.
Another important reform in the forestry sector was to recognize the existence of
customary forest rights of local communities. The aim of these acts is to improve
the welfare of local people, emphasizing the autonomy of the district/municipal
city, considering that local governments are more likely to be responsible to the
needs of their people (Figs. 13.6 and 13.7).
There are two major problems faced by the realization of decentralization in the
forestry sector. First is the rapid increase in the number of HPHH/IPPK permissions
issued by the head of the district. Under decentralization, regional governments are
entitled to a larger share of revenues, leading them to even greater issuing of HPH
permissions, which subsequently lead to even greater falls in the price of logs and
greater forest degradation. Second is the rise in illegal logging and wood smuggling
Good Governance: Min.of Forestry’s Local Government:

Democratic values functions: Province
Accountability regulate, District/Municipal
Transparency facilitate, City
Participation supervise.
Individual and
Cooperative Sector
Decentralization of
Logging Forest
Forestry Sector Recognition on
Concession 1000 Ha-100
Act No.22&25/1999 Local Customary
ha;
Act No.41/1999 Forest Rights
Reforestation Fund;
Gov.Reg.No.25/2000
PSDH (Forest Resources
Gov.Reg.No34 &35/2002
Provision Fund)
Min.of Forestry Decree
No. 541/2002
Fig. 13.6 The practice of forest management in the reformation era

Note: : Consultation
: Direct influence
Local Government:
Ministry of Forestry Province;
Municipal City;
District
Good Governance: Provincial Forest Agency
Democratic values District Forest Agency
Accountability Directorate General:
Transparency PHPK,BPK,
Participation RLSP, BAPLAN
Recognition of
Local People’s
Customary Forest
Rights
Fig. 13.7 Institutional perspective of forest management in the reformation era

Note: : Consultative : direct influence
PHKA Perlindungan Hutan dan Konservasi Alam (Forest Protection and Nature Conservation),
BPK Bina Produksi Kehutanan (Forest Production Management), RLSP Rehabilitasi Lahan dan
Perhutanan Sosial (Land Rehabilitation and Social Forestry), BAPLAN Badan Perencanaan dan
Pengelolaan Hutan (Planning and Forest Management Board)
practices since the reformation era (1998), while the commitment to law enforce-
ment from district governments has yet to be realized. This condition certainly
brings into question the long-term existence of Indonesian tropical forests, with
financial losses of Rp.30 trillion annually due to illegal logging and wood exports.
5. Implications of Forest Policies. We concentrated on two locations in terms of
local peoples’ response to forest management, in Muara Gusik village, East
Kalimantan, and Batu Bandung, Bengkulu. Under the Soeharto government, local
people suffered economic and political marginalization, as the government did not
recognize local customary forest rights, leading to land disputes between HPH
holders and local people in many districts. The case study of the Kutai people in
Muara Gusik village, Bongan subdistrict, East Kalimantan indicated that from the
1980s to the 1990s economic conditions have continuously deteriorated. Incomes
fell to under Rp. 50,000 per month in 1996, and consumption reached Rp. 38,000
(76 % food and 24 % nonfood items). The 1990 SUSENAS report categorizes peo-
ple within a village community with consumption spending under Rp. 40,000–Rp.
59,999 monthly as poor. The transition from the authoritarian Soeharto regime to
the Habibi-led 1998 reformation era showed that local incomes gradually improved,
reaching just below Rp. 100,000 per month, as the HPH holder, ITCI, recognized
the customary forest rights of the Kutai people and resolved the land dispute, pro-
viding hundreds of millions of Rupiah in monetary compensation for the three
villages of Muara Gusik, Jambuk, and Pringtalik. In addition, local people were
allowed to utilize their former land by collecting “waste wood,” opening opportuni-
ties for local wood trading activities and networks (Table 13.1).
The case study of villagers in Batu Bandung village, Kepahiang, Bengkulu.
Kepahiang, and Bermani subdistricts considered a location that utilized land catego-
rized as protected and production forest for more than 30 % of coffee production.
Integrated Results 323
Table 13.1 Local people’s response to forest management: a case study of East Kalimantan and
Bengkulu
Case study Conflict Commodity Resolution
Soeharto era Reformation era
Muara ITCI Company (HPH Rattan No Compensation Compensation
Gusik (East Holde) Woods
Kalimantan)
Batu Protection & Coffee To withdraw Worse
Bandung Production forest To converted land Good
(Bengkulu) Gov. Apparatus
Note: Gov government
As per the reports of the provincial Industry and Trade Agency in 2001, in 1997
Bengkulu had exported 1,350,000 tons of coffee and obtained US$1,699,543 million
annually. This had rapidly increased in 1998 to become 2,063,000 tons with
US$2,597,900.
The case study considered the networks of coffee traders and their strategies to
stimulate coffee trade. At the village and subdistrict levels the predominant actors
are local Rejang, providing credit for daily necessities and assisting in the local
marketing of farm coffee production. At the subdistrict level, traders pool coffee
production, providing credit to local coffee traders for purchase at the village level.
The district level (Kabupaten) traders, predominantly Chinese, with access to bank
loans, carry out greater transport, warehousing management, and networking.
Meanwhile, the provincial level (Propinsi) coffee traders, also predominantly
Chinese, would carry out nationwide and export activities (to countries such as
Germany, Italy, the United States, Japan, and Hong Kong), absorbing the entire cof-
fee production from the districts. The coffee industry in Indonesia depends greatly
on US dollar fluctuations, and so there are many stories of both success and failure
within the industry.
The locations of both case studies are characterized with different agricultural
productions and conflicts. In Muara Gusik, land disputes concerning customary for-
est rights were the major source of conflict, and forest squatters in protected and
production forests (both local people and migrants from the South Bengkulu dis-
trict) were in conflict with the forest apparatus. The critical question of this paper
was how far had the Soeharto and reformation government policies affected the
socioeconomic condition of local people in both locations.
Integrated Results
During Soeharto’s rule (1966–1998), the government utilized a centralistic and

