New lending rule helps protect our environment

The Jakarta Post, Opinion, June 09, 2005, Jan Willem van Gelder and Fitrian Ardiansyah, Amsterdam/Jakarta

Let us hail the new regulation issued by the central bank (Bank Indonesia or BI), which demands that banks assess their corporate clients, does not do enough to protect the environment (BI Regulation No. 7/2/PBI/2005, concerning Asset Quality Rating for Commercial Banks).

This can be seen as a promising first step to stimulate the financial sector to help save the environment as banks play important roles in financing the forestry, plantation, mining and other important sectors related to environmental issues.

Few countries around the world have such an abundance of natural resources at their disposal as Indonesia has. Various forest products, oil and gas, minerals and agricultural commodities: all these are produced in large quantities in Indonesia.

By exporting these commodities, Indonesia is earning valuable foreign currency — 56 percent of the export value was made up by the export of such commodities in 2003. These export earnings can theoretically be used to finance numerous development projects.

But reality speaks differently in Indonesia. While the abundance of commodities could be a blessing to all, for many Indonesians as well as for its natural environment it is nothing less than a curse. The United Nations Food and Agriculture Organization (FAO) said Indonesia was among the countries that suffered the greatest losses of natural forests.

Precious ecosystems get destabilized and their functions and services ultimately disappear, causing the demise of many wildlife species and valuable biodiversity as well as the loss of rights and means of living for indigenous and local communities dependent on extensive interaction forms of agriculture and forestry.

The question now becomes, why is this abundance of commodities not bringing wealth to the country as a whole, and improving life for all the poor people?

There are many factors contributing to this. The insatiable international demand for Indonesian commodities stimulates a continuous increase in production capacity and exploitation of natural resources. Unfortunately, because of corruption and a weakly enforced judicial system, irresponsible corporate behavior is not controlled.

Many actors (e.g. producers, buyers, financiers, government officials) are involved in these processes and each carries its own responsibility and could contribute to a more responsible management of commodities.

We must not forget the other actors — banks and other financial institutions (FIs) — that play an indispensable role in supplying capital to commodity producing companies by providing loans or buying their shares.

In the past decade, for instance, more than US$10 billion was invested in the oil palm plantation sector by both national and foreign investors. In pulp and paper industries, the growth over the past decade involved an aggregate capital investment of approximately $12 billion.

But many of the loans poured into natural resource exploitation have become soured, thus bankrupting many Indonesian banks.

It took the Indonesian government several years and billions of dollars in public money to get straighten out these bad loans and to reform the banking system. Learning lessons from this episode and trying to prevent these events from happening again therefore, is of the utmost importance. If not, problems with bad loans and the financing of non-sustainable forms of commodity production will resurface.

It is thus very important that BI, the Indonesian banks’ supervisor, issue a regulation that gives directions to banks on how they should rate the quality of their loans. The regulation lists a number of aspects of the client’s business, which need to be assessed by the bank. When a client scores negatively on one or more aspects, the bank runs a large risk of ending up with a non-performing loan when it lends to this client.

What is most significant here, is that BI explicitly lists “measures taken by the debtor to conserve the environment” as one of the issues that needs to be taken into account by the bank.

BI clearly acknowledges that companies that do not pay attention to their environmental behavior are more likely to become bad debtors and therefore should be avoided.

Outside Indonesia, several commercial banks have developed detailed forest, plantation and mining policies over the past few years. According to the policies, these banks strive to finance only companies which care for High Conservation Value Forests, minimize their environmental impacts and respect the rights and needs of local communities.

Building upon its existing regulation and information from overseas, BI has the opportunity to further develop world-class standards and procedures on assessing the social and environmental behavior of commodity-producing companies.

In addition, BI’s work can be strengthened by relevant ministerial agencies (i.e. the Ministry of the Environment, the Ministry of Forestry, etc.) and environmental and social organizations. They can contribute to the assessment of impacts on commodity producing sectors, as well as helping the identification of company initiatives that merit financing and those that need to first adjust their business plans and policies.

Avoiding future bad loans and banking crises as well as environmental destruction and social conflicts needs to be everyone’s mutual interest.


Jan Willem van Gelder is a financial sector specialist with Profundo in the Netherlands. Fitrian Ardiansyah is a program coordinator for World Wide Fund for Nature (WWF) in Indonesia



Minimizing pressure on forests for cleaner, cheaper water

The Jakarta Post, Opinion and Editorial – October 04, 2004
Fitrian Ardiansyah and Israr A, Jakarta

During the past two months, many areas throughout the country have faced the everworsening seasonal water crisis. Drought has brought the misery to many and clean water is still a luxury for some people.

