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Research Report

Financial governance and Indonesia’s Reforestation Fund during the Soeharto and post-Soeharto periods, 1989–2009: A political economic analysis of lessons for REDD+

Christopher Barr
Ahmad Dermawan
Herry Purnomo
Heru Komarudin
Copyright Date: Jan. 1, 2010
Pages: 120
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Table of Contents

  1. (pp. 1-6)

    In the global effort to mitigate climate change, there is a growing consensus that wealthy countries should compensate poor countries for reducing carbon emissions. Schemes to pay poor countries for Reducing Emissions from Deforestation and Forest Degradation (REDD+) are now being negotiated under the United Nations Framework Convention on Climate Change (UNFCCC). REDD+ aims to provide incentive structures and implementation mechanisms that will lead to significant reductions in tropical deforestation and forest degradation, which currently account for 20 per cent of all carbon emissions caused by humans (Kanninen et al. 2007, Angelsen 2008, Angelsen et al. 2009). For tropical forest-rich...

  2. (pp. 7-22)

    Indonesia’s experience with the Reforestation Fund is firmly rooted in the political economy of commercial timber extraction under Soeharto’s New Order regime (ca 1966–98). During the first years of the Soeharto period, the state asserted wide-ranging administrative control over the nation’s forest resources; and during the 1970s and 1980s, the Forestry Department allocated some 60 million ha to commercial logging companies under the HPH (Hak Pengusahaan Hutan) timber concession system (Barr 1999, Brown 1999).⁵ A significant portion of the HPH licences were distributed through informal patronage networks to state elites and their business partners as part of a broader...

  3. (pp. 23-34)

    The financial crisis that struck Indonesia and other Asian countries in 1997–98 set in motion a series of economic and political transitions that would have a direct effect on how the Reforestation Fund is administered. Most immediately, in January 1998 the International Monetary Fund (IMF) entered into a US $43 billion bailout loan agreement with the Government of Indonesia, based on a 50-point list of conditionalities. The structural adjustment process thus initiated was largely aimed at recapitalising Indonesia’s failing banking system and restoring long-term economic growth. Through these reforms, the IMF sought to deregulate large segments of the Indonesian...

  4. (pp. 35-46)

    In the years following Soeharto’s resignation in May 1998, the Indonesian state experienced an intense internal struggle over how administrative and regulatory authority should be distributed among the national, provincial and district governments (Barr et al. 2006a). After 32 years under the New Order state’s highly centralised political structure, provincial and district governments began to assert increasing control over political and economic affairs within their own jurisdictions. The struggle for regional autonomy was driven, to a very significant degree, by a desire on the part of regional governments to obtain a larger share of the economic rents generated by natural...

  5. (pp. 47-54)

    In recent years, the Ministry of Forestry has announced plans, yet again, to use the Reforestation Fund to provide financial incentives for commercial plantation development in support of forest industry ‘revitalisation’. The Ministry of Forestry and the Ministry of Finance have jointly established two new institutional structures to oversee the administration and use of the central government’s share of DR revenues for this purpose. These include the creation of a Forest Development Account (Rekening Pembangunan Hutan) and a Forest Development Funding Agency Public Service Unit (Badan Layanan Umum – Badan Pembiayaan Pembangunan Hutan, BLU-BPPH), which is mandated to administer the...

  6. (pp. 55-66)

    This study has reviewed Indonesia’s experience with the Reforestation Fund since the DR levy was introduced in 1989. It has traced the various institutional arrangements through which the DR has been administered by successive government administrations and has highlighted numerous instances in which the use of the DR for its intended purpose – reforestation and rehabilitation of degraded forests – has been undermined by poor financial management and weak governance practices. Although many of the most notable abuses of the DR occurred during the Soeharto era, significant issues related to the financial management and governance of the fund continue through...

  7. (pp. 67-70)

    This section outlines six general recommendations which emerge from the study’s examination of Indonesia’s experience with the Reforestation Fund and analysis of potential implications for REDD+. Each of the following recommendations is intended to strengthen both the GOI’s administration of the DR and the implementation of Indonesia’s future REDD+ payment mechanism.

    Specific measures could include:

    conducting a formal assessment of existing capacity for financial management and revenue administration at key agencies expected to administer DR and REDD+ funds, with analysis of strengths, weaknesses, opportunities and threats;

    reviewing findings and proposed actions related to financial management and revenue administration articulated in...