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Déjà vu: Anticipating the Impacts of Economic Crisis on Indonesia’s Forests

With Indonesia’s government and citizens facing the twin public health and economic crises precipitated by the coronavirus pandemic, it would be understandable if few people are thinking about the country’s forests. But now is the time to anticipate how responses to those challenges could affect the future of the world’s third-largest expanse of tropical forest.

Healthy forests will certainly have a role to play in long-term strategies for economic recovery, as restoration and maintenance of natural infrastructure such as forested watersheds and mangroves are an essential component of “building back better”. But even now, short-term policy actions and omissions can have immediate and lasting implications for forests. One source of insight we can draw on are lessons from the economic crisis faced by Indonesians a generation ago, which bears some similarities to the present one.

Thanks to democratization, and to improvements in forest policy and monitoring, Indonesia is in a much better position to protect its forest resources through an economic calamity than it was when the Asian Financial Crisis hit in 1997. Indeed, due in part to government actions, the decline in the rate of forest loss in Indonesia has been one of the few bright spots in the global data on tropical deforestation over the last few years. However, with this new crisis, there is a risk of reversing that progress if the mistakes of the past are repeated.

Here are four suggestions for the Government of Indonesia – and indeed governments of other countries with valuable forests under threat – as it navigates through the current storm:

  1. Provide an alternative to degrading forests as a social safety net. The first impact of the 1997 economic crisis on forests (but likely not the most harmful) stemmed from the immediate losses of jobs and other sources of livelihood. Those losses compounded the effects on household incomes of a drought and associated crop failures and catastrophic fires that same year. Lacking other options, many people went to the forest for subsistence and to generate cash. Some cleared additional land to grow food or tree crops, while others intensified the collection of forest products ranging from rattan to turtles to sell for income. Providing distressed households in forest villages with well-targeted, temporary cash transfers during the crisis could lessen their need to overexploit forest resources as a safety net of last resort. (Note as per May 4: Transfers are in the form of ''basic income'' for inhabitants in forest cover provinces in times of coronavirus pandemic. This basic income could be tied to forest protection outcome). Similarly, at the economy-wide scale, there will likely be a temptation to view forests as an agricultural land reserve to be opened up in service of agricultural exports. The 1997 crisis was followed by a rapid expansion of oil palm, coffee, and shrimp production at a high cost to forests and forest-dependent people.
  2. Structure any corporate bailout or stimulus for forest-risk firms to advance the public interest. A knock-on effect of the 1997 crisis was a USD13 billion default on debt by a pulp and paper company in 2001 – the largest such default in history at the time. The default exposed how weak corporate governance standards and poor forest governance had allowed a private company to cheat not only international investors, but also the Indonesian public by looting the nation’s natural forests to feed their mills. Yet the restructuring agreement presided over by the Indonesian Bank Restructuring Agency (IBRA) allowed the company’s owners to retain control and continue their unsustainable business model after the crisis was over. Debt relief for private companies should instead be conditioned on a shift to business models that are consistent with the public interest in – and government commitment to – low carbon development. In fact, more than 60 companies in Germany have actually asked for relief to be conditioned on climate action, to overcome both the climate crisis and the coronavirus crisis.
  3. An important element of such conditionality should be prevention and control of fires, especially on peatlands. In Indonesia as elsewhere, emergency public support to private firms in the form of loans or tax breaks is being mobilized to assist them in retaining employees. At the same time, in the midst of a widespread outbreak of respiratory disease from Covid-19, it is critical that forest-risk firms not exacerbate the public health and economic crises by failing to prevent or contain fires in their concession areas. Catastrophic fires compounded the 1997 crisis and could do the same in 2020. For a recent benchmark of what’s at stake, the 2015 fires are estimated to have caused some 100,000 premature deaths, resulted in a USD16 billion loss to the economy, and sparked the enmity of neighboring countries. The Government of Indonesia should communicate a clear expectation that companies accepting financial relief are expected to assist local governments and communities in their fire control efforts.
  4. Maintain legal and regulatory protections for forests through the crisis and its political aftermath. The 1997 crisis led to the fall of the Suharto regime in 1998 and ushered in several years of political turmoil. While the general direction of change was toward beneficial democratization and decentralization, it was also accompanied by a period of contested authority and lack of law enforcement, including a frenzy of illegal logging, mining, and forest clearing. Since then, Indonesia has made significant progress in establishing an improved legal and regulatory framework to govern forests, including by imposing moratoria on conversion of intact forests and peatlands, and by creating social forestry instruments through which local communities can obtain recognition for their roles in forest management. In addition to protecting state-owned forest assets, the government should provide back-up to defenders of community and customary forests when illegal encroachment takes place. The recent announcement by the Ministry of Trade suspending the Timber Legality Assurance System (SVLK) – through which Indonesia was the first country to gain a license to export certified legal timber to the European Union – threatens to be a first step towards unraveling Indonesia’s legal and regulatory framework on forest use and protection at a time when it should be strengthened. (Additional note as of May 1: The Ministry of Environment and Forestry said that SVLK will remain in force and that the Ministry of Trade's Regulation 15/2020 on Export Requirements for Forestry Products will be revised).

While the immediate consequences of the current pandemic are dire for Indonesia as for the rest of the world, it would be short-sighted to allow the response to the associated economic crisis to undermine Indonesia’s response to the looming threat of climate change. Protecting Indonesia’s forests is not only essential to slowing the emissions that cause global warming; forests also provide an important contribution to Indonesia’s ability to adapt to the climate change already in train. Recent science is illuminating how forests are critical to maintaining cool temperatures and rainfall within Indonesia. It would be unwise to sacrifice tomorrow’s rainfall by raiding Indonesia’s forests as a rainy-day fund today.

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