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P. 1
Prelim REDD Analysis

Prelim REDD Analysis

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Published by Budy P. Resosudarmo

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Published by: Budy P. Resosudarmo on Jun 26, 2012
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06/26/2012

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Preliminary Analysis of REDD on Indonesian’s Economy
 
Budy P. Resosudarmo, Arief A. Yusuf and Ditya A. Nurdianto(Paper presented in the Workshop on Mapping Causal Complexity in Climate Change Impactsand Responses - Australia and Indonesia on 24-25 November 2008 in Melbourne)
1.
 
Introduction
A
 pproximately 10 per cent of the world’s tropical forests or around 144 million ha are located in
Indonesia, scattered from the westernmost tip of Sumatra to the eastern border of Papua,
occupying approximately 70 per cent of the country’s land area (Barbier, 1998)
. Thus, Indonesiaranks third
 — 
after Brazil and Zaire
 — 
in its endowment of tropical forests (Forest WatchIndonesia, 2002).
Indonesia’s forests have been one of its most important natural assets
. Forestryrelated activities have provided an important source of formal as well as informal employmentfor many people and have generated large amounts of both government revenue and foreignexchange (Indonesia-UK Tropical Forest Management Program, 2001).
Meanwhile, deforestation and forest degradation has been the main source of Indonesia’s
Green House Gas (GHG) emission; i.e. 70-
80% of Indonesia’s GHG emission. Incentive to
reduce the rate of deforestation, through the Reducing Emissions from Deforestation and ForestDegradation (REDD) program, has recently widely discussed. In general, the program allowsinternational communities to transfer a certain amount of funding to Indonesia to compensate itssuccessful efforts to reduce its rate of deforestation. The question is what will the likely impacton the Indonesian economy, if Indonesia commits to be involved in this REDD program.This report illustrates the impacts of reduced deforestation have on the Indonesianeconomy and demonstrates the complexity in distributing Reducing Emissions from
 
Deforestation and Forest Degradation (REDD) fund to compensate the negative economicimpacts of reduced deforestation.
2.
 
Forest Exploitation and Deforestation
Forest exploitation has long been conducted in Indonesia. However, the rate of exploitationsignificantly increased when Soeharto resumed leadership of the country in 1966
 – 
67. Thepresident was quick to realise the potential of the co
untry’s abundant forests
. In the first year of his presidency, he enacted the Law No. 5/1967 on forestry, which put all forests under statecontrol. This law provided a legitimatization for Soeharto to give forest concessions (HPH) tovarious individuals or agencies
 — 
many of whom were military officers and institutionssupporting his regime,
1
who then invited foreign partners to join them in exploiting the forests.By 1971, around 80 forest concession permits, mostly in Kalimantan and Sumatra, had beengiven to various individuals and institutions (Barr, 1998). The number of forest concessions, andtherefore their area, kept increasing. As a result, by the mid 1990s more than 500 forestconcessions had been allocated, covering around 54 million ha of the co
untry’s forest area
(Forest Watch Indonesia, 2001).Figure 1 shows the production of industrial roundwood (log), plywood, sawnwood, andpulpwood (in m
3
) since 1961. It can be seen that log production significantly increased from theend of the 1960s until the mid 1990s. The sawnwood industry started to take off around the mid1970s, while the plywood industry was flourishing by the mid 1980s. The pulpwood industrystarted to grow later on
 — 
around the early 1990s
 — 
and was able to exceed the production of sawnwood and plywood for several years around mid 1990s.
1
Later on, in the 1970s, the government also established state-owned logging enterprises
 
 
Figure 1. Forest Exploitation
 Along with the increase in their production, the contribution of forest-related industries tothe national economy also became more significant. By the mid 1990s, it has been conservatively
estimated that at least 20 million people depended on Indonesia’s forests for the bulk of their 
livelihood (Sunderlin et al., 2000). The forestry and wood processing sectors accounted foraround 4 per cent of the Gross Domestic Product (GDP). The total forestry and wood processingproduction ranks second
 — 
after mining
 — 
in export value, and typically accounts forapproximately 10 per cent or around 5.5 billion USD (FWI/GWF, 2002).It is important to note that log production in Figure 1 does not include illegal logging.Note that illegal logging can take various forms, starting with harvesting logs without any permitto under-reporting practices by legal logging companies. This illegal activity obviously goeshand in hand with bribery and corruption practices (Telapak Indonesia and EIA, 2001). Thepractice of illegal logging was predicted to increase from the 1970s onwards
 — 
a case of 
banjir kap
(Obidzinski, 2005). It was estimated that, by the end of the 1990s, three times the amount of 

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