authoritarian control over natural resources, including the forestry sector build-up
of forestry industries, inviting national and international private investors to create
large quantities of foreign exchange earnings, economic benefits, and
employment.
Obviously, the role of direct actors such as the state (especially Ministry of
Forestry), private sectors, and indirect actors such as international financial institu-
tions (the World Bank, IMF, and the ADB) obtained economic benefit and strength-
ened their authority and political power. During this period, the government
practiced corruption and collusion with private sectors to exploit the forestry sector
and conversion of production forest for their economic benefit, political patronage,
and political elites. In contrast, the condition of local governments did not obtain
benefit and local people suffered poverty because they did not have much access to
forest resources management. Meanwhile, direct actors ignored forestry regula-
tions, academics, and NGOs’ criticism on sustainable forest management princi-
ples. This condition was paid for by increased environmental problems and the
economic marginalization, poverty, and failing health of local communities, through
lack of recognition of the customary forest rights of local communities, lack of
macro mapping for land use throughout Indonesia for reducing land disputes, and
lack of programs aimed at improving socioeconomic development for local
communities.
The reformation government, on the other hand, is committed to realizing good
governance programs based on democratic values, accountability, transparency, and
participation. The realization of the forestry sector tried to actively involve stake-
holders, including NGOs, academics, and local people from the initial stage of plan-
ning, cultivating, monitoring, and harvesting, It is clearly seen that direct actors,
state, and private sectors as well as indirect actors, such as the World Bank, IMF,
and the ADB, did not obtain benefits from the forest management policy. This con-
dition occurred because currently good governance no longer tolerates the practices
of corruption, collusion, and nepotism among political elites, and the forestry appa-
ratus with private sectors on forest management and forest conversion. In contrast,
local people, local governments, NGOs, and academics strengthen their status and
obtain more benefit, because the sustainable forest management principle was
implemented in the field. However, the real practice of these principles is still far
from an idealistic state.
The Muara Gusik and Batu Bandung case studies showed us that in terms of
primary and secondary production, distribution, marketing, price, income, and pur-
chasing power, people are better off than under the Soeharto government. By recog-
nition of their customary forest rights and wide participation in forest management
from the initial stages of planning and cultivating, through to monitoring, harvest-
ing, and marketing, these programs have empowered local communities.
The Ministry of Forestry’s role has completely changed from cooperating and
colluding with private businessmen, leading to corruption, forest degradation,
deforestation, and the economic marginalization of local communities, to a more
accountable and transparent system. In line with the spirit of reformation, HPH and
HPHTI holders are evaluated by the Ministry of Forestry and an independent agency
(Indonesian Ecolabel). If the evaluation finds them guilty of forest mismanagement,
their logging concessions are closed. More than a hundred HPH holder concessions
have been cancelled already.
Recommendation 325
District heads cooperate with the District Forestry Agency in recognizing cus-
tomary forest rights, where traditional customs are still being practiced. This policy
aims at reducing land disputes between locals and HPH holders or investors. The
local governments have also invited local communities and heads of customary
rights to participate in reforestation programs. It is hope that these actions will be
the first steps on the road to sustainable forest management and the improved socio-
economic welfare of local communities.
Recommendation
Several actions recommended for immediate implementation by the central and

