East Kalimantan Environmentally Sustainable Development Strategy

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1. The context for East Kalimantan’s
development
East Kalimantan has achieved an impressive record of economic development for its
people. East Kalimantan has the second highest GDP per capita of any province in Indonesia and
its economy reached a sizeable IDR 103 trillion 1 in 2008. Since 2000, the province’s poverty rate
has fallen by 10 percent per annum while per capita consumption has risen by 12 percent p.a. This
reflects the long-term development path of the province; since the 1970s East Kalimantan has
increased the life expectancy of its people from 56 to 71 years, reduced illiteracy from 50 percent to
4 percent, and has increased the number of community health centers from a mere 50 to over 850.
This development has been largely driven by the exploitation of the province’s abundant
natural resources. The pumping, cutting, mining, and processing of East Kalimantan’s oil, gas,
timber, coal, and other mineral deposits accounted for more than 80 percent of GDP in the early
1980s and two-thirds of GDP in 2008. Oil has been a mainstay of East Kalimantan’s economy
since the 1880s when Indonesia became the third country to find and produce oil commercially.
The discoveries of large oil and gas deposits in the 1960s and 1970s transformed the province; it
has Indonesia’s largest liquefied natural gas (LNG) plant in Bontang and second largest refinery in
Balikpapan. Since 1950, East Kalimantan has reduced its forest cover by 35 percent (6.8 million
hectares). East Kalimantan has 25 percent of all coal deposits in Indonesia as well as an estimated
60 million tons of unexploited gold deposits.
Economic development remains an imperative for the almost 260,000 people in East
Kalimantan still living below the poverty line. While the province has made impressive gains
in living standards, nine percent of the population still earns less than IDR 225,000 per month,
the provincial poverty level. Decentralization has increased the accountability and pressure on
district heads (bupatis) and the governor to extend economic opportunities and increase incomes.
Although the province’s working population has actually shrunk since 2000, creating new jobs
remains a political imperative as the unemployment level stood at 11 percent in 2008. Incomes,
likewise, have much room to rise; the average citizen of East Kalimantan spends just IDR 420,000
per month on housing, food, and basic necessities.
DRAFT
Under a business-as-usual growth scenario, East Kalimantan’s economy will grow only
at a moderate 3 percent p.a., as new growth from coal mining, palm oil, and services will
be partially offset by the continued decline of the oil and gas sector (EXHIBIT 1). The GDP
contribution from oil and gas has decreased by one percent per annum over the last few years, and
is expected to continue to fall as production rates decline in the East Kalimantan’s mature fields.
As oil and gas currently make up almost 50 percent of the economy, this decline acts as a brake on
the overall economy’s growth. Going forward, the provincial economy’s growth will be increasingly
influenced by sectors such as coal mining, palm oil, and services.
1 Real GDP in constant 2000 prices. Unless otherwise noted, all GDP figures in this report are in real
(constant 2000) prices and not nominal prices.