The Case Study of Indonesia

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The Case Study of Indonesia

By Charles Victor BarberWorld Resources Institute

Summary

Indonesia is the world's fourth most populous nation, and the planet's largest archipelago.Blessed with abundant natural resources and one of the earth's greatest assemblages of biologicaldiversity, Indonesia was nonetheless among the poorest nations in the mid-1960s, with a percapita income of just $50* and its economy in shambles. Since coming to power following aspasm of civil violence sparked by an attempted coup in 1965 -- events that left as many as500,000 dead -- the "New Order" regime of President Soeharto has utilized exploitation of the

archipelago's rich natural resources -- primarily oil, timber, and minerals -- to jump-start andsustain a process of economic development that the World Bank has praised as "one of the bestin the developing world." The economy grew at nearly 8 percent annually in the 1970s, anddespite external shocks averaged 5.3 percent in the 1980s. Per capita income has risen from $50in 1967 to $650 today, and poverty has been cut from 60 percent to an estimated 15 percent of the population.

The regime has, however, used natural resources as more than tinder for economic growth. Thedelivery of tangible development benefits -- increased food production, roads, schools, healthcare, and the like -- to a large segment of the populace, made possible by revenues from resourceextraction, has helped ameliorate longstanding social cleavages within Indonesian economy and

society and cement allegiances to the regime.

Natural resources -- and resource policies -- have also been used to strengthen variousdimensions of the New Order state's capacity. Natural resource revenues have provided a strongfinancial basis for strengthening state power, while natural resources policies have provided animportant vehicle for projecting New Order values and priorities throughout society.

In this process, new conflicts have arisen between state-led resource extraction activities andlocal communities deprived of their longstanding access to forests and other resources. Up untilnow, the regime has been relatively successful in localizing, suppressing, or resolving theseconflicts far short of the point where they might, taken together, pose a threat to the regime's

capacity or stability.

The state's ability to contain conflict over natural resources has depended, though, on particularcircumstances: abundant natural resources; continued economic growth and poverty reductionfor many; an efficient and heavy-handed military intelligence and domestic security apparatus;transformation of the electoral process into a state-controlled mechanism for reinforcing regimelegitimacy; a quiescent and depoliticized peasantry and urban workforce; the continuity of



President Soeharto's thirty-year rule; and a small and politically quiescent middle class willing toaccept authoritarian politics in exchange for growing economic prosperity.

All of these conditions are changing rapidly in the mid-1990s: Conflicts over natural resourcesare not as "local" as they once were, due to the globalization of communications and

strengthened international human rights and environmental advocacy networks. The internationaldevelopment Zeitgeist has changed in thirty years from a single-minded focus on "economicgrowth" to "sustainable development," with growing attention to environmental, social, andhuman rights concerns. It is no longer as acceptable to "break a few eggs" locally in order tomake an "omelette" of national economic growth. And as Indonesia takes a higher profile on theinternational stage (chairing the Non-Aligned Summit in 1993-94 and hosting APEC in 1994, forexample), the government is more sensitive to international opinion.

The natural resource base of the country is increasingly degraded, leaving less for the regime toexploit, and less for the growing rural population to seek its livelihood from. Forests, forexample, are declining by as much as 1 million hectares per annum, and Indonesia is expected to

become an oil importer early in the next century. At the same time, while the relative share of primary commodities in total GDP has declined from 60 percent in 1970 to 39 percent today, andwill likely reach 17 percent by 2010, the absolute value added from primary commodities hasmore than doubled over the past twenty years, with nonrenewables (oil, LNG, minerals) up 128percent and "renewables" (agriculture, fishing, and forestry) up by 91 percent. The total value of these sectors is expected to increase by 50 percent by 2010. Thus, while the regime will continueto rely on natural resources, it will do so in the face of growing absolute scarcities, pressures toconserve, and increasing demand from growing rural populations.

Indonesia's economy and society have changed dramatically since the 1960s, and the pace of change is accelerating, leaving a transformed sociopolitical landscape in its wake. The economy

grew at nearly 8 percent annually in the 1970s, and despite external shocks averaged 5.3 percentin the 1980s. The manufactured goods sector has grown an average of 27 percent annually forthe past five years, and overall private investment has grown by an average 11 percent annuallysince 1986. Per capita income has risen from $50 in 1967 to $650 today, and poverty has beencut from 60 percent to an estimated 15 percent of the population. Adult illiteracy has been cut bytwo-thirds, and life expectancy at birth has increased by twenty years (almost 50 percent).Fifteen percent urban in 1970, the country's population is already 30 percent urban today, andmay reach 50 percent by 2020. The regime's impressive development achievements have createda wholly new class of educated, increasingly mobile, urban, and informed people with greaterexpectations for political participation and less tolerance for autocratic or corrupt behavior on thepart of government officials and agencies.

The concentration of natural resource-based wealth in the hands of a small political-economicelite, in which the president's family is very prominent, is under growing attack from many partsof society. The power and conspicuous consumption of these elites -- often ethnic-Chinese inleague with members of the president's family and other regime figures -- is increasinglyunacceptable to a general public long suspicious of the country's wealthy Chinese minority, tothe rising middle class which sees its own business prospects constrained by cronyism, and toelements within the military and civilian state elite itself who see the growing power and profile



of the Chinese conglomerates and "the kids" as obstacles to a smooth presidential succession,and as a potential source of general social unrest and political opposition.

President Soeharto, 75, has been in power since 1966, no clear successor is in view, and there isno reliable -- or even tested -- mechanism for managing this crucial political transition. The

sudden death of his wife in May 1996 and a highly publicized trip to Germany for medicaltreatment a few months later put these questions front-and-center. Soeharto is the linchpin andsymbol who holds the New Order regime -- and hence the current stability and prosperity of Indonesia -- together.

It is unclear exactly what the "Indonesian state" is apart from the New Order regime, and it isequally unclear what the New Order without Soeharto will look like.

As current trends and events play themselves out over the next decade, it seems unlikely that theregime can continue to contain growing conflicts over natural resources, continue to appropriatethe resource rents needed to maintain the support of clients and the bureaucracy, or sustain the

cohesion of the elite interests and actors who constitute the power centers of the regime. Withthree-fourths of the nation claimed as "state forestland" and the pressures on those landsbuilding, for example, forestlands and resources conflicts are likely to intensify far beyond thecurrent situation.

Indonesia holds the second largest tract of tropical forests on the planet. Currently thought tocover some 92-109 million hectares -- an expanse second only to Brazil's -- they blanketed morethan 150 million hectares -- over three-fourths of the nation -- as recently as 1950. In the OuterIslands, many forest areas have long been home to indigenous groups which gained theirlivelihoods from forest farming, hunting, and gathering.

Since the late 1960s, these forests -- and the lands on which they grow -- have played importantroles in the political and economic strategies of the New Order. They have been a substantialsource of state revenue, a resource for political patronage, a safety valve for scarcities of landand resources in densely populated Java, and a vehicle -- through the policies applied to them --for penetrating New Order ideological, political, security and economic objectives into thehinterlands. In short, forestlands, resources, and policies have been a key arena for the NewOrder's program of economic development, political control, and social and ideologicaltransformation.

Under these circumstances, it is not surprising that forests have become the arena for increasinglevels of social conflict, sometimes violent, between the interests of local communities on theone hand, and those of the state, its clients and agents on the other. Allocation of the hugeresource rents derived from commercial forest exploitation -- such as the $1.3 billionReforestation Fund -- have also recently provoked disputes within the elite.

These conflicts have potential to erode state capacity in various ways, although only thecommunity-level conflicts have the realistic likelihood of turning violent -- some already have.Even short of violence, local forest conflicts are poisoning relationships between localcommunities and government agencies and increasing local resistance to both forest production



and conservation efforts. And conflicts within the elite over the distribution of forest resourcerents threaten to weaken the coherence of power centers within the New Order constellation. Asthese conflicts grow, they are compounded by increasing absolute scarcity of forest resourcesand intensifying population pressures on the forest frontier.

The ability of the regime to respond to these snowballing pressures and conflicts is limited byforest policy choices made over the past few decades. From nearly nothing in 1966, the timberand forest products industry has with the state's active support grown into a highly concentrated,wealthy, and well-connected political and economic actor dependent on cheap raw materials,used to high levels of profit, and accustomed to passing the environmental costs of unsustainablelogging practices to local communities, the state, and society at large. The industry is now asignificant factor in forest policy-making and thus lessens the autonomy of the state to movepolicy in directions that might be more sustainable but would hurt the industry.

At the same time, just as consensus is growing among forest management experts and manygovernment policymakers -- not to mention nongovernmental organizations and donor agencies -

- that sustainable forest policies must grant local communities greater access and moreparticipation in management, the state's capacity to work with or even listen to localcommunities is severely constrained by three decades of "top-down" development policies andthe erosion of community management capabilities caused by those policies.

Moreover, the New Order's capacity to adapt its policies to deal with these growing conflicts isweak, in contrast to the nimbleness of its macroeconomic policy-making in recent years. Thechoices and policies of the New Order over the past three decades developed from theperceptions and experiences of its leaders during the first twenty years of Indonesia'sindependence, and the violent transition from Old Order to New. Those policies have served theinternal interests of the state well over the past three decades. And they have delivered sustained

and broad-based economic and social development to the majority of Indonesia, although theyhave also been the cause of a great deal of oppression and suffering for some. But the regimenow seems bereft of the ideas, mechanisms, and skills to adapt to the rapid changes engulfing thearchipelago in the late 1990s. Unless a dormant reserve of political and social ingenuity is soontapped, the impressive development gains of the past three decades may prove fragile in the faceof growing conflicts over forest and other natural resources, and the broader societal conflictswhich they mirror.

And the challenges of the next few decades will require vast amounts of ingenuity to surmount.By 2020, Indonesia's population will likely rise from 180 million to nearly 260 million, a 45percent increase. Fifty percent of that population will be urban, up from 31 percent in 1990,putting pressure on Java's irrigated rice lands, some 10 percent of which may be converted tomunicipal and industrial uses over the next two decades. Total GDP will increase by 320 percentover 1990, and fully 63 percent of it will come from manufacturing and services by 2010.Demand for petroleum products by 2020 will expand nine-fold, and the demand for electricitythirteen-fold. Proven oil reserves will be exhausted by about 2015 even at current rates of extraction, and the production of coal and natural gas will have skyrocketed. With rapidly risingdemand, though, it is likely that Indonesia will be a net oil importer by as soon as 2000.



In the forestry sector, if current deforestation rates continue, an additional 15 million to 32.5million hectares of forest will be lost by 2020. And demands for agricultural land, timberplantation sites, and coal mining will increasingly compete with logging, intensifying pressuresand probably increase the deforestation rate. If demand for wood continues to climb at presentrates, a serious timber shortage seems likely. And while timber plantations are the cornerstone of

the government's strategy to bring supply in line with demand, the bulk of current investment intimber plantations are for stock to feed the new and rapidly expanding pulp and paper industry,not to replace timber now coming from natural forests.

To ameliorate growing scarcities of renewable resources, minimize the spread of scarcity-induced conflicts, and protect the capacity of the state from erosion, the New Order must take its"ingenuity gap" seriously, and take steps to close it. Failure to unfetter the generation anddelivery of ingenuity needed to deal with the complex challenges of the next few decades willstunt the ability of both state and society to counter the impacts of growing resource scarcity.These challenges include intensifying social conflicts (some violent), impediments to thecontinued growth of the economy, rising social dissatisfaction, and serious threats to the

legitimacy and overall capacity of the Indonesian state. Failures of ingenuity are likely toreinforce themselves: lack of creative state adaptation to increasing scarcity and conflict may inthem even further limit the state's ability to respond effectively. As conflicts grow more severe,the state may cut itself off from innovative solutions that might otherwise arise from localcommunities and other elements of civil society.

This need not be. Indonesia's rich resources and incredibly diverse cultures provide the basis forrapid and sustained increases in ingenuity equal to the challenges of rising population andconsumption, a fixed resource base, and growing scarcities. The history of Java, where nearly100 million people -- 65 percent of the population -- live on 7 percent of the country's land,shows the potential of the Indonesian people for productive social and technical adaptation to

growing scarcity (although other islands, with far poorer soils, could not support anything nearJava's population density). The "portfolio" subsistence strategies of many Outer Islands peoples -- in which reliance on a wide variety of crops and income sources secures the people againstscarcities of any one source -- provide another important example.

Nor is the New Order state apparatus itself bereft of ingenuity by any means. The dramaticeconomic rise of Indonesia since the 1960s, the major strides made against poverty and illiteracy,and the deft handling of global economic turbulence in the 1980s amply illustrate the ability of this regime to produce ingenuity and act upon it. Anyone who has spent time working withofficials of the Indonesian government will attest that there are untold numbers of them burstingwith innovative ideas -- both visionary goals and rudimentary practicalities -- on how to betterrealize the goals of sustainable development, stability, and equity. If the combined ingenuity of the state and the society can be unleashed from the outmoded and harmful structures, attitudes,and webs of special interests that have developed over the past thirty years, Indonesia will standa good chance of surmounting the challenges of resource scarcity that all of humanity faces onthe cusp of the twenty-first century.



I. INTRODUCTION

Recent studies across a number of countries show that growing scarcities of renewable naturalresources can contribute to social instability and civil strife. 1 These studies also indicate that themultiple effects of environmental scarcity, including economic decline and large population

movements, may sharply weaken the administrative ability, internal coherence, and legitimacy of the state in some poor countries. Weakened state legitimacy further raises the likelihood of civilviolence. This case study of Indonesia (others focus on China and India) is part of a follow-upproject to the work noted above, which explores the links among resource scarcity, statecapacity, and civil conflict.

Three factors can produce renewable resource scarcities. First, environmental degradation canreduce the aggregate pool of available resources; for example, forest loss, cropland degradation,or destruction of fish habitat reduces the absolute supply of those resources (supply-inducedscarcity). Second, the demand for a resource can increase due to growth in population or percapita resource consumption. Population growth divides a resource among more and more

people, which reduces its per capita availability, while rising incomes can increase the per capitademand for a resource (demand-induced scarcity). Third, unequal resource distributionconcentrates a resource in the hands of a few people and subjects the rest to greater scarcity(structural scarcity).2

The studies previously cited suggest several ways in which resource scarcity may erode statecapacity and increase the probability of civil conflict. First, scarcity may increase financial andpolitical demands on the government. Absolute resource losses necessitate expensiverehabilitation measures, deprive resource-dependent elites of sources of income, and impoverishresource-dependent populations. These impoverished populations may then either migrate tourban slums or move onto ever-more fragile habitats, accelerating the process of resource loss.

Second, resource scarcity may adversely affect the economy's general productivity, viasedimentation of dams and irrigation works, salinization of croplands, decline in raw materialsupply for forest industries, and collapse of fisheries. When state legitimacy is based onsustained economic development, the impacts of general resource decline may affect thislegitimacy. State revenues may decline and thereby undercut the delivery of developmentbenefits. The inability of the state to respond to societal needs leads to social dissatisfaction withthe state and conflicts among various social sectors.

Third, resource scarcity may, under certain circumstances, impede the ability of the state to adaptto new conditions and pressures.3 As the conditions and challenges facing the state change --

because of resource scarcity, structural alterations in the economy, or other factors -- the abilityof the state to adapt is constrained by political, economic, and institutional policies implementedin the past. In other words, the state does not operate with a clean slate when addressing newchallenges: the most logical and effective policies and actions may be precluded by the resistanceof special interests, weakness of the bureaucracy, political and intellectual rigidities in theleadership, and other traits inherited by the present-day state.



The state's ability to adapt may be further impeded by increasing resource scarcities for severalreasons. First, scarcity often leads to rising demands from various social actors (farmers, urbanworkers, resource-dependent industries, environmentalists) for state action (examples includesubsidies, resource rehabilitation investments, or the creation of national parks). This growingcacophony of demands constricts the state's ability to maneuver and to innovate. Second, scarcity

frequently increases the level of social friction and conflict among these groups, which reducesthe state's ability to get different actors (for example, forest-based local communities and loggingconcessionaires) to work together in innovative ways. Finally, as resources become scarce, thestate finds it more difficult to provide "win-win" solutions to resource conflicts. When theresource pie shrinks, one actor's gain will likely be another actor's loss.

This study explores these dynamics of environmental scarcity, resource conflict, and statecapacity in Indonesia, the world's fourth most populous nation. Specifically, the study'sobjectives are to:

Briefly review the historical roots of President Soeharto's "New Order" regime, the

circumstances under which it came to power in 1965 to 1966, and how history shaped its

present outlook and orientation (Section II);

Analyze the evolution, strengths, and weaknesses of state capacity under the New Order, with

particular reference to the role of natural resources (Section III);

Examine the forestry sector, especially the scarcity of forest resources, the kinds of conflicts that

arise from forest resource scarcities, and New Order responses to these scarcities (Section IV);

and

Assess the future capacity of the New Order state to adapt to intensifying economic, social,

political, and environmental pressures, and the extent to which resource scarcities directly and

indirectly diminish that capacity (Section V).

Indonesia is not presently a country in which resource scarcities cause widespread conflicts that

appreciably erode the legitimacy or capacity of the state. Rather, over the past three decades theNew Order state has systematically exploited Indonesia's abundant renewable resources tosupport rapid economic growth, social services expansion, and state capacity. Enhancedcapacities have enabled the state to extend its political, territorial, and ideological control. At thesame time, the state has used its heightened political capacities -- and the benefits of development -- to muffle long-standing cleavages within Indonesian society and quell recentlocal conflicts arising from rapid socioeconomic and environmental change.

Circa 1997, optimistic conclusions on the adaptation ability of the Indonesian state aredefensible. The capacity of the New Order state is as strong as it has ever been; economicdevelopment continues at a good pace and provides the regime with broad-based popular

legitimacy; renewable natural resources are still relatively plentiful (compared to many othercountries in the region); and although the level of conflict over resources is rising, the state iscapable of containing this conflict. And while it began as an army-led regime, the New Orderinstalled a relatively effective bureaucracy that has adapted to new political, economic, andenvironmental circumstances.

However, an examination of emerging economic and environmental trends, recent politicaldevelopments, and the adaptive limitations imposed on the New Order state by its past political



and economic choices, leads to more pessimistic, but equally defensible conclusions. Therenewable resource base of Indonesia, while still considerable, is under severe strain and erodingsteadily. Oil, the cornerstone of New Order growth in the past, will run out within two decades.Unequal distribution of natural resource access and benefits has caused ubiquitous (albeit usuallypolitically invisible) conflicts with local communities, and fostered the creation of powerful

business conglomerates that play a heightened role in setting -- or stonewalling -- governmentpolicies. And historical cleavages (such as those between Javanese and non-Javanese, Muslimand non-Muslim, Malay and Chinese) held in check by authoritarian rule and an expandingeconomic pie, have not disappeared. Meanwhile, three decades of economic developmenttransformed Indonesia's economy and society, and created new actors, interests, and demands onboth natural resources and the state. Despite the New Order state's proven ability to adapt tomacroeconomic changes, due to its historical roots, basic ideology and structural characteristics,the state has little capacity for sociopolitical adaptation. With Soeharto's long reign coming to anend and no clear successor in sight, all of these factors may create heightened social instabilityand conflict in the coming decade.

The set of optimistic conclusions corresponds to many aspects of observable reality in the late1990s. This study contends, however, that the second set of pessimistic conclusions moreaccurately describe the probable future relationships among resource scarcity, social conflict, andstate capacity over the next ten years.

"The State" and "State Capacity": Working Definitions

As a starting point, this study adopts Joel Migdal's definition of the state:

An organization composed of numerous agencies coordinated by the state's leadership (executiveauthority) that has the ability or authority to make and implement the binding rules for all the

people as well as the parameters of rule making for other social organizations in a given territory,using force if necessary to have its way.4

As Homer-Dixon5 points out, this definition gives little guidance on the boundaries of the state.For example, nongovernmental organizations (NGOs) influence and sometimes implementgovernment programs,6 and timber concession-holders carry out significant resourcemanagement and control functions. The International Monetary Fund and the World Bank playkey roles in setting many governments' economic policies.7 While not formally part of the stateapparatus, such institutions certainly shape and implement state policies and actions.

Through its ability to set the rules for social organizations, exercise coercion, and provide

economic and other incentives (such as the opportunity to sit closer to power) the statemanipulates, coerces, and coopts a range of extra-governmental organizations into serving itsobjectives. These organizations exhibit varying degrees of autonomy from the state. The sameNGO that implements one government program may protest another and timber concessionairesmay fight increased taxation. At some point organizational autonomy reaches a stage where anorganization is unambiguously within the societal rather than the state ambit. (The state is rarelymonolithic -- these organizations may also become weapons in intrastate conflicts between



different ministries or branches of government.) In short, the boundaries of the modern state areinherently fuzzy, and no one general definition can encompass all contexts.

Turning to the question of "state capacity," this study utilizes a framework of nine indicators of state capacity, four measuring the intrinsic characteristics of the state, the remainder analyzing

the characteristics of state-society relationships.

8

Indicators Measuring Intrinsic Characteristics of the State

Human capital measures the technical and managerial skill level of individuals within the state

and its component parts.

Instrumental rationality concerns the ability of a state's components to gather and evaluate

information relevant to their interests and to make reasoned decisions maximizing their utility.

Coherence is the degree to which the organs and agents of the state agree and act on shared

ideological bases, objectives, and methods which flow from the executive authority.

Resilience is the state's capacity to absorb sudden shocks (political, economic, and otherwise);

to adapt to longer-term changes in socioeconomic conditions, interests, and political demands;

and to sustainably resolve disputes and conflicts within society, and between the state and

societal actors.

Indicators Measuring State-Society Relational Characteristics

Autonomy is the extent to which the state can act independently of external forces, both

domestic and international, and coopt those that would alter or constrain its actions.

Legitimacy is the strength of the state's moral authority -- the extent to which the populace

obeys its commands out of a sense of allegiance and duty, rather than as a result of coercion or

economic incentive.

Reach measures a state's ability to actually get things done in the society and the economy.

Reach includes the state's capacity to extend its ideology, sociopolitical structures, and

administrative apparatus throughout society; and the state's capacity to design and effectively

implement programs and projects on the ground (or ensure that others do so).

Responsiveness measures the extent to which state policies and actions meet the needs,

interests, and grievances of various social actors and, therefore, the extent to which the state

fosters or allows the development of mechanisms (political processes, NGO activities, a free

press) through which all stakeholders can articulate their views and aspirations.