local governments and other stakeholders in order to establish sustainable forest
management are as follows:
1. The Soeharto government carried out a policy of supporting excessive timber
extraction in production forests for the last three decades (1968–1998) leading to
widespread deforestation. The new systems of forest management in the refor-
mation era (1999–2004) of forest resource management and forest ecosystem
management should be given greater support by all stakeholders. These concepts
intend to establish economic, ecological, and social development for all stake-
holders, local, regional, and national. These forest management principles guar-
antee an agroecosystem management, which will eventually guarantee
productivity, sustainability, stability, and equitability.
2. Forest degradation and deforestation are the effects of the ignorance of the for-
estry apparatus on implementation of sustainable forest management principals
and the lack of law enforcement. Therefore, the commitment of the reformation
government on the practicing of good governance and clean government to crush
corruption and collusion among government apparatus and private sectors are
highly appreciated and must be realized without discrimination of law before the
courts.
3. The Ministry of Forestry bureaucratic policies and procedures must be reformed,
such as erasing the position of Director General of Forest Management (Dirjen
Pengusahaan Hutan) and replacing it with a Director General of Conservation of
Forest Resources (Dirjen Konservasi Sumberdaya Hutan). As well, the Kanwil
(Provincial Forestry Agency) should be erased, leaving only the District Forestry
Agency.
4. Both Central and District control mechanisms for HPH holders must be effec-
tive. HPH holders who break forestry management regulations must be punished
in the courts and their logging concessions must be withdrawn. In fact, this regu-
lation might be able to create a sustainable forest management and rehabilitation
program.
5. The Indonesian timber industry faces a critical gap between domestic supply and
demand of about 30 million m3 of wood. This has encouraged illegal logging in
many districts. In order to overcome this condition, the Ministry of Industry and
private sectors must cooperate and review feasibility studies on the establish-
ment of new and old forestry industries. Illegal sawmills, which are currently
widespread around many conservation and protected forest areas, must be strictly
forbidden and sanctions carried out by local governments because their impacts
lead to forest degradation and deforestation.
6. International financial Institutions (the World Bank, the IMF, the ADB, etc.) and
importer countries of tropical timber have also contributed to encouraging
increased deforestation in Indonesia, providing grants for transmigration proj-
ects, palm oil plantations, the pulp and paper industry, dam projects, and other
uses. Observing from the above description, the Indonesian government must
pay more attention to such aid and totally review the macro benefit and disadvan-
tages to the Indonesian people at large.
7. The role of academics and NGOs in criticizing logging forest concessions,
industrial timber plantation funds, the impacts of the plywood, pulp, and paper
industries, environmental concerns, and the implementation of decentralization
by the Department of Forestry and Department of Domestic Affairs is signifi-
cant. More research on efficient and effective alternatives to create the best pos-
sible political, social, economic, and ecological outcomes of sustainable forest
management is required.
8. The role and commitment of the National Chief of Police (Kapolri) and the
Supreme Court (Jaksa Agung) in crushing the main actors and their networks of
illegal logging and wood smuggling are highly appreciated. The Indonesian gov-
ernment has also prioritized policies with strategic countries to establish joint
cooperation in combating illegal logging and the export of illegally logged tim-
ber and wood products to minimize illegal logging practices.
9. Local people tend to destroy natural forest, whether protected or conservation
forest, for land uses such as shifting cultivation and coffee plantation, creating
ecological damage and forest degradation. In order to overcome this problem,
the central and local governments must cooperate with other actors such as
NGOs (ICRAF, CIFOR, EIA, Walhi, etc.) and academics in establishing “socio-
economic empowering” programs through agroforestry plantations, planting
leading trees, giving access to credit, and education in the management and mar-
keting of these productions.
Map 1