In big cities, people have had difficulty obtaining adequate supplies of fresh water. Manyfarmers could not harvest their crops because they could not irrigate them sufficiently. Cities in Sumatra have also experienced electricity shortages due to lack of water for hydro-power plants, while some areas in Kalimantan have become isolated because decreasing river levels affect river transportation. Meanwhile, people throughout the archipelago suffer from flooding and landslides every rainy season.

However, while many continue to suffer from water shortages, a collaborative action — between NGO activists in Lombok Island, the local water enterprise (PDAM) of Menang and the West Lombok regency and Mataram municipality administrations shows there is a solution to this resource problem.

After a survey that found the island’s water users were willing to protect water sources, these stakeholders have been designing schemes to link water users with Mount Rinjani landscape conservation.

With the support of local people, government officials and activists the protection of catchment areas could eventually provide eight important water sources for the urban areas on the island. These areas were originally only protected by forestry officials.

This effort in Lombok to implement a “payment for environmental services” is similar to what happened in Melbourne, a good example of how to provide sustainable urban water.

Well-known as “Smellbourne” in the 18th century due to its poor water quality, Melbourne officials ensured the protection and restoration of the city’s mountainous forest in the north and east. To date, the city obtains 90 percent of its drinking water supply from these areas, with the highest quality water of any Australian city.

It has proven that implementing forest catchment area management is cheaper than building a water treatment plant: Saving upper-catchment forests is the best way to have cheap and clean water.

Last year, the World Bank and World Wildlife Fund released a report entitled Running Pure showing one-third of 105 big cities, including New York, Tokyo, Barcelona and Melbourne, obtained much of their water through protected forests. It explained that preserving forests — which reduce landslides, erosion and sediment, improve water purity, and store water — is a cost-effective way of providing clean drinking water.

David Cassells, a World Bank environmental specialist, said protecting forest water catchment areas was no longer a luxury but a necessity. The costs of providing clean and safe drinking water to urban areas, said Cassels, would increase dramatically if forests disappeared.

However, managing these forests should not only be the responsibilities of forest dependent people, he said.

At the moment, the water supply imbalance in Indonesia has caused problems and hardship.

Although it has 10 percent of the world’s remaining tropical forests, the annual deforestation rate — through destructive logging and forest conversion to pulp wood, agriculture (oil palm and other commodities), mining, fires, human settlements and other infrastructure — reaching up to 3.8 million hectares annually, has left Indonesia ever-fewer natural resources and caused significant environmental damage, including the loss of forest functions to regulate water.

The degradation results in loss of high conservation values (including biodiversity), soil erosion, water pollution, increasingly dramatic fluctuations between water shortages and flooding, siltation, health problems, reduced potential for tourism and loss of income and employment, particularly for forest-dependent people.

Looking at the criteria from the Ministry of Forestry and the Ministry of Settlements and Regional Infrastructure, a growing number of catchment areas can now be considered as critical, including Asahan (North Sumatra), Cisadane and Ciliwung (Banten/West Java/Jakarta).

This degradation is likely to inflate the numbers of people who will lack access to clean water for drinking and other domestic use. At the moment, about 77 million Indonesian people (about one-third of the population) do not have access to clean water and only depend on self-provisioning systems (i.e. 50 percent of urban households and most rural households are served by wells or small-water supply systems).

With dramatic disturbance to water supply and quality, people throughout the archipelago may have to continue living in poverty while suffering from limited availability of water — which many countries consider a basic human right.

The government needs to develop good and participative spatial planning taking into account landscape and ecosystem integration, and making sure the planning is enforced. The restoration scheme of the catchment areas needs to link end water users — including industries and PLN/electricity companies.

The private sectors, including logging, plantation, mining, real estate companies, situated in the catchment areas should actively participate in catchment management by implementing better practices covering protecting, maintaining and rehabilitating high conservation-value forests within their concessions and put efforts to ensure their protection and maintenance.

Meanwhile, the awareness about the interconnection between cities and catchment areas needs to be increased in Indonesia, especially in local governments that are now — in the era of decentralization — seemingly thinking that one can exist without the other.

It’s time for water users to start actively conserving the forests. If a local initiative in Lombok becomes a success story of how water catchment areas can increase the supply of fresh water, will cities like Jakarta and others follow?


Fitrian Ardiansyah is a program coordinator for World Wide Fund for Nature (WWF) Indonesia, while Israr A. is a staff at Indonesia Forest and Media Campaign (INFORM)

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Green and wealthy: An Indonesian oxymoron?

