Reduction of uncertainties of resource allocation rights: concession licensing constraints, 

industrial plantations, contested production forest boundaries, and absence of full forest 

management rights for local communities or other stakeholders. 

2.2  Economic Role of Indonesia's Natural Forests  

Indonesia's central policy objective has been to maximize economic growth, narrowly defined.  

Forestry and other sectoral agencies have institutional and organizational structures that were 

developed specifically to support this overriding national economic objective.  In response, the 

forestry sector provided a major contribution to the economic growth rates that were achieved 

under the New Order government.  The size and importance of the forest sector can be 

evaluated relative to its contribution to the national economy.   The forestry sector s national 

worth increased from US$2 to $9 billion between 1980 to 1994.  During this same period, export 

sales grew from $0.5 to $4 billion as a result of large scale expansion of the plywood sector.  In 

1994, forest products provided 20% of total non oil export value from Indonesia.    

Despite Indonesia s vast wealth of natural resources, including one of the world s most 

economically valuable production forests in both commercial volume and area (ca. 64 million 

ha), natural production forest management is currently not sustainable. The economic 

contribution from forestry is increasingly at risk with estimates of annual deforestation rates 

ranging from 700,000 to 1,000,000 ha.  Based on an estimated annual harvest of 40 million 

cubic meters, harvest levels are approximately double the estimated annual sustainable yield of 

22 million m

3

.  These current practices have created a rapid and precipitous decline in the 

volume of wood resources available for future harvest as well as an associated reduction in 

forest land area.  Based on these alarming trends, the natural forest sectors (e.g., plywood, 

sawn timber and re processed timber) cannot maintain their current contributions to national 

economic growth.  The World Bank predicted that by the year 2000 forest export figures will 

decline and may plummet to zero by 2015 (Douglas 1995). The potential socio economic losses 

from non sustainable use of natural forests are large.  Formal employment in the forestry sector 

is estimated in excess of 700,000 (NRMP Occasional Paper 2).  

While Indonesia's forests provide a major contribution to national economic development, the 

forest resources are of even greater significance to the estimated 80 120 million Indonesians 

who live in rural areas and depend either directly or indirectly on forest products.  Forests 

provide significant levels of direct income for rural communities.  For example, 30 80%  of 

household primary income in communities living in or around Bukit Baka Bukit Raya National 

Park are derived from forest products (NRMP Report No. 5, Curran and Belsky in press).  These 

direct incomes from  informal sectors  are excluded within aggregated economic data and thus 

under represent the important and often critical direct contributions natural forests provide to the 

domestic economy in general and the rural community welfare specifically.  Moreover, indirect 

benefits and ecological services are provided by natural forests over multiple spatio temporal 

scales. These ecosystem services rarely are quantified unless defensive expenditures are 

required to redress adverse conditions when these services are disrupted or disturbed (e.g., 

topsoil loss and erosion, flooding and mud slides, sedimentation, reduced water quality and 

human heath).  When full accounting of both direct and indirect benefits of forest resources are 

included, material goods and environmental services from natural forest resources are certainly 

undervalued.   

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