Fiscal strength refers to the state's ability to finance its programs, policies, and politics. To

convince, cajole, or coerce recalcitrant groups within society, the state only has three choices:

moral suasion (for which legitimacy is important), bribery and cooptation, and outright coercion.

Fiscal strength is the key to the latter two. Access to considerable and continuous financial

resources is necessary to fund development programs, pork-barrel projects, and subsidies (toname only a few forms of financially based state persuasion), and to keep army and police loyal,

trained, and equipped. Fiscal strength contributes to human capital, autonomy, coherence,

legitimacy, and reach, and is also, in part, a consequence of these factors.

Two additional points are important. First, the major components of the state -- such as theexecutive, bureaucracy, Parliament, judiciary, and military -- may rank very differently for anyof these dimensions. Second, there is no direct link between a high level of state capacity and the





Many of these conditions are changing rapidly in the late 1990s, and new circumstances arisethat challenge the ability of the state to control and direct events as effectively as it has in thepast.

Conflicts over natural resources are not as "local" as they once were.

The increasingly bold Indonesian print media (at least until the media crackdown of 1994,discussed below), the advocacy efforts of local and national NGOs, and the growth of globalelectronic communications publicize local resource conflicts. NGO advocacy on local conflictshas been most visible and effective with projects funded by multilateral development banks andother donors. In such cases, the ousting of local forest dwellers or farmers to make way forlogging or dam-building will now likely result in hearings in the US Congress, protestdemonstrations in front of the Indonesian Embassy in London, and coverage in the International

Herald Tribune and the Far Eastern Economic Review.

The international development Zeitgeist has changed in thirty years from a single-minded

focus on "economic growth" to "sustainable development," with growing attention toenvironmental, social, and human rights concerns.10

It is no longer as acceptable to "break a few eggs" locally in order to make an "omelette" of national economic growth. International development agencies have less influence in Indonesiathan in many smaller, poorer developing countries (and the depth of their commitment to a newsustainable development path is questionable).11 But with aggregate Official DevelopmentAssistance (ODA) running at about $5 billion annually, these agencies still exercise considerableinfluence. And as Indonesia takes a higher profile on the international stage (for example, bychairing the Non-Aligned Movement in 1993 to 1994, hosting the Asia-Pacific EconomicCooperation Summit in 1994, and sitting on the United Nations [UN] Security Council), the

government is more sensitive to international opinion.

The natural resource base of the country is increasingly degraded, leaving fewer resources for the regime to exploit, and less to sustain the growing rural population.

Deforestation runs between 600,000 to 1.3 million hectares per year,12 heightened energydemand may make the country a net oil importer by 2000, and millions of hectares of land arenow extremely degraded. At the same time, while the relative share of primary commodities intotal GDP has declined from 60 percent in 1970 to 39 percent today, and will likely reach 17percent by 2010, the absolute value added from primary commodities has more than doubledover the past twenty years. The absolute value of nonrenewables (oil, liquid natural gas [LNG],minerals) increased by 128 percent and "renewables" (agriculture, fishing, and forestry)increased by 91 percent. In 2010, the total value of these sectors is expected to rise by 50percent.13 Thus, while the regime continues to rely on natural resources, it will do so in the faceof growing absolute scarcities, pressures to conserve, and heightened demands from the growingrural population.

Indonesia's economy and society have changed dramatically since the 1960s. The pace of change is accelerating, leaving a transformed sociopolitical landscape in its wake.



The economy grew by nearly 8 percent annually in the 1970s, and despite external shocksgrowth averaged 5.3 percent in the 1980s. For the past five years, growth in the manufacturedgoods sector averaged 27 percent annually, and overall private investment grew by an annualaverage of 11 percent since 1986. Per capita income has risen from $50 in 1967 to $650 today,and poverty has been reduced from 60 percent to an estimated 15 percent of the population.14

Adult illiteracy rates fell by two-thirds,

15

and life expectancy at birth increased by twenty years(almost 50 percent). In 1970, 15 percent of the population lived in urban areas; the country'spopulation is already 30 percent urban today, and urbanization may reach 50 percent by 2020. 16 These impressive development achievements have created a small but rapidly growing class of educated, increasingly mobile, urban, and informed people. This new class has greaterexpectations for political participation and less tolerance for -- or more willingness and ability tocomplain about -- autocratic and corrupt behavior on the part of government officials andagencies.

The concentration of natural resource-based wealth in the hands of a small political-economicelite is under growing attack from many parts of society.

The power and conspicuous consumption of these elites -- often ethnic-Chinese in league withmembers of the president's family and other regime figures -- is increasingly unacceptable.Critics include a general public long suspicious of the country's wealthy Chinese minority, 17 therising middle class which sees its own business prospects constrained by cronyism, and elementswithin the military and civilian state elite. Some members of the state elite see the growingpower and profile of the Chinese conglomerates and "the kids" as an obstacle to a smoothpresidential succession, and as a potential source of general social unrest and politicalopposition.18

President Soeharto has been in power since 1966 and cannot last forever.

Questions arose in mid-1996 about whether Soeharto, 75, would stand for another five-year termin 1998, especially after the death of his wife in May 1996 and a well-publicized July 1996 tripto Germany for medical treatment. However, most political observers bet that he will remain inoffice. The state of his health is unclear, no successor is in view, and there is no reliable -- oreven tested -- mechanism in place for managing this crucial political transition. His relatives'business empires complicate the picture, as Soeharto is less likely to step down if their interestswould be at risk under his successor. Soeharto is the linchpin and symbol who holds the NewOrder regime -- and hence the current stability and prosperity of Indonesia -- together. It remainsunclear what the "Indonesian state" is without the New Order regime and equally unclear whatthe New Order regime without Soeharto will look like.

Political conflict in mid-1996 -- which turned violent in July -- reflects growing weaknesses in the regime's ability to continue dominating and manipulating the political process.

The run-up to the 1997 election in mid-1996 provoked the greatest political turmoil and the mostsignificant riots in decades. Megawati Sukarno, daughter of the former president, was electedChair of the Indonesian Democratic Party (PDI) in 1993. Fearful that the Sukarno name wouldcoalesce opposition forces into a credible electoral alternative, the government and military



engineered a PDI "Party Congress" in June 1996. At this Congress, Megawati was ousted andreplaced by Suryadi, who chaired the party from 1986 to 1993 and is not a political threat to theregime. Megawati and her supporters rejected the results of the Congress, and her forces refusedto leave the PDI's Jakarta headquarters. The PDI building, according to Newsweek, rapidlybecame "a hotbed of free speech and debate. Labor leaders and environmentalists entertained big

crowds with tirades against the government." But on 27 July, a band of police and military-backed thugs violently evicted Megawati's supporters from the PDI building -- according to oneeyewitness, some of the injured carried out were "so smashed up they didn't look like peopleanymore."19 The assault set off the worst riots in Jakarta since 1984. Dozens of buildings wereburned, at least 5 people were killed (the number is disputed), and many others were injured orwent missing, while at least 250 people were arrested in the aftermath.20

The government quickly blamed the PRD, a small group of young democracy and labor activistsformed in 1994, arrested its leader in August, and charged him with subversion (punishable bydeath). Soeharto and other New Order leaders branded the whole affair as evidence of thecontinued threat of communism.21 Megawati and her supporters filed a lawsuit against the PDI

and the government, while the government began calling in numerous prominent oppositionfigures for "questioning," including Megawati. Troops patrolled the streets and the state imposeda curfew in major cities for one month.22 By September, the protests subsided. However, the1997 election will probably be far more volatile than past elections. Doubts about Soeharto'sability to retain control of events are growing, even among members of the military.23

If current trends and events continue over the next decade, the regime may be unable to containgrowing conflicts over natural resources (and other issues) as effectively as in the past. Thestate's ability to appropriate the resource rents needed to maintain the support of clients and thebureaucracy, or sustain the coherence of elite interests and actors who constitute the powercenters of the regime, may be weakened.

Moreover, the New Order state is weak along the three dimensions of state capacity that arecritical to confront these new challenges. While within the central organs of the state, human

capital is quite strong, it is extremely weak within most of the provincial and subprovincialgovernance structures -- the legacy of three decades of centralization. This lack of human capitaloutside the central state weakens the state's instrumental rationality: Due to the centralized, top-down nature of the state apparatus, the state is unable to effectively gather and evaluateinformation from the provinces and from those elements of society not connected to the politicalapparatus. Finally, perhaps the weakest component of the state is its lack of responsiveness tolocal needs and interests and its inability to satisfactorily resolve local conflicts when thoseinterests collide.

Thus, the regime's weak capacity to adapt to the social and political dimensions of ongoingchanges stands in stark contrast to its nimble macroeconomic policy-making in recent years. Asuccessful shift in the 1980s away from dependence on oil revenues and the concurrentderegulation of many industries and service sectors, for example, paved the way for the feverishlevels of foreign investment and strong GDP growth over the past six years.24



In short, despite its strengths in other areas, the New Order state's capacity for ingenuity -- ideasapplied to solve practical social and technical problems25 -- is extremely low. During the violenttransition from Old Order to New and the first twenty years of Indonesia's independence, theperceptions and experiences of the regime's leaders, Soeharto in particular, shaped the choicesand policies of the New Order. Those perceptions, choices, and policies have beneficially served

the internal interests of the state over the past three decades. And although these policies havecaused a great deal of oppression and suffering for some, they have delivered sustained andbroad-based economic and social development to the majority of Indonesians. However, theregime now seems bereft of the ideas, mechanisms, and skills to adapt to the rapid changesengulfing the archipelago in the late 1990s.

First, political development towards a more responsive, democratic polity has been stunted. Theinstitutions of civil society (such as political parties, NGOs, media, and student organizations)which could form the seeds of democratic development have been systematically harassed,coopted, or transformed into state puppets, and in some cases, dismantled. Conflicts in mid-1996over the leadership of the PDI -- resulting in the above-mentioned riot in July -- have been used

by the government as a pretext for a general crackdown on all democratic activists. Thiscrackdown was characterized by the Far Eastern Economic Review as a "hunting season."26 Despite the broad consensus that the riots and related events (discussed in Section III) were theresult of thwarted demands for greater democracy and more accountable government, Soehartofirmly maintained in his annual Independence Day address in August that "these riots had nocorrelation whatsoever with democracy."

Second, the policies of the New Order state have grievously wounded the capacity of localcommunities to take an active and effective role in development initiatives and projects. In itsefforts to depoliticize the masses and introduce a uniform set of state-dominated developmentinstitutions at local levels, the New Order dismantled or seriously crippled most of the rich and

diverse local systems of governance, socioeconomic cooperation, and natural resourcemanagement. At the same time, the institutions it has put in their place are for the most parteither pure symbols, or vehicles for the top-down transmission of state priorities and programs tolocal communities. Communities are thus increasingly bereft of the organizational resources andthe local leaders needed to effectively participate in development and adapt to change, while thestate is deprived of the collective ingenuity of the nation's myriad villages.

Both of these factors combine to reduce the state's capacity to develop innovative policy andinstitutional solutions to new challenges and to resolve disputes and conflicts. Under suchconditions, even relatively low levels of resource competition could lead to high levels of socialconflict and violence. And as resources become more scarce and the incidence of resourceconflicts increases over the coming years, weak dispute resolution capacity -- an absence of accessible forums, the refusal to admit the existence of valid disputes, and popular perceptionsthat the system is incurably biased towards elite interests -- will certainly prolong, sharpen, andexacerbate such conflicts.

II. LEGACIES OF THE PAST AND THE BIRTH OF THE

NEW ORDER



The New Order's agenda and style of government is largely a consequence of its rejection of most aspects of pre-1966 history. Nevertheless, important features of the New Order took shapein the 1950s and early 1960s, during the tumultuous rule of Sukarno, Indonesia's first president.

Sukarno and the Old Order

The nationalist leaders Sukarno and Hatta declared Indonesia's independence on 17 August 1945,following three years of Japanese occupation. The nationalists promptly drew up a provisionalconstitution and formed a cabinet, but the Dutch surrendered their colonial claims on thearchipelago only after four years of armed resistance. After the nationalists won theirindependence, they could not agree on how the country should be governed. The 1945Constitution was short and vague, but clearly provided for a strong presidency. A provisionalconstitution, enacted in 1950, established a parliamentary system, mirrored many guarantees inthe 1948 UN's Universal Declaration of Human Rights, restricted the presidency, and called for apermanent constitution to be drawn up by an elected assembly known as the Konstituante. Elections to the Konstituante were held in 1955. Inconclusive debates continued in the

Konstituante until 1959 when President Sukarno dissolved it and reinstated the 1945Constitution.

Throughout this period, three political visions competed for supremacy -- the integralists,Islamists, and constitutionalists.27 The integralists rejected Western-inspired individualism. Theysaw this individualism as the foundation of capitalism, colonialism, and imperialism. Integralistsdenied the notion of a separation between the state and its citizens; they preferred the metaphorof a family with no need for specific guarantees of human rights or checks and balances amongdifferent functions of government. In the economic sphere, integralists supported a heavy statehand in the economy, a major role for cooperatives, and the assertion of total state ownership andcontrol over land and natural resources. They were opposed to the establishment of an Islamic

state. The Islamists, however, believed that Indonesia -- 85 percent Muslim -- must become anIslamic state. The constitutionalist group focused on the processes of government. This groupaspired for a state characterized by "procedures for the effective participation of the people ingovernment, limitation of government power, and accountability of the government to thepeople," and based on "an ethic of means rather than of ends, however noble and just these maybe."28

To reconcile these camps, in June 1945 Sukarno enunciated a national philosophy based onPancasila, or Five Principles: belief in one supreme God; justice and civility among peoples; theunity of Indonesia; democracy through deliberation and consensus among representatives; andsocial justice for all. Sukarno's rationale for Pancasila lay in the need for "broadly inclusive

principles to bind together the diverse groups of an extremely pluralistic society."

29

Morespecifically, the first principle undercut demands for an Islamic state.

The 1950s were a period of intensive political ferment characterized by "a kind of permanentround-the-clock politics in which mass organizations competed with each other at everyconceivable kind of level without there being any real resolution. . . . Politics in universities, infactories, in schools, in plantations and so forth, never could come to real resolution preciselybecause the electoral mechanism was not in place."30 Resentment of Javanese political



domination in the Outer Islands led to a series of regional rebellions. The dashing of Islamisthopes gave rise to a violent movement, centered in West Java, for an Islamic state. In 1958, agroup of disillusioned regional military officers -- backed by the CIA and suspicious of Sukarno's communist sympathies -- set up a short-lived rebel government based in WestSumatra. Meanwhile, the government's devotion to socialist economic strategy, combined with

general economic mismanagement, caused economic deterioration.

At that time, the Communist Party of Indonesia (PKI) was expanding its influence through itssystematic organization of urban and plantation workers and the peasantry. The PKI soonbecame one of the biggest political parties, particularly in East and Central Java. Hated anddistrusted by both the military and the Islamic parties, the PKI developed an alliance with thePNI, Sukarno's Indonesian Nationalist Party.31

The Parliament was unable to stem these rising tensions. General elections in 1955, althoughwidely viewed as freer and fairer than any since, essentially produced a stalemate. "Rather thanresolving political issues, the elections merely helped to draw the battle-lines more precisely."32

In 1959 Sukarno took matters in his own hands. He dissolved the Konstituante, reinstated the1945 Constitution, and established "Guided Democracy," essentially "a return to a system of personal rule more reminiscent of Javanese feudalism than the chaotic democratic experiment of the 1950s."33 Juggling the same conflicting forces that had paralyzed the parliamentary system,Sukarno fashioned a volatile coalition called nasakom -- an acronym for nationalism, religion,and communism. Conflicts among the military, Islamic groups, and the PKI intensified. By 1963to 1964, in many parts of Java, PKI-led peasant groups violently clashed with large landowners -- many from the more devout Islamic faction known as santri

34-- in "unilateral actions" to seize

land. Killings, burning of crops and buildings, and even confrontations among groups numberingin the thousands were not uncommon, and continued into mid-1965.35

Meanwhile, the military became dissatisfied with being only a piece on Sukarno's chessboard.Established during the revolutionary struggle, the Indonesian Armed Forces (ABRI) alwaysviewed its role as "the institution which first forged the nation and then saved it from itself timeand again."36 The ABRI viewed civilian politicians as incompetent and vehemently opposed bothIslamic nationalism and communism. They therefore formulated the "Middle Way" doctrine,which was later transformed by the New Order into "Dual Function" ( Dwifungsi) the assertion of a strong, formal, and permanent political role for ABRI. This doctrine is a key legacy of the OldOrder which continues to be a central feature of political life in the 1990s.37

Sukarno's mercurial foreign policy intensified economic chaos and political turmoil. Sukarnoupped demands for Dutch cession of West Irian (now Irian Jaya), launched Konfrontasi -- amilitary campaign against Malaysia in protest over the establishment of the states of Sabah andSarawak on Borneo, drew closer to Beijing and Moscow, nationalized foreign businesses, toldthe United States in 1964 to "go to hell with your aid," pulled out of the UN in January 1965 toprotest its admission of Malaysia, and withdrew from the World Bank and the InternationalMonetary Fund (IMF) in August of that year.38



The Coup Attempt of 1965 and the Beginnings of the New Order

A coup attempt on 30 September 1965 set in motion the bloody and tumultuous events that led toSukarno's downfall and the establishment of the New Order regime. Although this coup stands asthe most profound watershed in Indonesia's history since 1945, much about the events of that

date and their aftermath remain a mystery. On that evening, a group of leftist military officerswho called themselves "The September 30 Movement" kidnapped six generals and a lieutenant.By the next morning, the seven were killed, and their bodies dumped in a well at the airbasewhere the rebels established their base of operations. In a radio broadcast, the group claimed thatthey had acted to protect Sukarno from an imminent coup by a "Council of Generals." Thatevening, army units under the command of Soeharto -- then a Major General -- took the airbaseand ended the coup. The bodies of the generals were found several days later, infuriating thearmy leadership.

The respective roles in these events of Sukarno, the PKI leadership, Soeharto, Beijing, andWashington have been the subject of extensive -- but inconclusive -- speculation and debate.39

Whether the events [of the coup attempt] were mounted by dissident soldiers against PresidentSukarno, or with the President's connivance against the army leadership remains unknown. Theofficial explanation has always been that it was a Communist-inspired coup which failed. Themessage is simple: Communists are barbarous and bad, the army is virtuous and good. However,objective assessments of the affair have not dislodged the primacy of the government'sexplanation that it was "an attempted communist coup."40

The events that followed the attempted coup decisively shaped Indonesia's history. In lateOctober, paratroopers from Jakarta arrived in Central Java to suppress local army units thatexpressed support for the coup plotters. Soon, clashes between pro- and anti-PKI groups

escalated, the paratroopers began arming local youths from religious and nationalistorganizations, and the conflict became a one-sided slaughter of real and alleged PKI membersand sympathizers. Similar violence broke out in East Java, and soon spread to Bali. To a lesserextent, other regions experienced upheaval, such as fiercely Islamic Aceh in North Sumatra. Ineach region, after several weeks of mass slaughter, the army took belated steps to bring thekillings under control, but violence continued well into 1966.

Estimates of those killed range from 78,500 to 500,000, but the real figure will never be known.According to a CIA analysis:

In terms of numbers killed, the anti-PKI massacres in Indonesia rank as one of the worst mass

murders of the twentieth century, along with the Soviet purges of the 1930s, the Nazi massmurders during the Second World War, and the Maoist bloodbath of the early 1950s. In thisregard, the Indonesian coup is certainly one of the most significant events of the 20th century, farmore significant than many other events that have received much greater publicity.41

The army's role in the killings is debated. ABRI claims that it was not in control of rural areasand that it was the army which put an end to the slaughter. However, few objective observersbelieve this view, and it has been contradicted by key army participants in the killings. 42 As



Bresnan points out, neither General Nasution, General Soeharto, nor any other army leaderspublicly condemned the killing or called for an end to the violence. He concludes that the armyleadership knew the killings were occurring and sanctioned or at least tolerated it, but notes thatcivilians carried out much of the killing, some of it without army involvement. 43 Robert Cribb'sview is that the army took part directly in some cases, but more often they simply supplied

weapons, rudimentary training, and strong encouragement to civilian gangs who carried out thebulk of the killings. In most cases, he notes, "the killings did not begin until elite military unitshad arrived in a locality, and had sanctioned violence by instruction or example."44

By early 1966, the rural strongholds of the PKI were essentially crushed, the PKI leader wasexecuted, and the army began to remove suspected PKI sympathizers from civilian and militarypower. While Soeharto consolidated his support within the armed forces, Sukarno wasincreasingly isolated and his days as president were numbered.

When the bodies of the generals were found in the Halim well, the die was cast. The army soughtgreater control of the political system and the bungled coup provided an opening for the army to

reassert its control. Guided Democracy provided a sufficiently serviceable political vehicle forSoeharto, all he lacked was to replace its civilian leadership with one drawn from the militaryranks.45

Soeharto moved very cautiously, however. At that time, he was relatively unknown, whileSukarno, despite his troubles, was still widely revered as the founder of the nation and aprominent international leader. And "having forestalled an unconstitutional military putsch, mostof whose leaders had previously served under his own command, Soeharto had to avoid even theappearance of unconstitutional action on his part."46

The formal transfer of power to Soeharto began with Sukarno issuing the "Letter of March 11" --

later known by the acronym Supersemar -- which granted Soeharto the authority to "take allmeasures considered necessary to guarantee security, calm, and stability of the government andthe revolution, and to guarantee the personal safety and authority [of Sukarno]." While he did notbecome the acting president until the next year, Supersemar was in reality the beginning of Soeharto's de facto rule.47

While Crouch described Supersemar as "the disguised coup of 11 March,"48 Soeharto has said "Ihave never thought of Supersemar as a means to gain power. Neither was [it] an instrument tostage a disguised coup. Supersemar was the beginning of the struggle of the New Order."49 Nevertheless, the following day Soeharto used his new power to formally ban the PKI, dissolveall of its affiliated organizations, and arrest cabinet members distrusted by the army. In thefollowing months, he arrested thousands in a bid to remove all leftist sympathizers from thecivilian and military bureaucracies. In March 1967, Soeharto was named acting president and,one year later, president.

