HIGH FINANCE AND FOREST LOSS

High Finance and Forest Loss

Indonesia’s forests are disappearing at an alarming rate. For example, between 1982 and 1996, Riau province lost almost half its forests. In 1982, there were 6.4 million hectares of primary forest, covering 78 per cent of the province. If current cutting rates continue there will be less than half a million hectares left by 2015, covering six per cent of the land area, nearly all confined to national parks.

Much of the blame for forest loss in Riau can be laid at the gates of the pulp mills owned by Asia Pacific Resources International Ltd (APRIL) and Asia Pulp and Paper (APP). But research funded by the Multistakeholder Forestry Programme (MFP) reveals that banks which provided loans to the industry – US$15 billion have been invested in Indonesia’s pulp and paper sector since the mid-1990s – must share responsibility for forest destruction.

“Indonesia’s pulp and paper industry became a speculative bubble,” explains Chris Barr, a policy scientist at the Center for International Forestry Research (CIFOR). “Banks and fund managers lost sight of the fundamental fact that pulp mills need wood to operate, and financial analysts tended to rely on the company’s own wood supply figures, which were often wildly optimistic.” The result: a rapid expansion in capacity, which far outstripped the rates at which the companies were establishing plantations, and massive clearance of natural forests.

Research by Barr and his colleagues highlighted the need for banks to improve due diligence when investing in the pulp industry, and prompted investment banks, brokerage houses and export credit agencies to reassess the forestry operations of APP and APRIL. Friends of the Earth UK and the Indonesian Forum for the Environment (WALHI) launched campaigns which drew heavily on Barr’s work. CIFOR’s research also prompted the World Bank’s Multilateral Investment Guarantee Agency to withdraw from plans to provide political risk guarantees for a new pulp mill in Kalimantan. CIFOR’s research on pulp-mill finance received widespread international media coverage.

The link between forest loss and debt, highlighted by CIFOR and MFP, has also changed the way donors look at the forestry industry. Partly as a result of the research, the Indonesian government agreed at a donors’ meeting in 2000 to a series of commitments in exchange for future loans. One was to close down heavily indebted forestry industries; another was to downsize Indonesia’s wood-processing industries, which were consuming up to three times more timber than the country’s natural forests could sustainably supply.

However, the Indonesian Bank Restructuring Agency (IBRA) failed to meet these commitments. CIFOR’s research revealed that by writing off much forest-related debt, IBRA provided a large subsidy to forestry conglomerates. The failure to tackle overcapacity in the processing industry has meant that one of the key drivers of deforestation and illegal logging has yet to be tackled. Working closely with the Ministry of Forestry, MFP supported a team of analysts to explore possible futures for the forestry sector. The most desirable scenario – see diagram – envisages an increase in plantations, accompanied by significant restructuring of processing capacity. Illegal logging will only be brought under control if industries reduce their consumption of timber from natural forests.(Internet). February 4th, 2009

Penulis : Drs.Simon Arnold Julian Jacob