EXECUTIVE SUMMARY AND RECOMMENDATIONS
The exploitation of Indonesia’s natural resources since the 1960s has brought economic benefits to the country, but it has often damaged the natural environment and society in resource-rich areas in a way that fosters social tensions and has led to violent conflict. Indonesia needs to manage its natural resources in a way that is fairer and more sustainable than in the past.
The exploitation of resources like timber and minerals during the rule of President Soeharto was dominated by companies connected to the regime elite. Though formally legal, this exploitation was often heedless of local communities and the environment and permeated by official corruption and rule-breaking. It created the conditions for violent conflict in forested areas like Central Kalimantan, where a culture clash between indigenous Dayaks and ethnic Madurese immigrants led to a massacre of more than 500 hundred Madurese early in 2001 and the expulsion of thousands more from the region.
Indonesia now has an opportunity to develop a less damaging model of resource management, but instead there has been a rapid upsurge of illegal resource extraction across the country since 1998. The major forms of illegal extraction are logging, mining and fishing, and they can be organised by licensed companies who violate the law or by “wild” operators who act outside it. All of these damage the environment, deprive the state of revenues and raise the spectre of future conflict. In the case of logging, the problem is so serious that it threatens to destroy some of Indonesia’s largest forests within a decade.
The illegal resource industry is protected and sometimes even organised by corrupt elements in the civil service, security forces and legislature. It plays on the resentments of poor people who feel they were excluded from natural wealth during the Soeharto era but, like the legalised exploitation of the past, it mainly benefits a small circle of businesspeople and corrupt officials. It is thus a problem of governance and crime, not only of the environment.
The Indonesian government has committed itself to dealing with illegal resource extraction and, in the case of logging, has come under heavy pressure to do so from foreign donors and lenders and from the NGO movement at home. Although reformist officials have made some gains recently, the government is still a very long way from turning the tide. This is because of the vast geographical scale and complexity of illegal resource extraction, and because of the complicity in illegal activities of many officials and legislators.
The problems begin with the state agencies responsible for regulating resource use. Although they contain some honest and dedicated officials, corruption and apathy run deep. In the case of the security forces, the profits drawn from the illegal resource trade are a major source of operational funds as well as personal wealth. Coordination between state agencies is often poor and a further level of complexity has been added by decentralisation, which has encouraged some local officials to resist directives from Jakarta and even to impose taxes on illegal logging and mining. There are scattered signs of hope, however, notably in the firmer line being taken by the Department of Forestry against illegal loggers.
NGOs and foreign donors have worked with local communities in some resource-rich areas, trying with mixed results to persuade them not to take part in unsustainable extraction. Some community members are worried about the negative impacts of such extraction. However, the lure of quick profits is powerful and there is a widespread lack of awareness about long-term impacts, which can include erosion and deadly floods in the case of logging, pollution from mining and loss of stocks with fishing. The influence of corrupt officials and business interests at the local level is also strong, meaning that change in attitudes is unlikely to be rapid.
As well as tackling the perpetrators and backers of illegal resource extraction, the government needs to address the sources of demand. In the case of timber this means downsizing the Indonesian wood products industry, which grew so big in the economic boom of the mid-1990s that it now consumes far more than can be legally supplied by Indonesia’s forests. State agencies which view this industry from a purely commercial perspective, notably the Department of Trade and Industry and the Indonesian Bank Restructuring Agency, need to appreciate that if it is not scaled back, it could deplete its remaining sources of domestic raw materials, with ruinous results.
Countries which consume Indonesian resources also have a major responsibility to deter the import of illegally-extracted commodities. In the case of timber, governments and companies in Southeast Asia, Northeast Asia and the West all need to take more action. Malaysia, in particular, should crack down on massive cross-border trade in illegally-felled Indonesian timber.
Few experts believe that ending illegal resource extraction in Indonesia will be an easy or a rapid task given the scale of the problem and its deep roots in official corruption and patronage politics. There is much pessimism that the tide can be turned on logging before irreparable damage is done to the forests. However, the efforts of reformist officials and local NGOs suggest that, if the government can find the necessary political will to overcome vested interests within its ranks, it is not too late at least to curb the scale of the damage and preserve some of Indonesia’s natural assets for future generations.
TO THE GOVERNMENT OF INDONESIA
1. Focus law enforcement efforts on the key organisers of illegal extraction and their backers in the bureaucracy, the security forces and the legislature.
2. Impose tougher punishments for resource crimes and set up a credible witness protection program.
3. Reduce capacity of wood-processing companies, focussing on large exporters and consulting with legislators, workers and the public to explain why cutbacks are needed.
4. Oblige the Indonesian Bank Restructuring Agency to review any existing debt restructuring agreements that may encourage the use of illegal timber.
5. Revitalise the Inter-Departmental Committee on Forestry and ensure that it gets the necessary funding and political support to do its job.
6. Simplify the regulation of natural resources, including cancelling regional rules that tax illegally extracted resources.
TO THE LEADERSHIP OF THE TNI AND THE POLICE
7. Punish officers who engage in or protect illegal resource extraction.
8. Encourage extra training for the police in investigating environment-related crime.
TO COUNTRIES THAT IMPORT OR TRADE IN INDONESIAN TIMBER AND MINERALS
9. Empower law enforcement officials to block the import of illegally-extracted resources and take appropriate action against those involved in the trade.
10. Review procurement policies to keep out illegally extracted resources and cooperate with Indonesia on measures to deter the trade in illegal resources.
TO MEMBERS OF THE CONSULTATIVE GROUP FOR INDONESIA AND TO LENDERS
11. Consider offering debt write-offs in return for tangible success in curbing illegal resource extraction.
12. Offer technical aid to help Indonesia scale back its wood-processing industries.
13. If vested interests continue to block reform, consider linking future loans to Indonesia to the curbing of illegal resource extraction.
14. Do not provide capital to resource-processing companies that lack an independently assessed source of legal and sustainable raw materials.
Jakarta/Brussels, 20 December 2001