Legacies of the Past: Summary

The dramatic and often tragic history of Indonesia's first twenty years of independence deeplymarked Soeharto and his subordinates. Many elements of the New Order show considerable





III. NEW ORDER STATE CAPACITY: GROWTH,

STRENGTHS, AND WEAKNESSES

The New Order regime wrought vast transformations in Indonesia's economy and society over

the past three decades and systematically reshaped its political landscape. In doing so, the regimestrengthened the power and capacity of the state far beyond any of its predecessors, whethermeasured by control over territory and resources, expansion of the bureaucracy, publicexpenditure, domination of sociopolitical expression and organization, projection of policepower, or delivery of social services.

This transformation has taken place along three main dimensions: economic development,political institutions, and the structure of civil society and its relationship to the state. Naturalresources have played an important role in this transformation. Economically, massiveexploitation of natural resources, especially petroleum and forests, provided the capital fordevelopment expenditures. The political transformation created a system in which natural

resource claims that compete with claims by the state are given little outlet for expression,policies are made and implemented in an insular, top-down way, and resource rents are used as amajor source of patronage. The transformation of civil society eroded local resistance to theconfiscation of resources by elites and the state, and delegitimized local resource managementclaims and practices.

But the state is neither omnipotent nor monolithic. The success of New Order developmentpolicies gave birth to new socioeconomic actors, such as corporate conglomerates, a buddingmiddle class, and a growing number of college graduates. These policies unleashed new socialand economic tensions and developed centers of power outside the government, primarily in theprivate sector. The concerted mobilization of natural resources led to widespread shifts in

resource access and control. Those who lost access to resources faced policy-induced scarcities,while those who obtained access gained new wealth and power. These disparities create conflictbetween the resource rich and the resource poor. While the New Order has grown strong in manyways, it exhibits telling points of weakness and brittleness, which leave it ill-equipped to facecontemporary challenges.

Economic Development and Natural Resources

The delivery of sustained economic development to broad sectors of society contributedfundamentally to the longevity and legitimacy of the New Order state. Sustained economicgrowth also improved state capacity along many measures: the bureaucracy expanded, the state

apparatus became more loyal and coherent, and the government became more effective inimplementing change on the ground. Systematic exploitation of natural resources provided thebasic capital for the development process. Without vast reserves of oil, timber, minerals, andother resources, the Indonesian economic story would be very different.

On coming to power, Soeharto's clearest mandate was to resuscitate the economy, which was inshambles in 1965,53 and remedy the nation's grinding poverty. Development has been the focusand justification for his regime ever since. Indeed, he styles himself as "the Father of



Development," fully aware that development is "the very core of the New Order's legitimacy." 54 As already noted, overall economic performance has been consistently good in conventionalterms. From 1968 to 1993, average annual GDP growth exceeded 6 percent, inflation averagedless than 10 percent, and the incidence of absolute poverty fell from 60 percent to about 14percent of the total population.55

New Order Economic Policymakers: Technocrats, Cronies, and Nationalists

Since the 1960s, Soeharto has been forced to balance and rebalance conflicting views andinterests in his effort to produce New Order economic policy. In his attempt to respond to thedemands of the international economic environment and domestic sociopolitical interests,Soeharto paid close attention to three key groups. First are the "technocrats." These foreign-trained neoclassical economists consistently promote an outward-oriented economy, reliance onmarket forces, and progressive deregulation. Soeharto and his generals were basically unskilledin economic policy, and therefore placed extensive authority in the hands of these youngeconomists. These technocrats controlled economic policy-making into the mid-1970s. Their

influence since has waxed and waned, but many remain close presidential advisors today.

Two other groups have challenged the technocrats with varying degrees of success over theyears. Economic nationalists believe that the state should play a large role in the economy,particularly by helping indigenous Malay ( pribumi) businessmen compete with the dominantethnic-Chinese firms. This group currently focuses on government support and subsidies for thedevelopment of "strategic" industrial sectors -- measures they believe essential for Indonesia tocatch up with industrialized nations and compete effectively in world markets. The premiereconomic nationalist and Minister of Science and Technology B.J. Habibie recently ascendedinto the top ranks of Soeharto's cabinet advisors. Behind the scenes, this move has triggeredheated debates on his expensive schemes to subsidize various "strategic" sectors of industry and

technology financed in part with capital "borrowed" from a government fund derived fromlogging taxes and ostensibly earmarked for reforestation.56

A second key group that often opposes the technocrats' policies is composed of "cronybusinessmen" -- including a number of Soeharto's family members. This group is united not byideology or policy concerns but rather by close connections to the president and the vastopportunities to profit through these connections. Members of this group "have amassed wealththrough government-granted import and trading monopolies, privileged access to governmentcontracts and state bank credit, and the ability to bend government policies in their favor. Inreturn, they bankroll a good measure of Soeharto's patronage activities and stand ready toprovide emergency funds in crisis situations."57 They constitute a formidable adversary for both

the technocrats and the nationalists, and "on many occasions they have succeeded in delaying orundermining the technocrats' efforts to simplify the bureaucracy and make the economy operatemore transparently."58 Even in the face of sweeping economic deregulation packages in the mid-1990s, key cronies have held onto important privileges and protections,59 not least in the forestrysector (discussed in Section IV).

Because the entry points into policy-making differ among these three groups, business cronieshave been able to maintain their influence and privileges. While the technocrats "could have



significant impact on broad policies -- in the economic case, on monetary policies and on majorallocations of resources -- they could have little influence on the processes responsible for policyimplementation -- on contracts, licenses, promotions, profits, payoffs, and all those events of microeconomy that are the stuff of daily economic life."60 Conversely, the cronies have little tosay about monetary policies and other broad macroeconomic measures, but often have decisive

influence over decisions affecting specific deals and industries where their own economicinterests are implicated.61

The relative influence of these three groups has shifted with the economic winds, and withSoeharto's political needs of the moment. Each group serves him in different ways. "Theeconomists are the producers of wealth, the patrimonialists [cronies] are the distributors of alarge portion of it for political purposes, and the nationalists are the embodiment of his dream formore rapid progress toward an industrialized, internationally powerful Indonesia."62

The Stages of New Order Economic Development

Hal Hill divides the evolution of New Order economic development into four periods. Thisschema usefully illustrates the centrality of natural resources in development policy, althoughnatural resource policies change with the economic climate and with the relative influence of thetechnocrats, nationalists, and cronies.63

Rehabilitation and recovery (1966-70)

Technocrats dominated this period. Priorities included controlling inflation, reestablishing tieswith international financial and aid institutions, and rehabilitating physical infrastructure. Basiclaws and policies that facilitated massive natural resource exploitation were established duringthis period. These laws included basic regulations on foreign investment, forestry, mining, and

petroleum exploitation. Subsequently, all of these sectors saw the dawn of explosive growth.

Rapid economic growth (1971-81)

Real GDP grew at an annual average of 7.7 percent during this period, fueled largely by oil andother natural resource revenues. The technocrats' continued to dominate economic policy until1974 to 1975. At that point, dramatic oil price increases (a $4.2 billion windfall in 1974 alone)put vast new resources at the government's command, and riots in January 1974 highlightedgrowing dissatisfaction with perceived foreign and ethnic-Chinese economic domination. In thefollowing years, the economic nationalists gained influence over economic policy and thecountry adopted an import-substitution development strategy. Oil revenues subsidized a number

of state industrial mega-projects and provided credit for pribumi businessmen. Regulations andlicensing requirements proliferated, while restrictions on foreign investment became moreonerous. These growing inefficiencies were masked, however, by the roaring stream of oilrevenues and the growing contributions of other resource-based sectors such as mining,agriculture, and forestry.

During the First Five-Year Development Plan (1969-74), timber earnings rose 2,800 percent.Most of this revenue was generated from the province of East Kalimantan, where newly granted



logging concessions covered nearly 11 million hectares.64 While only 4 million cubic meters of logs were cut from Indonesian forests in 1967 -- mostly for domestic uses -- by 1977 the totalrose to approximately 28 million cubic meters, with at least 75 percent destined for exportmarkets.65 Gross foreign exchange earnings from the forestry sector rose from $6 million in 1966to more than $564 million in 1974. By 1979, Indonesia was the world's major tropical log

producer, with a 41 percent share ($2.1 billion) of the global market. Indonesia had a greaterexport volume of tropical hardwoods than all of Africa and Latin America combined.66

Adjustment to lower oil prices (1982-86)

A worldwide drop in oil prices and general economic slump, combined with rising levels of foreign debt, repeatedly shocked the economy during these years. The government reactedpromptly to an initial 1982 economic slowdown -- and decline in oil revenues -- with remedialreforms of fiscal and currency policy (where the technocrats had the most influence). Yet tradebarriers, subsidies, monopolies, and general red tape continued to proliferate until another sharpfall in oil prices in 1986 (to $10 a barrel, down from $30 in 1984) provided the opening for a

more systematic technocrat assault. Due to strong growth in agriculture and forestry, theeconomy continued to grow in this period at an annual average of 4.6 percent. Foreign debt rosesharply, however, from 28 percent of GDP in 1980 to a peak of 72 percent in 1987.

The sudden drop in oil prices and its impacts on state revenue led the regime to adopt a policy of reducing their dependence on oil revenues during this period. As a result, pressure intensified forfurther exploitation of renewable resources such as forests and "idle" lands suitable for cashcrops and timber plantations in the Outer Islands. Logging increased, and the state launched amajor push to "add value" through development of wood-processing industries. The state phasedout the export of raw logs between 1982 and 1985, and offered incentives for loggers to developprocessing facilities. By the end of 1988, 106 plywood mills were in production with a total

installed annual capacity of more than 6.7 million cubic meters, and 39 more mills were underconstruction.67

This period also saw the development of new environmental laws and policies, under theleadership of veteran technocrat Emil Salim, the nation's first minister of environmental affairs.(Most environmentally minded Indonesian officials are foreign-trained technocrats.) A basicenvironmental law was passed in 1982, and environmental impact assessment regulations wereestablished in 1986.

Liberalization and recovery (1987-present)

Since 1987, annual GDP growth has averaged nearly 7 percent. The economy relies much less onoil revenues and has experienced a sharp growth in manufacturing profits. Through successivederegulation packages, technocratic prescriptions gradually transformed import-substitutionpolicies to an export-oriented approach.68 While natural resource-based sectors made up aprogressively smaller share of GDP, the absolute value of oil, mining, and renewable resourcesremained the same or rose slightly; a trend expected to continue into the future, as discussedbelow.



The Importance of Natural Resources to the Economy

In 1969, the production of primary commodities constituted some 60 percent of total GDP:minerals, primarily oil, accounted for 27 percent; agricultural output contributed 28 percent;forestry and fisheries made up another 5 percent. First-stage processing (e.g., logs into sawn

wood, hides into leather) contributed only 4 percent, while further processing (e.g., sawn woodinto furniture, leather into shoes) contributed less than 2 percent. By 1990, however, the absolutevalue-added of industries that processed natural resource commodities underwent nearly aneight-fold increase, and constituted 11 percent of a vastly larger total GDP. Meanwhile, althoughthe relative share of primary commodities as a proportion of GDP declined from 60 to 39 percentduring the same period, the absolute value of primary commodities has more than doubled in thattime.69

In the forestry sector, for example, total 1993 export earnings were estimated at $6.5 billion, upfrom $5.2 billion in 1992, and in early 1994 the industry projected further growth to $7.7 billionfor that year. Indonesia now controls 90 to 95 percent of the world's tropical plywood market, up

from 70 percent in 1989.

70

In 1993, the timber industry accounted for 7 percent of GDP, and 20percent of nonoil exports.71

In short, in the past the dramatic economic expansion under the New Order regime wasoverwhelmingly dependent on exploitation of the natural resource base, and natural resourcescontinue to support the increasingly important processing industries.

The Fruits of Development

The New Order regime places much of the fruits of sustained economic growth and naturalresource exploitation in investments that provide tangible benefits to a large proportion of the

Indonesian populace. This strategy greatly bolsters the regime's support and legitimacy, andaccounts in part for its relative lack of opposition. Social resistance to state policies is minimal,even to the regime's often oppressive and heavy-handed measures employed when restructuringthe political, social, and environmental landscape of the country. Public expenditure onagriculture has been relatively high by developing-country standards, accounting for over 9percent of total budgetary expenditures from 1984 to 1988.72 Indonesia was the world's largestrice importer in the late 1970s, but achieved rice self-sufficiency in 1985. The state has sincemaintained self-sufficiency in rice production, although the costs in fertilizer and irrigationsupports have been high, and investment in other crops has been relatively neglected.73

Development of physical infrastructure has also been a high priority, and accounted for 40

percent of total development expenditures in the 1975 to 1990 period. During this period, thelength of paved roads increased nearly six-fold, the number of telephone lines rose seven-fold,and the installed capacity of the state electric company increased eighteen-fold.74 Between 1969and 1993, irrigation systems that covered 2.9 million hectares of cropland were rehabilitated,while new systems that irrigated an additional 1.6 million hectares were installed. 75 Thegovernment has also made a "concerted effort"76 to improve social services such as health careand primary education, with impressive results as noted in Section I. And while the distributionof income has remained essentially constant over the period from 1965 to 1990, both the number



and percentage of people in poverty declined dramatically. This led Hill to conclude that"Indonesia's record on poverty alleviation has been a resounding success."77

In the late 1990s, however, the population's satisfaction with these development achievements isbeing overtaken by frustration and anger caused by rising expectations, growing scarcities of

land and employment opportunities, and the lack of effective avenues for the population to airtheir grievances. Increasingly, the wide gap between rich and poor -- often symbolized to poorerIndonesian by the ethnic-Chinese business elite -- is the subject of widespread discontent, andincreasingly leads to violence. A February 1996 cover story in the Far Eastern Economic

Review,78 entitled "Indonesia: Asia's Smoldering Volcano?," reported a string of violent

confrontations (concerning land disputes, industrial pollution, and anti-Chinese incidents) in thesecond half of 1995. The article concluded that "Indonesians now seem more prepared than inthe past to turn to violence" in the face of high unemployment, growing resource scarcities, and agovernment which, in the words of a former member of Parliament, "is trying to apply the sameold approach and the same old methods to what are really a lot of new problems." A member of the ruling Golkar party quoted in the article acknowledges that "there is a perception that all we

are doing is protecting corporate interests. The most important issue we should be addressing isthe distribution of income. Economic distortions are not caused by the economy itself, but by thepolitical culture." The riots of July 1996 only strengthened the perception that Indonesia'sapparent stability masks frustrations that could easily erupt into violence.

Political Institutions and Natural Resource Policies

Economic changes under the New Order have been accompanied by transformations in politicalstructures, institutions, and relationships from the capital to the village. Four political changesare particularly important: the transformation of the electoral process, the strengthening of thebureaucracy and government administration, the role of patronage in holding the whole system

together, and the denial of an independent role for the judiciary. With these changes, the regimecan use natural resources and resource polices for its political as well as economic ends. Theelevation of "development" to a nearly sacred status and the equation of development with state-determined natural resource control justifies the extension of the regime's political and economiccontrol into the farthest corners of the archipelago. The compliance of electoral, legislative, and judicial institutions ensures that resource policies move forward essentially unchallenged. Andthe distribution of rights to profit from resource exploitation has been an important source of patronage.

Elections and the Parliament

The New Order has devoted considerable energy to shaping an electoral process that periodicallyrenews the regime's constitutionality without posing a serious threat to its dominance. In 1972,the nation's many political parties were required to consolidate into two fractious umbrellaparties, one for the Islamic parties (the PPP) and the other for the remnants of Sukarno'snationalist coalition (the PDI). Meanwhile, Golkar, the regime's political machine (which isdefined by the regime as a coalition of "functional groups" rather than a "political party"),contested and won the 1971 elections. Their victory was assisted by massive governmentpressure on civil servants to vote the right way, and requirements that district leaders round up



"quotas" of Golkar votes.79 And under the regime's "floating mass" doctrine, there can be noorganized political activity at the village level between elections -- it is better for the masses to"float" apart from politics. Golkar, since it is conveniently not defined as a political party and hasABRI's supportive presence in every village, effectively circumvents these restrictions.80

This pattern has continued in the elections, which are held every five years. A large number of seats in Parliament are allocated to the armed forces and a special expanded house of Parliamentperiodically "elects" the president (there has never been an opposition candidate). These rulesgive Soeharto what he wants in an electoral and parliamentary system: "With one and only oneroad mapped out, why should we then have nine different cars? The General Elections mustserve the very purpose for which they are held, that is, to create political stability. Only thesekinds of elections are of value to us."81

The Parliament generally plays a passive role, although it has occasionally served as a platformfor opposition views. Environmental NGOs, for example, have facilitated visits to the Parliamentby rural groups dispossessed of their lands and resources without compensation by development

projects. Such visits have prompted committee debates on these disputes. While Parliament hasno power to act on such matters, parliamentary debate permits the media to publicize theseconflicts -- since the state cannot easily ban reports of proceedings in open Parliament. However,the limits of parliamentary debate became clear in February 1995, when the governmentengineered the dismissal of two outspoken members for criticizing government policies. And inJuly 1996, prior to the riots set off by her ouster as PDI chair, Megawati Sukarno was officiallyprohibited from running for Parliament in 1997.82

The Bureaucracy and Administrative Apparatus

Bureaucratic capacity building has proceeded along two tracks -- the strengthening of central

agencies and the strengthening of the center's hold on regional and local government. Soehartoinherited a weak and demoralized civil service in 1966, which he further gutted in order to rootout leftist elements. Within the remainder of the civil service, the regime moved to ensure loyaltywith the establishment of a single national Corps of Civil Servants (Korpri).83 Military men wereinserted into key bureaucratic positions. The bureaucracy grew rapidly, from perhaps 600,000 in1965 to 1.6 million in 1974, to over 3 million in 1986.84 By the late 1970s, military appointeesheld half the cabinet positions, over two-thirds of the governorships, and 56 percent of district-head positions. Within the bureaucracy, 78 percent of director-generals and 84 percent of ministerial secretaries were military appointees.85

Jakarta's control over regional and local governments also expanded "to a degree that would have

been barely imaginable in Sukarno's time." While this enhanced central control has beenaccomplished partly through formal structural changes, the oil revenues of the 1970s allowed"vastly increased revenue transfers from the central government to regional authorities. The pricethe latter paid for a steady flow of funds to pay local officials and to finance local developmentprojects was a compliant relationship with the central government."86

Another tool of bureaucratic transformation has been the 1979 Law on Village Government,implemented gradually over the past fifteen years. This law mandates the formation of uniform



village units called either desa or kelurahan, which are divided into hamlets known as dusun, and headed by a kepala desa and lurah.

87 To effectively differentiate the new system fromtraditional settlement patterns, this system dissolved or amalgamated territorial units establishedby the communities themselves. The system for choosing local leaders reinforces central control.While village and hamlet communities may nominate candidates to lead these units, local

government officials screen out those considered too independent, and appoint the leaders fromtwo final "nominations." When the law's transformation of a village is complete, all salariedofficials at both village- and hamlet-level become civil servants, ensuring that their obligationsand loyalties run upwards to the state. Their positions are consolidated by their control of alldevelopment funds channeled to the village, in consultation with an advisory council of thevillage elite.88

Patronage: Holding the System Together

The glue holding New Order political institutions and alliances together is a pervasive system of patronage:

[A] system of relatively autonomous, highly personal groupings, bound together by a diffusesense of personal reciprocity found between patron and client. Each group or circle is composedof a set of unequal but reciprocal obligations between leaders and followers. . . . These diffuse,personal, face-to-face enduring noncontractual relationships are the primary social cementintegrating Indonesian organizations to the limited degree that they are integrated at all.89

Under this system, the New Order coopts potential opponents and binds allies and clients to thestate with the allocation of rights to exploit oil, minerals, and timber. Forestry concessions were apopular patronage resource in the early years of the regime, in part because logging does notrequire the technological sophistication and capital inputs that are needed in the petroleum and

mining industries. Eager to settle power struggles among political and military factions in theearly years, the regime handed out literally hundreds of concessions to companies linked tovarious military commands and other power centers. These companies usually worked throughan ethnic-Chinese partner (cukong).90 As the technical and managerial capacities of client groupshave improved, the regime has been able to use its control over oil and mineral resources tostrengthen its bonds with its clients.

In addition to securing loyalty, the patron-client system that hands out natural resourceexploitation rights provides the regime with important extra-budgetary sources of income.Ubiquitous charitable foundations called Yayasan are controlled by almost every power center inthe regime, including the president and his family. With their sources of income and

expenditures shrouded in mystery, and with an aura of charity -- undertaking many charitableworks -- Yayasan play a poorly documented but important role in receiving contributions fromclients and financing the political needs of the regime. In some cases, clients have been calledupon directly to bail the regime out of embarrassing circumstances. When a bank controlled bythree Yayasan headed by Soeharto suddenly registered foreign exchange losses of $420 million,cronies Liem Sioe Liong and Prayogo Pangestu -- the latter the director of the largest timber firmin Indonesia -- promptly donated the losses.91 And in June 1994, when Soeharto came undercriticism for closing down Tempo, the country's leading news magazine, timber tycoon and crony



Bob Hasan promptly hired 150 of Tempo's staff to produce a look-alike weekly (which, however,faithfully echoes the government line).92

The New Order Judiciary

Little has changed in the judiciary since the colonial period. The judiciary essentially functionsas an arm of the government -- separation of powers is specifically rejected. The few changesimplemented under the New Order reinforced the dependent nature of the courts.93 As a result,the "rule of law" in Indonesia -- the meaning and enforcement of specific regulations -- variesaccording to who is applying the law, and, most importantly, to whom it is being applied.

In a few instances, persistent lawsuits by NGOs have set the precedent to sue polluters under theenvironmental impact assessment statutes. But in 1994, a lawsuit by a group of NGOschallenging Soeharto's transfer of reforestation funds to the state aircraft industry was thrown outof an administrative court. Because this lawsuit appeared to be a very strong case, it underlinedthe impotence of the courts as an avenue for the redress of disputes with the state.94 The NGOs

who joined the lawsuit soon found themselves blacklisted by the government. Their access tofunding from foreign donors was rapidly restricted which illustrates the costs of using the courtseven as a venue for political and media theater.