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Map 2

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Map 3

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Index
A Budi Wahana Company, 306–311

Acacia mangium, 5, 63, 64, 281 Bugis, 82, 163, 225, 235, 247, 252, 255
Actor, 15–18, 20, 23, 32, 35, 52, 60, 210, Bukit Barisan mountain, 277
246, 264, 272, 309, 320
Adat community, 149, 185–187, 190
AEKI (Coffe Exporters Association of C
Indonesia), 307, 309 Centralization, 31, 135, 141, 183,
Agathis, 229 184, 194, 271
Amungme, 150, 167–169, 173 Climate change, 13, 15, 18, 21, 22,
APHI (The Association of Indonesian Forest 33, 109, 128, 130
Concession Holders), 39, 67, 84, 148, Coffee plantation, 10, 14, 277, 280, 282–289,
154, 186, 191, 192, 212 291, 294, 298, 302, 304, 306, 310
APKINDO (Indonesian Wood Panel Consultative Group on Indonesia (CGI),
Association), 5, 50, 53, 54, 57, 58, 137–138, 210
60–62, 100, 117, 198, 316 Curup, 288–294, 297, 298, 300–306, 308, 309
Arabica, 298
Association of Indonesian Forest Concession
Holders, The, 186, 191 D
Dana Alokasi Kusus (DAK), Special
allocation Fund, 140
B Danamon Bank, 295
Banjar, 225, 260, 261, 265 Darmala Group, 308
Banjir kap (full flood), 226 DAU (General Allocation Fund), 140
Bank Mandiri, 255, 266 Dayak, 52, 114, 128, 224, 225, 235, 265, 268
Barito Pacific, 54, 55, 59, 60, 100, 111–113, Decentralization, 6–8, 24, 135–151, 173,
115, 224 175–195, 197–218, 287, 321, 326
Batu Bandung, 10, 287–294, 297, 300, Deforestation, 4, 6, 8–10, 12, 14, 15, 17–23,
322–324 32, 37, 40, 41, 46, 47, 54, 60, 66, 79,
Bengkulu, 9, 10, 22, 24, 43, 101, 103, 268, 97–109, 113, 117–120, 122, 128, 129,
277–311, 322, 323 132, 148, 155, 157, 161, 163, 165, 170,
Berkeley Mafia, The, 3 173, 188, 192, 194, 208, 209, 215, 216,
Bob Hasan, 39, 48, 50, 58, 60, 69, 82, 99, 100, 218, 228, 315, 318–320, 324–326
112, 115 Democratic Party of Indonesia (Partai
BPD-Kal-Tim, 262 Demokrasi ndonesia), 29, 98
Broad Guidelines of State Policy (GBHN/ Democratization, 6, 74, 136, 139, 145, 175,
Garis-Garis Besar Haluan Negara), 3 179–181, 188

DOI 10.1007/978-981-287-745-1
348 Index
Department of Forestry, 99, 138, 143, 144, Functional Group (GOLKAR/Golongan