The Jakarta Post, Fitrian A. and Israr Ardiansyah, Forest Program, World Wide Fund for Nature (WWF) Indonesia, Jakarta, Opinion and Editorial – June 07, 2003

Fitrian A. and Israr Ardiansyah, Forest Program, World Wide Fund for Nature (WWF) Indonesia, Jakarta

Indonesian forests constitute one of the world’s megacenters of biological diversity. However, these forests — 10 percent of the world’s remaining tropical forests, second largest to Brazil — are being increasingly degraded, leaving ever fewer natural resources and causing significant ecological damage.

Protected areas are diminishing in conservation value as poorly planned and unsustainable development leads to poaching, encroachment, habitat fragmentation and forest fires.

These problems have been building for years with the rapid and largely unregulated exploitation of forests and other natural resources under the New Order regime. Since the early days of the regime at the end of the 1960s until today, Indonesian forests have been a prominent powerhouse of the country’s economy, after oil and textiles.

Unfortunately, to fill the need for economic growth and alleviating poverty, the government seemingly still sets its development agenda based on forest exploitation, including conversion of forests into plantations.

Forest conversion, which was defined as a continuous process of declining forest functions, has led to man-made monocultures characterized by the almost complete loss of forest ecological functions and socioeconomic benefits for local people.

In general, 60 percent of the conversion of tropical forests in Indonesia is due to the development of oil palm plantations (WWF, 2002). However, only 30 percent to 40 percent of forest areas that have been logged were later developed into oil palm plantations in the last decades in Indonesia.

This phenomenon has contributed to an alarming rate of deforestation (2.1 million hectares per year according to the Ministry of Forestry, 2003). Recent assessments estimate that by 2005 lowland forests will disappear in Sumatra and by 2010 in Kalimantan. If the incidents of forest fires are included, this prediction may well be true. The usual practice of plantations to log and then burn to clear the land for planting has worsened the impact.

The question now is whether forest conversion has increased the level of wealth of the country, if not the welfare of the people. One study shows that as a result of deforestation through 2002, Indonesia has lost about US$25 billion from timber and may continuously lose about US$0.55 billion per annum.

Other findings also show that conversion comes with severe environmental and social costs. These include the loss of high-conservation-value forests, human-wildlife conflicts (in Riau, the cost of human-elephant conflicts have reached Rp 1.3 billion per year, or 86 percent of Riau’s 2002 provincial budget), massive forest fires, the loss of ecosystem functions and services and disregard for the rights and interests of indigenous communities or forest-dependent people.

Although the country’s earnings from palm oil exports have increased, unfortunately, profits from forest conversion only go to a few people within and outside the country. On the other hand, forest-dependent people and the majority of Indonesians are yet to benefit from conversion.

Another issue to be raised is whether we have to stop developing the oil palm sector. Although concerns about massive impacts resulting from oil palm development have increased, many environmental organizations (ENGOs), including the WWF, recognize the need of countries like Indonesia and Malaysia to develop and provide for their people.

Therefore, while seeking to ensure that important high-conservation-value forests (HCVFs) do not disappear, some ENGOs have been trying to open a dialog with the palm oil industry to search for sustainable solutions. For instance, the WWF network has been opening a dialog with Migros (Swiss retailers), Unilever, ABN-Amro Bank, the Malaysian Palm Oil Association and the Indonesian Palm Oil Producers Association (GAPKI).

One area that is being carefully looked at is good land use planning that incorporates the need for oil palm development as well as HCVF conservation. If we analyze the figures of the areas that have already been opened, 60 percent to 70 percent have not been utilized as oil palm plantations.

This means that a huge figure (3 million to 4 million hectares) of abandoned land, wastelands or land with absentee ownerships is available to be used at this particular point of time and in the future. Integrated and coordinated land use planning at different levels (district to national), in this case, is extremely necessary.

Another important solution being discussed between ENGOs and companies is the implementation of several better practices for sustainable palm oil production. These practices cover guidelines on protecting, maintaining and restoring HCVFs within plantation areas; mitigating human-wildlife conflict; resolving social and tenurial conflicts; adopting a zero burning policy; implementing integrated pest management; and managing waste.

The coming Roundtable Discussion on Sustainable Palm Oil in August 2003 in Kuala Lumpur, incorporating key actors in the entire chain of the oil palm sector and other interested parties, will be used as a starting point to have sustainable produced palm oil that balances economic and environmental aspects.

Some key Malaysian companies such as Golden Hope Plantation Bhd has seen this as a good opportunity to enter markets in the developed world. If the Indonesian industry does not recognize this potential, it may lose a significant market share in Europe to competitors. And for the rest of us, we may end up experiencing more disasters as a result of ongoing deforestation.

Fitrian A. holds a master’s degree in environmental management and development from the Australian National University. Israr Ardiansyah graduated from Gadjah Mada University’s School of Forestry. Both work for WWF Indonesia-Forest Program.

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