Civil Society and Local Natural Resources Management

Before the advent of the New Order, Indonesia was essentially a dual society. Politics andnational economic policy were the domain of a small, mainly urban-centered elite, while themajority of the population lived largely unaffected by government policies. However, the NewOrder followed the integralist model. Religion and culture, patterns of rural settlement andsubsistence, ownership and control over natural resources, and local forms of sociopolitical

organization are all subject to state-led control and transformation. As a consequence, day-to-daylife is rapidly changing in much of the hinterland.

The Erosion of Traditional Societies and Local Custom ( Adat )

Indonesia is home to a vast array of distinct cultures, each functioning under norms, rules,resource management strategies, and spiritual belief systems known collectively as adat . Adat has weakened in many regions -- most recently because of the unprecedented level of government intervention and indirect effects of other changes (such as improved road and rivertransport). However, adat remains strong in other regions, particularly among more isolated ruralpeoples in the Outer Islands. The New Order, like the Dutch colonial regime, acknowledges the

existence of adat laws and institutions, if they do not impede state political or economicobjectives. But virtually all aspects of economy and society are fair game for state control underthe New Order. Therefore, the current vitality of adat in a particular region or aspect of lifedepends on whether the state has intervened in that region or turned its attention to that aspect of life.

"Development," in social terms, is the primary vehicle through which the state has moved toreplace adat beliefs, structures, and practices:



Development became the means to introduce uniformities both of a material and a culturalnature. The President took the title of Bapak Pembangunan (Father of Development), associatedwith the concept of progress (maju) towards a clean, orderly and "modern" society. . . .Development became the means of legitimization for the New Order as it demonstrated theability of the central government to bring material benefits to its subjects.95

Power over the definition of "development" is guarded by the state, and is closely associatedwith the "national interest," and Pancasila ideology. Local resistance to development initiativesis at best viewed as a sign of "backwardness," and at worst, an insurrection against thegovernment. According to this view:

[P]easant resistance to development projects is due not to the possibility that a project wasplanned without regard for the peasants' own interests, but rather to the fact that the project wassimply not completely understood by (or adequately explained to) them. . . . [T]he possibility of government error is thereby categorized out of existence: there are no bad projects andmistreated peasants, but only "misunderstood" projects and "misunderstanding" peasants.

[I]t has been common practice for officials to justify in terms of the "national interest"development policies that in fact benefited the interests of only a single person, group, orindustry. Whereas peasant resistance to such policies has been attributed to treasonablesentiments or ignorance, in reality it has often been a simple matter of the peasants defendingtheir personal interests against the equally personal interests of the policy makers.96

Fundamental to the New Order's goal of a uniform and "modern" civil society is its strongresistance to diversity. The regime denies that Indonesia is home to distinct "indigenous peoples"with autonomous claims over territory or resources, or independent local systems of spiritualbeliefs and political authority.97 A recent study on land rights and indigenous people notes that

since the 1960s any attempts to emphasize diversity in matters of tribe, religion, or race havebeen viewed as subversive threats to national unity.

To the present day this diversity and its potential adverse effects on national unity remains asensitive issue and the strength and depth of this feeling should not be underestimated. Plans,activities, and strategies aimed at supporting "indigenous peoples" should therefore be presentedin national context rather than as support for particular groups or minorities with specific culturalor social identity.98

Mandatory monotheism is a central element of the New Order organization of local culture,arising from the first principle of Pancasila. All Indonesians must legally be a member of one of the five approved world religions -- Islam, Hinduism, Buddhism, Catholicism, or Protestantism.Proclaiming oneself an "agnostic," "atheist," or "animist" is, quite literally, illegal.99 Because of the strong connections among spiritual, economic, and political life in many adat cultures, theimposition of monotheism has displaced a much wider range of adat institutions, such as long-standing resource conservation practices based on religious taboos.



Delegitimization of Local Resource Management Practices

Transformation of traditional farming and natural resource management practices has beenanother fundamental part of the New Order strategy for reshaping civil society and itsrelationship to natural resources. As noted above, the intensification of agricultural production

with an overwhelming focus on rice has been a central -- and successful -- New Orderundertaking. But the state's systematic suppression of traditional systems of swidden agriculturehas gone hand-in-hand with the promotion of irrigated rice.100 Traditional swidden systems --often ironically based on dryland rice -- are generally well adapted to poor soils, low land/laborratios, and livelihood needs of rural communities in the Outer Islands.101 Yet swidden agriculturecontradicts both the irrigated rice-based system that the New Order promotes and the growingappropriation of the Outer Island's land and resources for logging, commercial agriculture, andresettlement. Echoing colonial assessments and Javanese cultural biases, the New Ordermaintains that swidden cultivation and its practitioners are environmentally destructive,backward, and wasteful.102 Swiddens left to fallow -- an essential part of the system -- are legallyconsidered "abandoned."103 And the Indonesian Forestry Action Programme104 identifies shifting

cultivation as the source of nearly one-fourth of all deforestation in the country, while loggingconcessions (which cover more than half of all remaining forests) are not even counted as acause.

Between 1969 and 1994, the government-sponsored "transmigration" program resettled some 8million people from Java and Bali to the Outer Islands. These migrants ostensibly wouldcultivate irrigated rice and tree crops in settlements carved out of some 1.7 million hectares of state forestland.105 The transmigration program epitomizes this effort to impose a Java-centricuniformity on farming and resource management throughout the country. While the record of transmigration in establishing sustainable agricultural communities is checkered at best, itsimpacts on local indigenous communities have been very negative.106

Local resistance to the seizure of land for transmigration sites and the government's desire tosedentarize shifting cultivators caused a transformation in program objectives. A share of transmigration dwellings and farming plots are now set aside for "local transmigrants."Reflecting this transformation, the ministry that runs the program was recently renamed the"Ministry for Transmigration and the Resettlement of Forest Squatters." Since World Bank assistance to the program peaked in the late 1980s, spontaneous migration to the forest frontiersof the Outer Islands has become the source of at least as many settlers as the officialtransmigration programs. The widespread failure of annual cropping systems at the sites, andheightened demand for labor on new industrial timber plantations and tree crop estates created anew form of transmigration. Transmigrants are now sent to plantation areas expressly to fill labor

shortages. Whether successful or not, there is no doubt that transmigration sites havefundamentally transformed cultures and resource-use patterns in many areas of the Outer Islands.

The Construction of a New National "Adat"

The importance of New Order ritual in penetrating ideology and programs throughout societycannot be underestimated. The regime has, in essence, created a uniform national "adat" of itsown and tirelessly promoted it throughout society.



President Soeharto appears daily on national television and newspapers as "father" of the nation,above any divisive sectional interests. His picture, and usually that of the Vice-President, hang inall government and village offices, and in many private homes and offices. Independence Day(August 17) is a day celebrated nationwide with marches, flag-raising, ceremonies, and localcelebrations. . . . The rituals continue throughout the year. Throughout the nation, school children

attend in uniform and parade before the flagpole to sing the national anthem, and they attest totheir loyalty at least one morning a week. Public servants do likewise, attending the office inuniform and parading at least one day a week.107

Other rituals include the annual television broadcast of a government film presenting its versionof the events of 1965, the occasional execution of a "communist" after decades in prison, 108 andthe periodic trials of dissidents.

Regular Pancasila indoctrination courses are required throughout the civil service andeducational system, and are urged within the private sector as well. The 1985 Law on SocietalOrganizations requires all NGOs to accept and proclaim Pancasila as their sole ideological basis,

and requires that all their activities conform to the goals and programs of nationaldevelopment.109 Under another law -- on immigration -- the government may prevent citizenswho criticize the government while overseas from returning home, and may revoke theircitizenship.110 Many NGOs believe this law is targeted specifically at activists who speak outagainst New Order policies and development projects in international fora such as theInternational Forum on Indonesian Development (INFID).

New Order State Capacity: Strengths and Weaknesses

Returning to the indicators of state capacity discussed in Section I, what can be concluded aboutthe capacity of the New Order state?

Within the central components of government, the regime's human capital is far greater than inthe past -- technical and managerial skills in most agencies are quite strong. But human capitalremains relatively weak at provincial and subprovincial levels, despite recent moves towardsdecentralization.111 Because of this imbalance, the regime's capacity for instrumental rationality is constrained -- information from the provinces is often incomplete, inaccurate, and slanted toflatter local officials, which decreases the quality and effectiveness of the center's decisions andactions. Therefore the empirical basis for many central policy decisions is weak, and feedback onfailures on the ground is unlikely to be reported or acted on.

The coherence of the New Order state is the highest of any Indonesian regime to date, but still

quite fragile. On coming to power, Soeharto inherited a bloated and weak bureaucracy, unable toproject its policies into the hinterlands. The political ferment of the Sukarno years fragmentedthe bureaucracy into factions. Soeharto moved quickly to remold the bureaucracy into a tool toestablish heightened political control and to carry out his ambitious development plans. Havingcome to power with the backing of a diverse coalition of anti-Sukarno forces, Soeharto quicklymoved to centralize power. He eliminated the influence of most of these groups over politics andthe bureaucracy.112 He created a permanent place for the civil service on the political arm of theregime: the Corps of Civil Servants of the Republic of Indonesia (KORPRI) was established as



an all-encompassing civil servants' organization parallel to Golkar, the ruling political party.With loyalty assured -- and revenues from oil and timber flowing in -- the civil service receivedgreater funding, and expanded rapidly.113 Higher levels of education gradually improved theskills and overall capacity of the civil service, while vast infrastructure development facilitatedits penetration into the countryside. Laws on Regional Government (1974) and Village

Government (1979) consolidated the bureaucracy at those levels.

While sectoral and regional rivalries exist and often ambush the implementation of developmentschemes and policies, they are no more serious than in many other countries. Despite theweakness of the civil service at lower levels, for the first time in history, the state apparatus nowfunctions more or less as one system. This system extends from Jakarta to the village, animatedby the Pancasila ideology and the rest of the "national adat " promoted by the regime.

The New Order is vastly more autonomous than the regime of Sukarno. State actions face fewchallenges from the Parliament, judiciary, or various components of civil society (NGOs, laborunions, universities, etc.). Opposition political parties have essentially been eradicated (the two

umbrella parties created under New Order pressure repeatedly endorse Soeharto's re-election).Golkar, the regime's party, easily wins huge majorities in every election. Separatist movementsin East Timor, Aceh, and Irian Jaya provinces have been largely crushed. The print media isnever more than mildly critical -- especially after the closure in 1994 of Tempo, the country'sleading news magazine -- while television news is entirely controlled by the government andserves largely as a mouthpiece for its views. Although a number of NGOs have taken fairly boldsteps to oppose government policies and projects, they lack a mass support base. Their impact isfairly marginal, especially when compared with NGO movements in neighboring countries suchas the Philippines and, to a lesser extent, Thailand.

But economic transformation raises a number of new challenges. The growth of manufacturing

industries fosters the development of a nascent independent labor movement, and strikes overwages and working conditions are becoming more frequent. A growing new entrepreneurial classin the country's booming business districts is increasingly impatient with government red tapeand the accompanying petty corruption. The crony system irritates these entrepreneurs, as itoften denies them access to the most lucrative contracts and deals. And much of the businesscommunity and some elements of the armed forces are increasingly annoyed with the ever-expanding and increasingly conspicuous business empires of the president's family and innercircle, as well as the accompanying routine grants of government privileges on which theseempires depend.

Internationally, Indonesia's heightened integration into the world economic system intensifiespressures to deregulate the economy. Deregulation diminishes the store of economic favorsavailable to the regime for patronage and hampers the president's ability to swing fromtechnocratic to nationalist policies when it is to his political advantage. To a certain extent, this iscounterbalanced by the declining influence of aid donor organizations on the regime's policies.Although Soeharto has not yet echoed Sukarno's famous "go to hell with your aid" remark, theregime did expel the Dutch aid program in 1992 over the Netherlands' human rights criticisms,and terminated preparations for a major World Bank forestry project in 1994, partly inannoyance at repeated criticisms of its forest policies.114



International criticism of Indonesia's environmental record has also grown in the past decade,focusing mainly on the rapid deforestation that has accompanied the past several decades of rapid growth (see Section IV). With the large timber industry so dependent on exports, thespecter of environmentally inspired boycotts and bans has induced the regime to take some stepsto clean up the industry's image, and to put more emphasis on biodiversity conservation.

Decades of economic growth and considerable success in bringing development benefits to thepopulace have established the regime's legitimacy in the eyes of most citizens. Familiarity, too,has bolstered this legitimacy: most of Indonesia's young population have never known anotherleader or system, and those who remember the early 1960s are not nostalgic. The regime'sconstant efforts to reinforce the constitutionality and legality of the political system may notwithstand a severe economic slump that seriously affects living standards. The political turmoiland riots of mid-1996 indicate that allegiance to the regime's vision of political life may berelatively weak, at least among some sectors of society.

In terms of its reach, the regime has molded a far-flung and culturally heterogeneous archipelago

into a coherent nation. For the first time in history, Indonesia is united -- politically,economically, linguistically, and culturally. The exponential expansion of road, air, sea, andtelecommunications infrastructure has played a central role in this process of penetration andintegration. The New Order has been extremely effective in extending its ideology, sociopoliticalstructures, and administrative apparatus throughout the nation, although the durability of theseachievements appears highly dependent on continued high levels of economic growth. And thestate's capacity to form comprehensive development plans is also quite high -- as the 2,600-pluspages of the current Five-Year Development Plan attest.115 With respect to forests andbiodiversity, the National Forestry Action Plan116 and National Biodiversity Action Plan117 compare favorably with similar efforts in other developing countries.118

However, the regime's reach is not extensive. The state's capacity to design and implementprograms and projects on the ground is weak. The nation is littered with the detritus of plans andprojects that were never implemented or failed, due to some combination of inappropriateobjectives, unworkable design, or poor implementation.119 Such failures are particularlyprevalent in the renewable resource sectors, which require project designers and managers toadapt to diverse and complex social and environmental conditions, respond to the input of localinterests and actors, and mobilize voluntary action.120

This problem is compounded by the highly sectoralized design and implementation of programs.Sector specific programs are particularly troublesome in forestry; a vast area of the country (74percent) is classified as state forestland. Therefore, a wide range of activities apart from forestry(such as agriculture, transmigration, and mining) must be coordinated. The New Order's long-standing practice of delegating significant on-the-ground rights to the private sector to manageresources and carry out development projects is also problematic. Granting these rights to theprivate licensees (such as the logging concessions covering more than 60 million hectares, nearlyone-third of the country), significantly complicates the implementation of subsequent programs.Conflicts between such concessions and government initiatives (such as transmigration sites andnature reserves) are widespread.



The responsiveness of the New Order is weak, which detracts from the effectiveness of itsstrengthened reach. The top-down nature of development policy and implementation isproblematic: "The `development from above' approach is now so firmly entrenched at all levelsof the government in Indonesia that many doubt that a decentralized approach which gives (alarger) role to local initiative can really be made to work."121

As Hill concurs, "This is a system in which orders flow down from the top, but there is littlescope for institutionalized input of pressures, requests, or ideas from the bottom upwards."122 And Jackson notes that the New Order's depoliticization of society hinders state efforts tomobilize the populace to do most anything else as well.

The most fundamental limit on the power of the president is that common to all bureaucraticpolities: Inability or unwillingness to organize and mobilize the masses into politics on a regularbasis means that bureaucratic polities find it difficult, if not impossible, to mobilize the generalpopulation to make sacrifices for particular national programs. Although the isolation of thebureaucratic polity from society enables it to remain in power, the same isolation prevents it

from achieving goals which require substantial voluntary participation from the populace as awhole.123

Compared to the situation in the late 1960s, the current fiscal strength of the state is extremelyhigh. As already noted, the World Bank considers Indonesia's economic performance to beamong the best in the developing world, whether in terms of per capita income ($884 in 1995and rising), foreign investment commitments (approvals rose by 200 percent in 1994, up to $24billion), or general economic growth rates (averaging around 7 percent annually). Diversificationaway from oil dependence has been quite successful, with nonoil exports and taxes nowaccounting for the bulk of total exports and government revenues. 124 The bank sounds only twomajor notes of caution. First, the country's short-term debt exceeds $20 billion, with a debt-

service ratio of more than 30 percent, and ambitious infrastructure borrowing is likely to increasethis debt further. Second, regulatory inefficiencies and inequities -- such as monopolies grantedto political interests, and various tariffs and nontariff barriers -- continue to hobble economicperformance.

Any appreciable increase in political turmoil could stall much of the foreign investment uponwhich the government's current economic strategy so heavily depends. Investor sentimenttowards Indonesia "severely soured" in the aftermath of the July 1996 riots, and while no panicselling resulted, one foreign broker in Jakarta noted that "foreigners just can't look beyondpolitical risk any longer. Even when the violence . . . settles down, you still will have thesuccession issue staring at you in the face. And this, quite honestly, is the main question."125 Inshort, Indonesia's economic fundamentals are essentially in order, but its fiscal strength is highlyvulnerable to political developments, and in particular, foreign perceptions of thosedevelopments.

The New Order faces its most serious challenge in its resilience to change -- specifically,political change. As already noted, the regime's technocrats have been able to adapt quite nimblyto external economic shocks such as the oil-price slump of the 1980s. Economic policymakershave moved relatively quickly to adapt to the challenges of an increasingly free global trade



regime, as attested by progressive deregulation packages and Soeharto's backing for AsianPacific Economic Cooperation (APEC) regional free-trade targets.

Even in the economic sphere, however, the regime (principally Soeharto) is unwilling to dealdecisively with the problems posed by business monopolies and privileges of his family and

close associates. Few are bold enough to confront the president on this issue directly, and thosewho do find that he responds "with indifference, occasional anger, and a trace of confusion." 126 Thus the problem grows -- in recent years, "hardly a single major infrastructure contract has beenawarded without one Soeharto relative or another having a piece of it. . . . The only suspense isover which crony will emerge victorious."127 Despite public criticism, a senior regimespokesman continued to maintain in mid-1995 that the children of high officials enjoyed nospecial privileges whatsoever, an assertion that, according to one Jakarta business journal, "willleave some people thinking about the wisdom of George Orwell."128

More fundamentally, the regime seems nearly paralyzed in the face of growing demands for amore open and democratic political system and a more grassroots style of development planning.

The regime even refuses to forthrightly address the looming issue of who will succeed the agingSoeharto, who says only that the succession will be carried out constitutionally. However, the"constitutional" process instituted by the New Order has repeatedly and unanimously re-electedSoeharto without even a glimmer of opposition, and without the benefit of an opposingcandidate.

Most dramatically, the government steadfastly insists that the July 1996 riots were the work of afew communist-inspired troublemakers and not a reflection of growing public demands fordemocratization. As Soeharto himself said, "these riots had no correlation whatsoever withdemocracy," but were in fact the work of resurgent communism.129 As one local political analyststated in the Far Eastern Economic Review, "this is evidence of the rigidity of the political

system, and the unwillingness of the powers-that-be to take into account new developments."

130

On a day-to-day level, the lack of state resilience is manifested in the inability of the state toresolve growing conflicts over development policies and projects, access to natural resources,labor conditions, and many other issues. Partly this is due to the lack of serviceable disputeresolution mechanisms within the New Order structure -- and the dismantling of traditional onesat the local level. However the state seems reluctant to even admit that conflicts exist or thosemistakes have been made. This denial stems in part from the Javanese concept of power whichvalues harmony and the reconciliation of opposites, and accordingly views discord as a sign of weakness.131

In short, the New Order state has developed very strong capacities in many areas. However, thestate suffers weaknesses in other areas, and is overall quite fragile in the face of rapidlyaccelerating changes in the coming years.

IV. FOREST RESOURCE SCARCITY AND THE

GROWING POTENTIAL FOR SOCIAL CONFLICT



Indonesia holds the second largest tract of tropical forests on the planet. Forests are currentlythought to cover some 92 to 109 million hectares -- an expanse second only to Brazil's. Yet asrecently as 1950, forests blanketed more than 150 million hectares -- over three-fourths of thenation.132 In the Outer Islands, many forest areas have long been home to indigenous groups whogained their livelihoods from forest farming, hunting, and gathering.

Until the advent of the New Order, these forests held very little economic or politicalsignificance, and deforestation rates were quite low. One exception is the valuable teak forests of densely populated Java, which have caused resource struggles between the state and localcommunities since the colonial period.133 From the 1950s, some 33 million hectares (an areanearly the size of Japan or Germany) have been either logged or converted to agriculture (oftenboth) and in many cases degraded into scrub and grassland. Denudation of watersheds(particularly on Java, where logging began well before the 1960s) has reduced the quantity andquality of water flows.

Since the late 1960s, these forests -- and the lands on which they grow -- have played important

roles in the political and economic strategies of the New Order. The importance of forestresources is not surprising, as nearly three-fourths of Indonesia's land area is classified as stateforestland, and is under the legal control of the state. As already discussed, forestlands have beena substantial source of state revenue, a resource for political patronage, a safety valve forscarcities of land and resources in densely populated Java, and a vehicle -- through the policiesapplied to them -- to spread New Order ideological, political, security and economic objectivesinto the hinterlands. In short, forestlands, resources, and policies have been a key arena for theNew Order's program of economic development, political control, and social and ideologicaltransformation.

Under these circumstances, forests have become the arena for increasing levels of sometimes

violent social conflicts. In these struggles, the interests of local communities are often pittedagainst the interests of the state, its clients, and agents. As the World Bank's recent ForestrySector Review states, "there is at present a significant level of conflict with and displacement of forest dwelling or adjacent communities arising, as a result of the implementation of large scaleextraction and plantation projects in Indonesia."134 Allocation of the huge resource rents derivedfrom commercial forest exploitation -- such as the $1.3 billion Reforestation Fund -- have alsorecently provoked disputes within the elite.

These conflicts have the capacity to erode state capacity in various ways, although only thecommunity-level conflicts have the realistic likelihood of turning violent -- as some alreadyhave. Even short of violence, local forest conflicts poison relationships between localcommunities and government agencies. These confrontations increase local resistance to bothforest production and conservation efforts. And conflicts over the distribution of forest resourcerents within the elite threaten to weaken the coherence of power centers within the New Orderconstellation. As these conflicts grow, they are compounded by the heightened scarcity of forestresources and intensified population pressures on the forest frontier.

