JAKARTA: Indonesia lost between $6.5 billion and $9 billion in potential state revenue from royalties and fees on unreported timber production from 2003 to 2014, the national anticorruption commission found.
The shortfalls, which occurred during both a major boom and bust in Indonesia’s commodities-dependent economy, have hobbled successive governments in funding social and infrastructure projects, analysts said, and point to a wider question of poor management of resources.
The report by the anticorruption commission, known by its acronym KPK, placed the market value of the unreported timber production—much of which could be considered a stolen state asset since the government controls most forest area—at as much as $81 billion. The losses, it said, had increased sharply in recent years.
The Association of Indonesian Forest Concessionaires, the trade group representing timber producers, couldn’t immediately be reached for comment on the report.
The data, released Friday, show that much of the production comes from land clearing for the growth of mining, palm oil and rubber plantations and pulp wood. Global wood prices also rose over this period.
The extent of the losses should lead the government to look more deeply at how forests are monitored and managed, the anticorruption commission said.
“This money can be used for developing the country,” said Dian Patria, head of corruption prevention for natural resources.
The revelation of lost resources comes as Indonesia’s economic growth has hit the skids and the budget deficit is projected to exceed its target of 1.9% of the country’s near $1 trillion dollar GDP.
The study shows the government collected royalties and fees on only about 19-to-23% of total timber production during the study period, the anticorruption group said.
“It can be a huge blow to the economy to not have access to those kind of funds,” said Stephanie Fried, an expert on financial flows from the forestry sector and executive director of the Ulu Foundation, a global nonprofit that works on climate and forestry finance.
The under-collection also adds to Indonesia’s financial risks, she said, since it may mean relying on dollar-denominated loans and other mechanisms for development rather than on its budget, exposing the country to risks from currency swings.
The KPK is working with several ministries and local governments to improve the monitoring and management of natural resources under a memorandum of understanding signed earlier this year. The KPK report will help set the agenda for the group to come up with proposed fixes to ensure better collection of nontax forest revenue.
The KPK called for an audit of all such nontax forest revenue, and urged agencies to improve how royalties and levies are calculated. It also highlighted the need for the government to better coordinate data collection and move toward using satellite data to help verify production figures.
The way timber production data are currently collected is based mainly on a manual, honor-based system, which isn’t thorough enough to determine where the underreporting occurs, Mr. Patria said.
“Now we have technologies, satellite, drones. These things can make things simpler,” he said.
Underreporting of production by companies isn’t confined to forestry and spans across natural resource industries, including fisheries and mining.
“Indonesia is very rich with natural resources, so it is easy money,” Mr. Patria said.
