Sunday, September 26, 2010

Deforestation Enriches a Few While Millions Pay the Price

Indonesia has one of the highest rates of deforestation in the world, and the loss of government revenue associated with illegal deforestation has been estimated at $100 million in East Kalimantan alone.

Deforestation is caused, in part, by land use changes resulting from cash-crop plantations and mining, particularly for coal in East Kalimantan.

Recent increases in deforestation rates have occurred in three stages, and have been exacerbated by a number of policy developments and reforms.

The first stage occurred when small-scale forest concessions were granted for collecting forest products — these were granted through the issuance of a Forest Product Harvesting Permit (HPHH).

Under Indonesia’s centralized government system, HPHH were issued by the provincial governor, while after decentralization they were issued by the head of a district or a city.

While China and the developed Asian economies engage in various kinds of currency manipulation, Southeast Asia’s open economies have been bearing the brunt of inflows from bigger countries and the oil states.

The issuance of HPHH was a key driver of deforestation until 2002, when the authority of the district and city heads to issue HPHH was withdrawn by the government through a ministerial decree.

The second stage of deforestation occurred between 2002 and 2005, mostly due to the expanding plantation sector, particularly oil-palm plantations.

Recently, multinational food corporations General Mills, Nestle and Unilever spurred by a Greenpeace campaign cut off orders for palm oil from Indonesian producer Sinar Mas Agro Resources & Technology on charges that it has illegally cleared woodlands.

These boycotts came about because due to consumer and civil society pressure over environmental issues, such as the damage caused to the habitat of the orangutan, one of the country’s most endangered and charismatic species.

Greenpeace has also put pressure on Wal-Mart to cease buying from Smart, and has successfully lobbied global finance giant HSBC to sell its shares in the company.

There are short-term socioeconomic impacts resulting from the cancellation of palm-oil contracts, such as the loss of employment and the reduction of wealth flowing into rural communities — but these are insignificant when compared with the long-term disaster that unchecked deforestation welcomes.

The third stage of deforestation dates from 2005 until the present as a result of the expansion of small-scale coal mining.

This has been driven by three factors.

First, changes to the law on land use allowed for mining in forest, including protected areas, through the issuance of special permits approved by the forestry minister.

These permits were granted to mining companies under the proviso that they already held rights to mine in forest areas before the changes to the land law were made.

Initially, only 13 companies were eligible under this proviso, but by May 2010, 54 permits had been issued in East Kalimantan alone.

Some 53 of these were issued after a 2008 government regulation that set the tariff rate for exploiting non-forest products, including minerals and coal. This regulation was often perceived as an effort to “sell” forest areas.

Second, the dramatic increase in the price of commodities prior to the global financial crisis increased mining in forested areas.

The financial crisis depressed coal prices, but as of 2010, the price of coal has rebounded, and this has seen an increase in investment in the mining sector.

This flow of capital has been supported by the central government, and local communities and indigenous communities have been more than willing to open up their land for mining.

Third, decentralizing the issuance of mining concessions combined with local direct elections gave rise to local capture and rent seeking.

Mining permits became a political commodity to garner votes, and political campaigners and those who had access to the district head or mayor became brokers to investors.

Unless broad ranging policy reforms occur, and corruption is reduced, Indonesia will struggle to reduce levels of deforestation to internationally acceptable levels — but these reforms will not occur overnight. For now, continued international pressure by the public will be the most successful path of action.

By Maria Monica Wihardja Associate Fellow at the Center for Strategic and International Studies in Jakarta.

East Asia Forum

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