The ability of the regime to respond to these snowballing pressures and conflicts is limited by theforest policies made over the past few decades. Almost nonexistent in 1966, the timber and forest



products industry has developed with the state's active support. This industry has grown into ahighly concentrated, wealthy, and well-connected political and economic actor dependent oncheap raw materials, accustomed to high levels of profit, and able to pass the environmentalcosts of unsustainable logging practices on to local communities, the state, and society-at-large.Because the industry is now a significant factor in forest policy-making, the state has less

autonomy to move policy in directions that might be more sustainable but would hurt theindustry.

At the same time, consensus is growing among forest management experts and manygovernment policymakers -- not to mention NGOs and donor agencies -- that sustainable forestpolicies must grant local communities greater access and more participation in management. 135 However, the state's capacity to work with or even listen to local communities is severelyconstrained by three decades of "top-down" development policies and the erosion of communitymanagement capabilities, as discussed in Section III.

Forestlands and Resources: Status and Trends

Although 143 million hectares are legally classified as "forestland," estimates of actual forestcover range from 92.4 million hectares of "natural forest cover"136 to 109 million hectares.137 Biologically, these forests are extremely diverse. While Indonesia occupies only 1.3 percent of the world's land area, it possesses about 10 percent of the world's flowering plant species, 12percent of the world's mammals, 17 percent of all reptile and amphibian species, and 17 percentof all birds.138 This astounding diversity is largely due to the country's extensive and diverseforest ecosystems -- some 19 distinct forest types have been identified.139

Indonesia's forests are also home to a large but undetermined number of forest-dwelling orforest-dependent communities. Estimates vary wildly on the precise number of these

communities -- from 1.5 to 65 million people, depending on which definitions are used andwhich policy agenda is at stake.140 Many of these forest-dwellers live by long-sustainable"portfolio" economic strategies which combine shifting cultivation of rice and other food cropswith fishing, hunting, the gathering of forests products (e.g., rattan, honey, resins) for use andsale, and the cultivation of tree crops such as rubber for sale. Many others are new arrivals to theforest frontier, poor and landless farmers with few skills in sustainably living from forestresources. These farmers tend to degrade the forest and land of particular area -- often followingon the heels of loggers -- and then move on. Some of these farmers are displaced settlers fromfailed transmigration sites.

Rates and Processes of Deforestation

Forest cover in 1950 was estimated at about 152 million hectares. 141 Data collected around 1985suggested forest cover of 119 million hectares,142 meaning that deforestation in the thirty-fiveyear period from 1950 to 1985 averaged 914,000 hectares annually. This lost forest cover --approximately 33 million hectares -- represents an area the size of Vietnam. Loss of forest wasfar greater in the second half of the thirty-five year period, when large-scale commercial timberextraction accelerated dramatically. Reinterpretation of the 1985 and subsequent data in a 1991study concluded that at the end of 1989, the effective forest cover was 109 million hectares. The



annual deforestation rate was estimated at 1.3 million hectares.143 The government's Sixth Five-Year Development Plan, meanwhile, states that the total area under natural forest in 1993 wasonly 92.4 million hectares.144

The term "deforestation" is subject to many interpretations in Indonesia. A recent World Bank

review notes that "deforestation can, according to the perceptions of the user of the term, meananything from total removal of tree cover, to relatively small alterations in the ecologicalcomposition of a forested area. Most available analyses of deforestation in Indonesia clearlymean something closer to the former, although few actually specify a definition." Definitionsnotwithstanding, the review went on, "the data available are so poor that the reliability of anycurrent estimate is low." Surveying the many estimates of deforestation, the review the bank considered the most persuasive145 gave a relatively low annual deforestation figure -- 623,000hectares. This review concluded, interestingly, that "programs either sponsored or encouraged bythe Government account for 67 percent of all deforestation."146

However defined, deforestation in Indonesia has six main proximate causes.

1. Forest clearing by growing numbers of migrants who cultivate both subsistence and cash crops.

2. Large-scale commercial logging operations carried out under government license and regulation,

but often conducted in a sloppy and destructive fashion.

3. Widespread illegal logging carried out on the ground by local villagers but organized and

protected by local civilian and military officials and influential businessmen.

4. Conversion of natural forests to large-scale commercial agriculture and timber plantations.

5. Both wholesale forest clearing for official transmigration settlements and progressive

degradation of forests adjacent to the sites (especially where crops at the sites fail and

transmigrants turn to shifting cultivation and illegal logging).

6. The expansion of mining, oil exploration and production, and other forms of industrial

development into forested areas.

These factors interact synergistically. Logging, mining, and transmigration open forestlands tofollow-on cultivators, illegal loggers, and spontaneous settlement. As the forest degrades, itbecomes a target for timber plantations, or for conversion to permanent estate agriculture. Theseactivities in turn attract more migrants. The aggregate effect is to strip and degrade forestlands sothat regrowth occurs slowly, if at all, while the agricultural potential of much cleared land dropsrapidly.147

Although general population growth has slowed a great deal in the past few decades, itintensifies pressure on forest resources and compounds all of the causes noted above. In-migration in some areas, such as southern Sumatra, in turn causes higher-than-average regional

rates of population growth.148

Behind the immediate mechanisms of forest resource decline lies a structure of forest policiesand institutions that exacerbates and in some cases drives the processes of deforestation: Asnoted above, one assessment estimates that programs sponsored or encouraged by thegovernment account for two-thirds of all deforestation. This conclusion squarely challenges thegovernment view (noted in Section III) that shifting agriculture is responsible for some 300,000hectares of deforestation per annum. Sustainable management of Indonesia's forests would be a



challenge even under the best of policies and in the hands of very effective institutions. InIndonesia, state policies and institutions are part of the problem rather than the solution. Thestate's broader economic and political agenda drives its primary forest policy objectives and thisagenda is largely incompatible with the objectives of sustainable management. Moreover, thestate's forestry institutions are ill-fitted to undertake the participatory and flexible approaches

necessary to enact sustainable forestry work on the ground. Therefore, even if these institutionswere free from the demands of the timber industry, which they are not, they would be ill-equipped to sustainably manage Indonesia's forest resources.

New Order Forest Institutions and Policy-Making

The Colonial Heritage

The basic ideology and assumptions of New Order forest policy stem from Dutch colonialpractice in the nineteenth century. Concerned only with the teak forests of Java, the Dutchdeveloped an ideology and system of forestry based on "scientific" production, state ownershipand control over forestlands, and the closing off of traditional local community access to forestresources. According to Nancy Peluso,

The ideology of "scientific" forestry was embraced by the colonial state and its foresters, whilelocal institutions of forest access and property were gradually phased out of the legal discourse.The ideas of this period, and the impacts of these policies on the lives of forest-dwelling people,remain significant today; the last forest laws effected by the Dutch government were drawn up inthe late 1920s and continue to dictate contemporary Indonesian forestry.

This period was also the beginning of the foresters' great concern with their eminent rights of domain over land, timber, and the demarcation of forest boundaries. Their possessiveness is seentoday in the persistent use of the terms of exclusion that criminalize customary rights of access toforest products and land: "forest theft," "encroachment," "squatting," and "illegal grazing.149

The 1870 Agrarian Law ( Domeinverklaring) declared all land that villagers could not prove thatthey owned (that is, any uncultivated land, or land that had lain fallow for three years or more) tobe property of the state. A number of laws in succeeding years have strengthened this state claim.Although cloaked in conservation rhetoric, the colonial state's basic objective was to profit bycultivating teak plantations. The relationship of a teak monoculture to a forest's ecological andhydrological functions -- let alone the welfare of local communities -- is dubious at best, but "tomany nineteenth century Europeans the ideology of forest conservation justified state control of key forest lands and masked the reality of production forestry in Java."150

The colonial state's seizure of forestlands and other "common" resources fit well with theintegralist views of the framers of the 1945 Constitution. Supomo, a leading integralist of thetime, argued that in the new Indonesian state there would be no separation between the state,individuals, even "other creatures."151 Accordingly, the Constitution states "land, water and thenatural riches therein shall be controlled by the State and shall be made use of for the greatestwelfare of the people." However, state policy had little impact -- negative or positive -- onforests or forest-dwelling communities until the advent of the New Order.



The Forestry Bureaucracy and Policy-Making Process

Like the rest of the government, Indonesia's forestry agency is highly centralized. The Ministryof Forestry, its regional offices, provincial forestry services, and the four state-owned forestrycorporations together employed about 47,000 people in 1989: 3,700 in ministry headquarters;

29,000 at the provincial level; and 14,000 in the four state enterprises (upwards of 12,000 just atthe State Forestry Corporation that manages Java's forests). More than 200,000 people work inprivate forestry enterprises,152 including many who carry out logging under subcontract for state-owned logging firms in the Outer Islands and are thus de facto employees of the state forestryapparatus.

Within the Forestry Ministry, the Directorate General for Forest Utilization is the mostinfluential office, with jurisdiction over logging concessions and forest industries activities andrevenues. Other divisions deal with land and watershed rehabilitation, planning and mapping,research and development, nature conservation, and other functions. Numerous regional officesthat report directly to the minister represent the ministry in the provinces, and the four parastatal

corporations are also basically under the ministry's control. Another set of provincial forestryoffices, under the authority of the governors, carry out many line functions.

Three elements influence how the forestry bureaucracy makes policy: the nature and functions of law in Indonesia; conflicting bureaucratic management styles; and the prevailing norms,assumptions, and priorities of the forestry professionals who staff that bureaucracy. These threeelements are discussed below.

As noted, the New Order regime puts great stock in "the rule of law" as the ultimate justificationof its political authority and as the governing principle of public life. In New Order ideology,laws and regulations form part of a coherent whole that orders the state apparatus itself, social

organization and action, and the relationship between state and society. But Indonesian laws arealso empirical rules: a complex, overlapping, and constantly changing body of laws, decrees, andadministrative regulations that are often applied erratically and personalistically. Forests andforest policy are thus governed on the one hand by an unassailable core of exclusive andcomprehensive authority granted by the constitution and held by the state bureaucracy. Thecorporatist and authoritarian bureaucracy leaves little space for legitimate disagreement orresistance. On the other hand, the day-to-day operation of forest law and policy places greatdiscretionary power in the hands of the bureaucracy. This bureaucracy can apply a vast body of indeterminate and often contradictory laws and regulations as they see fit, without any effectivemechanism for appeals from citizens aggrieved by their decisions.

In R.M. Unger's terms, the New Order is characterized by "bureaucratic law" rather than a true"legal order."

The commands of the sovereign in a system of bureaucratic law often take the form of rulesapplicable to very general categories of persons and acts. But this will simply be a generality of political expedience, a way to get things done most effectively. It may and will be violatedwhenever the considerations of administrative efficiency that led to its adoption point the otherway. In other words, there are not commitments to generality in lawmaking and to uniformity in



adjudication that must be kept regardless of their consequences for the political interests of therulers.153

The forestry bureaucracy vacillates between the ideal of rational bureaucratic management andthe day-to-day reality of patron-client relationships discussed in Section III. Under the

bureaucratic ideal, a formal hierarchy coordinates action for specific purposes, law is central tothe system, and experts make, interpret, and carry out laws and regulations within a clearlydefined mandate. In practice, the bureaucracy does not live up to this ideal. However, the idealdoes powerfully influence assumptions and discourse concerning how forest policies are andshould be made. The numerous forestry sector reviews and action plans produced in recentyears154 describe the bureaucratic ideal and only hint at the undertow of patron-clientrelationships within the bureaucracy. The formal rules and regulations are not a facade, but manyimportant deals and decisions are made in the back room with scant reference to these rules. Theideal bureaucracy is thus constantly at odds with the patron-client system.

The third important element is the "culture" of Indonesian foresters and forestry institutions,

characterized by:

A centralized, hierarchical process for decision-making on projects and expenditures;

Strong reliance on traditionally trained professional foresters in top management positions;

A close relationship between the forestry service and timber industry;

An urban and upper-middle class bias among policy-level foresters;

A strong colonial forestry tradition and background;

Patterns of forestry sector development assistance that are technically based and executed in

cooperation with the forestry bureaucracy; this assistance tends to reinforce existing structures

and ways of doing things;155

and

The belief that good forest management is best guaranteed through the creation of legally

gazetted forest reserves. These reserves would be managed by a professional forestry service

that utilizes multiple-use, sustained-yield practices. Local land use practices are believed to be

destructive, and local access and use of forest resources should be limited and the state should

adopt a policing role.156

In the field, this approach has serious limitations and contradictions. First, the legal mandate of the ministry dwarfs its capacity to manage, or even monitor, forestry practices. With theexception of Java, there is only one professional staff per 127,100 hectares of production andprotection forest, and one per 111,000 hectares of park and reserve forest. In East Kalimantan,the ratio of staff to hectares of production and protection forests is one per 314,000 hectares. 157 The Gunung Leuser National Park, Sumatra's largest remaining block of primary rainforest, hasonly sixty-seven field-level personnel to manage and guard an area of nearly 1 million

hectares.158

Second, the numerous forestry laws and regulations159 are complex and, in some cases, self-contradictory. However there is no formal process to appeal a bureaucratic decision or obtain anauthoritative interpretation that is binding on the bureaucracy.

Third, government policies assume that public officials hold sway over forest management, butthe timber industry plays a major role both in the field and in the policy process. Moreover, the



millions of local people who practice forest management on a daily basis go unrecognized -- orare condemned as interlopers -- in the official policy environment.

Finally, policies rely heavily on technical approaches to silviculture and criminal-law approachesto enforcement. Yet the conflicts between local people living in and around forests and the

agents of government policies are not easily amenable to either approach.

The Sources of Forest Resource Scarcity

Natural resource scarcity, as discussed in Section I, can arise from a decrease in supply, anincrease in demand, and changes in access or distribution which create relative scarcities. Allthree forces are at work in Indonesia's forests.

The Shrinking Resource Base

As already noted, Indonesia's forests shrink at a rate somewhere between 600,000 to 1.3 million

hectares per year. In the absence of an accurate forest inventory, or reliable information on actualharvest levels,160 no analyst can say with certainty that "Indonesia will be logged-out by year X."Nor can analysts predict when scarcities of nontimber forest products such as rattan, ordiminution of environmental services, will reach crisis levels. Nevertheless, some simplecalculations show that even commercial logging will likely contribute to severe absolutescarcities approximately within the next decade.

For yields to be sustainable in Indonesia, analysts estimate 1 cubic meter per hectare of commercial species can be removed from productive forests annually.161 If this rule and goodlogging practices were utilized, then supply would be roughly in balance with current demandlevels from industry, now and into the future. But, this scenario is unrealistic for several reasons.

Much "production forest" is actually "Limited Production Forest" largely because of steep slopes

or inaccessibility. The level of sustained yield, even under ideal conditions, is thus much lower

than the 46 million cubic meters claimed by the government.162

Collateral damage to standing stock and waste is very high in Indonesian logging operations. For

every cubic meter cut, at least an equal amount of usable wood is left behind.163

In all, some 8

million cubic meters of wood annually is left rotting in the forest.164

Damage to surrounding

trees averages 50 percent, soil compaction by heavy machinery impedes regeneration, and

favored species are "creamed" from stands.165

Logging road construction and clearing of adjacent areas removes large, undocumented areas of

forest. The 500 kilometers of logging roads in one large East Kalimantan concession, for example

involved "day lighting" clearance of some 40,000 hectares.166

Logging regulations allow a second cut only after thirty-five years, but no concessions are this

old. It is also unlikely that second-cut concessions will be able to produce at the levels of their

first cut. In neighboring Malaysia, studies speculate that a second cut is possible only if residual

stand damage is 30 percent or less -- a condition that is not met in Indonesia.167

Few concession-holders follow the selective cutting system mandated by their concession

agreements. Some observers believe that even a 100-year concession would not provide

incentives for better management since concessionaires are simply not interested in a second,

less profitable cut that would require years of costly interim management and protection. The



possibility of converting "degraded" concessions to timber plantations, with a generous

government subsidy, further reduces incentives for long-term natural forest management.168

Logging roads and operations open forestlands to migrant farmers, whose activities make

sustained yield -- or even maintaining forest cover -- in these areas impossible. In 1990, analysts

estimated that nearly 3 million hectares of production forest and almost 9 million hectares of

"conversion" or unclassified forest were under some kind of agricultural occupation,169

and the

actual figure may be higher.

The World Bank review cited above concluded that under such conditions an annual cut of about22 million cubic meters might be sustainable. This study warned that harvests are officially 50percent higher than sustainable yield and may actually be nearly 100 percent higher if unreportedremovals are incorporated into the estimate.170 Aggregate figures for the whole nation mask regional differences in deforestation rates and forest loss. Sumatra and Kalimantan have thehighest rates of deforestation -- and thus are experiencing the most acute shortages of timber andother forest goods and services (see Table 1). These regions have the greatest concentrations of timber concessions and timber processing industries.

Table 1: Relative Rates of Deforestation for Major Forest Regions

Region Land Area

(ha)

Forest Cover

(ha)

1982

Forest Cover

(ha)

1990

Forest Loss

(ha)

1982-90

Forest Loss

(%)

1982-90

Sumatra 47,361,000 23,320,000 20,380,000 2,940,000 12.6

Kalimantan 53,946,000 39,620,000 34,730,000 4,890,000 12.3

Sulawesi 18,922,000 11,270,000 10,330,000 940,000 8.3

Maluku 7,451,000 6,350,000 6,030,000 320,000 5.0

Irian Jaya 42,198,000 34,960,000 33,650,000 1,310,000 3.7

Source: Government of Indonesia (GOI) and the United Nations Food and Agriculture Organization

(FAO), Situation and Outlook of the Forestry Sector in Indonesia (Jakarta: 1990).

Aggregate figures do not reflect the disproportionate deforestation rates in the biodiverse- andtimber-rich lowland rainforests. Sumatra, for example, has lost over 70 percent of its originallowland rainforests.171

Absolute scarcity of commercial timber is thus growing steadily, largely as a result of statepolicies. But timber is not the only forest resource that is shrinking. Nontimber forest productsare important for the local economy in many parts of the country, and some of them havesignificance in the national economy as well. For example, rattan produced export earnings in



excess of $200 million in 1988.172 Rattan is currently growing scarce from over-collection inmany localities (compounded by the effects of logging, burning, and shifting cultivation). A1990 study warned that these factors have "resulted in the supply of rattan, and its geneticresources, from natural forests in danger of exhaustion or depletion."173

Forest-based medicinal plants, which form the basis for both the large commercial jamu medicine industry and the medical systems of most rural communities, are also becomingscarce.174 Again, key factors are over-harvesting and the destruction of the forest habitats wheremedicinal species grow. The situation is particularly serious because 42 percent of medicinalspecies come from the fast-disappearing lowland rainforests.

Finally, the absolute quantity of arable land suitable for conversion to permanent agriculturewithin the legal forest estate is declining. Most soils of the Outer Islands are not suitable forpermanent cropping. Those areas which are suitable have been long-occupied by localcommunities, or have been utilized for transmigration sites and estate crop plantations. Land stillavailable for agricultural expansion is thus quite limited, and in many cases would require high-

cost inputs to make it productive. At the same time, progressive land degradation -- caused bypoor logging practices, unskilled slash-and-burn farming, and improper site clearance practicesat many transmigration locations -- erodes the available land base.

In short, the supply of forest resources is decreasing in absolute terms, whether one looks atcommercial timber, nontimber forest products, or potentially arable land within the forest estate.Even if demand remained constant, Indonesia would face growing absolute scarcities of keyforest resources. Unfortunately, demands on those resources are multiplying in number, andgrowing in intensity.

Demand-Induced Forest Resource Scarcity

Heightened demand on forest resources arises from three sources: the timber industry'scontinuous demand for wood, the growing pulp and paper industry, and current plans to increasethe mining of coal, vast deposits of which lie under the forests of Kalimantan and Sumatra. Notonly do these three sources independently increase demand-based scarcity, they also competewith each other. The imminent depletion of Indonesia's oil reserves and resulting push foralternative sources of both energy and export earnings are powerful driving forces behind forestdepletion.

In addition, general population growth and continuing net migration to the Outer Islandscompound these pressures. Indonesia's total population grew from about 119 million in the early

1970s to about 180 million in the early 1990s. And although the national average annual growthrate dropped from 2.33 percent in the 1970s to 1.96 percent in the 1980s, some of the mostforest-rich provinces had markedly different population trends. The populations of Riau andBengkulu provinces (in Sumatra) grew at more than 4.2 percent annually in the 1980s, whileEast Kalimantan grew at 4.3 percent annually in the same period.175 Since provinces with highgrowth rates do not correlate with areas of especially high fertility rates,176 it appears that muchof this growth is due to net in-migration from Java. Indonesia's overall population is expected toincrease to over 250 million in the next two decades.177 Therefore, population pressures on the



Outer Islands' forest frontiers will inevitably intensify the many other pressures on forestresources, such as the growing demand for timber.

The Sixth Five-Year Development Plan establishes national targets for the production of timberfor the period 1994 to 1998. During this time, the state plans to produce a total of 188.3 million

cubic meters of logs, about 37.7 million cubic meters per year. This production goal is wellabove current sustainable yields. However, according to the plan, only 22.5 million cubic metersof the annual cut will come from the 64 million hectares of permanent production forests. Theremainder will come from clear-cutting of areas slated for conversion to nonforest uses (3.7million cubic meters per year), timber plantations (2.7 million cubic meters per year), and"community plantations and gardens" (8.7 million cubic meters per year).178 Nevertheless, theseprojections seem unrealistic. It is unlikely that the plantation target can be fulfilled (developmentfell short of the target in the previous Five-Year Plan), and most plantation investments target thedevelopment of fast-rotation pulpwood plantations179 instead of timber species. In addition, thedemands of the forest products industry may be considerably higher than the plan projections.Indeed, the chair of the National Development Planning Board (Bappenas) noted in a 1994

seminar that "the rapidly increasing capacity of the timber processing industry cannot be met bythe raw materials supply, which according to the sustainable rate is only able to provide 61percent of the national processing capacity."180

The government also has ambitious plans to turn Indonesia into a major pulp and paper producerby the end of the decade; their goal is to increase annual production capacity by 200 percent inthe next five years. One industry executive told the press that in 1995, the industry would exportpulp worth about $2 billion, up from $700 million in 1994.181 Feedstock for this intense programwill eventually come from short-rotation plantations on already-degraded forestlands. Thirty-three potential pulpwood plantation concessions of 300,000 hectares each (a total area larger thanPortugal) had been identified by 1993. However, the World Bank notes that only 60,000 to

80,000 hectares of each concession will be planted. The remainder of these plantations, usuallylogged-over but sometimes unlogged primary forest, will be logged to supply the designated milloperation until the rotation planting can supply pulpwood.182 Demand for pulp feedstock willthus compete with timber demand -- for investment decisions on plantations (pulp versus timberspecies) and also for standing forest timber. If all planned pulp and paper mills actually comeonstream, as much as 30 million cubic meters of natural forest will be needed for pulpwood untilthe year 2000.183

The importance of the pulp and paper program to the government is reflected in a 1992Ministerial Decree. This decree stated that all permanent forest within 100 kilometers of aplanned pulp mill, regardless of condition, may be used for pulpwood plantation development(under the "cut four hectares, plant one" system discussed above). If this right was granted to alltwenty planned pulp mills, 62.8 million hectares of forestland would be affected, fully one thirdof the nation's land area,184 a scenario that seems improbable.