186–190, 192–194, 198, 208, 213, Karya), 3, 27, 28, 31, 98
268, 326
Dewan Perwakilan Rakyat Daerah/Local
Parliament (DPRD), 138–141, 145, G
175–177, 180, 182, 217 Gaharu (Aquilaria malaccensis sp.), 24, 80,
Dwi Fungsi (twin functions), 29 242–243
George Pacific, 4, 39, 49
Germany, 74, 121, 131, 142, 308, 309, 323
E Glyeyrrhiza glabra, 280
East Kalimantan, 4, 5, 8–10, 14, 15, 22, Governance, 6, 7, 22, 24, 45, 150, 151,
24, 38, 39, 41, 42, 49, 65, 67, 72, 153, 175, 177, 185, 216, 218,
81, 84, 99, 102, 106, 110–112, 320, 324, 325
121–125, 129, 145–148, 159, 192, Gross domestic production (GDP), 53, 160,
200, 206, 207, 209, 221–235, 238, 162, 232
240, 244, 261–263, 265, 266, Gross National Production (GNP), 74, 232
268–270, 316, 322, 323 Gross Regional Domestic Production, 232,
Ecological, 7–13, 15, 16, 83, 84, 107, 234, 235
120, 127, 131, 132, 147, 148, 152, Gunung Selatan Company, 292, 293, 301,
157, 164, 166, 172, 173, 189, 197, 304, 308, 311, 312
205, 208, 209, 211, 218, 279, 282,
315, 319, 325, 326
Economic development, 3, 4, 17, 19, 23, 29, H
30, 32, 38, 44, 45, 47, 48, 56, 97, 98, Habibie, 6, 9, 99, 120, 130, 138, 142,
136, 137, 158, 232 188, 194
Elsam, 20, 101, 109, 112 Hongi Company, 300
Environmental impact, 23, 41, 107, 169, 170 Hongkong, 38
HPH (Logging Concession), 9, 22, 32, 35–44,
68, 71, 109–114, 121, 142, 145–148,
F 154, 160, 185–188, 191–193, 197,
Food Agricultural Organization (FAO), 6, 7, 199, 201, 203–205, 207, 212, 215,
19, 36, 37, 129, 132 216, 221–225, 230, 231, 233, 315,
Forest conservation, 13, 32, 37, 46, 166, 170, 317, 321–325
171, 280 HPHH (Forest Product Harvesting Rights),
Forest fire, 8, 13, 15, 18, 21, 22, 33, 69, 106, 145–148, 191, 218, 321
109, 120–128, 131, 246, 257, 258, 261, Hydrological, 127
319, 320
Forest management, 6–10, 12, 13, 16–18,
21–24, 32, 33, 39, 41, 97, 100, 109, I
110, 112, 113, 120, 132, 138, 141–145, IGGI See International Governmental Groups
148, 150, 160, 170, 185–187, 189–191, on Indonesia (IGGI)
193–195, 198, 202, 203, 209, 211, 212, IHPH (Forest Concession Rights Levies), 43,
214–218, 226, 245, 269, 280–282, 316, 140, 231
317, 320–326 Illegal Logging, 152–158, 200–210, 214
Forest Resources Assessment (FRA), 17 IMF See International Monetary Fund (IMF)
Forestry sector, 3–9, 17, 18, 23, 24, 32, 35–49, Industrial Timber Plantation
53, 60, 69, 83, 120, 132, 135–148, 159, (HTI/Hutan Tanaman Industri),
173, 185–187, 190, 192, 195, 197, 200, 5, 23, 32, 63–69, 188, 209, 230,
203, 204, 215–218, 221, 222, 225, 226, 316, 317, 326
230, 231, 235, 280, 315, 316, 321, International Financial Institution,
323, 324 13, 16–20, 22, 78, 97, 132, 318,
Freeport, 21, 150, 152, 166–169, 172, 173 319, 324, 326
Index 349
International Governmental Groups on Local government, 8, 140, 179

