Forest Policy and Economics 108 (2019) 101863
Contents lists available at ScienceDirect
Forest Policy and Economics
journal homepage: www.elsevier.com/locate/forpol
Village transfers for the environment: Lessons from community-based
development programs and the village fund☆
John D. Wattsa,c, , Luca Tacconib, Silvia Irawana, Aklan H. Wijayaa
⁎
a
Inovasi Bumi (INOBU), Jl. Ciungwanara I No. 32, Renon, Denpasar Selatan 80226, Bali, Indonesia
b
Crawford School of Public Policy, College of Asia and the Pacific, Australian National University, Australian Capital Territory, Australia
c
Earth Innovation Institute, 98 Battery Street, Suite 250, San Francisco, CA 94111, United States.
1. Introduction
The Government of Indonesia has committed to reducing green-
house gas emissions (see Tacconi and Muttaqin, this issue), which in-
cludes reducing 29% of greenhouse gas unconditionally and somewhere
between 9% and 12% conditionally (Tacconi 2018). In Indonesia, land
uses including peat fires are the primary causes of emissions of green-
house gases (GHG) (Republic of Indonesia 2015). The government,
however, has to weigh its commitments to reduce GHG emissions
against its need to promote economic growth to significantly reduce the
poverty by 2025 (Republic of Indonesia 2015). The government, con-
sequently, has decided to reduce deforestation and forest degradation
as one means of mitigating climate change, but also enhancing resi-
lience to climate change through activities such as protecting and re-
habilitating mangrove forests and vulnerable and degraded lands
(Republic of Indonesia 2015). The commitments expressed in the Na-
tionally Determined Contribution are an extension of earlier action
plans (see Meehan et al., this issue) and commitments, including those
made in bilateral agreements such as the Letter of Intent between the
governments of Indonesia and Norway in 2010 (Solheim and
Natalegawa 2010). Fulfilling these commitments requires addressing
the complex political and economic causes of deforestation and en-
vironmental degradation at different levels of government, including
the village level (Boer 2018; Purnomo et al. 2017; Susanti and Maryudi
2016; Szulecka et al. 2016).
Reducing Emissions from Deforestation and Degradation (REDD+),
was proposed as a comprehensive, global solution for avoiding defor-
estation and forest degradation (Angelsen et al. 2012; Kanninen et al.
2007). The mechanism would provide funding for actors, including
governments, to protect forests from being cleared or degraded.
Therefore, REDD+ has been thought of as a form of Payment for En-
vironmental Services (PES) scheme (Angelsen et al. 2012). Although the
definition of PES has been extensively debated (Tacconi 2012; Wunder
2015), PES schemes share certain features. The central elements of
This article is part of a special issue entitled Reducing Emissions from Land Use Change in Indonesia published at the journal Forest Policy and Economics 108C,
☆
2019.
⁎
Corresponding author.
E-mail address: jwatts@inobu.org (J.D. Watts).
https://doi.org/10.1016/j.forpol.2019.01.008
Received 29 June 2018; Received in revised form 22 December 2018; Accepted 14 January 2019
Available online 26 January 2019
1389-9341/ © 2019 Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/BY-NC-ND/4.0/).
T
these schemes are that there is a defined “provider” of environmental
services, such as watershed protection, carbon sequestration or biodi-
versity, who voluntarily receive payments in order to protect or en-
hance these environmental services from service users or other third
parties, such as governments. These environmental services should be
in addition to existing practices or the business as usual scenario. As the
provision of environmental services are difficult to measure, payments
are often determined not on outputs such as environmental services, but
input metrics such as per hectare of forest conserved or number of trees
planted (Engel et al. 2008). Wunder also (2015) questions the diffi-
culties of measuring the additionality of the environmental services
provided and instead emphasizes payments that are conditional on
“agreed rules of natural resource management”. REDD+, in this con-
text, is a PES that involves payments for an environmental service
(carbon sequestration) based on input metrics including forests and
peatland conserved or trees planted that are proxies for the amount of
carbon sequestered.
Financial instruments for conservation, could potentially induce and
reward environmentally sustainable practices. There are at least four
main purposes of financial instruments in the field of environment and
natural resources management, which affect the design of the instru-
ment, including correcting market failures (Coase 1960), incentives
(Gneezy et al. 2011; Muradian and Rival 2012; Pirard 2012), rewards
(Muradian and Rival 2012) and addressing funding gaps (Pirard 2012).
Muradian and Rival (2012) consider that payments for ecosystem ser-
vices are incentives for collective action. This view contrasts with the
concept proposed by Engels et al. (2008) who argue that the payments
are quasi-perfect market transactions to solve market failures. In-
centives are considered as transfers that enhance the motivations of
owners or users of natural resources to enhance the provision of eco-
system services. They also believe that incentives can also take the form
of additional investments such as operational costs for owners or users
to undertake actions by themselves due to budgetary constraints. The
latter is similar with the funding gap approach.
J.D. Watts, et al.
Besides the purposes of the financial instruments, factors such as
governance and the effects on intrinsic motivation determine the suc-
cess of the financial instruments in conservation. The outcomes of PES
depend on the political, sociocultural and institutional contexts in
which they operate (Muradian et al. 2013). When designing financial
instruments for environmental protection, it is important to understand
how these political and sociocultural aspects contribute to the causes of
environmental degradation. Community recipients of financial instru-
ments are usually farmer groups or villagers. The way that these in-
stitutions operate and collectively manage resources also determines
the success of the financial instrument (Corbera et al. 2009; Dietz et al.
2003; Ostrom 1990; Ostrom et al. 2002). Besides the design of the in-
stitution, the performance, capacity and scale of the institution im-
plementing PES also determines the outcomes.
Ensuring that benefits are distributed to the right actors capable of
protecting and enhancing environmental services is a central challenge
of PES schemes, including REDD+. Whilst PES schemes focus on pro-
viding incentives to individuals, and in some cases to groups of in-
dividuals, intergovernmental fiscal transfers (IFTs) have been proposed
as an appropriate financial mechanism for distributing conditional en-
vironmental payments to local governments (Irawan et al. 2014; Irawan
and Tacconi 2016). IFTs, also known as vertical revenue-sharing, are
designed to distribute a portion of national government revenues to
subnational governments. They have also been used and proposed in
