FAO Advisory Committee

Thirty-ninth Session

Rome, 23-24 April 1998

Proceedings

State of the Industry

INDONESIA

General Economic Conditions

Indonesia is encountering a serious economic and monetary crisis which began in mid-1997.

Population:	200 million (1997), 202 million (1998)
Life expectancy:	62 years (1994), 64.2 years (1997).
Poverty rate:	14 percent (1995), 11.3 percent (1996), 15.2 percent (1997).
Employment:	Since the crisis there are now 4.5 million people out of work, and this will increase to 9 million people out of a 90 million work force by the end of 1998 (10 percent)
Literacy:	77 percent (1995) and this will increase significantly since the introduction of compulsory nine years education three years ago
Birth rate:	1.66 percent (1993), 1.54 percent (1997)
GDP:	US$ 198.2 billion (1995), US$ 217.8 billion (1997)
GDP growth:	8.2 percent (1995), 8 percent (1996), 4.7 percent (1997), 0 percent (according to the 1998 Government budget, but it will becomeminus growth)
Income per caput:	US$ 1 155 (1996), US$ 1 089 (1997), US$ 610 (1998)
Minimum wage:	US$ 2.20 per day
Foreign investment:	US$ 39.9 billion (1995), US$ 29.9 billion (1996), US$ 33.8 billion (1997)
Inflation:	8.64 percent (1995), 8.9 percent (1996), 11 percent (1997), 20 percent (1998 estimate). The real inflation: January 98: 6.88 percent, February 1998: 12.76 percent, total January&endash; February 1998: 19.64 percent. Total inflation since the beginning of the crisis: 28.15 percent.
Foreign loans:	US$ 83.3 billion (1993), US$ 136.1 billion (1997)
Currency rate:	US$ 1 = Rp. 2 400 (early 1997), US$ 1 = Rp. 10 000 (end of 1997)
Paper consumption:	14 kg/caput (1995), 15.5 kg/caput (1996), 18.5 kg/caputa (1997)

The IMF has pledged a US$ 43 billion loan to help heal the Indonesian economy. They are now in the process of settling the details (position end of March 1998).

Indonesia’s Pulp and Paper Industry (1996 - 1997)

Pulp, wastepaper and paper production, import, export and consumption 1996 - 1997 (m. tons)

1996

I t e m s	Production	Imports	Exports	Consumption
1. P U L P	2 560 510	836 080	1 127 390	2 269 200
11. WASTE PAPER	980 000	1 297 000	0	2 277 000
111. P A P E R	4 120 490	197 700	1 198 220	3 119 970
1. Newsprint	266 530	37 500	64 100	239 930
2. Writing and printing	1 235 800	37 930	555 790	717 940
3. Sack kraft	122 340	6 990	8 230	121 100
4. Liner and fluting	1 210 860	40 180	209 770	1 041 270
5. B o a r d s	1 029 330	7 040	303 720	732 650
6. Cigarette paper	21 150	4 530	340	25 340
7. Wrapping paper	44 700	16 000	3 570	57 130
8. Household paper	92 100	1 230	11 380	81 950
9. Other paper	97 680	46 300	41 320	102 660

1997

I t e m s	Production	Imports	Exports	Consumption
1. P U L P	2 978 600	1 100 000	1 000 000	3 078 600
11. WASTE PAPER	1 250 000	1 045 700	0	2 295 700
111. P A P E R	4 930 600	263 000	1 500 000	3 693 600
1. Newsprint	422 200	58 900	200 500	280 600
2. Writing and printing	1 587 000	84 000	698 600	972 400
3. Sack kraft	124 000	7 500	9 500	122 000
4. Liner and fluting	1 419 100	19 800	191 500	1 247 400
5. B o a r d s	1 095 700	20 000	341 300	774 400
6. Cigarette paper	61 400	14 700	2 700	73 400
7  Wrapping paper	23 600	4 000	1 900	25 700
8. Household paper	95 800	1 100	12 100	84 800
9. Other paper	101 800	53 000	41 900	112 900

Sustainable Forest Management

As has been reported, officially there are 143.9 million ha of forests in Indonesia divided into several categories:

For protection forest	30.3 million ha
For conservation and national parks	18.7 million ha
For production and industrial	64.4 million ha
For production and conversion	30.5 million ha
	_____________
	143.9 million ha

In accordance with the Government report of March 1998, there are only 92.4 million ha of natural forests left. The target is now how to preserve the existing natural forests and to increase the area back to the total forests area of 143.9 million ha. Efforts have been made as follows:

The harvesting of wood from natural forests is being continuously reduced, from 27 million m³/a to 22.5 m³/a from 1993 to 1998, and will be reduced further to 18 million m³/a from 1998 to 2003.

Step-by-step abolishment of NPH (concession to harvest natural forests without the task of

replanting) and promoting HTI (forest plantations which the concession holders have to

replant). In 1997 250 000 ha of HTI was established and in 1998 it will increase to 311 000

ha. In total 2.6 million ha HTI has been reached. Other plantings have reached 0.5 million

ha. The more we have HTls, the more reforested areas are formed. In practice, once an HPH

concession is over the concession is revoked, and then the concession of the deforested area is given to HTI, to be replanted, securing the reforestation programme.

As noted in the forest categories, 64.4 million ha + 30.5 million ha = 94.9 million ha are made available for production, industry, conversion and transmigration. The most popular at present is turning forest area into oil-palm plantations, which have reached 2.2 million ha in 1997 and will reach 5 million ha in the year 2000.

Plantation of people's forests has reached 0.5 million ha. On the pulp side, 3.3 million ha of HTI-pulp has been distributed, of which 2.4 million ha are in different stages of planting: seed planting, half-matured trees, up to matured trees ready to be harvested.

By the years 2010-2020 we are expecting that HTI-pulp will reach 9.3 million ha, or about 10 percent of the area available.

However, the years 1997 and 1998 are very bad years for Indonesian forestry. In 1997 we had the biggest forest fire in 50 years, covering about 800 000 ha. The fire was caused by:

•El Niño, which caused a long dry season,

•Forest burning by oil-palm plantation projects,

•To a small degree, the traditional slash and burn by farmers.

Haze from the fire has been covering Indonesia, Singapore, Malaysia, Philippines and Thailand for months. The haze has caused one plane crash, cars and boats to collide and quite a number of respiratory illnesses. In 1998 up to now there is a lighter fire covering of about 200,000 ha. It is predicted that it will cover 300 000 ha by June 1998. Help is coming from other countries and international institutions.

Forest Product Production and Trade

Basic raw materials for forest products are abundant but the economic and monetary crisis has caused serious problems with chain-reaction effects. Some examples are the following:

Because the exchange rate has fluctuated wildly upwards, the prices of commodities are up two to five times. It is very difficult for producers to calculate production costs and selling prices.

The crisis has reached a point where foreign banks are not honouring L/Cs opened by Indonesian banks. This causes scarcity of imported raw materials, disturbing and even stopping production.

Because of fewer imports, there is a scarcity of containers, causing our exporters to face difficulty in sending their products abroad.

Many companies who have overseas loans are unable to repay them because of the very high exchange rate.

All of the above has caused labour lay-offs which are increasing every day.

Benefits are enjoyed by companies who are using local raw materials and exporting their

products.