Current demands on forests from logging concessions and timber plantations are thus alreadyhigh, and will increase. The subsequent scarcities are likely to be further compounded bygovernment plans to vastly expand the scale of coal mining over the next decade. Thedevelopment of mining since the 1960s has already been quite dramatic.185 Coal mining in



particular will impact forestlands and resources. Most mining operations lie within theboundaries of designated forestlands, and regularly overlap all forest categories. Indonesia'sproven coal reserves (4.4 billion tons) and estimated reserves (27.7 billion tons out of theestimated 35 billion tons in all of the Association of South-East Asian Nations [ASEAN]countries) lie largely underneath remaining areas of rainforest. Annual coal production, mainly

centered on Sumatra, rose from approximately 337 thousand tons in 1980 to 22.5 million tons in1992,186 and current plans call for boosting annual production to 71 million tons by 1999.187

Increased government attention to the conservation of biological diversity places additionaldemands on forest resources as large tracts of protected areas are set aside. The area of forestdesignated for protection of nature (reserves, national parks, etc.) has steadily increased since thelate 1970s, and currently stands at almost 10 percent of total land area (19 million hectares). Anadditional 30 million hectares (15 percent of total land area) are designated as Protection Forest,for the purpose of maintaining hydrological systems and retaining soil on steep or otherwisefragile lands. Most of these reserves exist solely on paper; they suffer systematic and widespreadencroachment by local communities, government projects, and the activities of private firms.188

However, their protected status largely takes them out of the resource stream available for locallivelihoods or economic development projects and activities.

In short, rising and conflicting demands on forestlands and resources clearly contribute to theoverall scarcity of forest resources; more and more claimants demand a piece of a finite resourcebase. Demand-driven scarcity obviously compounds the growing absolute scarcity of forestresources discussed above. Pervasive distributive scarcities, caused by New Order forest policies,exacerbate overall scarcity. In the coming decade, these scarcities will likely intensify.

Distributive Scarcity of Forest Resources

Relative or distributive forest resource scarcities are mainly caused by the progressive seizure of forest resources by the New Order state, and their allocation to a coterie of private sector firmsand state enterprises for commercial production. As discussed above, state control over allforestlands and resources is deeply rooted in the ideological and constitutional basis of theregime, and also in the policies of the colonial regime. Only in the New Order period, however,has this legal regime impacted the millions of people who previously had access to forestresources under the systems of adat rights and resource management discussed in Section III.

With the advent of the timber boom in the 1970s, nearly one-third of the nation's territory passedinto the hands of timber concession-holders (HPHs). Local residents lost access to timber,nontimber forest products, and lands available for swidden cultivation. The regulations on timber

concessions clearly limit access for local communities. The 1967 Basic Forestry Law declaresthat "the enjoyment of adat rights, whether individual or communal, to exploit forest resourcesdirectly or indirectly . . . may not be allowed to disturb the attainment of the purposes of thisLaw." A 1970 implementing regulation further elaborates (and weakens) adat rights in HPHconcession areas. This regulation stated:

1. The rights of the adat community and its members to harvest forest products . . . shall be

organized in such a manner that they do not disturb forest production.



2. Implementation of the above provision is [delegated to the Company] which is to accomplish it

through consensus with the adat community, with supervision from the Forest Service.

3. In the interests of public safety, adat rights to harvest forest products in a particular area shall

be frozen while forest production activities are under way.

A variety of more recent laws and regulations governing timber-plantation, rattan, sago, andnipah concessions remain silent on adat. Yet complex adat systems of rights and obligationsthroughout the Indonesian archipelago govern the ownership and harvesting of, for example,rattan and sago palms. However, the logging concession precedent suggests that new rightspertaining to these species invalidate conflicting adat rights.189

Curiously, the Sixth Five-Year Development Plan clearly acknowledges the hardship that forestpolicies visit on forest-dependent communities.

Forest exploitation by concession-holders is often to the detriment of the needs for forestresources of communities living in and adjacent to the forest. The cause of this is the limits ontheir access to forest resources [in the concessions]. [These communities] are also largely unableto benefit from employment opportunities arising from these forestry enterprises, with the resultthat the gap in economic status between local people and outsiders increases, giving rise to socialtension.190

Transmigration sites opened 1.7 million hectares of agricultural land and brought some 8 millionpeople from Java and Bali to the Outer Islands between 1969 and 1993.191 These sites contributeto relative scarcities for local populations. Not only do such local populations lose access to theforests and lands appropriated for these sites, they also must compete for resources surroundingthe site with new arrivals. This competition intensifies in the many cases where agriculturalfailure leads transmigrants to seek resources (swidden lands, nontimber products, and game) inadjacent forests. (Of course the government also argues that transmigration decreases scarcity onJava and Bali.)

Local forest-dependent communities in the Outer Islands have been the clear losers from theNew Order program of enclosure. The winners are equally clear. In timber exploitation, most of the available economic rent -- the profits exceeding the minimum that an investor needs to earnto make a given project worthwhile -- flows to the 500-plus firms holding concessions. If calculated on the basis of $145/m3, the total profit Malaysia receives on the same or comparablespecies, available rent is approximately $99/m3. In 1989, the Indonesian government capturedonly 8 percent of this rent in fees and royalties, while a fee increase in 1990 raised the percentageto 17 percent. In 1993, the government increased royalties by 47 percent to an average of $22 percubic meter. However, according to the World Bank this figure is "still below the $30 levelroyalties would have reached by now had they been adjusted from 1985 levels by the wholesaleprice index for the forestry sector and, hence, is well within the capacity of the industry to pay,particularly considering the recent sharp increases in world log prices."192

The government captures 85 percent of total rents in the oil sector. If the government receivedequivalent rents from the logging industry, one study estimates these contributions would havetotaled nearly $2.5 billion in 1990, five times the $416 million actually collected. This revenue



would have been more than half of Official Development Assistance received that year. In fact,from 1984 to 1989, total fees and charges levied on forestry operations accounted for no morethan 0.2 percent of the government's total domestic revenue and no more than 0.1 percent of theannual government budget.193

Along with low levels of rent capture, artificially low domestic log prices have caused"environmental degradation, inefficiency in both logging and wood-processing industries and alack of market diversification."194 In 1992, export taxes replaced the ban on log exports, but theimpact on resource use has been negligible. The taxes are so high, they effectively constitute aban. As a result, while prices for Meranti logs (a favored commercial species) exported fromSabah (Malaysia) have averaged around $160 per cubic meter since 1986, with 1993 pricestopping $300, equivalent logs in Indonesia averaged about $90 per cubic meter in 1993. Theactual price may be less, since most plywood operations are affiliated with concessions, and thusobtain logs at cost.195

Although most direct financial benefits have flowed out of the forest areas and into the hands of

private concession-holders, the government argues that considerable indirect benefits accrue tolocal and provincial economies. The government claims direct charges on forestry production,the "development of backward and remote regions," and "trickle down" employment all benefitlocal communities.196 But a recent study on the regional and local economic impacts of thetimber industry in East Kalimantan suggests that such benefits are fairly minimal.197

Instead, the top circles of the New Order regime receive a significant indirect flow of benefits.First, the government uses concessions and other resource exploitation rights to reward politicalclients, coopt potential opponents, and fund (and ensure the loyalty of) both the civilianbureaucracy and the military. Many of the early concessions in East Kalimantan, for example,were given to military-owned ventures. More recently, virtually all the top players in the timber

industry are connected personally and financially with members of the president's family. Thepolitical utility of concessions for patronage purposes partly explains the government's long-timeacquiescence to the high levels of rent capture by timber concessionaires. A few years ago, abank owned by foundations connected to the president announced it lost $430 million. AtSoeharto's request, major timber concessionaires came to the rescue with ready cash tocompensate for the losses.198 Politically, this represents an unorthodox but nonetheless real formof "rent capture" and reflects the personalistic, patron-client nature of the New Order. Whenneeded, the "excess rents" accumulated by logging conglomerates were tapped to resolve asignificant crisis for the financial stability and credibility of the regime.

In summary, the overall scarcity of forest resources in Indonesia is increasing due to three relatedfactors. First, the resource pool itself is shrinking, due to forest and land degradation,deforestation, and over-harvesting of some commercial species. Second, the demands on forestresources are growing: from industry, for conservation, and from general population growth andper capita consumption coupled with net in-migration to the Outer Islands. Third, the access toforest resources that many rural communities previously enjoyed has been curtailed. Thesystematic enclosure of forestlands and resources and their appropriation by commercial agentsand licensees of the state as well as by government-sponsored activities (such as nature reserves



and transmigration) have severely limited local access. The growing scarcity resulting from theselinked processes gives rise to higher levels of social and political conflict.

The Varieties of Forest Resource Conflict

Conflicts over forest resources fall into two major categories. First, conflicts occur between localcommunities and the state or its clients over forestlands and resources on which the communitydepends in one way or another. These conflicts often give rise to disputes within communities aswell. Second, recent intraelite disputes erupt over the control and use of rents from forestexploitation.

Local Conflicts Over Forest Resource Access

Conflicts between local communities and logging concessions, timber plantations, transmigrationsites, mining activities, and other state-sanctioned forest resource activities have becomeendemic throughout Indonesia. Such conflicts are inevitable given the vast scope of New Order

forest enclosure and resource appropriation in a context where tens of millions of rural peopledepend on forest resources for their livelihoods. However, these struggles are not a sign of organized political action to unite aggrieved peasants and restore a more equitable balance of forest resource access and control. Some local protests involved physical action by local villagers(such as tearing up plantation seedlings or burning loggers' basecamp buildings), but there is noteven an echo of the "unilateral actions" promoted by the PKI in the early 1960s in Java.Nevertheless, conflicts are undeniably widespread.

Recent government efforts to rapidly establish industrial timber plantations have caused some of the most heated conflicts. Although disputes with logging concessions continue to flare in manylocations, plantations are inherently more conflictual for two reasons. First, while concessions --

particularly poorly managed ones -- damage the forest and sever local communities' access toresources, logging does not completely destroy the forest, and is a one-time effort by the loggersin any given area (although a second illegal cut occurs in many instances). A plantation, incontrast, clear-cuts and burns large areas. The firm responsible for the plantation occupies theland. Local communities completely lose access to forest resources and total resource losses aremuch greater. Second, due to the "marriage of convenience" between the plantation andtransmigration programs, resettlement schemes provide a labor pool for plantation projects.Local communities not only lose resources and land access, but must also compete with newimmigrants for jobs. The following cases illustrate the dynamics of local conflict over forestresources.

Pulau Panggung, Lampung

In the Pulau Panggung area of Lampung Province (Sumatra), the state informed a number of local communities in early 1988 that their crops (mostly coffee) and homes were illegally sitedon state land slated for reforestation. Community residents could join a resettlement program inanother province or buy private land outside of the designated forest area. Some residentswillingly signed up for the resettlement program. Yet the registration process stalled due toonerous registration procedures and allegations of local officials trying to extort various "fees."



According to investigations of the Indonesian Legal Aid Institute, between November 1988 andJune 1989 local officials took matters in their own hands. Officials ransacked or burned over 500homes, destroyed hundreds of coffee trees, demolished coffee-hulling and other machinery, andconfiscated tons of dried coffee beans. The local military commander temporarily put a stop tothe destruction, but the attacks began several months later, and local residents were eventually

forced to move.

199

Yamdena Island, Maluku

Yamdena is a small but ecologically valuable island of 535,000 hectares, situated in easternIndonesia's Tanimbar Islands. In 1971, the government decreed the whole island a protectedforest and research area, and expressly prohibited commercial forestry. But in April 1991, thestate granted a concession to log 164,000 of the island's 172,000 hectares of forest to P.T. AlamNusa Segar (ANS). Logging began in January 1992, which raised a storm of protest from theisland's people. Islanders claimed that the ANS had not consulted the community and the stategave no prior notice that a concession was to be issued. Islanders brought their protests to the

national Parliament in July, but logging continued.

In September 1992, some 400 islanders attacked ANS's barracks and camps. One person waskilled, and several people were injured. Thirty-nine people were arrested, and by some accountswere beaten. The bishop of the mainly Christian province sent strong letters of protest to thegovernment, asserting that government troops "acted with iron hands and extra-judicially againstthe people they are supposed to protect."

The Ministry of Forestry eventually recognized the volatility of the situation. In late 1992, theministry froze all timber operations on the island for six months, pending the outcome of anenvironmental review. In early 1993, the minister announced a series of public consultations to

determine the wishes of the community before deciding if logging would continue. In August1993, a parliamentary commission returned from a fact-finding visit and recommended that thelogging freeze be lifted as it was "hurting the local economy." Meanwhile, representatives of theTanimbar Intellectuals' Association (ICTI), a local NGO, continued to argue that further loggingwould spell environmental disaster. The minister nevertheless decided to lift the freeze, albeitwith a likely reduction in the concession's cutting area to be announced after "further studies." Inaddition, the minister announced that state-owned corporations and cooperatives would be givenpartial ownership of the ANS concession to ensure local participation and benefits. ICTI remainsopposed to logging as they believe its resumption will damage the island's fragile environmentand fracture its social peace.200 As of 1996, the situation was still unresolved, although loggingoperations were suspended.

Bentian, East Kalimantan

The Bentian Dayak people of the Middle Mahakam region in East Kalimantan Province earntheir livelihoods from a combination of swidden agriculture and the sale of cultivated rattan. In1981, the Georgia Pacific Corporation built a logging camp on traditional Bentian lands toservice its neighboring logging concession. Conflicts immediately arose. The company, withgovernment support, resettled villagers, destroyed ancient grave sites, and ruined rattan and fruit



gardens in the process. Local streams were dammed along the 100 kilometers length of thecompany's logging road. These dams cut flows to the main local river (which madetransportation difficult) and created swampy areas in which malarial mosquitoes thrived. GeorgiaPacific pulled out of the region in the mid-1980s, and subsidiaries and subcontractors of theconglomerate controlled by Soeharto-crony Bob Hasan took over the concession. Concessions in

the area have produced ongoing conflicts since that time, and Bentian petitions to thegovernment for return of their adat lands have not been successful.

A 1990 law required concessions to provide development services for at least one village in theirarea, or lose their license. Hasan's concession chose the village of Jilmu Sibak to fulfill thisobligation, and initiated pro forma development activities. However, these activities increasedsoil erosion and further angered villagers. Meanwhile, Hasan's company also planned thedevelopment of an industrial timber plantation and the accompanying transmigration of some200 families. The company apparently feared that its logging concession might be revoked if itdid establish the required plantation. In July 1993, the company sent bulldozers accompanied byarmed military personnel into Jilmu Sibak. These bulldozers ruined some 150 hectares of rattan

and fruit gardens and destroyed more Bentian grave sites. Renewed protests to the governmentonly resulted in increased levels of intimidation, official statements in the press that "noproblems" existed, and a visit by government investigators who met only with company officialsand local military and police officers. The next month, accelerated land clearing in a neighboringvillage took place. Two other companies operating in neighboring areas undertook similar landclearing for their planned timber plantations at the end of 1993. This land clearing destroyednumerous rattan and fruit gardens and was backed by threats, intimidation, bribes, armed guards,and the local police.

With assistance from Jakarta-based NGOs, community representatives took their case to theministers of Transmigration and Environment. The ministers expressed shock and promised

official assistance, including a visit to the site by the National Commission on Human Rights.Instead, another government "investigative team" arrived in Jilmu Sibak. This team convened ameeting to announce that 200 transmigrants would soon be settled on Bentian lands and that 100Bentian households would become "local transmigrants," -- give up their land and move ontosmall plots in the bulldozed areas. The Bentian had no opportunity to present their grievances, orspeak at all. At the conclusion of the meeting, local police took several Bentian leaders to thecompany basecamp. They were interrogated for twelve hours, and pressured to sign papersturning over Bentian land for the project and a letter revoking the power of attorney granted tothe Legal Aid Institute. They were also ordered to produce 100 local families for thetransmigration site. (Under duress, one of the leaders signed the letters, but refused to place thestamp of his organization on them, making them invalid in the community's eyes.)

Numerous investigative teams have since visited the area, one leader was brought to Jakarta tomeet with Bob Hasan, and representatives of both the Legal Aid Foundation and the NationalHuman Rights Commission have pressed the communities' demands on the governor. Landclearing continues: fifty families have been drafted for local transmigration, and the arrival of ninety families from Java is imminent. Petitions to the government and peaceful protests haveessentially gotten the community nowhere.201



Sugapa, North Sumatra

The Inti Indorayon Utama corporation (IIU), a pulp and paper company, is one of thirtycompanies owned by the Raja Garuda Mas conglomerate. This company began operations in1989 in the region around Lake Toba (North Sumatra), which is the largest lake in Southeast

Asia and home to the Batak people. IIU registered profits of $53.6 million in 1989, and RajaGaruda Mas plans to expand the Lake Toba operation and to build new plants and plantations inother parts of Sumatra, in order to become one of the country's largest paper-and-pulp producers.

IIU gets its raw materials from aging pine plantation stands that date from the Dutch colonialperiod, and from its 150,000-hectare logging concession. The company has clear-cut andreplanted eucalyptus in parts of these concessions without appropriate permits. The firm also cutsforests in the region's crucial water-catchment areas, even though these are formally zoned asProtection Forest. As IIU's raw material needs expand, it seeks new areas to either log or plantwith eucalyptus.

IIU has quarreled with local communities from the start of its operations. A landslide that killedthirteen people and forced a whole village to relocate, and air and water pollution caused by itsoperations have triggered these disputes. Indeed, a massive spill from IIU's waste pond producedthe first environmental lawsuit in Indonesian history -- nongovernmental groups, whicheventually lost the case, charged the company with failure to comply with environmental impactregulations.

IIU's restrictions on local access to forestlands and resources have also caused conflict.Woodcarvers on Lake Toba's Samosir Island, for example, are forbidden to collect wood fromcommunity forests, and villagers in one area strongly protested IIU's planting of eucalyptus ontheir ancestral graveyard.

A particularly divisive conflict erupted in 1987 in Sugapa village. IIU obtained a three-year leaseon 52 hectares of land that served as a village commons -- utilized for grazing, fuelwood, andgathering berries sold in the local market. Because the land transfer violated local customarytenure, the villagers did not recognize the transfer. For the loss of this land -- and thus of theirability to raise water buffalo -- the village was paid only $6.35 per hectare, less a $5 charge everytime a buffalo wandered back into its pasture. Eventually, the villagers were forced to sell theirherds -- a great loss considering that families kept five to ten buffaloes and sold one a year for$400 to $600.

After the villagers protested to the company, several village men were harassed and beaten. InApril 1989, when two plantation workers were accused of attempting to rape a village girl,villagers retaliated by uprooting 16,600 eucalyptus seedlings. Police arrested only the ten womeninvolved (and not the alleged rapists). Although the company refused to recognize customary lawwhen they acquired the land, the company later used these laws to support criminal charges forproperty destruction brought against the ten women: Since local adat places land ownership inthe hands of men, the women could not claim to be defending their property. They weresentenced to six months in jail for destroying property and "obstructing national development."



The women appealed, and the court offered to excuse them from jail if they promised to commitno further "criminal acts." Maintaining that they had not committed a crime, the women rejectedthe court's decision and appealed to the National Supreme Court. Several other villagers filed acivil suit against IIU and the local government for abuse of customary tenurial rules andprocedures. IIU has offered to settle the case by paying rent for the land. However, the many

villagers who do not want a plantation under any conditions are continuously harassed by localofficials. Meanwhile, the case has divided the village into three hostile factions -- those for,against, and undecided on the rental offer.

In at least eight other villages, IIU has taken advantage of weak documentation of ancestralcommunity land rights. The government, IIU, and the courts have jointly intimidated and evenprohibited local NGOs from assisting these communities. Without explanation, the governmentclosed one local NGO that advised the Sugapa villagers for six months. The NGO was allowedto reopen only on the condition that it stop dispensing legal aid.202

Benakat, South Sumatra

Prayogo Pangestu's Barito Pacific conglomerate holds some 5.5 million hectares of timberconcessions -- an area the size of Switzerland -- which makes it the largest timber company inIndonesia. Its concessions and associated wood-production facilities are estimated to be worthsome $5 to $6 billion. When Prayogo placed the company on the Jakarta stock exchange in 1993,it became the exchange's largest single component with 12 percent. In 1991, Prayogo embarkedon a joint venture with President Soeharto's eldest daughter and two Japanese firms to develop a$1 billion pulp and paper complex in South Sumatra. With the personal intervention of thepresident (documented in a letter leaked to the Far Eastern Economic Review), Barito Pacificrapidly obtained the permits needed for not only the mill complex, but also for an adjacent300,000 hectare timber estate and transmigrants to serve as plantation labor.203

The area granted for the plantation included 3,000 hectares of forest under the traditionalownership rights of the Benakat clan group. More than 5,000 members of this clan live in sevenvillages in the Muara Enim area of South Sumatra. Although their ownership is based on adat rights, the community has had a written grant of ownership from the Dutch colonial governmentsince 1932. The biologically diverse forest has long provided a wide variety of goods andservices to the community, including timber, nontimber forest products, watershed protection,and sites of ancestral and spiritual significance.

