Decentralization of Forest Administration in Indonesia, Implications ...

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Forest Administration and Forestry Sector Development Prior to 1998
control over Outer Island forests substantially expanded the timber resources
available for distribution to national-level state elites and their business partners. This
simultaneously increased the accumulation of opportunities open to Jakarta-based
powerholders and drastically curtailed the resources flowing through provincial
patronage networks. Indeed, the revocation of provincial governments’ authority to
allocate logging concessions, even of limited size, abruptly reoriented the revenue
bases of timber-rich provinces from exploitation of local resources to allocations
from the central government (Magenda 1991). In this way, the centralization of
timber licensing effectively tightened Jakarta’s control over economic and political
activity in many parts of the Outer Islands. 15
With full control over the distribution of logging concessions, the national
government accelerated its efforts to make Indonesia’s forest resources available
to privately-owned logging companies. Through the 1970s, the Directorate General
of Forestry repeatedly expanded the area of forest estate designated as ‘production
forest’, raising it to 64 million ha by 1980. With another 30 million ha slated for
clearing as ‘conversion forest’, no less than 50% of the nation’s total land area was
made available to private investors for timber extraction. During 1971-1980, the
Forestry Department distributed 438 HPHs covering 43 million ha, to bring the total
area of logging concessions allocated during the New Order regime’s first 14 years
to 53 million ha (PDBI 1988). While most of these were allocated to privately owned
timber companies, the state forestry enterprises Inhutani I, Inhutani II, and Inhutani
III collectively held five concessions covering an aggregate of 3.8 million ha.
The New Order government’s policy of opening Indonesia’s timber sector
to private investment quickly generated large volumes of log exports and foreign
exchange earnings. The nation’s log production rose by 470% during the Soeharto
regime’s first eight years, climbing from 6.0 million m 3 in 1966 to 28.3 million m 3
in 1973. As significantly, the recorded volume of log exports during this period rose
from 334,000 m 3 to 18.5 million m 3 . By 1973, Indonesia’s logging industry generated
US$ 562 million, or 18% of the nation’s total exchange earnings (Barr 1999). While
the timber sector’s contribution to GNP dropped substantially following the 1973 oil
boom, Indonesia’s log export levels and the revenues they produced reached new
heights in the late 1970s. The reported volume of unprocessed timber shipped overseas
exceeded 20 million m 3 per year during 1976-1978, when Indonesia supplied 44% of
world hardwood log exports. Moreover, annual earnings from log exports exceeded
US$ 1.5 billion during the timber boom of 1979-1980. It is possible that the real
volume and value of Indonesian timber exports during this period were substantially
greater than these official figures suggest.
2.6 Growth of Domestic Wood Processing in the 1980s
and 1990s
Through the early 1980s, New Order policymakers phased in a national ban on
log exports to push timber concession-holders to invest downstream in plywood
production. The ban had two far-reaching effects on the structure of Indonesia’s
timber industry: On the one hand, it effectively concentrated control over the nation’s