Sustaining RI forests needs strong measures<\/p>\n
David Kaimowitz, Center for International Forestry Research (CIFOR) and
\nMubariq Ahmad, World Wide Fund (WWF), Bogor<\/p>\n
Sustainable forest management is one of the key items to be
\ndiscussed by international donors and the Indonesian Government
\nduring this week's meeting of the Consultative Group on Indonesia
\n(CGI). At previous meetings the Indonesian Government promised to
\ntake strong measures to make companies manage forests more
\nsustainably, in return for receiving new loans and grants.<\/p>\n
One of the most important of these was closing down heavily
\nindebted forestry companies that have so far failed to pay back
\nmoney owed to Indonesian banks and, ultimately, to the Government
\nand people of Indonesia. Such a move would reduce the great
\novercapacity of saw mills, pulp and paper mills and plywood
\nfactories that plague the forestry sector.<\/p>\n
Let's hope this time the government keeps its promise. After
\nfive years of trying to resolve the forest industry's multi-
\nbillion dollar debt problem, the crisis remains as great as ever.
\nIf the government is to fulfill its promises to the CGI, more
\nneeds to be achieved in restructuring both this debt and the
\nindustry itself, and in implementing good forest governance.<\/p>\n
Everyone agrees logging without proper documentation, planning
\nand supervision is rampant. Well-connected business-people and
\npoliticians involved in illegal logging go unpunished despite
\nhaving been clearly identified by the Ministry of Forestry and
\nrespected NGOs. And earlier this month the Indonesian Military
\n(TNI) acknowledged some of its own forces are often involved in
\nthese activities.<\/p>\n
The timber industry still has an operating capacity beyond the
\nsustainable level of legal wood supply, as defined by the
\nMinistry of Forestry. It has been suggested that to keep
\noperating at their full capacity, many companies both knowingly
\nand unknowingly purchase illegally logged timber.<\/p>\n
One of the key issues donors need to raise at the CGI meeting
\nis how the Indonesian Bank Restructuring Agency (IBRA) is
\nexacerbating this problem of overcapacity. What many people do
\nnot realize is that through its mandate to restructure the
\nbanking system, IBRA now has a major role in the long-term
\nsurvival of Indonesia's forests.<\/p>\n
This all came about because, under Soeharto's regime, major
\nIndonesian conglomerates borrowed trillions of rupiahs from
\nIndonesia's banks to expand their businesses, including their
\nforestry operations.<\/p>\n
When the Asian economic crisis reached its peak, these
\ncompanies were unable or unwilling to repay their bank loans.
\nConsequently the Indonesian Government stepped in to protect
\ndepositors' money by providing support funds to the banks --
\nfunds that came from Indonesia's taxpayers and the international
\ndonor community. IBRA was then established to help the banking
\nindustry restructure itself and to get the conglomerates to pay
\nback their loans.<\/p>\n
IBRA worked with the banks and the indebted companies to
\nformulate viable repayment packages. But despite IBRA's
\nintervention, very few companies paid back the money they owe.<\/p>\n
IBRA argues it can do very little because of Indonesia's weak
\nbankruptcy laws. Some media commentators suggest IBRA itself is
\ntoo close to the companies and easily manipulated.<\/p>\n
IBRA now wants to wash its hands of the whole business and cut
\nthe government's losses. It is doing this by no longer trying to
\nrecover 100 percent of the debt owed, but as little as 15 or 20
\npercent through the sale of the debts to banks.<\/p>\n
One might well ask why a bank would purchase a bad loan in a
\ncountry where creditors have no way to force debtors to pay? The
\nanswer is that the banks are counting on indebted companies being
\nwilling to repay the reduced debt plus interest if that allows
\nthem to wipe the rest of the debt off their books, because then
\nthey could go out and borrow again.<\/p>\n
Ultimately, IBRA's policy is allowing forest companies to
\nremain in business and contribute to the over capacity that is
\ndemanding more raw materials than Indonesia's forests can
\nsustainably supply. Also of concern is that many of these
\ncompanies, once off the hook, will feel encouraged to not only
\nresume their legally-dubious business practices but to borrow
\nmore funds and invest in more equipment. This would intensify the
\nindustry's overcapacity problems.<\/p>\n
Some people might argue this is crying over spilt milk -- the
\ndebts are old and it is too late to do anything. But at this very
\nmoment there is a company seeking government export credit agency
\nand investor support to build pulp and paper mill in South
\nKalimantan. The last thing Indonesia's forests need is another
\npulp and paper mill. The solution is to reduce industry capacity,
\nnot add to it.<\/p>\n
Many organizations, including the Indonesian Ministry of
\nForestry, WWF, CIFOR, the IMF and the World Bank, believe the
\ngovernment should be closing down companies that lack sustainable
\ntimber supplies or are financially untenable. IBRA argues the
\nMinistry of Forestry should handle the problem. In fact, the
\nministry is doing this as part of the government's commitment to
\nthe CGI to put the forest industry on a sustainable basis.<\/p>\n
But IBRA has decided to act independently of other government
\nagencies. Since its inception, IBRA has ignored the offers of
\nassistance from the Ministry of Forestry, research institutions,
\nand civil society organizations to conduct proper business
\nassessments of the forestry companies it controls.<\/p>\n
Current IBRA wisdom seems to be that because it is obliged to
\nwind up its operations in the very near future and the government
\nneeds funding to reduce the fiscal deficit, selling forestry
\ndebts at any price is better than not selling them at all.<\/p>\n
But if the government closed down some of the worst offending
\ncompanies, rather than allowed the discounted sale of their
\ndebts, it might find that other companies are suddenly more
\nwilling to pay the money they owe. This would reduce
\novercapacity, make companies more accountable and return much
\nneeded funds to the government's coffers.<\/p>\n
If the government does not close down forest companies unable
\nto pay their debts it will be politically difficult to ever close
\nthem down. The people purchasing the loans will argue the
\nindebted company should stay in business so it can repay the debt
\nowed. After all, it was the government who sold them the loans.<\/p>\n
Unless strong action is taken, the forestry industry will
\npractically cease to exist within 10 to 15 years. Indonesia will
\nhave lost its natural forests and the jobs they provide. Those
\ncompanies that do survive will depend on importing timber. Surely
\nno one wants to see that happen?<\/p>\n
Current IBRA policy is assisting the government reduce its
\nbudget deficit in the short-term. But it will cost the government
\ndearly in the long term. The loss of forests and a forestry
\nindustry will mean severe environmental damage, increased social
\nunrest due to unemployment, and increased welfare costs.<\/p>\n
The World Bank and the IMF support placing IBRA-controlled
\nforestry assets under proper supervision. In conversations with
\nthe Center for International Forestry Research, representatives
\nof the World Bank in Indonesia said IBRA should postpone the sale
\nof forestry assets until the Ministry of Forestry implements a
\nproper assessment of forestry business practices.<\/p>\n
This must happen soon. At its current rate of sale, IBRA will
\nhave disposed all of the forest debts it holds by the middle of
\nthe year.<\/p>\n
Let's hope the members of the CGI are able to see the long-
\nterm forests from the short-term finances.<\/p>",
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