In 1992, the local Sub-District leader gave a group of farmers (not part of the Benakat clangroup) permission to clear 300 hectares of the forest. P.T. Musi Enim Lestari (MEL), the BaritoPacific subsidiary formed to manage the plantation, told the farmers they would be paid to plantacacia trees. In return, farmers would be able to intercrop annual species while the trees wereyoung.204

The people of Benakat protested with letters to various officials and direct appeals to the farmersclearing the land. Seven hundred families signed one letter. The state responded with a variety of repressive actions, ranging from continual visits from armed police and military personnel to thebeating of one village headman by agents of the local government. Meanwhile, the forest



continues to be cut. As a result, the people are deprived of access to land and forest resources,while logging within the watershed has caused the reduction of water supplies, alternating withsevere flooding.205

In 1994, the communities approached the provincial office of the Indonesian Legal Aid Institute

(LBH), which became the focal point for the "Benakat Solidarity Committee."

206

LBH reportsthat the Benakat case is one of a series of similar conflicts arising from Barito Pacific's efforts tooccupy, clear-cut, and burn thousands of hectares of crop- and forestlands previously held bylocal communities. According to LBH, Barito Pacific's activities violate the 1990 regulationsgoverning industrial timber plantation projects. Those regulations state that plantations shouldonly be sited on critically degraded lands and forest areas with productive capacity below 20cubic meters of timber per hectare per year. Most of Barito's sites "are in productive forests orproductive croplands held by local communities . . . the proof of this is evident to see, since thereare log ponds at almost every location." LBH also argues that Barito's companies failed toconduct the obligatory surveys or set boundaries, and did not complete the requiredEnvironmental Impact Assessment, despite the fact that the project is well underway.207 As of

July 1996, LBH was still documenting environmental damage, legal deficiencies, andunderpayment of agreed compensation to villagers, yet the project was moving aheadunimpeded.208

State Responses to Local Forest Conflicts

Although these local conflicts are pervasive, they do not particularly disturb the government.Local conflicts are largely treated as local matters. When a particularly egregious case (or anespecially brave and organized community) receives attention from the press, national NGOs, orsympathetic members of Parliament, a parliamentary or executive agency "team" is dispatched tothe location. However, these teams usually report that the whole matter has been blown out of

proportion. At the local level, a cohesive alliance of timber firms, local governments, and thelocal police and military apparatus controls the communities in question through a combinationof repression and cooption offers of land compensation, jobs, or outright bribes.

It is unclear, however, if this band-aid strategy will continue to be effective as the industrialtimber plantation program picks up speed. Firms already find it difficult to locate uncontestedlands to clear, burn, and plant. Given the scale of plantation development that is envisioned forthe next decade and beyond, the majority of the local population in some districts may find itself suddenly without access to land and resources. Firms must grow trees, not just clear and burn theland and get seedlings in the ground (although for this they get a healthy government subsidy, inaddition to use of the land and the right to sell the timber they clear-cut). Over the past century,

experience in the teak plantations of Java shows that even where overt resistance is rare,aggrieved peasants frequently resist by burning and cutting plantation trees. 209 In short, whileconflict over timber projects may not erode the state's capacity to establish plantations, it couldvery likely reduce the state's opportunity to realize an economic harvest from those plantations.



Conflicts Over Control and Use of Forest Resource Rents

More immediately threatening to the New Order leadership are several brewing conflicts overthe control and uses of the rents derived from commercial exploitation of forest resources.Disputes have erupted over the allocation of the $1.3 billion "Reforestation Fund" derived from

levies on logging. The efficiency and fairness of Apkindo has also provoked controversy.Apkindo is a powerful plywood producers association and marketing board controlled bySoeharto-crony Bob Hasan, that dominates virtually every aspect of the pricing and marketing of Indonesia's $4.2 billion (1993) annual plywood exports. In a regime where the policy-makingelite, its business partners, and the higher reaches of the bureaucracy are the only meaningfulpolitical players (while the masses "float"), these elite disputes raise more political concern thanthe wholesale evisceration of the livelihoods of thousands of rural communities.

The Reforestation Fund Dispute

In 1980, a Presidential Decree established a Reforestation Guarantee Deposit Fund (DR). All

concessionaires were required to contribute a $4/m

3

levy on the timber they cut to the fund,which was reimbursable with evidence of reforestation and plantation forestry activities. Thelevy was treated essentially as a tax, and the system spurred little investment in reforestation. In1989, the levy was raised to $7, and was made nonrefundable. In 1990 it rose to $10, and then to$15 in late 1992. The levy was increased again in 1993 to a slightly higher average rate under asystem in which different regions and species are taxed at different rates. By the end of November 1993, the DR fund held $1.3 billion. Interest from this fund has financed around 40percent of Ministry of Forestry operations over the past five years, and contributed most of thefunds flowing to administration (45 percent) and subsidies for the timber plantationestablishment (33 percent). By contrast, only 2.2 percent of the fund has actually been investedto protect natural forests.210

In June 1994, President Soeharto issued a decree that mandated the transfer of $190 million fromthe DR Fund to the account of the IPTN, the state aircraft company. This company is the crown jewel of the economic nationalists and is headed by their strongest current leader and Soehartofavorite, B.J. Habibie (who is also Minister of Research and Technology).211

On 25 August, six Indonesian environmental NGOs represented by the Indonesian Legal AidInstitute filed a lawsuit in the National Administrative Court. The NGOs accused Soeharto of illegally diverting the DR Funds to IPTN, and asked the court to cancel the Presidential Decreeas it conflicted with the laws and regulations of the DR Fund. This lawsuit was the first ever filedagainst Soeharto directly, and his reaction incited considerable interest (not least on page one of

the Asian Wall Street Journal). His attorneys replied to the lawsuit in late October asking thecourt to dismiss the case on several grounds, all procedural. First, they argued that the plaintiffshad not shown damage to their financial or other interests, and therefore had no standing onwhich to sue. Second, they argued that the decree was not "final" as the implementing provisionfor the actual transfer of funds to IPTN had not been completed. In their final and mostinteresting argument, they disputed the jurisdiction of the Administrative Court, arguing that apresidential decree holds the same legal rank as a law passed by the Parliament, and the presidentis not answerable to the courts for his decisions. Predictably, the NGOs lost the case -- on several



of these procedural grounds. No one seriously expected the Administrative Court to abrogate apresidential decree, and Soeharto took his revenge by "blacklisting" all of the NGOs who joinedin the case, as noted in Section III.

Meanwhile, in February 1995 Soeharto transferred an additional $270 million of DR Funds to

serve as reserve backup for the 1995/1996 national budget, in case the price of oil should fallbelow the levels predicted in the budget.

The DR dispute raises a number of interesting issues. NGOs challenged the president openlywith some degree of impunity -- they are blacklisted, but have not been forced to shut down orarrested. This inaction shows divisions within the elite, where Soeharto's unilateral decision-making and resource allocation has prompted some dissatisfaction. And the clout of theeconomic nationalists is on the rise, as shown by the apparent ease with which Habibie obtainedthe money (the Asian Wall Street Journal reported that by his own account, Habibie went to thepresident to inform him that IPTN was short of cash, and Soeharto immediately decided to lendthe DR funds). The nationalists' influence will be tested by Soeharto's reaction to IPTN's

announcement in March 1995 that it required an additional $600 million in government supportto begin the development of a jet aircraft. In the longer term, the extent to which the DR fund isutilized for nonforest uses will diminish the resources available to subsidize the ambitious timberplantation program. As subsidies shrink, plantation firms will have to cut corners to make aprofit -- more than likely by maximizing the amount of natural forest they can clear-cut, andminimizing the compensation and services they provide to impacted local communities. Thesefactors will likely further increase the number and intensity of local conflicts.

The Apkindo Dispute

In the early 1980s, the state mandated Indonesia's transformation from a log producer to an

exporter of plywood and other finished goods. This transformation caused a great deal of chaosat the outset. Concession-holders raced to construct new mills, but were inexperienced atinternational marketing and incompetent managers. Prices fell as many enterprises, desperate topay back the $2 billion aggregate investment in mills, dumped plywood at low prices. Into thissituation stepped Mohamed "Bob" Hasan, a major logging concession-holder and Soeharto'sclose friend since the 1950s. At the government's request, Hasan established and ran Apkindo toincrease plywood prices and expand overseas markets. Although nominally a private businessassociation, Apkindo was granted the sole authority to license all plywood exports, determineeach producer's quota, and levy a variety of charges on producers. As noted previously, Apkindowas very successful. Indonesian plywood prices rose from around $200 per cubic meter to morethan $350, peaking in 1993 at $560, and Indonesia now essentially controls the market in tropicalplywood.

Hasan is the undisputed and autocratic ruler of Apkindo. According to industry expert RizalRamli, "The line between Bob Hasan and Apkindo is pretty hard to distinguish." Director of anApkindo member company adds: "Bob does rule Apkindo like a king ruling an empire. Hemakes the rules and nobody may question them because he's so powerful." Hasan has alsobecome very wealthy through his plywood businesses, numerous joint ventures with Soeharto'schildren, and with businesses controlled by the military. He recently set up a number of overseas



firms which act as the sole importers for Apkindo products in its major markets -- Japan, Korea,Taiwan, and Europe. Apkindo timber is carried in ships from ship-lines that he controls and isinsured by another of his subsidiaries. In the words of one foreign economist with longexperience, "Where Apkindo is concerned, timber executives say his word is law." A timberexecutive seconded this, saying "in the world there's no industrial organization as strong as

Apkindo." Hasan himself put it more bluntly to the press after finishing a 1994 round of golf with the president and visiting film star Sylvester Stallone: "I told Rambo, I'm the king of the jungle."212

Hasan, the most powerful unofficial forest policymaker, appeared to have a seeminglyunassailable basis of power in the New Order regime. Therefore, it surprised most everyone tosee Hasan and Apkindo come under concerted attack in the early months of 1995. Calls camefrom the Minister of Trade, parliamentarians, East Asian governments, NGOs, and even Apkindomembers for the cartel to be dismantled or at least restructured.

The reasons for the shift in attitude toward Apkindo are straightforward. Indonesia's external

debts amounted to $87.6 billion in December 1994, while its debt service ratio was above 30percent. To attain the government's target of reducing that to 20 percent by 1998, the countryneeds to both boost exports and expedite debt repayment. Oil and gas export earnings, fell from56 percent to 23.7 percent of total earnings from 1986 to 1994, and cannot contribute much tothe export push, mainly because of OPEC quotas. The government has successfully increasednonoil and gas exports. In 1994, however, there was a precipitous decline in export earnings inthe textile and wood-based products (mainly plywood) sectors, two of the major nonoil foreignexchange earners. Plywood was hardest hit as declining sales volumes combined with lowerprices.

Some observers estimated that plywood exports could drop by as much as $1 billion in 1995.

Many blamed the Apkindo monopoly for this decrease. In response to Hasan's creation of solemarketing agents, customers boycotted Indonesian plywood, while Japanese and Indonesiancustomers cut back their orders. Many Apkindo members say the system prevents them frommeeting customers, cuts quality, stifles innovation, and adds to their costs. Members also suspectHasan of skimming profits through the agent firms at their expense. Malaysia and other exportershave seized the opportunity to increase their share of the market in China, Japan, and SouthKorea. These three markets together account for 50 percent of Indonesia's exports. Meanwhile,the chairman of the East Kalimantan chapter of the Indonesian Forestry Society complained that"Hundreds of thousands of cubic meters of plywood are piled up in warehouses becausecompanies cannot export them or sell them domestically. If the difficulties go on until the end of this year, 90 percent of the twenty-three plants operating in the province will probably stopoperation."213

Environmentalists and economists contend that the close connection between loggingconcessions and plywood mills means that domestic log prices are far below world marketprices. Low prices undervalue the resource and encourage waste. According to some economists,the effective loss from log undervaluation is in the range of $2.5 billion per year, and thisexcessive loss results in substantially higher logging rates. "Basically, we see Apkindo as being areal problem for the whole forestry industry," concluded one economist. "The whole structure



has outlived its usefulness. We need to get away from these structured monopolies . . . becausethis resource (timber) is worth three or four times that of (Indonesia's) natural gas and oil."214

Hasan and his defenders dismiss the critiques of the Apkindo system and blame the currentdifficulties on an economic downturn in some of Indonesia's principal markets. Indeed, the

controversy cooled off as plywood prices and export volumes recovered in 1996. But if thecritics are correct and Apkindo's structure is the root of the problem, the controversy will remain.However the dispute is resolved, it reveals growing cracks in both the timber industry and thepolicy-making elite. The New Order must deliver continual and tangible economic growth to themasses to maintain its legitimacy. The regime must also sustain macroeconomic stability tosatisfy its elite constituents, and provide economic opportunities for the growing entrepreneurialclass represented in this case by Apkindo's restive membership.

The high profile of Bob Hasan -- the most visible Soeharto crony -- at Apkindo, ensures thedebate over its future role is more than an argument on how to best profit from the plywoodtrade. Rather, in the oblique fashion of Indonesian political discourse, this debate is on

Indonesia's interlocking structures of political, personal, and economic power at the center of oneof the nation's most important industries. The Apkindo controversy and the dispute over theReforestation Fund, demonstrate that the appropriation and elite use of forest resource rentswithout public debate or challenge cannot be sustained. The forest industry has become tooimportant in the national economy. In addition, the number of people with enough interests andclout to dissent has grown appreciably, in large part due to the rapid process of economicdevelopment presided over by the regime.

V. NATURAL RESOURCE SCARCITY AND CONFLICT

IN THE NEXT TWENTY-FIVE YEARS: PROBABLE

IMPACTS ON STATE CAPACITYCurrently Indonesia is not experiencing widespread social conflict arising from scarcities of natural resources. Resource scarcities and conflicts are not appreciably eroding the state'scapacity to maintain power, make policies, or implement them. Other factors, discussed inSection III, are more important determinants of state capacity at the present time. However,transformations in Indonesia's economy, ecology, and society over the next twenty-five yearswill likely be as dramatic as those of the past three decades. If current trends in natural resourcecontrol, exploitation, and distribution of benefits continue or deepen -- and if the regime does notrespond innovatively -- conflicts over natural resources will greatly intensify. These conflictswill erode the capacity of the state. This analysis is necessarily speculative.

Analysts must consider a key "wild card" -- the political succession from the Soeharto era.Natural resources scarcities and conflicts are unlikely to be direct factors in shaping thistransition. However, these scarcities and conflicts substantially contribute to public frustrationswith the current regime and political process, frustrations that boiled over in July 1996.Moreover, the process and outcome of the transition will have important consequences for thestate's capacity to effectively resolve resource-related challenges and conflicts. Thus, it isdifficult to separate predictions about the relationships of resource scarcity, conflict, and state



capacity from predictions about the process and outcomes of the transition to the post-Soehartoera.

Soeharto's sudden removal by death or illness may be followed by a period of instability,temporary (or permanent) direct military rule, and a rise in repressive measures to maintain the

political and economic status quo. These factors have the potential to exacerbate resource-relatedconflicts, batter the economy (as skittish foreign investors pull out and donors put the brakes onaid), and decrease the capacity of the state to adapt creatively to rising social demands. In theextreme case, instability and repression might fuel renewed separatist revolts and religious strife,and lead to a widespread breakdown in civil order which seriously damages the economy.Although this scenario seems fairly unlikely, it is not out of the question.

A gradual transition to a new president acceptable to key groups in the military, bureaucracy, andprivate sector -- and tolerated by the general public as the price of continued stability -- couldproduce a completely different scenario. State capacity would be enhanced if the new presidentimplemented certain changes. Prospects for a stable, prosperous Indonesia living within the

limits of its resource base would increase dramatically if Soeharto's successor undertakes certainreforms. The new president could accelerate moves toward greater decentralization,democratization, and accountability of governance; strengthen the current push for povertyeradication and greater equality among regions; rein in the conglomerates; reduces cronyism;place real teeth in environmental protection policies; and give real meaning (and finances) to therhetoric of community-based natural resource management and "bottom-up" development.Unfortunately, this scenario is unlikely. In the near term, the inertia of bureaucratic norms andhabits, the power of the conglomerates, and the progressive erosion of community-basedinstitutions and resource management capacities put this vision out of reach.

Somewhere between these "disaster" and "utopia" scenarios lies the much more likely ground of

"muddling through." The transition to Soeharto's successor will inevitably be rocky, and willhave some short-term impacts on investor confidence and, hence, economic growth. As AdamSchwarz notes:

A dizzying array of elite groups will be jockeying for influence and trying to reform and updateexisting mechanisms for protecting their interests. The military will be positioning itself to regainthe political high ground, maneuvering to get Soeharto to step aside gracefully, and trying tokeep the whole process as smooth as possible . . . Civilian politicians will attempt to secure in theuncertainty of the transition period a higher profile for the Parliament, a more equitable sharingof power with the military, and some safeguards against the possibility of another thirty-yearpresident.215

The events of mid-1996 provided a taste of what may lie ahead in the period followingSoeharto's death or retirement. Negotiations among military, bureaucratic, and business elites --and the wishes of Soeharto -- will likely produce a consensus president. The president will bechosen because he216 is committed to the status quo while he pledges to incite some change. Thepersonal power of the president will likely be reduced, with power decentralized to majorministries and, to a lesser extent, provincial governments, the Parliament, and the judiciary. The



military is unlikely to step in and rule directly, but will probably take a higher political profile, atleast until the situation stabilizes.

The succession could provide the opportunity for bolder-than-usual policy changes. Yet as aresult of thirty years of political stability and economic growth, a vast range of actors and

interests are bound to a common goal -- the maintenance of the status quo. Although many oldfaces are sure to fade from the political scene, radical changes, either good or bad, seem unlikely.

The "muddling through" scenario probably will not equip the state with the capacity to adapt andeffectively respond to intensified social pressures caused by population growth and rising percapita consumption amidst a declining resource pool. Scarcity and conflict will erode statecapacity along all dimensions. The coherence of the bureaucracy is likely to decline in the nearterm without Soeharto's strong unifying hand. The level of ingenuity -- a key output of statecapacity needed to address growing social pressures and political and economic changes -- willdiminish.

Likely Trends in Natural Resource Scarcity and Conflict

Predicting the future is risky, especially when assessing future environmental trends and theirsocioeconomic impacts. Technological innovations make dire predictions appear absurd inhindsight. Even so, a recent attempt by the World Bank to predict key demographic,environmental, and economic trends for the next twenty-five years yielded sobering results.217 By 2020, Indonesia's population will likely rise from 180 million to nearly 260 million, a 45percent increase. Fifty percent of that population will be urban, up from 31 percent in 1990.Urbanization will increase pressure on Java's irrigated rice lands, some 10 percent of which maybe converted to municipal and industrial uses over the next two decades. Total GDP will increaseby 320 percent over 1990, and fully 63 percent of GDP will come from manufacturing and

services by 2010. Demand for petroleum products by 2020 will expand nine-fold, and thedemand for electricity thirteen-fold. At current rates of extraction, proven oil reserves will beexhausted by about 2015, and the production of coal and natural gas will subsequently skyrocket.To meet rapidly rising demand for energy, Indonesia will likely be a net oil importer by the year2000.

In the forestry sector, if current deforestation rates continue, an additional 15 million to 32.5million hectares of forest will be lost by 2020 (depending on whether higher or lower currentestimates are used as a baseline). Demands for agricultural land, timber plantation sites, and coalmining will compete with logging. These demands will intensify pressures on forest resourcesand probably increase the deforestation rate. The government's generous estimates in the 1991

Tropical Forestry Action Programme conclude that by 2030 about 84 million hectares of naturalforest will remain, about 53 million hectares of that under some form of protection. 218 However,timber demand stood at 40 million cubic meters in 1990. Recent World Bank scenarios for futuretimber requirements project demand in 2020 to be 55 million cubic meters at the lowest, and 145million cubic meters at the highest. This demand could rise to 195 million cubic meters in2030.219 The prospect for a serious timber shortage seems likely given that the Sixth Five-YearDevelopment Plan already reduced the government estimate of current natural forest cover from107.5 million to 92.4 million. Even the government's Forestry Action Plan concludes that "due to



population and industrial growth, the projections suggest that the raw material situation willbecome critical in about a decade if Indonesia continues to maintain its market dominance andindustrial pace, and its forest resource management and utilization efficiency do not significantlyimprove."220 Timber plantations are the cornerstone of the government's strategy to bring supplyin line with demand. Yet the bulk of current investment in timber plantations is for stock to feed

the new and rapidly expanding pulp and paper industry, not to replace timber logged fromnatural forests.

Under this scenario, natural resource scarcities are bound to rise. Scarcities will increase assupplies of nonrenewable resources (notably oil) are depleted, and renewable resources (such asforests, fisheries, and water supplies) are degraded (and thus effectively depleted for at leastseveral decades). As population grows, per capita availability of the already shrinking resourcepool will also decline.

Trends in distributive scarcities of natural resources are more difficult to predict. Jack Goldstone's analysis from a number of early modern societies shows that a growing imbalance

between population and resources polarizes incomes.

221

The poor are marginalized. Elitesconsolidate control of dwindling resources, and thereby buttress their political clout and theirresistance to increased state taxation. Therefore, as resources become scarce and their value rises,elites within Indonesia will have an incentive to seize control of these resources.

In the forestry sector, the transition of investment from logging concessions to timberplantations, and the conversion of degraded forestland into oil palm and other estate cropplantations, will likely exacerbate inequality. When the concession is active, logging depriveslocal communities of access to important forest resources. Yet in the long term, abandonedconcessions have been an important, if technically illegal and unsustainable, source of new cropand grazing land for the landless. And if concessions have not been degraded, the logged-over

areas continue to supply communities with forest goods and services. Intensively managedplantations, on the other hand, clear all vestiges of natural forest and exclude local populations.As already noted, much of the so-called degraded forestland targeted for plantation developmentis integral to local forest-based communities. These communities utilize secondary forest andscrub areas for tree crops (such as rubber and fruits), rattan, grazing fodder and many otherresources.

Distributive scarcities are theoretically more amenable to state policy interventions thanscarcities arising from population growth and resource degradation or depletion. Indonesia'sfamily planning program is largely a success, but it cannot halt population increases already inmotion. Even under the best conservation and resource management policies, the country onlyhas a finite amount of cropland, water, and forests, and ecosystems have limited carryingcapacities. However, numerous policy reforms suggested in many studies and policy documentswould immediately ease distributive scarcities. Technical complexity does not impede theimplementation of these reforms. Rather, the regime's general tendency to defend the interests of the few over those of the many obstructs change.222

But the situation is not black-and-white. Current New Order policies place the eradication of poverty and the reduction of regional inequalities at the top of the development priority list.



