Indonesia Lifts 10-Year Ban on Log Exports, Limits Size of Forest
Concessions
10/5/98
*******************************
RELAYED TEXT STARTS HERE:
Title: Indonesia Lifts 10-Year Ban on Log Exports, Limits Size of
Forest Concessions
Source: The Nikkei Weekly (Tokyo)
Status: Copyright 1999, contact source for permission to reprint
Date: October 5, 1999
Byline: Praginanto
JAKARTA -- The Indonesian government, as part of an agreement with
the International Monetary Fund (IMF), has lifted a 10-year ban on
log exports with the hope of generating foreign currency needed to
get the derailed economy back on track.
It has also announced plans to radically limit the number and size of
forest concessions an individual can own, a move that could greatly
limit the fortunes of timber tycoons.
Many in the plywood industry have criticized the move. They argue
that lifting the ban on log exports would create a severe shortage of
materials in the plywood industry, a sector that brings in about $6
billion a year in foreign currency. Not counting exports of oil and
natural gas, plywood exports are the second-largest source of foreign
currency, behind only textiles and apparel.
Helping its rival?
"Log exports would allow Japan's weak plywood industry to become a
powerful competitor because of its more advanced production
technology," Adiwarsita Adinegoro, chairman of the Association of
Indonesian Forest Concessionaires, said.
The export ban is generally thought to have significantly weakened
Japan's plywood industry, which was largely dependent on Indonesian
timber. The ban helped transform Indonesia from being just a log
exporter into the world's largest plywood maker in only 5 years.
Before the ban was lifted, about 60% of Indonesia's logs went to the
112 plywood plants that produce 9.5 million cubic meters of the
material per year and employ around 2.5 million people.
The first log exports took place in early September, when about
470,000 cubic meters of timber was shipped from Central Kalimantan
and Eastern Kalimantan provinces to Japan.
The government said the plywood industry has become an increasingly
unreliable source of foreign currency. The sector has been plagued by
limited production capacity, cash shortages due to super-high
interest rates and rejection of letters of credit issued by
Indonesian banks.
Without the letters of credit, plants have difficulty purchasing
necessary imported materials such as chemicals and spare parts for
the production facilities.
The plywood industry isn't alone in facing an uncertain future.
Timber tycoons who control millions of hectares of forest land are
also threatened. The government is planning to issue regulations that
would force them to surrender most of their forest concessions.
The new law would limit the size of forest concessions to a maximum
of 100,000 hectares (247,000 acres) per person. "The regulation will
take effect soon," said Ginandjar Kartasasmita, coordinating minister
for economy, finance and industry on September 21.
Currently, there are no limits to how much forest land one person can
own.
Officials at the Ministry of Forestry and Plantation said a dozen
conglomerates, through their 109 subsidiaries, control most of the
500 forest concessions in Indonesia. The officials said each
conglomerate had close ties with former President Suharto, who
resigned in May 1998.
Major Players
There are five conglomerates that each control more than one million
hectares of forest land: Kayu Lapis Indonesia Group, Jayanti Group,
Barito Pacific Group, Kalimanis Group and Korondo Group.
The concentration of so much land in so few hands can be traced back
to 1985. That year, the government began requiring each forest
concessionaire to own a wood-processing plant, which cost around $6
million apiece.
Less-successful concessionaires were unable to afford a plant and
were forced to sell their land to wealthy business-people interested
in the plywood industry.
Almost all the concessions were originally extended to retired senior
government officials and military generals during the Suharto regime.
"The new land-control regulation is part of government's Forest for
the People program," said Muslimin Nasution, the forestry minister.
There is a suspicion among many forest concessionaires that there are
vested interests behind the government's plan to limit the amount of
land an individual can hold. "I think the main intention is to
replace the timber tycoons connected to the Suharto regime with the
friends and family of the incumbent president," a forest
concessionaire said.
A number of business-people believe that the powerful Timsco Group, a
conglomerate controlled by relatives of President B.J. Habibie that
has an interest in more that 60 companies, plans to expand into the
forestry sector.
Most of Timsco's earnings come from contracts with government
projects headed by Habibie when he was the chairman of the Strategic
Industries Agency - which comprises 10 state-owned companies -- and
the head of Batam Island Development Authority -- which was assigned
to turn the island into one of Indonesia's industrial hubs.
Many concessionaires are also uneasy about the government's revamped
determination to punish anyone caught violating forestry regulations.
Nasution has canceled 66 forest concessions since May, mostly due to
illegal felling of trees.
The canceled concessions will be sold through open tenders and top
priority will go mostly to locally-owned cooperatives and small and
midsize enterprises, Nasution said.
Under Suharto's rule, forest concessions were often granted in areas
occupied by people who had inhabited the area for generations.
Strong political connections and bureaucratic corruption allowed many
forestry operations to operate unchecked, which often led to serious
environmental damage. The destruction to Indonesia's forests has been
exacerbated by inadequate environmental protection laws and lax
enforcement of rules, environmentalists say.
Environmentalists have warned the government that its policy of
allowing log exports and increasing the number of forest
concessionaires will lead only to further environmental destruction.
They argue that the government's new policy will place precious
forest land in the hands of inexperienced concessionaires
who tend to underestimate the importance of conservation.
Several representatives of influential non-governmental
environmentalist organizations met with Nasution recently, demanding
that the government improve its supervision of forest land and that
it more seriously deal with illegal tree-cutting. The representatives
said that without such changes, Indonesia's wood-related industries
would face stronger criticism from the international community.
Damaged forests
Rampant illegal felling of trees and widespread use of the slash and
burn method of clearing land by forest concessionaires has damaged
millions of hectares of forest land throughout the country. This
state of affairs prompted environmentalists from most industrialized
nations to launch a major anti-tropical-wood campaign in 1993.
To appease environmentalists, the government promised recently to
issue a regulation that requires forest concessionaires to contribute
to the mandatory reforestation fund before felling any trees.
The IMF has insisted that all funds intended to be used for
reforestation but actually used for other purposes by state-owned and
private companies be recollected.
Major projects financed by reforestation funds include the making of
a 2- million-hectare rice paddy on Kalimantan; a domestic-aircraft
project headed by Habibie when he was research and technology
minister; a pellet fertilizer project headed by Suharto's grandson,
Ari Sigit; and a paper plant headed by Suharto's longtime golfing
buddy, Mohamad "Bob" Hasan.
It remains unclear how much of the reforestation funds has been used
to finance unrelated projects. The Ministry of Finance is still
calculating the total amount of misallocated funds and is trying to
find a way to recover them.
The IMF wants the collected money to be used to finance the
reforestation program.