The Effect of Indonesia's Economic Crisis on Small Farmers and Natural Forest Cover in the Outer Islands

Abstract

"Twenty million people live in or near Indonesia's natural forests. The country's humid tropical forests, among the most extensive remaining in the world, are primarily in Sumatra, Kalimantan, Sulawesi, and Irian Jaya. A devastating regional economic crisis that began in mid-1997 affected Indonesia more strongly than any other country in Asia.

"A random sample survey of 1,050 households was conducted in six outer island provinces to understand the effects of the crisis on the wellbeing of forest villagers and on their agricultural and forest clearing practices. In particular, the study sought to understand diverging opportunities introduced by the drastic depreciation of the Indonesian rupiah against the U.S. dollar: on one hand producers of agro-export commodities could get an income windfall from higher market prices; on the other hand increased costs of living could neutralise potential income gains.

"Among the key findings of the research are: (1) two-thirds of the study households reported they were worse off and only one-fifth reported they were better off during the crisis than in the year before the crisis; (2) this happened in spite of the fact that three-quarters of study households had export commodity income; (3) clearing of forest land increased slightly in the first year of the crisis and greatly in the second year of the crisis; (4) land was cleared increasingly for export tree crops in sedentary systems and less for food crops in swidden cultivation systems; and (5) those who perceived themselves as worse off or better off were more likely to have cleared land during the crisis, and to have cleared a larger area of land, than those who felt their wellbeing did not change significantly.

"Contrary to the common assumption that rural Indonesians were generally unaffected by the crisis, forest villagers perceived themselves as worse off during the crisis than before. Moreover, additional pressure has been put on forests, in spite of any conclusions that might be drawn from the turn toward increased sedentary farming during the crisis. Key policy lessons are that: (1) farmers need assistance in diversifying their income sources to help protect them against possible future economic shocks; and (2) there should be greater awareness of how macroeconomic instability can lead to undesirable environmental consequences."