many countries as an instrument for supporting conservation, with the
amount of transfers determined by conservation or ecological indicators
(Irawan et al. 2014; Irawan and Tacconi 2016; Ring et al. 2010). In the
case of Indonesia, the adoption of this instrument could be useful for
several reasons. First, fiscal and political decentralization in Indonesia
has given provincial and district governments greater authority to solve
environmental problems, including deforestation and forest degrada-
tion. Second, if local governments are expected to solve environmental
challenges, financial resources would need to be channeled through the
Indonesian government financial system. Indonesian government reg-
ulations prohibit local governments from directly receiving interna-
tional finance while finances channeled to non-state actors will not
directly finance state actions or alternatively, support other government
policies for improving the welfare of communities such as building
infrastructure. IFTs for conservation, in contrast, have the potential for
channeling international climate finance to local governments to reduce
deforestation and other environmentally harmful activities. In In-
donesia, however, these types of payments remain theoretical and
targeted only to the level of district governments.
Moving beyond district governments, village administrations re-
present both the lowest tier of government in Indonesia and the level of
government closest to communities. Intergovernmental fiscal transfers
for conservation at the village level offer the potential to incentivize
positive natural resource management at the local level while con-
tributing to community development and reducing poverty. Many PES
schemes have already targeted communities although with mixed re-
sults (Mahanty et al. 2013; Tacconi et al. 2013). Where PES schemes
differ with other community-driven development initiatives, including
integrated Conservation and Development Projects (Blom et al. 2010),
is the aspect of conditionality (Engel et al. 2008; Tacconi et al. 2013).
Although such schemes are targeted at communities, many farmers and
communities are unable to benefit from carbon sequestration initiatives
due to lacking key structural and relational mechanisms, such as
knowledge and capital (Corbera and Brown 2010). An important design
flaw of PES schemes that has been highlighted is the design of the
contracts, in which the payments often fall below the opportunity costs
faced by the participants, and tend to front-load payments (Mahanty
et al. 2013; Tacconi et al. 2013). Many of these flaws could be over-
come through designing payments that effectively address opportunity
costs over the lifespan of the contract and reduce transaction and
monitoring costs for farmers and communities (Tacconi et al. 2013).
Intergovernmental fiscal transfers to the village level have the potential
2
Forest Policy and Economics 108 (2019) 101863
to overcome many of these challenges although would need to in-
corporate conditionality into the payments for conservation or refor-
estation activities.
Indonesia has been trialing various initiatives for village-level in-
tergovernmental fiscal transfers over the past twenty years. Initially
promoted by the World Bank, Indonesia has been promoting commu-
nity-driven development programs since 1998, beginning with the
Kecamatan Development Program (KDP) (Voss 2008). The KDP Pro-
gram was adopted by the Indonesian President, Susilo Bambang Yud-
hoyono in 2007 to become a national program, known as the National
Program for Community Empowerment in Rural Areas (Program Na-
sional Pemberdayaan Masyarakat (PNPM) Mandiri Perdesaan or Rural
PNPM Mandiri). Rural PNPM Mandiri began with 1993 sub-districts
and by 2009, 4871 sub-districts were involved in the program (Voss
2012). The purpose of the funds, beginning with the KDP Program
through Rural PNPM Mandiri was to finance social, economic and in-
frastructure development at the community level. A smaller pilot in-
itiative, called the Green National Program for Community Empower-
ment (Program Nasional Pemberdayaan Masyarakat Hijau or PNPM
Green), which was a subsidiary of the larger Rural PNPM Mandiri
program, was also launched aimed at promoting sustainable rural de-
velopment at the local level (Rambe and Johnsen 2013). The PNPM
Green program piloted the provision of funding for village-based pro-
jects that could have positive direct or indirect impacts on the en-
vironment. The program run from 2008 until 2012, and it was focused
on the islands of Sumatra and Sulawesi. The activities ranged from
micro-hydro development and alternative livelihoods and technologies
(Rambe and Johnsen 2013). In Southeast Sulawesi, around 70% of the
activities were focused on tree planting and mangrove restoration
(Purwanto 2013).
The program was then terminated under the previous government
and redesigned to focus on the village unit. The new funds grant vil-
lages greater authority and annual budgets, which was legislated
through Village Law 6/2014 and referred to as the Village Fund (Dana
Desa) (Howes and Davies 2014). Through the Village Fund, the national
government allocated around IDR 628 million (~USD 48,300) per vil-
lage in 2016 (Supriadi 2015). The allocation is expected to increase in
2017, where the allocation will be around IDR 1 billion (~USD 76,900),
although based on the 2017 budget plan, each village will only obtain
around IDR 800 million (~USD 61,538) as the total number of villages
has increased (Wicaksono 2016).
In this paper, we explore how the Village Fund, an
Intergovernmental Fiscal Transfer designed to finance development at
the community level, could be used to provide financial support to
communities for forest conservation and rehabilitation in Indonesia. We
study the example of PNPM Green, which was a short-term initiative for
financing environmental activities at the village level, itself a sub-pro-
gram of the PNPM program, the predecessor of the Village Fund. We
explore if, and how, the Village Fund could be used for financing
conservation and ecosystem rehabilitation, and how the lessons from
the PNPM Green program could inform the design of environmental
transfers. We situate the study in terms of the broader discussion on
environmental instruments, including regulatory and payment me-
chanisms, and propose several alternative designs for using the Village
Fund for financing conservation and rehabilitation.
We hypothesize that villages and communities will be encouraged
to conserve when they are provided with adequate financing for con-
servation and reforestation activities, and that these activities provide
intrinsic or extrinsic benefits to communities. In this context, payments
for environmental services should serve the dual functions of bridging
financing gaps (Pirard 2012) and providing direct incentives for en-
vironmentally sustainable practices (Gneezy et al. 2011; Muradian and
Rival 2012; Pirard 2012). Rarely, however, do financial instruments
provide these dual functions. The Village Fund, for instance, provides
financing for activities, in which conservation and reforestation are
permitted, however, not directly incentivized. Conservation and
J.D. Watts, et al. Forest Policy and Economics 108 (2019) 101863

