Decentralization of Forest Administration in Indonesia, Implications ...

24
Forest Administration and Forestry Sector Development Prior to 1998
Under this arrangement, the central government imposed a number of royalties and
fees on concession-holders, which were divided among the national and provincial
governments according to various formulas. The most significant of these at that time
– the ‘HPH License Fee’ (Iuran Hak Pengusahaan Hutan, IHPH) and the ‘Forest
Product Royalty’ (Iuran Hasil Hutan, IHH) – were to be split between the central
and provincial governments, with 30% going to the Directorate General of Forestry
in Jakarta, 30% to the Provincial Forestry Service (Dinas Kehutanan), and 40% to
the provincial government for development expenditures. By contrast, all of the
timber export tax – initially set at 10% of FOB value of log exports, making it the
largest of the government’s timber fees at that point – was earmarked for the central
government budget, giving Jakarta control over the bulk of foreign exchange obtained
from HPH-holders. 12 (The administration of the major forestry taxes, and the scale of
the revenues generated, will be discussed in greater detail in Chapter 4).
2.4 Banjir Kap 13 and the Timber Boom of the Late-1960s
The opening of Indonesia’s Outer Islands to commercial timber extraction in May
1967 set off a logging boom in most forest-rich provinces of Sumatra and Kalimantan.
Dozens of multinational timber companies and domestic entrepreneurs sought to
obtain concessions in areas that were well-stocked with commercial timber species,
particularly high-value Dipterocarps. Many of these ventures involved partnerships
with military officers or politico-bureaucratic power-holders, scores of whom received
HPHs from the New Order leadership in order to secure their loyalty to the Soeharto
regime (Ross 2001; Robison 1986). In such ventures, the military or bureaucratic
stakeholder generally functioned as a ‘silent partner’, receiving a 20% to 25% equity
share in the enterprise by virtue of the fact that it had secured the concession and
would provide political protection. The foreign investor or domestic entrepreneur
would contribute the bulk of the venture’s investment capital, equipment, and dayto-day
management of the logging operations. By the end of 1970, the national
government’s Forestry Department had allocated 81 HPHs covering over 10 million
ha (Direktorat Djendral Kehutanan 1972).
While the Directorate General of Forestry in Jakarta was allocating such
extensive areas of timber concessions during the late-1960s, provincial and district
governments distributed even larger numbers of logging permits to small-scale
enterprises (Manning 1971). Indeed, the flood of foreign buyers seeking to purchase
Indonesian logs meant that forestry concessions of any size promised rapid returns
to investors able to extract timber and transport it to downriver purchasing points.
The ready availability of logging permits and highly favorable market conditions
for agathis (Agathis spp.), meranti (Shorea spp.), and keruing (Dipterocarpus spp.)
logs produced an “overwhelming mobilization of speculators” in many timber-rich
provinces, especially East Kalimantan (Peluso 1983). There, this process resulted
in the distribution of over two million ha of forest land, with “concessions as small
as 100 ha [being] given to friends and political allies of the district heads and the
governor, while the subdistrict heads issued licenses to local residents who worked
independently or with their families and friends” (Peluso1983; Manning 1971). In