Strategic Options for Forest Assistance in Indonesia 39245 Public Disclosure Authorized Public Disclosure Authorized Sustaining Public Disclosure Authorized Economic Growth, Rural Livelihoods, and Environmental Benefits: Public Disclosure Authorized Strategic Options for Forest Assistance in Indonesia i Strategic Options for Forest Assistance in Indonesia The International Bank for Reconstruction and Development THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. December 2006, Jakarta Indonesia The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; Telephone: 978- 750-8400; fax: 978-7504470; Internet: www.copyright.com. 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Jenderal Sudirman, Kav. 52-53 Jakarta 12190 Tel: 62-21-5299-3000 ii Strategic Options for Forest Assistance in Indonesia SUSTAINING ECONOMIC GROWTH, RURAL LIVELIHOODS, AND ENVIRONMENTAL BENEFITS: STRATEGIC OPTIONS FOR FOREST ASSISTANCE IN INDONESIA Leading the British government’s fight against world poverty iii Strategic Options for Forest Assistance in Indonesia iv Strategic Options for Forest Assistance in Indonesia CONTENTS page Acknowledgements vii Foreword by Supporting Partners ix Pengantar dari Mitra-Mitra yang Mendukung xi List of Acronyms xii Executive Summary xv Ringkasan Eksekutif xxiii 1. INTRODUCTION 1 What Are the Key Issues? 1 What Are the Opportunities for Change? 3 What Improvements Are Needed? 5 What Would Success Look Like? 6 What Can Be Done? 7 How To Do It? 8 What's Ahead? 9 2. FOREST LAWS AND FOREST RESOURCE STATUS 13 2.1 Introduction to Legal Framework 13 2.1.1 Basic Forestry Law 13 2.1.2 Other Laws and Decrees 14 2.2 Forest Land Classification 20 2.3 Forest Resource Status and Trends 22 2.3.1 Forest Cover Status 23 2.3.2 Forest Cover Loss and Forest Degradation 26 2.4 Historical-Economic Perspective on Past Forest Loss and Future Threats 32 2.4.1 Historical and Economic Perspective 32 2.4.2 Geographic Trends in Forest Cover and Production 34 2.4.3 Other Threats to Forests: Past, Present and Future. 35 3. FORESTS AND GOVERNANCE 39 3.1 Historical Perspective on Political Economy and Corruption 40 3.2 Reform Era and Decentralization of Forest Governance 44 3.3 Progress in Recent Times 45 3.4 Forest Crime and Law Enforcement 51 3.5 Conflict, Inequity and Land Use Allocation 55 3.6 Institutional Issues and Forest Management 58 3.7 Options for Improving Forest Governance 59 4. FORESTS AND SUSTAINABLE ECONOMIC DEVELOPMENT 63 4.1 Economic Overview 64 4.1.1 Contribution of the Commercial Forestry Sector 64 4.1.2 Global Market Trends 67 4.1.3 Economic and Environmental Impacts of Forest Degradation: Future Sustainability? 69 4.2 Industry Overview 71 4.2.1 Industry Structure 71 4.2.2 Plantation Forest Concessions 76 4.2.3 Small and Medium Enterprises and Non-Timber Forest Products (NTFPs) 78 4.3 Commercial Forestry Issues and Trends 79 v Strategic Options for Forest Assistance in Indonesia 4.4 Industry Restructuring 83 4.4.1 GOI Industry Revitalization Strategy 83 4.4.2 Restructuring to Broaden the Benefits 85 4.5 Forest Management by Communities: Livelihoods and Collaboration 88 4.6 Options for Improving Forest Use for Economic Productivity 90 5. FOREST LAND, LIVELIHOODS AND POVERTY 93 5.1 Communities, Livelihoods and Poverty Alleviation 93 5.2 Policy Context for Community Livelihood Promotion and Poverty Alleviation 95 5.3 Distribution of Land, Forests, and Poverty 98 5.3.1 Distribution of Population and Poverty 98 5.3.2 Distribution of Forests and Poverty 99 5.3.3 Directions for Further Analysis 102 5.4 Forests and Poverty: Employment and Livelihoods Potential 104 5.4.1 Forests and Poverty Alleviation Framework 104 5.4.2 Timber/Commercial Forestry-Related Employment Possibilities 108 5.4.3 Employment/Livelihood Potential from Land Use Rationalization 110 5.5 The Broader Question of Land and Poverty Alleviation 113 5.6 Options for Improving Land and Forest Use for Livelihoods and Poverty Reduction 117 6. FOREST LAND, ENVIRONMENTAL SERVICES AND BIODIVERSITY VALUES 119 6.1 Environmental Services from Protection