reforestation, consequently, are one choice among many others, that use of funds, and report to the District Head (bupati). Villages have
the community must collectively select. PNPM Green, in contrast, only annual budgets and the budgeting process is similar to higher levels of
financed environmentally positive activities, and communities chose sub-national governments. The use of funds should be approved by
the most preferred environmentally positive activity. village planning processes and in accordance with national, provincial
and district priorities. The draft budget is discussed by the village
council.
2. The Village Fund as a potential instrument for conservation and
The Village Law 6/2014 also provides several provisions for en-
reforestation
hancing the authority of the village for land and natural resource
management. Through reasserting that the village, as described by the
Preventing and restricting harmful practices while promoting en-
Indonesian constitution, is not merely an administrative unit but also an
vironmentally beneficial practices among rural communities relies on
autonomous community, the authority and functions of the village,
having effective and practical instruments. Balancing the dual, often
especially customary villages (Desa Adat), were expanded. These func-
competing priorities of conservation and rural development, however,
tions were elaborated further in Government Regulation 43/2014 that
has rarely guided the design of environmental policy in Indonesia. Since
stipulated that Customary Villages had the authority for a minimum of
the New Order Regime, government policies for forest classification and
eight areas, including the ownership and management of customary
protection have adhered to a strict enforcement paradigm (Peluso
land and resources.2 Villages, however, should be officially acknowl-
1993). In the late 1960s and into the 1970s, the government sought to
edged by local governments as customary villages before their cus-
restrict access to newly gazetted forest areas by displacing indigenous
tomary systems are recognized, including ownership and management
and forest-dependent peoples (Kelly and Peluso 2015). With the deli-
rights. The Village Law 6/2014 also stipulates that village governments
neation of conservation areas in the 1980s (Brockhaus et al. 2012), the
have the authority for development planning and spatial plans, which
strict enforcement of forest areas continued. Since the fall of the New
should be formalized through a village regulation (Peraturan Desa or
Order Regime and beginning of the democratic era, there has been a
Perdes). The authority of village governments to identify, determine and
movement to implement more inclusive forest and land management
manage land uses within the village territory is also supported through
policies, including social forestry (Djamhuri 2008), community forestry
the Spatial Planning Law 26/2007. As part of their development plan-
(Maryudi et al. 2012) and village forests (Santika et al. 2017). These
ning responsibilities, village governments, including the village council,
instruments have given greater roles to local communities and village
have the responsibility to ensure the sustainable use of natural re-
administrations across Indonesia.
sources and the environment. The authority of village governments to
The village, as one of the smallest Indonesian administrative units,
manage natural resources were also strengthened through Constitu-
has a unique function and place in Indonesian society. After in-
tional Court Ruling No. 35 of 2012, which held that customary forest
dependence in 1945 and up until 1965, villages in Indonesia largely
ownership can be legally acknowledged and removed from state forest
were determined according to local institutions and customs, and
areas. The process for recognizing customary land rights was also
strengthened through government laws to enable them to govern lo-
simplified through Presidential Regulation No. 88 of 2017, which re-
cally (Antlöv 2003). After the New Order Regime came to power in
inforces the land management authority of village governments, espe-
1965, the autonomy granted to villages was stripped away, and instead
cially in customary villages.
were transformed to uniform, instruments of control over local popu-
Villages have many sources of revenue according to the Village Law
lations (McWilliam 2011). Following the fall of the New Order Regime
6/2014, Article 72. First, they can rely on their own revenue, raised
and the reformation (reformasi) of the Indonesian state, efforts were
through business units that are designed to manage village assets and
made to re-democratize and restore the authority of village adminis-
provide public services among other functions. Second, they rely on
trations.1 Law 22/1999 restored the autonomy of villages and made
transfers from the national government, known as the Village Fund
village heads directly elected, who in turn were accountable to a Village
(Dana Desa). Third, district governments should allocate a percentage of
Representative Council (Badan Perwakilan Desa, BPD). Many of these
its own revenue from levies or taxes to villages, which should be a
democratic features were rescinded under Law 32/2004, which shifted
minimum of 10% of their tax revenue. Fourth, villages will also receive
the accountability of the elected village heads from the village popu-
transfers from the Village Allocation Fund (Alokasi Dana Desa or ADD),
lation to the district government (Antlöv et al. 2016; Antlöv and Eko
which is 10% from the total national transfers to the district or muni-
2012). Before the Village Law 6/2014 was issued, village administra-
cipal government, after the Conditional Transfer (Dana Alokasi Khusus)
tions were reliant on block grants, extension programs as well as local
has been deducted. Finally, villages can receive specifically allocated
revenue sources such as village owned enterprises and assets.
funds from the district or provincial governments, which are usually ad-
The Village Law 6/2014, has preserved many of the democratic
hoc, but local governments should decide ever year whether to allocate
features of village administrations while enhancing their functions
these funds or not as part of the annual budgeting process. They can
through greater funding. The financial accountability of village heads
also receive grants from third parties and other possible legitimate
was also improved through the new law, in particular strengthening the
sources of revenue. In this paper, we focus on the Village Fund (Dana
supervisory role of the village council (Badan Permusyawaratan Desa)
Desa), which was first implemented in 2015.
(Antlöv et al. 2016). The village is considered a legal community with
When considering the design of intergovernmental fiscal transfers,
clear boundaries (Antlöv and Eko 2012), and under the Village Law 6/
primary consideration should be given to the grant size and distribution
2014, is defined as a government administration (pemerintah desa).
mechanism as well as the conditionality of the transfers and mechan-
Village administrations have the authority to: protect the unity and
isms for monitoring performance (Irawan and Tacconi 2016). Cur-
stability of the Republic of Indonesia; improve the quality of life; im-
rently, the distribution formula for the Village Fund is regulated
plement democracy; implement community empowerment; and pro-
vide basic services for villages. The financial administration of villages
is regulated under the Village Law, which was further detailed in nu-
merous government regulations and ministerial decrees. Under the 2
Government regulation 43/2014 stipulates that Customary Villages have the
Ministry of Home Affairs' Decree, village heads are responsible for the authority for: 1. Regulations for customary organizational systems and in-
stitutions; 2. Customary law institutions; 3. Traditional ownership rights; 4.
Management of specific customary village lands; 5. Management of customary
1
For more detailed discussions on how and why the role and authority of lands; 6. Agreements on the lives of communities living in customary villages;
Indonesian villages have changed since the end of the New Order Regime, the fulfilment of the positions of the heads of customary villages and customary
please see Antlöv and others (2003, 2016, 2012). village administrations; and the tenure of the heads of customary villages.

