Decentralization of Forest Administration in Indonesia, Implications ...

Chapter 5
Decentralization’s Effects on Forest Concessions
and Timber Production
Christopher Barr, Ida Aju Pradnja Resosudarmo,
Ahmad Dermawan, and Bambang Setiono
5.1 Introduction
During the New Order period, Indonesia’s forestry sector was heavily oriented towards
commercial timber production and export-oriented wood processing. In 1967, shortly
after Soeharto’s rise to power, the government officially designated 143 million ha
as Forest Estate and made much of this area available for commercial logging. Over
the ensuing three decades, the MoF allocated some 652 timber concessions, known
as HPHs, covering an aggregate area of 69 million ha (CIFOR 2004). From the late-
1970s through the late-1990s, Indonesia’s HPH-holders formally harvested between
20 million and 30 million m 3 of timber annually. Indonesia exported large volumes of
unprocessed timber until the imposition of a national ban on log exports in the early-
1980s. Thereafter, Indonesia emerged as the world’s largest producer and exporter of
tropical plywood. In the 1990s, substantial investments were also made in pulp and
paper production.
Under the New Order regime, the forestry sector ranked second only to petroleum
and gas in its contribution to GDP. In the years preceding Soeharto’s resignation in
May 1998, the sector generated approximately US$ 3.5 billion annually (Barr 2001).
With administrative authority concentrated in the hands of the MoF, the vast majority
of economic benefits generated by the forestry sector flowed away from the regions
in which the timber was harvested. Most of the HPH timber concessions allocated
by the Ministry were controlled by a handful of large forestry conglomerates, each
of which had close ties to the regime’s senior leadership. The central government
also collected a majority of the formal taxes and fees generated by commercial
timber activities, as discussed in Chapter 4. During this period, the roles of provincial
and district governments were largely limited to implementing decisions made in
Jakarta.
With the onset of decentralization, many kabupaten governments used their
expanded regulatory authority to establish district-level timber regimes. From 1999
through 2002, district governments allocated large numbers of small-scale timber
extraction and forest conversion permits. In forest-rich districts, this triggered a
renewed logging boom which, in many respects, was reminiscent of the banjir kap
period in the late-1960s, just after the New Order government opened Indonesia’s
forestry sector to private investment (see Chapter 2). As in the days of banjir kap,
decentralization brought about “an overwhelming mobilization of speculators”
seeking a portion of the considerable profits from timber extraction being organized