These factors may have some ameliorative effect on the historical dynamic noted by Goldstoneabove. The goal of the Sixth Five-Year Development Plan (running to 1999) is to reduce povertyfor 6 percent of the population.223 Although the poor may not get poorer over the next fewdecades, the income of the rich will grow much faster than the income of the poor. Andsignificant policy reforms that might ease distributive scarcities are unlikely without structural

changes in power.

As resource scarcities of all types increase, so too will conflicts over resources and resourcerents. Local conflicts between communities and the state and private sector over theappropriation of land and resources will increase. As the resource pool shrinks and the number of claimants grows, disputes will arise more frequently. Whether these conflicts multiply, and takeon an organized, anti-state political character, will largely be a function of the state's level of ingenuity. The state must rein in predatory developers, share the benefits of developmentprograms, provide effective dispute resolution mechanisms, and engender the perception in localcommunities that they are part of state-led natural resource development schemes rather than acasualty of them.

Likely Impacts on State Capacity

Appropriation and allocation of resource rents has strengthened and maintained the capacity of the New Order state. The availability of these resources will inevitably decline as will theircontribution to the state's financial resources. Development funding may not be greatly affected,as revenues from the manufacturing and service sectors will likely continue to grow. But thesesectors do not provide patronage resources such as those available from the timber and oilindustries. The state's freedom to allocate privileges in these new sectors is constrained by theimperatives of global markets. As the world's number one plywood exporter and a significant oilproducer, the New Order has been able to use profits from these industries for political purposes

and waste resources without appreciable pain. In the manufacturing and service sectors,Indonesia is just one of many developing countries competing for investment and markets. In aglobal economy that emphasizes the reduction of trade barriers, Indonesia's industries will haveto be efficient and competitive. In the secondary and tertiary sectors, crony monopolies,sweetheart deals, institutionalized bureaucratic corruption and other elements of the "high-costeconomy" may lead to economic failure.

Degraded land, water shortages, and other effects of resource depletion will heighten demandsfor expensive rehabilitation and disaster management interventions. The expansion of croplandwill also cost a great deal and exacerbate conflicts over land. For example, an expensive schemeto convert 1 million hectares of Central Kalimantan's peat forests into irrigated rice seems

destined to fan resource conflicts in that region.

224

The state could increase the percentage of state rent capture to ameliorate financial pressures. However, the allocation of large rents fromresource extraction to private actors has been part of a conscious political strategy to attract andcement allies to the regime. Powerful economic and political actors will lose in any effort by thestate to raise rent capture from forestry. These actors are presently allies of the regime, but may join the opposition to survive the political realignments of the succession process.



Growing resource scarcities and conflicts will thus have important impacts on the capacities of the state. Section I argued that state capacity is best understood with respect to the followingeight variables: human capital, instrumental rationality, coherence, resilience, autonomy,legitimacy, reach, responsiveness, and fiscal strength. Section III examined the general strengthof the New Order regime. The remainder of this chapter revisits these variables, and examining

those that may be significantly affected by resource scarcity and conflict over the next severaldecades.

Autonomy

The New Order state's autonomy -- the extent to which it can act independently of both domesticand international external forces, and coopt or constrain those opposed to its decisions andactions -- is likely to decline as resource scarcities and conflicts increase. If scarcities augmentthe power of private sector elites, as argued above, elites will have more power to set or stymiestate policies and actions. And while the interests of the private sector elite and the regime havelargely coincided for the past three decades, that situation is not inevitable. As Goldstone notes,

in some situations, "particularly times of elite insecurity owing to inflation and to rising socialmobility and competition within their ranks, elites have turned into competing factions, driven byself-enrichment at the expense of their rivals and opponents, even when that meant starving thenational state of resources needed for public improvements and international competitiveness."225 The uncertainty of the presidential succession is likely to encourage that kind of behavior, aselites jostle to hold onto their concessions, connections, and other privileges.

As resources become scarcer and more valuable, and the number of elite claimants on thoseresources multiplies, conflicts such as the plywood marketing monopoly dispute and thereforestation fund controversy (discussed in Section IV) are likely to intensify. These conflictswill be exacerbated by the splintering of elite coherence that will surely accompany Soeharto's

departure. As Schwarz notes, "Inevitably, there will be some `repoliticization' of Indonesiansociety, no matter how hard the military tries to keep this to a minimum. And the melange of informal politicking will undoubtedly put the coherence of the elite under strain. The variouscomponents of the elite have different interests and will have to compete to protect them."226

The autonomy of the armed forces is likely to increase, as resource scarcities lead to politicallysignificant conflict or natural disasters (such as more of the massive Indonesian forest fires of 1983 and 1994, or the deadly logging-induced mudslides that have killed hundreds in thePhilippines and Thailand in recent years). The military will trade on the uncertainties of thepresidential succession to strengthen the political clout that it has progressively lost since theearly days of the New Order. Disorder, violence, and natural disasters provide fertile ground for

the armed forces to enhance its role, arguing that ABRI is the only institution capable of savingthe nation from such threats.

Widespread resource conflicts may provide opportunities for the Parliament and judiciary toincrease their autonomy. Parliament's current role as an occasional soapbox for aggrievedcommunities may expand into a more substantive role, as resource conflicts spread and thesuccession period provides a general opening for strengthening the parliamentary role. As thesocial demand for resolution of environmental disputes increases, the courts may be able to



expand their scope for independent action. Demands of the growing domestic business class -- aswell as foreign investors and the World Bank -- have already set the stage for a more rational andindependent judicial system.

The autonomy of provincial governments will also grow in the coming years. The presidential

succession will provide openings to expand the tentative steps towards decentralization takenover the past few years. The technical and managerial capacities of local governments areexpanding steadily, if unevenly, among different provinces. Resource conflicts could augmentprovincial autonomy if local governments are better able to resolve them than the centralgovernment. But severe conflicts could cripple provincial autonomy as central agencies and themilitary intervene. And if orderly resource management becomes a source of provincial funding(through decentralization of taxation and licensing authority), increased resource conflicts coulddiminish independent provincial financial resources.

Coherence

As already noted, the presidential succession, independent of resource scarcity, is likely todiminish regime coherence -- the degree to which the organs and agents of the state can be saidto agree and act on shared ideological bases, objectives, and methods. As various agencies andfactions take sides in particular conflicts to defend their interests, increased resource scarcity andconflict could further weaken coherence. Quarrels over control of declining resource rents mayalso reduce coherence: with claimants struggling for a power base in the post-Soeharto era,disputes like those over the Reforestation Fund and the plywood marketing monopoly couldgrow considerably more severe.

How would reduced coherence affect state capacity? Even now, the government apparatus isquite sectoralized. Various agencies often stumble over each other and find themselves at cross

purposes. Examples of overlaps among protected areas, mining and logging concessions,resettlement sites, infrastructure projects, and resources claimed by local communities arealready numerous (see Section IV).227 Without Soeharto's strong hand, if disputes turned violent,government agencies, provincial governments, and private sector interests are even less likely tocoordinate their objectives and activities. Rather, each will seek to insulate themselves from thenegative effects of such disputes, and take what political advantage they can from them.

Legitimacy

As previously discussed, the New Order's legitimacy rests in large part on the delivery of sustained development benefits to key elites and to the populace. Growing natural resource

scarcity and conflict will undermine those benefits, as the disastrous economy of the early 1960sundermined support for President Sukarno.

The broad dynamics are simple. Increased scarcity, whether in terms of declining raw materials,arable land, or habitats and ecological services (such as mangroves or functioning watersheds),will decrease production in agriculture, forestry, fisheries, and other key resource-based sectors.Local conflicts such as those discussed in Section IV can halt production in certain regions,hinder efforts to replant degraded forests, and impede other restoration efforts. As Peluso



convincingly demonstrates, local resistance can completely sabotage forest replanting schemes,even in the intensively managed and policed teak tracts of Java. And where peasant resistancecauses repressive responses from the local government, the mutual trust and cooperative socialingenuity between government and citizenry suffers. Trust and ingenuity is necessary to developinnovative institutional arrangements for better resource management.228

At the macro level, declining state resource rents decreases the funds available to ameliorateproduction shortfalls (providing imported rice to areas with shortages, for example). The state'slegitimacy in the eyes of the hardest-hit local communities will evaporate rapidly under suchcircumstances, and at some point local complaints could achieve a nation-wide critical mass.

Some might argue that growth in secondary and tertiary sectors of the economy will providesufficient employment opportunities to balance the losses that may accrue to local communities.According to this argument, the number of disaffected rural people will never reach a "criticalmass," because they will move to the cities and get jobs in the rapidly expanding sectors of thenational economy. Over the long term, this may be the case. But the most significant civil

violence in recent years erupted around expanding manufacturing industries. Workers haveprotested low wages, abysmal working conditions, and repression of their attempts to organize.The belief that traditional rural people can be rapidly transformed into urban factory workerswithout a great deal of social friction, displacement, and conflict, contradicts historicalexperience in many other countries and regions. Urban migrants have been pushed off their landby progressive industrial enclosures of forest and agricultural land, and brought together asfactory workers on the bottom rung of the new global world economic order. These stresses willnot likely produce a reduction in social tensions and greater governmental legitimacy.

If the presidential succession becomes a scramble by elites to maintain their power and privilege,this potential delegitimization process will intensify. The New Order has gone out of its way to

reinforce the constitutional, legally correct origins of its power and of the political systemthrough which it maintains power. The spectacle of a political brawl would sweep much of thisaway. The armed forces are concerned that the transition be a smooth one, with the maneuversand bargains of the elite occurring behind firmly closed doors. Many observers, however, doubtthat the transition will be very smooth: "Will he (Soeharto) leave office before he is pushed?Will he act to reduce the unpredictability of his own succession? There are few signs whichwould suggest a positive answer to either of these questions, unfortunately, and that augurspoorly for a smooth transition."229

The potential for challenges to the regime would increase exponentially, if turmoil reduces thelegitimacy of the overall political structure under disagreeable conditions. These conditionsinclude deteriorating development gains, spreading conflicts over resources, the expansion of elite control and wealth, and the degradation of the resource base that millions of Indonesiansdepend on. Resource scarcity and conflict may exacerbate an already weak state legitimacy, butthey will not be the engine of that decline. A smooth transition to a regime with higher levels of ingenuity could keep resource conflicts from delegitimizing the state.



Reach

Reach -- the state's ability to implement its programs and policies on the ground -- would begravely affected by an appreciable rise in resource scarcity and conflict. Reach is affected bydrops in other indicators of state capacity. The loss of autonomy by state agencies in

development programs would harm the quality and feasibility of their projects. Decliningcoherence would increase the likelihood of intersectoral conflict and overlap. One project mightcompromise the effectiveness of another -- for example, public works agencies build roadsthrough areas that the forestry ministry is trying to reforest for watershed protection. And the lossof coherence between central and provincial agencies would reduce the chances of gettingprojects carried out and services delivered, especially in the long term when local managementand maintenance issues become crucial.

The loss of legitimacy would cause a further deterioration of local community support forgovernment-initiated or mandated projects. This loss of support will hurt efforts to manageforests and fisheries. As noted above, communities hold an effective "local veto" over the

implementation of programs and projects as their active support and involvement are keyprerequisites for success.

Resource scarcities themselves, particularly those caused by the absolute decline of naturalsystems, will also directly erode the state's reach. Reach will be affected regardless of the level of conflict arising from those scarcities. As ecosystems like forests, mangroves, and coral reefsbecome more degraded, it becomes more difficult and expensive to establish or maintainsustainable resource-based production systems.

Resilience, Responsiveness, and the Ingenuity Problem

The scenarios and potential developments discussed thus far assume -- or at least imply -- thatthe New Order is a passive state, whose fate will be determined by demographic, ecological, andpolitical factors largely beyond its control. But this is by no means inevitable. Resilience andresponsiveness are required to ward off the rising spiral of resource scarcity and conflict,political instability, and economic decline. Resilience is the capacity to absorb sudden shocks,and to adapt to longer-term changes in socioeconomic conditions, interests, and politicaldemands. A state is resilient if it can supply the technological and social ingenuity to meet newchallenges, adapt to intensifying complexity, and respond to growing social conflicts.Responsiveness is the capacity to meet demands emanating from society and sustainably resolveconflicts between these different interests. Responsiveness in large part measures the state'scapacity to deliver ingenuity to society in ways that satisfy needs, meet aspirations, and resolve

conflicts.

As Homer-Dixon states, ingenuity is "ideas applied to solve practical social and technicalproblems . . . It is broader than `innovation,' since innovation implies novelty; and, althoughingenuity does not exclude novelty, practical ideas do not have to be novel to be classified hereas ingenuity."230 Homer-Dixon argues that as resource scarcities increase, societies must producean increasing supply of ingenuity to counter the rising social disutilities created by scarcity.Failure to do so will cause social dissatisfaction to rise and multiply the potential for social



conflict and disorder. He notes that societies require social (e.g., institutional) as well astechnical ingenuity. Technical ingenuity introduce rapidly growing multipurpose tree species, butgetting peasants to tend and protect these trees on a large scale requires social ingenuity todevelop the institutions and economic incentives for community-based forestry. More broadly,social ingenuity establishes and maintains the institutions which can produce technical ingenuity.

Homer-Dixon argues the role of the state is central to the supply of ingenuity as it provides thepreconditions for ingenuity to blossom within the society. The organs of the state can also supplyingenuity. He notes, however, that much of the ingenuity needed to deal with natural resourcescarcities must come from the bottom-up: "The ingenuity needed to adjust to resource scarcity isnot only produced by people at the top of the social hierarchy: many of the ideas needed forsuccessful adjustment are produced at the community and household level as people learn, forexample, how to reform local institutions to solve collective-action problems." Therefore,ingenuity need not imply novelty: In a country such as Indonesia, many solutions to risingresource scarcity can be found in long-standing traditional systems of resource management.

Homer-Dixon also states that heightened scarcity raises the demand for ingenuity, while alsoconstricting the supply: "The supply of social ingenuity . . . will be vulnerable to stressesgenerated by the very scarcities ingenuity is needed to solve." Thus, scarcities may erode theability of both the state and the society to produce new (or to rediscover) cultural andinstitutional solutions needed to counteract scarcity.

The relationship between growing resource scarcities and state capacity in Indonesia depends inlarge part on the ability of the state and society to produce and deliver an expanding supply of social ingenuity. And the prospects for a peaceful and stable presidential succession depend onthe degree of political ingenuity that the regime can muster. On both counts, current conditionsgive little cause for optimism, and Indonesia seems headed towards a growing "ingenuity gap."

Indonesia needs to produce and deliver increased quantities of social ingenuity to meet the threedistinct challenges posed by growing scarcities of renewable resources. First, social andinstitutional ingenuity -- including traditional knowledge -- provides innovative technicalresponses to the complex, synergistic, and cross-sectoral nature of renewable resourcedegradation. Second, effective responses to this degradation require not only technical but alsolocally tailored, participatory social and institutional solutions. Ingenuity is required to developboth local and state institutions which can devise and deliver these solutions. Third, Indonesia'srenewable resource scarcity problem is driven by resource monopolization and over-exploitationby powerful private sector actors. Therefore political ingenuity is needed to curb the predatorynature of the private sector elite and to put in place economic incentives that favor sustainableresource use. This last element is essentially political because the actions and policies needed --in a technical sense -- have been exhaustively researched and put forward in a host of studies bylocal and national NGOs, the World Bank, and even the Ministry of Forestry, as the citations inSection IV attest.

Dealing with Complexity and Synergy



Scarcities of renewable resources have complex causes and effects, as was discussed for forestsin Section IV. Homer-Dixon notes that most renewable resources are components of complexand dynamic ecosystems. "The overextraction of one resource in such a system can produceramifying scarcities in the surrounding ecological system," and economic disruptions are thusoften multiplied. "An economy not only has to find substitutes for goods and services provided

by the scarce resource itself, it also often has to find substitutes for the goods and services thatare causally dependent upon the scarce resource."231 This dynamic is clear in many of the casestudies discussed in Section IV. Logging concessions in the Bentian area of Kalimantan, forexample, deplete not only timber, but also water supplies, wildlife, and a wide variety of nontimber forest products, while the logging of Yamdena island threatens surrounding reefs andtheir fisheries.

The Indonesian state apparatus is not, however, equipped to provide the kind of ingenuity neededto deal with these complexities. The forestry bureaucracy, as noted in Section IV, is highlysectoralized and focused on the production of timber. Timber prices are set even belowconventional market values. These low prices do not internalize the economic costs that accrue

in other elements of the forest ecosystem, or in other ecosystems such as farmers' fields or near-shore fisheries. And the requirement for ingenuity to understand and manage complex systemssuch as tropical rainforests and coral reefs rises sharply when the current synergistic processes of degradation are underway.

Part of the ingenuity gap results from the general limitations of human knowledge on howcomplex natural systems function and under what pressures they decline, to what degree, andwith what effects.232 This general ignorance is compounded by the relative lack of scientificcapacity in most developing countries (although Indonesia is better off than many in this regard).

Yet much of Indonesia's ingenuity gap in understanding and managing complex ecosystems is

institutional in nature. We do know that heavy siltation destroys coral reefs, and therebydiminishes the near-shore fish catches on which most poor coastal communities depend. Missingare the institutions which could coordinate forestry and fisheries objectives and policies, andwhich could make upstream activities responsible for their downstream effects.

Flexibility and Community Participation

To effectively respond to resource scarcities, the state and society must supply the ingenuity todevelop locally specific, participatory, and flexible approaches. Bottom-up as well as top-downingenuity is needed to design supportive institutions, discover new technical solutions, mobilizefinancial and human resources, and clear away the opposition of vested interests. The New Orderstate's dismissal and derogation of adat systems of decision-making, dispute resolution, andnatural resource management cut off an important source of ingenuity. In addition, thesemeasures build local resistance and resentment -- which further stifles participation. Althoughadat traditions are not adequate to deal with the unprecedented new pressures of technology, themarket economy, and other forces, they do form an important basis for local social cohesion andaction.



The present capacities of many local communities to organize, innovate, and act are weak afterdecades of being told what to do by outsiders, and having new "community" institutions imposedfrom above. The problem is not so much the erosion of local resource management practices.Instead, the stunting of local institutions of social cooperation undermines ingenuity generation.For reasons already noted, Indonesia is hard-pressed to supply this ingenuity -- a gap already

exists, and it will grow.

Improving Equity and Accountability in Resource Control and Use

As preceding chapters have discussed at length, weak accountability of state and private sectorinstitutions intensifies resource scarcities, fans resource conflicts, and stunts the development of institutions. These institutions are unable to resolve disputes, reduce unsustainable resourceexploitation, and establish a more equitable distribution of the costs and benefits of resourcecontrol and use. Legal and institutional ingenuity is needed to establish more secure andequitable property rights over forest resources. Property rights would displace the current openaccess situation where elites supplant community resource access, and all actors lack incentives

to protect resource sustainability. Political ingenuity could rein in the large, politically connectedconglomerates -- even those with close ties to the president's family -- without provoking furtherpolitical conflict. Ingenious economic policies are required to devise and enforce incentivesystems to ensure that the costs of resource exploitation are internalized by those who exploitand sell them. And administrative ingenuity is sorely needed to open the natural resource policy-making process to a wide range of interests and expertise.

Raw ideas are abundantly available both within and outside the government. However, theinstitutional structure and long-standing perceptions and biases of the New Order make it verydifficult for these ideas to be translated into practical action. The fluid presidential successionperiod may provide an opening for change. Schwarz, for example, believes that the emerging

cracks in the elite exposed by succession issue "present, perhaps, the most optimistic case forreal political change in Indonesia."233 But if the prediction, above, for a "muddling through"scenario is borne out, there may be little real change, and the ingenuity gap may rapidly growinto a chasm. Crisis and conflict over resources (and other issues), may grow so severe that thestatus quo goes down in flames. This crisis could become the spur of last resort to unleash theingenuity that Indonesia so sorely needs in coming decades. Indonesia's history, at least in the1960s, lends some support to this rather pessimistic prediction. Hopefully the rebirth of politicaland institutional ingenuity will not come too late. Yet it is clear that scarcity and conflict, whichrequires great ingenuity to overcome, in themselves often reduce the capacity to produce it.

Conclusion

To ameliorate growing scarcities of renewable resources, minimize the spread of scarcity-induced conflicts, and protect the capacity of the state from erosion, the New Order must take its"ingenuity gap" seriously, and act to close it. Failure to unfetter the generation and delivery of ingenuity in the areas noted above will stunt the ability of both state and society to counter theimpacts of growing resource scarcity. The coming decade will likely include various challengesand threats. These challenges include impediments to the continued growth of the economy,heightened social dissatisfaction, serious threats to the legitimacy and overall capacity of the



Indonesian state, and intensifying social conflicts -- some violent. Failures of ingenuity are likelyto reinforce themselves: the lack of creative state adaptation to increased scarcities and conflictmay in itself further limit the state's ability to respond effectively. As conflicts grow more severe,the state may cut itself off from innovative solutions that might otherwise arise from localcommunities and other elements of civil society.

This need not be. Indonesia's rich resources and incredibly diverse cultures provide the basis forrapid and sustained increases in ingenuity equal to the challenges of rising population andconsumption, a fixed resource base, and growing scarcities. The history of Java, where nearly100 million people -- 65 percent of the population -- live on 7 percent of the country's land,shows the potential of the Indonesian people for productive social and technical adaptation togrowing scarcity (although other islands, with far poorer soils, could not support anything nearJava's population density). The "portfolio" subsistence strategies of many Outer Islands peoples -- in which reliance on a wide variety of crops and income sources secures the people againstscarcities of any one source -- provide another important example of social adaptation.

Nor is the New Order state apparatus bereft of ingenuity. The dramatic economic rise of Indonesia since the 1960s, the major strides made against poverty and illiteracy, and the defthandling of global economic turbulence in the 1980s amply illustrate the ability of this regime toproduce ingenuity and act upon it. Anyone who has spent time working with officials of theIndonesian government will attest that there are untold numbers of state officials bursting withinnovative ideas -- both visionary goals and rudimentary practicalities -- on how to better realizethe objectives of sustainable development, stability, and equity. If the combined ingenuity of thestate and the society can be unleashed from the outmoded and harmful structures, attitudes, andwebs of special interests that have developed over the past thirty years, Indonesia will stand agood chance of surmounting the challenges of resource scarcity that all of humanity faces on thecusp of the twenty-first century.

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The Case Study of Indonesia

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