3
J.D. Watts, et al.
through Government Regulation 60/2014. The regulation determines
the size or distributable pool of the Village Fund from the national
budget. The conditionality of the transfers is determined by the Min-
istry of Villages together with the Ministry of Planning, Finance and
Line Ministries, which prioritize the use of the fund and the use of fund
will be limited to those priorities (earmarked). After the requirements
at the district and village levels are met, the funds are disbursed in three
instalments throughout the year. The mechanisms for monitoring and
evaluating the use and management of the Village Fund are based on
hierarchical reporting twice annually for villages and once annually for
districts and municipalities. Village administrations are required to
report to districts or municipalities, and districts or municipalities are
required to report to the Ministry of Finance. If there are irregularities
or missing items within the report, or delays in submitting it, further
payments to villages or districts and municipalities may stop until the
problem is solved.
According to Government Regulation 60/2014 on the Village Fund
financed through the government budget, Article 19, paragraphs 1 and
2 state that the Village Fund is used for funding governance, develop-
ment, community empowerment and society. The Village Fund is
prioritized for development and community empowerment. However,
the detailed description of the activities to be implemented annually is
determined by the ministry responsible for villages. Article 21 of
Government Regulation 60/2014 states that the minister who is re-
sponsible for villages defines the priority uses of the Village Fund,
which are mentioned in Article 19, paragraphs 1 and 2, at the latest two
months before the start of the fiscal year. Referring to that regulation,
conforming with the authority of the Ministry of Villages as the ministry
responsible for villages, a Ministry of Villages regulation (Permendes)
should be made to regulate the priority uses of the Village Fund. These
regulations also differentiate the types of activities that are permissible
in villages classified as either underdeveloped, developing or in-
dependent and advanced villages. The overarching emphasis is on in-
frastructure development although other activities are permitted, such
as establishing and strengthening village-owned enterprises to com-
munity empowerment activities. During the period studied, there were
three such regulations issued which determined the priority uses of the
fund.3 A fourth regulation was issued in 2017 for the use of the fund in
2018.4 Both of the regulations for the years of 2017 and 2018 contained
more explicit references to livelihoods and the protection of the en-
vironment, including reforestation and rehabilitation of peatland areas
and mangrove forests.
The Village Fund, however, has been criticized for its design and
implementation. Lewis points to several potential design flaws of the
Village Fund that could enable corruption including: “unclear service
assignments, fast growing and relatively large budgets, inadequate
public financial management procedures, and questionable control and
accountability mechanisms” (Lewis 2015, p. 351). Furthermore, the
allocation of funds, as designed in the law, insist on equal per village
allocations, which will disadvantage larger villages and not allocate
more resources to poorer villages (Lewis 2015). Since the Village Fund
was first disbursed in 2015, several issues regarding its implementation
have been highlighted, including frequent cases of corruption among
village heads, with 61 village heads being arrested for corruption in
2016 alone (The Jakarta Post 2017a). Indonesia Corruption Watch, for
instance, has argued that instances of corruption among village heads in
the use of the funds are due to several reasons. These reasons include
the lack of community participation during the planning and super-
vision process, limited capacity of village heads and village adminis-
trations, sub-optimal village institutions and the politicization of the
use of the fund as part of village-level elections (Irfan 2017). Due to
3
Minister of Village Decree (Permendes) No.5 Tahun 2015; Permendes No.21
Tahun 2015; and Permendes No.22 Tahun 2016.
4
Permendes No.19 Tahun 2017.
4
Forest Policy and Economics 108 (2019) 101863
inefficiencies and problems with the implementation of the fund, the
government postponed its plans to double the amount of the village
fund from 2018 until 2019, deciding instead to focus on improving
human resources and preventing corruption at the village level (The
Jakarta Post 2017b).
3. Methods
The study focused on the province of Southeast Sulawesi, Indonesia,
which was one of the focal provinces for the PNPM Green program. We
interviewed village heads in 38 villages and four administrative villages
(kelurahan) in Southeast Sulawesi Province, Indonesia, which represent
about 59% of the villages that participated in the PNPM Green program
in the province. (See Table 1). The sites were distributed across five
districts (kabupaten): Buton, South Buton, Central Buton, Kolaka, East
Kolaka, Muna and West Muna. The 42 sites were chosen as they had all
participated in the PNPM Green program according to the final report
of the PNPM Green Project in Southeast Sulawesi (Purwanto 2013). The
study involved field visits during the period of 11 to 16 April and 14 to
22 June 2017.
As the programs were implemented at different times, in each vil-
lage we selected the respondents, either current or former village heads
along with other key informants where possible, who were in office
during the periods of:
• The PNPM Green Project: 2008–2013; and
• The Village Fund: 2015–2017.
In addition to the villages surveyed, we also interviewed four heads
of administrative villages. Administrative villages are practically iden-
tical to villages in terms of geography and structure, however, admin-
istratively they are governed by a government appointed civil servant,
known as a lurah (Antlöv and Eko 2012). Administrative villages are not
eligible for the village fund, however, many of the administrative vil-
lages in Southeast Sulawesi participated in the Rural PNPM Mandiri
program, including PNPM Green.
Two survey instruments were used. The first survey was used to ask
former, and sometimes current, village heads about their knowledge
and perceptions of the PNPM Green program. The second survey was
used to ask current village heads about their knowledge and percep-
tions of the Village Fund. Both survey instruments included questions
about knowledge about the process, perceived effectiveness and align-
ment with community goals and levels of participation in the decision-
making and planning processes. The main focus of the surveys on PNPM
Green were to understand how useful and effective the grants were for
financing activities that were beneficial to both the local communities
and the environment. The responses were analyzed and categorized
according to the type of projects, the types of benefits they provided
and who received those benefits. These were then assessed against
perceptions of transparency, participation and effectiveness. The main
focus of the surveys on the Village Fund were to understand how the
Village Fund is being used, how effective it is as well as perceptions of
transparency, fairness and participation. As the interviews relied on
interviews with village heads and other administrative officials, the
perceptions of the transparency, fairness and levels of participation of
the two projects are those of people in power, rather than the broader
community.
4. Results
4.1. PNPM Green
Although several years had passed since the completion of the
projects, the respondents remembered the project as a single initiative
for financing environmentally related activities. A common difficulty
among many respondents was distinguishing between the broader
J.D. Watts, et al. Forest Policy and Economics 108 (2019) 101863

