INDONESIA

Govt. lifts ban on log exports, limits size of forest concessions

NEW LOGGING RULES SPOOK PLYWOOD BARONS

JAKARTA -- The Indonesian government, as part of an agreement with the International Monetary Fund (IMF), has lifted a 10-year ban on log exports with the hope of generating foreign currency needed to get the derailed economy back on track.

It has also announced plans to radically limit the number and size of forest concessions an individual can own, a move that could greatly limit the fortunes of timber tycoons.

Many in the plywood industry have criticized the move. They argue that lifting the ban on log exports would create a severe shortage of materials in the plywood industry, a sector that brings in about $6 billion a year in foreign currency. Not counting exports of oil and natural gas, plywood exports are the second-largest source of foreign currency, behind only
textiles and apparel.

Helping its rival?

"Log exports would allow Japan's weak plywood industry to become a powerful competitor because of its more advanced production technology," Adiwarsita Adinegoro, chairman of the Association of Indonesian Forest Concessionaires, said.

The export ban is generally thought to have significantly weakened Japan's plywood industry, which was largely dependent on Indonesian timber. The ban helped transform Indonesia from being just a log exporter into the world's
largest plywood maker in only 5 years.

Before the ban was lifted, about 60% of Indonesia's logs went to the 112 plywood plants that produce 9.5 million cubic meters of the material per year and employ around 2.5 million people.

The first log exports took place in early September, when about 470,000 cubic meters of timber was shipped from Central Kalimantan and Eastern Kalimantan provinces to Japan.

The government said the plywood industry has become an increasingly unreliable source of foreign currency. The sector has been plagued by limited production capacity, cash shortages due to super-high interest rates and rejection of letters of credit issued by Indonesian banks. Without the letters of credit, plants have difficulty purchasing necessary imported materials such as chemicals and spare parts for the production facilities.

The plywood industry isn't alone in facing an uncertain future. Timber tycoons who control millions of hectares of forest land are also threatened. The government is planning to issue regulations that would force them to surrender most of their forest concessions.

The new law would limit the size of forest concessions to a maximum of 100,000 hectares (247,000 acres) per person. "The regulation will take effect soon," said Ginandjar Kartasasmita, coordinating minister for economy, finance and industry on September 21.

Currently, there are no limits to how much forest land one person can own. Officials at the Ministry of Forestry and Plantation said a dozen conglomerates, through their 109 subsidiaries, control most of the 500 forest concessions in Indonesia. The officials said each conglomerate had close ties with former President Suharto, who resigned in May 1998.

Major Players

There are five conglomerates that each control more than one million hectares of forest land: Kayu Lapis Indonesia Group, Jayanti Group, Barito Pacific Group, Kalimanis Group and Korondo Group.

The concentration of so much land in so few hands can be traced back to 1985. That year, the government began requiring each forest concessionaire to own a wood-processing plant, which cost around $6 million apiece.

Less-successful concessionaires were unable to afford a plant and were forced to sell their land to wealthy business-people interested in the plywood industry.

Almost all the concessions were originally extended to retired senior government officials and military generals during the Suharto regime.

"The new land-control regulation is part of government's Forest for the People   program," said Muslimin Nasution, the forestry minister.

There is a suspicion among many forest concessionaires that there are vested interests behind the government's plan to limit the amount of land an individual can hold. "I think the main intention is to replace the timber tycoons connected to the Suharto regime with the friends and family of the incumbent president," a forest concessionaire said.

A number of business-people believe that the powerful Timsco Group, a conglomerate controlled by relatives of President B.J. Habibie that has an interest in more that 60 companies, plans to expand into the forestry sector.

Most of Timsco's earnings come from contracts with government projects headed by Habibie when he was the chairman of the Strategic Industries Agency - which comprises 10 state-owned companies -- and the head of Batam Island Development Authority -- which was assigned to turn the island into
one of Indonesia's industrial hubs.

Many concessionaires are also uneasy about the government's revamped determination to punish anyone caught violating forestry regulations. Nasution has canceled 66 forest concessions since May, mostly due to illegal felling of trees.

The canceled concessions will be sold through open tenders and top priority will go mostly to locally-owned cooperatives and small and midsize enterprises, Nasution said.

Under Suharto's rule, forest concessions were often granted in areas occupied by people who had inhabited the area for generations.

Strong political connections and bureaucratic corruption allowed many forestry operations to operate unchecked, which often led to serious environmental damage. The destruction to Indonesia's forests has been exacerbated by inadequate environmental protection laws and lax enforcement of rules, environmentalists say.

Environmentalists have warned the government that its policy of allowing log exports and increasing the number of forest concessionaires will lead only to further environmental destruction. They argue that the government's new policy will place precious forest land in the hands of inexperienced
concessionaires who tend to underestimate the importance of conservation.

Several representatives of influential non-governmental environmentalist organizations met with Nasution recently, demanding that the government improve its supervision of forest land and that it more seriously deal with illegal tree-cutting. The representatives said that without such changes, Indonesia's wood-related industries would face stronger criticism from the
international community.

Damaged forests

Rampant illegal felling of trees and widespread use of the slash and burn method of clearing land by forest concessionaires has damaged millions of hectares of forest land throughout the country. This state of affairs prompted environmentalists from most industrialized nations to launch a major anti-tropical-wood campaign in 1993.

To appease environmentalists, the government promised recently to issue a regulation that requires forest concessionaires to contribute to the mandatory reforestation fund before felling any trees.

The IMF has insisted that all funds intended to be used for reforestation but actually used for other purposes by state-owned and private companies be recollected.

Major projects financed by reforestation funds include the making of a 2-million-hectare rice paddy on Kalimantan; a domestic-aircraft project headed by Habibie when he was research and technology minister; a pellet fertilizer project headed by Suharto's grandson, Ari Sigit; and a paper
plant headed by Suharto's longtime golfing buddy, Mohamad "Bob" Hasan.

It remains unclear how much of the reforestation funds has been used to finance unrelated projects. The Ministry of Finance is still calculating the total amount of misallocated funds and is trying to find a way to recover them.

The IMF wants the collected money to be used to finance the reforestation program.

Source: The Nikkei Weekly (Tokyo) October 5, 1998

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