Decentralization of Forest Administration in Indonesia, Implications ...

80
Fiscal Balancing and the Redistribution of Forest Revenues
are meant to be covered by inter-governmental transfers from Jakarta, through the
DAU, DAK, and shared revenues from land and natural resource taxes. However, the
concept of regional autonomy also implies that regional governments – especially at
the district and municipal levels – will have a considerable degree of self-sufficiency
and independence from the central government. This has placed significant pressure
on district governments to generate revenues from within their own jurisdictions, to
the extent possible.
On the other hand, Law 25/1999 and Law 34/2000 (on regional taxation) have
provided Indonesia’s regional governments with new opportunities to generate their
own revenues through the collection of taxes and fees from local sources. Law
34/2000 also gave provincial and district governments the authority to impose new
taxes and levies through the issuance of regional regulations, or perda, ratified by
the appropriate DPRD. The introduction of these two laws catalyzed a flurry of
activity on the part of regional governments during 1999-2001, as provinces and
districts throughout Indonesia issued large numbers of perda in an effort to secure
new sources of PAD (district generated income). Some provinces and districts simply
‘recycled’ their previous regulations on taxes and levies that had been banned under
Law18/1997. Most district officials, however, immediately recognized the plethora
of benefits associated with establishing a revenue base that was independent of
transfers from Jakarta. Having control over substantial local revenue flows would
not only expand the size of a district’s budget, it would also allow district officials to
determine how those funds would be used.
For regions with commercially valuable forests, timber extraction has become
an important source of PAD, and has opened new opportunities for local, smallscale
economic actors. Several factors have led district governments to view timber
production and marketing as a preferred source of revenue. Most significantly, forests
are easily converted to cash. Timber extraction can be carried out with relatively
modest amounts of capital investment and requires only basic technological inputs
(notably the chainsaw). In practical terms, this means that logging will typically
generate revenues much more quickly than other types of activity. For example,
industrial mining or plantation developments both involve a significant time lag
between initial investment and economic returns.
Several other factors have also contributed to district governments’ interest
in promoting timber extraction within their jurisdictions. In many regions, district
officials have faced considerable political pressure from forest communities and
other local stakeholders to make forest resources available for exploitation, as these
actors were largely excluded from sharing in the benefits from timber extraction
during the Soeharto era. In addition, district governments have often viewed timber
extraction as an important source of jobs for the local population, as manual and semimechanized
logging generally involves intensive use of unskilled or semi-skilled
labor. In addition, strong demand for logs within both domestic and international
timber markets has meant that many districts have readily been able to attract external
investors to finance expanded logging activities within their jurisdictions. Timber
producers have also been able to sell large volumes of logs through well-established
marketing networks.