Indonesia (IGGI), 3, 29 Logging concession, 4–6, 9, 10, 22, 35, 38,
International Monetary Fund (IMF), 13, 39, 41, 42, 44, 47, 49, 53, 54, 56, 58,
17–20, 22, 29, 51, 97, 101, 132, 137, 81, 82, 84, 97, 99, 111–115, 121, 151,
197, 318, 324, 326 154, 159, 172, 173, 193, 221–226, 231,
International Timber Corporation (ITCI), 4, 235, 315, 324, 325
10, 49, 52, 72, 80–84, 97, 99, 159, Log production, 41, 226, 227
221, 235, 322, 323
IPPK (Timber Extraction and Utilization
Rights), 145–148, 191, 192, 204, 218, 321 M
IPTN (Indonesian Aircrapt Industry), 68, 115 Mahakam, 84, 124, 125, 224, 269, 320
ITCI See International Timber Corporation Mahoni, 229
(ITCI) Meranti (Shorea sp.), 49, 111, 205, 206, 210,
224, 247
Meratus mountain, 238, 243
J Merbau, 153, 154, 191, 197
Jahe (ginger), 289, 290, 293 Military, 3, 27–29, 31, 40, 50, 97–100, 103,
Jamaker, 40, 99, 221 104, 111, 150, 153–155, 157, 168, 169,
Jambuk, 322 173, 199, 201–203, 205, 315
Japan, 4–6, 11, 13, 31, 38–42, 46, 53, 55, Mitsubishi, 4, 6, 39, 164
57, 61, 62, 74, 101, 102, 119, 132, 155, Muara Gusik, 4, 10, 24, 38, 39, 80–83, 159,
158, 159, 205, 208, 213–215, 224, 226, 235, 322–324
319, 323 Muara Muntai, 238
Japan International Corporation Agency Muara Pahu, 240, 262, 264, 266, 269
(JICA), 119, 123 Mulawarman University, 255
K N
Kakuei Tanaka, 45 NEI See Netherlands East Indies (NEI)
Kamoro, 150, 167, 169, 173 Netherlands East Indies (NEI), 36
Kayu Manis (Glyeyershiza glabra), 280 Non Governmental Organization (NGO), 17,
Kepahiang, 10, 22, 322 18, 20–22, 24, 33, 58, 68, 84, 109, 111,
Kiani Lestari, 221, 224 112, 131, 132, 142, 143, 151, 153, 162,
Kodeko, 39 164, 171, 180, 181, 186–191, 193, 194,
KOPERMAS (Koperasi Peran Serta 197, 204, 205, 209–211, 216, 218, 317,
Masyarakat/Coperative Sector 324, 326
for Community), 150, 153, 154, 160
KOSTRAD (Komando Strategis Angkatan
Darat), 28, 99 P
KUDETA (Koalisi untuk Demokratisasi/ Pajajaran University, 294
Coalition Forum for Democratization), Palembang Jaya Company, 298, 302,
188, 189, 194 305–310
Kutai, 4, 10, 22, 24, 38, 39, 81, 82, 121, Palm oil, 8, 15, 48, 69, 104–106, 111, 121,
124–126, 145–148, 159, 216, 223, 122, 150–152, 160–164, 172, 173, 318,
225, 235, 322 319, 326
Pancasila, 28
PDRB (Gross Regional Domestic Production),
L 228, 232–235
Land dispute, 69 Pendapatan Asli Daerah (PAD), Original
LEMASA (Lembaga Musyawarah Adat Suku Income of Local Government, 8, 42,
Amungme/The Amungme Tribal 120, 140, 141, 230, 316
Council), 168 Perhutani, 40, 65, 99, 159, 188
350 Index
Plywood, 44–62, 100, 113, 117–118, 208, 224, Supersemar (Surat Perintah
228, 266 Sebelas Maret/ Imperative
Political ecology, 9–14, 16, 18, 21–23, 83, Order Eleven of March), 28, 40
112, 132, 152, 315, 318
Political leadership, 136, 137
Political stabilization, 3 T
Power, 3, 4, 11, 12, 14, 18, 20, 27–29, 31, 35, Taiwan, 38, 40–42, 55, 61, 62, 74, 159,
38, 48, 56, 69, 81, 82, 84, 97, 98, 112, 205, 224
132, 135, 138, 139, 141, 145, 158, 160, TGHK (Forestry Agreement on Land Use),
166, 169, 177, 184, 199–203, 205, 217, 36, 109, 110, 222, 223
246, 321, 324 Toyota Kijang, 238, 289, 299, 300, 302
Provision of Forest Resources (PSDH), Transmigration Project Non-Governmental
140, 321 Organization, 318
Transnational corporation (TNC), 4, 8, 13, 19
Tri Usaha Bakti Company, 49, 52, 99
R
Radical policy, 27
Rainforest, 15, 37, 84, 99, 130, 167, 170 U
Rattan, 269, 323 Ulin (Eusideroxylon Zwageri), 80, 83, 198
Rejang Lebong, 280, 281, 283–286, 297, United Development Party (Partai Persatuan
302, 310 Pembangunan/PPP), 28, 98
Robusta, 239, 265, 283, 286, 288 United States, 4, 13, 29, 31, 39, 42, 49, 53,
61, 71, 74, 75, 132, 155, 158, 164,
205, 323
S
Sagu (Meroxylon sp.), 151
Sambu Group, 39 W
Sangkulirang, 221 Walhi (The Indonesian Environmental Forum),
Sawmill, 44, 208, 224 8, 9, 19–21, 46, 65, 68, 74, 77, 84,
Singapore, 8, 38–42, 55, 57, 61, 73, 74, 109–111, 113–121, 123, 128, 143, 147,
99, 121–123, 125, 139, 145, 153, 200, 204, 209, 221–223, 225, 226,
155, 159, 161, 164, 191, 197, 198, 230–233, 326
205, 213, 241 Water pollution, 19, 22, 33, 109, 120, 319
Soeharto regime, 3, 9, 10, 17, 23, 29–31, 35, Watershed, 68, 131
36, 44–46, 56, 79, 83, 100, 109, 111, World Bank, 13, 17–20, 22, 29, 53, 67, 97,
132, 150, 153, 159, 166, 168, 182, 188, 101, 103–106, 113, 123, 132, 137, 194,
197, 201–203, 315, 320, 322 318, 324, 326
Soekarno, 3, 27, 28, 35, 36, 38, 98, World Resources Institute (WRI), 4, 5, 9, 19,
158, 166 21, 36, 37, 67, 104–107, 132
Species depletion, 126–128
Stakeholders, 199–200, 318
Student, 45, 188 Y
Sumitomo, 4, 39 Yanmar, 295, 311