Forests 120 6.1.1 Description of Environmental Services 120 6.1.2 Protection Forest Governance and Management 124 6.1.3 Alternatives, Innovations and Financing Options 125 6.2 Biodiversity Protection (and Environmental Services) from Conservation Forests 129 6.2.1 Description of Biodiversity Values 129 6.2.2 Protected Areas Governance and Management 131 6.2.3 Alternatives, Innovations and Financing Options 133 6.3 Key Issues in Protecting Environmental Services and Biodiversity 137 6.4 Overall Assessment and Options for Improvement 139 6.5 Options for Sustaining Environmental Services and Biodiversity Values 142 7. OPTIONS FRAMEWORK AND POTENTIAL ASSISTANCE AREAS 145 7.1 An Organizing Framework for Priority Setting 145 7.2 Options for Improving Governance and Management 148 7.3 Discussion of Priority Interventions for Specific Land Areas 151 7.3.1. Economic Development and Poverty Alleviation in Forested Areas 151 7.3.2 Economic Development and Poverty Alleviation in Non-forested Areas 153 7.3.3 Promote Environmental Services in Forested, Protection and Conservation Areas 154 7.3.4 Promote Environmental Services in Non-Forested, Protection and Conservation Areas 155 7.4 Interventions in the Context of Regional Decentralization 156 7.5 Prioritization and Next Steps 157 REFERENCES A-1 ANNEX A: OVERVIEW OF PRIOR WORLD BANK INVOLVEMENT IN INDONESIA A-17 ANNEX B: DONOR ASSISTANCE TO INDONESIAN FORESTRY SECTOR: 1985-2004 A-21 ANNEX C: KEY ELEMENTS OF DEPT. OF FORESTRY'S STRATEGIC PLAN, 2005-2009 A-27 vi Strategic Options for Forest Assistance in Indonesia ACKNOWLEDGEMENTS This Indonesia Forest Options Paper was produced by a team consisting of Josef Leitmann, Lead Environmental Specialist for Indonesia (EASEN, TTL), Timothy Brown, Natural Resource Management Specialist (EASEN, principal author), Mario Boccucci, Forest Governance Specialist (EASEN), and Emile Jurgens, Forest Finance Consultant (EASEN). Maria Teresa Serra, Sector Director (EASES) and Magda Lovei, Sector Manager (EASES) provided strategic direction and guidance throughout the process. Ina Pranoto, Guntur Prabowo, Retno Anna Widiana, Dede Firmansyah, and Merry Margaretha provided invaluable assistance in development and production. The team and the report benefited from helpful comments received during a review and decision meeting on May 3, 2006, chaired by Andrew Steer (Indonesia Country Director) and Maria Teresa Serra (EASES Sector Director). Three peer reviewers – Gerhard Dieterle (ARD), Gregor Wolf (LCSRF, Brazil), and Mike Harrison (DfID-MFP) – and other participants in the meeting contributed valuable insights that improved the quality of the document. Participants included Dan Biller (EASES), Jill Blockhus (ARD), Ken Chomitz (DECRG), Magda Lovei (EASES), William B. Magrath (EASRD), Moray McLeish (CEAIN, IFC), Thomas Oentoro (CEAR6, IFC), Rahul Raturi (EASRD), and John Spears (ARD). Mike Harrison provided helpful background documents that improved the discussion of political economy issues and opportunities. In addition, David Kaimowitz of CIFOR, Tony Whitten, Tom Walton, Angus MacKay, Lis Nainggolan and Giovanna Dore (EASEN) provided helpful comments and discussion. The team also thanks the many colleagues from Indonesia’s Ministry of Forestry who provided insights, data and helpful comments, especially in a meeting chaired by the Secretary General on May 12, 2006. Doddy Sukadri and Tonny Soehartono provided helpful written comments. Bintang Simangunsong of IPB provided useful comments and data sources. This work evolved from and built upon the findings and results of a World Bank Mission in June 2005, which included David Cassells (Team Leader, ARD), Bill Magrath (EASRD), Mario Boccucci (EASEN), Tony Whitten (EASEN), Kathy Mackinnon (ENV) and Euan Marshall (IFC). In addition to those mentioned above, the mission was assisted by Graham Applegate, Anne Casson, and Alex Thorpe as consultants. We appreciate all of their efforts. This report is a technical companion to the document entitled Sustaining Indonesia’s Forests: Strategy for the World