Table 1 projects were selected, which included timber species such as maho-
Villages and Administrative Villages Surveyed per district in South East gany and teak, to tree crops such as nutmeg, cashew and clove trees
Sulawesi Province. (Table 2). The range of projects was restricted through a list provided
District Number of villages Number of administrative villages by the extension worker from the sub-district, who was employed
through the program, and then projects were decided at the village
Central Buton 9 level and then submitted to the subdistrict for approval through a
Buton 3
ranking process.
South Buton 5 1
Kolaka 7 2 The majority of projects provided benefits for both the environment
East Kolaka 3 1 and livelihoods, which related largely to the choice of tree planting
Muna 7 activities. Despite these benefits, the majority of respondents (67%)
West Muna 4
stated that the project did not align with the goals of the village. The
Total 38 4
reasons ranged from the uneven distribution of benefits as only limited

Fig. 1. The PNPM GREEN Process.

Table 2
Types of projects under PNPM Green.
Type of Project Number of Description of project
villages

Infrastructure 10 Building coastal dykes, river embankments, village fences, spring rehabilitation, infrastructure
for ecotourism (roads, gazebos) and fish aggregating devices (rumpon)
Community empowerment 4 Empowering women, building cooperation and developing farmer groups
Education 2 Education on sustainable fishing (1 village) and training to make fertilizer
Land rehabilitation (specifically targeted at restoring or 6 Tree planting (white teak, nutmeg and mahogany) to protect critical land
rehabilitating critical or degraded lands)
Agroforestry (not directly targeting critical or degraded 22 Planting cash crops in villages to support livelihoods including trees (cashew, rambutan,
lands) durian, mahogany, oak, nutmeg, sengon and clove) and vegetables (onions, tomato and chili)
Mangrove rehabilitation 3 Planting mangrove seedlings in coastal areas
Coral protection 2 Providing training and also boats to protect the coral from bombing
Virgin coconut oil production 2 Providing training and machinery to process crude coconut oil into virgin coconut oil

PNPM Mandiri program and the more targeted PNPM Green. However,
after some clarification, people were able to distinguish between the
two programs. Across the villages, the respondents were able to de-
scribe the process relatively consistently (Fig. 1). For respondents,
PNPM Green was a one-off project where the village was given the
opportunity to choose a green project which would be of some benefit to
the village. Although the projects were supposedly provided through
the sub-district, they were generally implemented by staff of Operation
Wallacea, a non-government organization based in Southeast Sulawesi,
who were contracted to implement them. The projects that were se-
lected ranged from infrastructure projects and community development
to land and mangrove rehabilitation. Overwhelmingly, tree planting
numbers of farmers to selected to participate in tree planting projects,
the lack of alignment with village planning and lack of substantive
participation. Lack of participation in the planning phase was a
common complaint (51%) among village heads, with a further 21%
stating that they were only involved in signing the legal documentation.
These complaints arose from the feeling that there was little advance
notice of the program and little dissemination of the aims and goals of
the project, consequently, limiting the opportunities for substantive
participation. Overwhelmingly, there was no significant participation
among village heads in the implementation of the project, with most
saying that they were only superficially involved through signing the
required documents (79%) and the implementation of the activities