Herman Hidayat (Auth.) - Forest Resources Management in Indonesia (1968-2004) - A Political Ecology Approach-Springer Singapore (2016)

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Herman

ISBN 978-981-287-744-4 ISBN 978-981-287-745-1 (eBook)

Library of Congress Control Number: 2015958790

Springer Singapore Heidelberg New York Dordrecht London

Printed on acid-free paper

I believe this book is very appropriate to be read by policy researchers, NGOs,

At home in rural area of Tsukuba, Japan The New Year of 2014

I am sincerely grateful to Prof. Noda Shinichi, the director of KURCPI,

Part II Forest Management Under the Soeharto Government

Pulp and Paper Industries.......................................................................... 69

Part III Environmental Impact of Forest Management

Part IV Forest Management in the Reformation Era

Government Perception of Forest Land .................................................... 158

Part V Local Responses to Forest Management: A Case Study

11 Livelihood of Local People in Muara Gusik Village ............................ 237

Part VI Local Responses to Forest Management: A Case

Part VII Conclusions and Recommendations

Map 1................................................................................................................ 327

AEKI Asosiasi Ekportir Kopi Indonesia (Coffee Exporters Association of

ELSAM Lembaga Studi & Advokasi Masyarakat (Institute for Community

PAD Pendapatan Asli Daerah (Local Regional Income)

IN 1966, a radical systemic change1 occurred within the Indonesian government,

© Springer Science+Business Media Singapore 2016 3

of infrastructure as well as through the implementation of fiscal schemes, such as

The Forestry Sector in the Soeharto Regime

produced one-third to one-half of Indonesia’s logs (Inoue 2000). In 1967 only

The Forestry Sector in the Reformation Era

Local government perceptions on the implementation of decentralization in

a transformative period leading to the reformation era. Afterwards, members of par-

Scientists’ Discourse on Political Ecology

Putting Politics First

human welfare are made; ecological degradation, for instance, is an indicator of a

If the sustainable management of forests are implemented, as discussed above,

and the European Community.4 This positive environmental politics is needed,

Focuses of Past Studies on Political Ecology

Although political ecology emerged in the 1980s as a research agenda in developing

Fourth is the exploration of political–ecological questions in the light of socio-

Socio -Economics Implication on Environmental

Review of Actors’ Movements

The Role of Direct Actors

The Role of Indirect Actors

Indirect actors of forest management can be categorized as: international financial

Following indirect actors such as international financial institutions (e.g., the

The Study Framework

The framework of this study contains a conceptual analysis on political ecology

Socio-Economics Implication on Environmental

Brief Synopsis of Chapters

which explores NGOs’ criticisms regarding forest management by financial institu-

Soekarno’s regime was monumental (1945–1966). The characteristics of his

© Springer Science+Business Media Singapore 2016 27

Table 2.1 Approved capital investment under PMA/PMDN in 1973

As discussed earlier, economic development in the forestry sector in the 1970s

© Springer Science+Business Media Singapore 2016 35

Logging Forest Concessions (HPH)

Table 3.1 ASEAN tropical forest area

Table 3.2 Forest inventory Years Size (Million) ha

Table 3.3 Foreign Foreign countries Capital amount

Table 3.4 Log production Years Production

Table 3.6 Logging forest concession development in many provinces (1990)

Table 3.8 Log and sawmill Years Log Sawmill

Plywood Industries in the 1970s

Table 3.10 Development of Number of Production

The Plywood Industry in the 1980s and 1990s