Challenges for better natural resources management beyond 2014

By Fitrian Ardiansyah, published in Coal Asia, December 20, 2013 – January 20, 2014, page 144-145

for the pdf version, please see Opinion Fitrian Ardiansyah_CoalAsia_Dec13Jan2014

CoalAsia_Dec13Jan2014_BetterNRM2014

With the 2014 general election on the horizon in Indonesia, one may wonder whether the issues of better natural resource management and environmental protection would be in the mainstream debate among political parties and presidential candidates.

To date, Indonesia has experienced a stable growth since its economy recovered from financial crisis in the late 1990s and maintained its real growth performance at average above 5 percent in the period of 2000-2011, as reported by the World Bank.

The 2012 McKinsey Global Institute Report states that Indonesia is the 16th largest economy in the world.

The strength of Indonesia’s economy has been helped by its strong exports of natural resources, such as oil, gas, coal and crude palm oil (CPO), making up around 50 percent of Indonesia’s exports, as argued by the Global Edge of Michigan State University.

Indonesia has abundant resources and reserves of coal and gas, and has pushed the production of this type of energy sources in recent years, not only for domestic consumption but also for meeting the export demand. The Energy and Mineral Resources Ministry (MEMR) records that the proportion of coal export reaching above 90 percent in the period of 2007-2009.

With regard to palm oil, Indonesia in 2009 surpassed Malaysia to become the biggest producer this commodity in the world. Indonesia’s CPO exports and resultant revenues have increased dramatically over the last several decades, from 3.8 million tons (valued at US$1 billion) in 1999 to 21 million tons in 2013 (US$22.40 billion).

Commodities from forests and oceans also contribute to Indonesia’s economy. The 2011 International Trade Strategies (ITS) Report showed that various forest commodities contributed roughly 3 percent to the country’s GDP (gross domestic product).

Furthermore, natural resources and commodities have contributed significantly to the country’s employment, energy supply and food security.

The forest related sectors, for instance, employed a combined total of 3.76 million people or 4 percent of Indonesia’s working population, according to the 2011 ITS Report. While in 2010, 38.3 percent was reported by the World Bank as the figure of employment in agriculture (percent of total employment) in Indonesia.

A big question remains whether the country can retain its strong growth and support the livelihood of its population when these resources are extremely degraded or depleted.

In the general context of economic growth and GDP, resource depletion may not create immediate negative impacts. The McKinsey reveals that currently and to a large extent, Indonesia’s economic growth is propelled by its domestic consumption rather than export of natural resources.

The report further suggests that the resource sector’s share of the economy has fallen since 2000, with mining, oil and gas accounting for only 11 percent of Indonesia’s nominal GDP.

In the mid to long-run, however, resource depletion may shake the very foundation of Indonesia’s exports and eventually its economy. With the global demand for commodities likely continuing if not increasing, especially in fast-growing emerging markets, export growth from Indonesia can only remain buoyant if the country manages its resources wisely.

Resource depletion will also hurt the country’s economy domestically. In fact, it has done some damages if oil subsidy is used as a case.

Indonesia has become a net importer of both crude oil and refined products since 2004. Oil consumption has been heavily subsidized as part of energy subsidies and this has cost the government Rp306.5 trillion (US $31.5 billion) in 2012, a figure much higher than that in 2010 (Rp139.9 trillion or US $14.4 billion), according to Directorate General of Treasury of the Finance Ministry.

To address this issue, in mid-2013, the Indonesian government and parliament approved a government budget that increased the price of a liter of petrol by 44 percent and diesel by 22 percent. This intervention may have helped the government’s budget deficit but even after the price rises, as stated in the Economist, the deficit is still expected to reach 2.4 percent of GDP, up from 1.8 percent in 2012.

The same fate of resource depletion can happen to gas, coal and other mineral commodities especially if these resources are not managed carefully, which in turns may hit back at the country’s economy.

In 2012, for example, the Vice Minister of the MEMR stated that high energy consumption has caused and could accelerate the imbalance between the exploitation of fossil energy resources (such as oil, gas and coal) and the speed of inventing new reserves, leading to a depletion of Indonesia’s reserves and increasing dependency on imported energy.

Moreover, resources depletion often brings about other economic costs in the forms of environmental degradation.

Destructive, illegal and uncontrolled resources extraction in forestry, agriculture, mining and fishery sectors have usually led to deforestation and forest degradation, and depletion of fish stock which eventually created environmental related disasters such as floods, landslides, fires and haze, land, air and water pollutions, and biodiversity extinction.

Some of these impacts and disasters may not be easily reflected in the GDP of the country.

The loss of natural resources and the associated environmental impacts will surely be felt by Indonesian people and affect their daily livelihoods.

Droughts, floods and landslides, for example, often adversely affect agricultural production, in which the impacts are felt both on the level of the local economy and in the balance of trade and the current account, potentially upsetting a country’s macroeconomic equilibrium.

According to the Agriculture Ministry, more than a million hectares of the country’s paddy fields and more than 100,000 hectares of corn fields have been impacted by diseases, floods and drought in the period of 2007-2011. Out of these areas, approximately 140,000 hectares of paddy fields and 18,000 hectares of corn fields have suffered from crop failures.

If such production losses are not dealt with seriously, Indonesia may face difficulties in reaching its goal to ensure food security for its people. Even if such losses are compensated through imports, similar imbalances may surface in other areas, which include putting further dependencies of the country’s economy on foreign agriculture commodities.

Therefore, it is undoubtedly important to continue reforming the management of Indonesia’s natural resources and put this as one of the country’s development priorities.

Potential Indonesian presidential candidates and political parties should be reminded that Indonesia’s economy could be in jeopardy if its current and future economic platforms will only lead to further resource depletion and environmental degradation.

Indonesian people may need to see the track records of their candidates toward 2014 with regard to resource management and environmental protection, and identify and only support leaders who have had commitments and actions in transforming Indonesia’s natural resource management for the better.

The upcoming election once again brings an opportunity as well as challenge for us, the public, to contribute to an important decision-making process for the future of our economy and livelihoods.

It is time to demand for better natural resource management and environmental protection from our politicians and leaders.

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The author is climate and sustainability specialist, a doctoral candidate at the Australian National University, and the recipient of Australian Leadership Award and Allison Sudradjat Award.

3 thoughts on “Challenges for better natural resources management beyond 2014

  1. Pingback: Resource depletion threatens Indonesia’s future | East Asia Forum

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