5
J.D. Watts, et al.
Table 3
Community Participation in different phases of the PNPM Green Project.
Preparation Implementation
Community Members Number of respondents % of total village Number of respondents
surveyed
Farmer Groups 24 56% 32
Women's groups 15 36% 21
Religious Leaders 10 24% 11
Head of Village 12 29% 1 2%
Entire community 38 90% 42
Not involved at all 2 5% 0 0%
being undertaken by the sub-district and project staff. None of the re-
spondents were involved in reporting the results of the activities im-
plemented.
There was more participation among sub-groups in the villages as
part of the preparation and implementation phases (Table 3). Despite
the participation of these groups, the majority (62%) of the respondents
reported that there was no community discussion (Musyawarah Per-
encanaan Pembangunan Desa or Musrembang) as part of the selection of
the projects. In a minority of the cases (38%) there was some form of
community consultation about the PNPM Green program, led by either
the head of village or the extension worker from the sub-district or
project. The majority of projects were selected by the technical con-
sultants (52%) or the sub-district (21%), and only 27% of the projects
were developed through community consultative process (Musrem-
bang).
Although most felt that the project was beneficial (36%) or bene-
ficial with some caveats (45%), the long-term benefits were more dis-
puted. Only 23% respondents felt there were long-term benefits to the
program, with another 47% saying that the project had some long-term
benefits but needed improvements. As the project was a one-off, with
no further technical support provided, a common complaint among
respondents was that farmers were unsure about how to maintain and
harvest the trees, affecting the long-term benefits of the scheme. Other
complaints related to the unequal distribution of the benefits and the
haphazard planting of the trees, which mainly benefitted individual
households rather than targeting critical or degraded lands.
4.2. The Village Fund
As the Village Fund is an ongoing and substantial allocation of fi-
nancial resources to the villages surveyed, the respondents had clearer
recollections and opinions on the fund. The process for the Village Fund
was generally consistently described across the 38 villages, although, in
contrast to PNPM Green, it has not been implemented in administrative
villages (Fig. 2). The Village Fund was first implemented in 2015, and
then annually until the time of the survey in 2017. In the 2015, the
average allocation per village was USD 28,229, increasing to USD
42,009.38 in 2016 and then USD 68,623 in 2017. Although the majority
of villages received funds annually, in some cases such as that of West
Muna, funds were not received or dispersed during 2017. This was due
to the recent subdivision of the district which had led to delays in the
issuance of a Head of District Regulation that is required to operate the
fund (Agus 2017).
The type of projects that were selected to be funded were over-
whelmingly infrastructure projects, however, the proportion of these
type of projects declined over the three-year period (Table 4). Village
empowerment projects that involved some form of training activities
also decreased as a proportion of the activities over the period. Tree
planting activities, either agroforestry or mangrove rehabilitation, re-
mained fairly constant over the period. Investments designed to im-
prove livelihoods, such as machinery or livestock, increased from the
first year and remained relatively stable across the second and third
6
Forest Policy and Economics 108 (2019) 101863
Reporting
% of total village Number of respondents % of total village
surveyed surveyed
74% 0 0%
50% 0 0%
26% 0 0%
0 0%
100% 0 0%
42 100%
years. In contrast to PNPM Green, the majority of the Village Fund
activities, the majority of the projects selected, mainly infrastructure,
were chosen because they benefited the entire community. That is the
projects benefitted most of the residents of the village rather than just a
narrow series of beneficiaries as happened with many tree planting
activities in the PNPM Green project. Activities with environmental,
and, to some extent, livelihood benefits, were those mainly associated
with tree planting. There were also many projects designed to improve
the welfare of residents through either education or improving access to
water and sanitation. Most activities that had social benefits related to
community empowerment programs while there were only limited
numbers of projects designed to improve the village administration,
which relates to the restrictions on the types of permissible projects
stipulated by the ministerial regulations described earlier.
Across all villages, the Village Fund was perceived as being suc-
cessful (71%). The reasons given included the alignment of the fund
with village priorities and the level of community involvement. Some
respondents gave qualified responses about the success of the Village
Fund (18%), stating that although they perceived the fund as being
successful, it could be improved through increased technical assistance,
improved participation in the community consultation process and
simplifying administrative requirements. The minority who perceived
the fund as a failure (11%) gave reasons including not addressing the
needs of the village and fears of the issues that may arise from the
actual or perceived unintentional misuse of the fund, including com-
munity and legal sanctions.
Only 42% of respondents stated that they received technical assis-
tance for preparing or implementing activities associated with the
Village Fund. This is in contrast with PNPM Green where extension
workers from the sub-district were involved in all stages of the projects.
When the respondents received technical assistance, it was from de-
partments and agencies at the district level (81%), although 13% re-
ceived assistance from a village Project Implementation Team, and the
remaining (6%) received assistance from the sub-district. The majority
of respondents (58%) stated that they received no technical assistance
for either the preparation or implementation of fund activities. This
figure is even more concerning as the majority of projects implemented
were infrastructure projects including roads and bridges. Without
technical assistance, the community was generally responsible for
planning and implementing fund activities (Table 5). All respondents
reported that there were community discussions prior to selecting Vil-
lage Fund activities. The projects were mainly selected on the basis of
the regulatory requirements, however, some respondents (24%) stated
that the selection of projects was based on the outcomes of the com-
munity discussions. The latter responses seem to indicate a lack of
awareness of regulatory requirements and it creates the potential for
projects to either be rejected at the proposal stage or for village leaders
later to be found to be in violation of the fund requirements. Generally,
respondents felt that the Village Fund had sufficient safeguards for
ensuring that the funds were used transparently and according to the
regulations.
J.D. Watts, et al. Forest Policy and Economics 108 (2019) 101863

Fig. 2. The Village Fund Process.

Source: Based on Interviews with Village Heads.

5. Discussion
According to our analyses of the Village Law, the Village Fund is an
intergovernmental fiscal transfer that can legally be used for the dual
functions of promoting rural development and restoring and re-
habilitating degraded areas through tree planting and other activities.
As the implementation of the Village Fund expands and matures, the
potential for the fund to meet multiple objectives increases. The in-
crease in scope and size of the Village Fund, however, has also led to
more scrutiny over the use of the funds it provides, with the media in
particular highlighting cases of misuse. Although limited in scope and
duration and with some substantial differences in terms of the pro-
grammatic design, the PNPM Green program provides some lessons that
could inform the improvement of the Village Fund. The main lessons
that emerged from the PNPM Green project that have relevance for the
Village Fund are: i) technical assistance and/or access to markets or
providers of materials should be provided and ii) the projects should
align with village spatial plans.
A central challenge of rural development in Indonesia is that vil-
lages lack access to adequate technical assistance and inputs. With the
general exception of irrigated rice farming (Simatupang and Timmer
2008), smallholders in a range of crops, including oil palm (Brandi et al.
2015), cocoa (Neilson 2007) and timber species such as teak (Roshetko
et al. 2013), have limited, sporadic or no access to extension support or
subsidized inputs. Increasing financial transfers to village governments,
by itself, will not overcome this challenge. Without specialized tech-
nical assistance, including access to expertise and materials including
seedlings, communities lack the skills to effectively design and imple-
ment both infrastructure and environmental projects. Although finan-
cing these activities may be transparent and participatory, they may
still be ineffective without adequate technical support. Where the
PNPM Green program was led and implemented with the assistance of

Table 4
Types of projects under the Village Fund.⁎
No Type of Project 2015 2016 2017 Projects

1 Infrastructure 38 35 30 Farming roads, pathways, bridges, administrative buildings, drainage infrastructure,

education-related buildings, river embankment infrastructure
2 Village empowerment 12 16 5 Family welfare empowerment, village administration training and youth organization
development
3 Village-owned enterprise development 3 0 4 Develop and create village-owned enterprises
4 Education 1 6 3 Teacher salaries and school book procurement
5 Water access 5 3 8 Piping, water reservoirs and well renovation
6 Cash crop plantation 8 8 7 Planting white teak and cashew trees as well as vegetable seeds
7 Mangrove rehabilitation 3 2 2 Mangrove tree planting
8 Livelihood productivity improvement (e.g. providing 4 8 10 Boat and Fish Aggregating Device (Rumpon) procurement for fishers, rice milling
boats, rice milling machinery) machinery, stone crusher machinery, calves and goat procurement
9 Not defined 0 0 4 Have not selected projects due to sub-division of administrative area (West Muna)

⁎
One village can have multiple projects.

