Country Report Indonesia June 2011

Economic policy: Progress is made on forest reform, but challenges remain

In May Mr Yudhoyono signed an eagerly anticipated moratorium on forest conversion-an important milestone in the continuing struggle to reform Indonesia's deeply corrupt forestry sector. The moratorium mandates a halt to the issuance of new forest-use permits for a two-year period over an area of 64.2m ha of primary forest and 30m ha of peatland. Indonesia's forests and peat swamps contain large stocks of carbon. Land clearance and fires result in vast greenhouse-gas emissions, making Indonesia the world's third-largest carbon emitter by some measures. International concern about the problem has been growing in recent years, and in a visit to the Norwegian capital, Oslo, in May 2010 Mr Yudhoyono signed a letter of intent jointly with Norway's prime minister, Jens Stoltenberg, under which that country would provide a US$1bn grant to support progressive forest-sector reforms aimed at reducing greenhouse-gas emissions resulting from deforestation.

The moratorium announced in May 2011 was one of the first steps mandated under this deal. Although its announcement represents significant progress, enforcing the policy will be a challenge. The moratorium was issued as a presidential instruction-a form of directive that has relatively weak legal status and is often difficult to enforce. A map describing the land covered by the moratorium has yet to be released, while a number of exemptions also provide scope to circumvent the policy. In particular, projects that have already received approval in principle from the Ministry of Forestry are exempt from, as are extensions of existing forest-use permits, and projects classed as vital to the national interest. The moratorium also does not cover 35m ha of secondary forest, leaving vast swathes of valuable existing forest vulnerable to clearance.

However, the measure represents a victory for Kuntoro Mangkusubroto, the respected head of the Presidential Delivery Unit (UKP4). Mr Mangkusubroto leads a task-force established by the president last year to implement a series of measures aimed at reforming the forestry sector and reducing carbon emissions from deforestation. In preparing the moratorium he was opposed by the forestry minister, Zulkifli Hasan, the environment minister, Gusti Muhammad Hatta, and the co-ordinating minister for the economy, Hatta Rajasa. These three ministers, all of whom are affiliated to the National Mandate Party (PAN), lobbied to weaken the terms of the moratorium. The final version appears to be a compromise between Mr Mangkusubroto's stringent policy recommendations and the PAN's weakened version.

Mr Mangkusubroto will now turn his attention to the other important reforms mandated in the first phase of Indonesia's US$1bn deal with Norway, including the establishment of an agency to oversee investments in reducing emissions from deforestation, an independent forest-monitoring agency, and a mechanism to channel international funding to support and incentivise the reforms.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
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