7
J.D. Watts, et al.
Table 5
Participation in the Village Fund processes.
Preparation Implementation
Community Members Number of % of total village Number of
respondents surveyed respondents
Farmer Groups 4 9% 8 21%
Women's Groups 17 40% 27
Religious Leaders 18 43% 6 16%
Head of Village 38 100% 38
Youth Organizations 8 19% 21
All of community 38 100% 34
Not involved at all 0 0% 0 0%
extension workers from the sub-district, most villages reported that
there was little, if no technical support for designing and implementing
nominated projects. This result is even more concerning as the majority
of the Village Fund projects selected were infrastructure projects. The
improved effectiveness of the Village Fund is contingent on village
governments having access to this specialized technical assistance and
requisite materials. Currently, the design of the Village Fund does not
provide contributions for technical assistance, rather, it is the respon-
sibility of district governments to fund and provide this assistance.
Based on the findings of the research, district governments have not
adequately filled this role.
Scientifically robust village spatial plans are needed to ensure in-
terventions are properly targeted. Conservation and rehabilitation ac-
tivities should then be aligned with village spatial plans to ensure that
degraded or critical areas are targeted and to avoid elite capture. From
the results above, the main benefits of reforestation and agroforestry
projects were to household livelihoods. Consequently, farmers had a
vested interested to plant on their lands because of the more secure
tenure. Although there are intrinsic values to tree planting including
carbon sequestration, these lands were not necessarily degraded or
critical to protecting ecosystem services, such as buffer areas for con-
servation areas or watersheds. As part of the Village Law and associated
regulations, villages are required to prepare these plans, which should
align with district level plans.5 It is unrealistic, however, to expect that
villages will be able to prepare these plans by themselves. Conse-
quently, support is required from the relevant district and provincial
agencies to develop them. The planning process should identify critical
and degraded areas, and how the Village Fund could be used to finance
planting in these areas. Aligning tree planting with social and com-
munity forestry schemes could ensure that planting occurs where it is
needed most, and that farmers have secure claims over their planted
trees and harvested products.
These recommendations should support more effectively targeted
community agroforestry and forestry interventions, financed through
the Village Fund. Despite the increased tree planting, based on the re-
sults of the study, it does not seem likely that this will encourage the
rehabilitation of critical and degraded ecosystems with native species.
If, however, the focus of the intervention is carbon sequestration, then
tree planting, that is not at the expense of standing forest, should be
sufficient. Generally, the interest of farmers has been in planting trees
that have direct benefits for their household, such as timber or cash
crops. Rehabilitating local ecosystems, such as mangroves or forests on
watersheds, will generate benefits to the local community over time.
For individual farmers to rehabilitate these ecosystems, they should
both understand the benefits of these activities and be willing to act
collectively to restore areas where they do not necessarily have a per-
sonal interest. Without outside intervention, such as facilitation or a
reward payment, then it seems unlikely, although possible, that com-
munities will undertake these activities alone. The more recent versions
5
Article 83 Paragraph 3 Letter a of the Village Law 6/2014.
8
Forest Policy and Economics 108 (2019) 101863
Reporting
% of total village Number of % of total village
surveyed respondents surveyed
2 5%
71% 0 0%
0 0%
100% 34 81%
55% 0 0%
89% 0 0%
2 5%
of the regulations for the Village Fund allow these activities, however,
these activities must compete for funding with for other projects, such
as infrastructure. Ideally, financing rehabilitation and reforestation
using native species should be in addition or separate to the current
Village Fund design, with more explicit conditions on how the funds
could be used. Similar to the previous recommendations, that funding
should be tied to technical assistance, in particular for identifying the
necessary actions and support, including materials, for implementing
the activities.
Although the Village Fund enables activities for protecting en-
vironmental services, there is no guarantee that farmers will select
environmental activities over other activities, such as infrastructure
development. Elements of PES schemes could be introduced to in-
centivize additional environmental activities at the village level. A PES
scheme should be tied to additional or earmarked financing that is al-
located conditionally. For the purposes of meeting REDD+, the eco-
system service that should be provided by villages should be carbon
sequestration. In practical terms, this should either involve conserva-
tion and/or reforestation activities. Conservation activities should ei-
ther focus on remaining forest areas and peatland areas. Reforestation
activities, if only aiming to sequester carbon and not provide other
ecosystem services, such as watershed protection or biodiversity, could
potentially involve a wider range of tree species, including agroforestry
and timber species, with no restrictions on where to plant. Tree
planting, however, should not be at the expense of standing forests or
contributing to the degradation of peatland areas. Participation in the
scheme should be voluntary for households and administered by the
village administration. Payments could include an upfront payment for
seedlings and materials, or the actual provision of those materials, and
then payments based on areas conserved/rehabilitated, including tree
survival rates. Monitoring and verification could either be conducted by
the village administration or district agencies, to ensure the impartiality
of the scheme.
The proposed scheme would share features with Chinese Conversion
of Cropland to Forest Program (CCFP). The CCFP, also known as the
Sloping Land Conversion Program (SLCP) or “Grain for Green”, was a
large scale public PES scheme, focused on rehabilitating hilly, moun-
tainous and upstream areas (Gutiérrez Rodríguez et al. 2016). Although
the function of the program was initially to prevent soil erosion and
flooding, it was later expanded to include poverty alleviation goals
(Bennett et al. 2014). Other ecosystem services generated by the pro-
gram include including timber, carbon sequestration and biodiversity
conservation, which are measured through indicators such as land area
and land typed afforested and tree survival rates (Bennett et al. 2014).
Initially, the program included an up-front payment for purchasing
saplings, an annual living allowance and an annual subsidy to com-
pensate for lost agricultural income, paid in either grain or cash. The
amounts paid differed according to whether households were located in
the Yangtze River or Yellow River Watershed. The annual living al-
lowance was paid on the basis of per unit of cropland enrolled. Com-
pensation payments were also differentiated according to a three-tiered
system which was based on the land uses after conversion. Payments for
J.D. Watts, et al.
households that converted cropland into grasslands were paid for
2 years, while households that converted cropland into economic trees,
which are trees that provide direct economic returns, were paid for
5 years. Finally, households that converted cropland into ecological
trees, which had higher use restrictions, were paid for 8 years. Con-
ditionality was based on an annually verified tree survival rate of at
least 70–85% (Gutiérrez Rodríguez et al. 2016). After the annual in-
spection, funds were directly transferred into the accounts of the par-
ticipants (Zhang et al. 2017). To ensure the most effective provision of
environmental services related to water and soil, lands were selected
based on criteria related to land type and slope (Bennett et al. 2014).
The three-tiered system was later simplified into a single tiered system,
with livelihood subsidies and grain compensation integrated and sub-
sidies for seedlings provided in an upfront, lump sum payment.
Studies of the program have revealed that households with greater
experience and knowledge of forestry are more likely to have higher
tree survival rates. Lack of technical support is also shown to be a
central shortcoming of the project (Bennett et al. 2014). Other analyses
have found that increasing the autonomy of farmer decision-making
reduces the environmental outcomes of the program. Farmers with
greater autonomy are more likely choose economic trees over trees with
ecological value, even though there were shorter subsidy periods
(Bennett et al. 2011). Although allowing households to choose which
plots to reforest reduced the opportunity costs of the program, the
survival rates of trees were reduced as many were planted on less fertile
lands. The program was also more successful in areas where there were
limited off-farm labor opportunities, with those already in engaged in
farming more likely to better at agroforestry (Bennett et al. 2011,
2014). More secure tenure over the land enrolled in the program also
contributed to better tree survival (Bennett et al. 2011). Finally, par-
ticipants in the program learned over time how to better manage for-
ests, which could be expedited through more upfront technical and
extension support (Bennett et al. 2011). Although the CCFP is relevant
in many ways to the experiences of rural Indonesia, there are significant
differences in the political systems of the two countries. In the context
of the democratic, decentralized system of government in Indonesia,
voluntary programmatic interventions should provide greater and
clearer incentives to rural communities.
6. Conclusion
Although the Village Fund could be used to finance conservation
and reforestation activities, it is unlikely that communities will choose
to the funds for that purpose. When presented with different options for
Appendix A. Glossary
Table A.1
Glossary.
Acronym Indonesian Term English Translation
ADD Alokasi Dana Desa Village Allocation Fund
APBDes Anggaran Pendapatan dan The Village Income and
Belanja Desa Expenditure Budget
BLM Bantuan Langsung Masyarakat Direct Community Support
BPM Badan Perwakilan Masyarakat Community Representative
Body
PJM Pembangunan Jangka Menengah Mid-term Development
PMK Peraturan Menteri Keuangan Ministry of Finance
Regulation
RKP Rencana Kerja Pembangunan Development Workplan
RKPDes Rencana Kegiatan Pembangunan Village Development Activity Short-term village activity plan.
Desa Plan
RKUD Rekening Keuangan Desa Village Finance Account
Forest Policy and Economics 108 (2019) 101863
environmentally sustainable activities, communities were most likely to
engage in activities that provide direct economic benefits to individual
households, such as agroforestry or planting timber trees. When com-
munities had to choose among different projects, including infra-
structure development, they were unlikely to choose activities such as
conservation or reforestation. This reflects the preference of commu-
nities to select projects that are perceived to benefit the community as a
whole. These results indicate that the collective benefits of conservation
and reforestation are not broadly understood or valued by local com-
munities. Based on these results, it is unlikely that in its current form
that the Village Fund would be used for voluntarily financing forest
conservation and reforestation without significant changes.
The Village Fund could build on the lessons of the PNPM Green
program and allocate specifically earmarked funds for conservation and
reforestation at the community level. As these funds should finance
carbon sequestration support REDD+ activities and the achievement of
the NDC targets, the approved activities should include forest and
peatland conservation as well as reforestation, including agroforestry.
These funds should be in addition to the current amount disbursed
through the Village Fund and could be derived through separate
sources, including REDD+ funds. In contrast to other proposed sub-
national intergovernmental fiscal transfers (Irawan et al. 2014; Irawan
and Tacconi 2016), village level initiatives would require technical
support along with monitoring and verification from district level
agencies. The current design of the Village Fund channels funds directly
into village level bank accounts, without specifically earmarking funds
for district level support. The design of the fund for conservation and
reforestation should include specifically earmarked funds for the pro-
vision of extension and technical support from the district as well as
monitoring, reporting and verification. Including administrative vil-
lages in the program could also increase the coverage of the activities.
Acknowledgements
The research was supported by a grant from the Australian Centre
for International Agricultural Research (FST/2012/040) “Enhancing
Smallholder Benefits from Reduced Emissions from Deforestation and
Forest Degradation in Indonesia”. The funder had no involvement in the
study design, conduct of the research, analysis and interpretation of
data and preparation and submission of the article.
We would like to thank Saharuddin (Udin) for his assistance with
facilitating meetings with village leaders throughout Southeast
Sulawesi.
Explanation
Fund allocation from the district budget
The budget (cost and revenue) for RKP (see below)
Direct cash transfers to communities
An official village government entity that supervises the village head and projects implemented in the
village.
Mid-term Development
A national-level, Ministry of Finance regulation.
The workplan that is developed each year by the village that is based on the RPJMDES (see below)
and has a budget allocated (APBDes).
A village-owned bank account for the purpose of village administration that receives fiscal transfers
from the district and national government.
(continued on next page)
9
J.D. Watts, et al.
Table A.1 (continued)
Acronym Indonesian Term English Translation Explanation
RPJMDes Rencana Pembangunan Jangka Village Mid-term Village mid-term development plan that is conducted after each new village head is elected (every five
Menengah – Desa Development Plan years) and usually issued in their first year of office.
SilpA Sisa Lebih Perhitungan Leftover Budget Calculation The amount of budget (APBDES) remaining after annual spending.
Anggaran
TPK Tim Pelaksana Kegiatan Activity Implementation A team of 3–5 people that implements projects in the village.
Team
UPK Unit Pelaksana Kegiatan Activity Implementation Unit A subsidiary unit of the TPK of 1–2 people that physically undertake project activities.
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