Indonesia
Indonesia supplies a third of all producer-country exports of tropical timber - second only to Malaysia. It is also the world's leading exporter of pulp, paper, and furniture based on tropical timber (excluding rubber wood).

The Indonesian government accepted that just under 90% of its timber production during 2003 was probably illegal. During 2006, the Indonesian government claimed to have reduced the quantity of illegal timber from 10 million to 3 million cubic metres. However, these figures probably ommit (perhaps deliberately, perhaps because such data might not be collected) estimates of the quantity of illegal timber which is produced for pulpwood and from Conversion Forest. Further, statistics for the Annual Allowable Cut published by the government of Indonesia and the ITTO are highly misleading in isolation - they tend to relate to only part of the forest area which is officially - but not necessary legally - authorised for logging.

ITTO reports indicate that Indonesia imposed a ban on sawn wood exports during October 2004 and that this ban was relaxed from March 2006. It is remarkable therefore that the volumes of sawn wood which China, the EU, Japan, and the USA each imported monthly during 2004 changed little during 2005.

The roundwood equivalent volume of Indonesia's timber exports has declined appreciably since since the early 2000s having previously been static for several years. Factors contributing to this decline include the severity of accumlated forest loss in Indonesia, the success of China (partly by using stolen Indonesian timber) in gaining market share from Indonesia, and the increasing frequency of efforts by the authorities to clamp down on illegal production and trade in timber. Because those efforts have yet to include the successful prosecution of key individuals for complicity in those illegal activities, one might argue that those efforts are little more than a token, temporary measure.

Plywood accounted for half of Indonesia's timber exports (by RWE volume) in 2004, and Japan imported half of this.

In terms of RWE volume, there is a substantial mismatch between the declared exports of these products and the corresponding imports that many importing countries declare. This translates into an loss to Indonesia of some US$400 million. Separately, it is said that Indonesia annually losses US$4,000 million from illegal logging.

It is remarkable that Bretton Woods institutions and others do not seem to consider that short-term investment in transforming Indonesia's customs service is worthwhile. The return on investment is surely very high.

The military - particularly naval - equipment that Indonesia has been persuaded to buy (much of which may be subsidised by special export credits) could be used in support of the customs service and the law (at negligible incremental cost if treated as practical experience). Unfortunately, as in many other producer countries, the military - particularly the army - (and police) is understood to be complicit in illegal timber production and trade.

Countries that import Indonesian timber, pulp and paper products have driven the evolution of Indonesia's (currently anarchic) timber industry. The low unit prices which importers have secured has, inter alia, fuelled tropical timber consumption and trade, held back sound forest management, impoverished local communities and national economies, and contributed to bad governance and associated organised crime - internationally.

The European Union has been the lead donor (particularly in capacity building) to Indonesia's forestry sector during the period of "transition" since the Suharto era as part of a seven-year project - due to end in mid-2004 (i.e. soon). The focus should be on greatly reducing installed milling capability and on enhancing the capacity of the Indonesia Bank Restructuring Agency to properly manage the government's commercial interests in failing timber and pulp/paper companies (and minimise the state's liability for the previous regime's lack of responsibility and investors imprudence).

Although the EU (primarily the North) imports little more than 10% of Indonesia's timber exports (mainly as plywood) - the Middle East imports slightly less - those imports are sufficiently large for changes (such as the prohibition of illegal timber imports) to generate some leverage for robust reform in Indonesia's forestry and wood processing industries - including the closure of many large mills. Such reform would help minimise poverty and improve lenders' and others' confidence in doing legitimate business with Indonesia.

Japan is much the most culpable importer - it imported 40% of Indonesia's timber exports during most of the 1990s and is the world's largest consumer of tropical timber.

By RWE volume, Malaysia, which imports some 10% of Indonesia's timber exports (40% as logs), has for several years imported 10 times as much timber from Indonesia as Indonesia declares that it exports to Malaysia. This is indicative of the scale of illegal trade between the two countries.

China is particularly responsible for driving Indonesia's (and hence other impoverished producer countries') illegal log exports. China has led the surge in Indonesia's log exports since the IMF obliged Indonesia to remove a log export ban in 1998 (the ban was re-imposed only three years later), and has developed an export-oriented processing industry largely dependent on cheap tropical logs. Further, in terms of RWE volume, China has for several years imported twice as much timber from Indonesia as Indonesia declares that it exports to China. China is also the destination for much of Indonesia's increased palm oil production.

Importing half of Indonesia's pulp and paper exports, China is a major driver of Indonesia's exports (and, by extension, production) of pulp and paper. Much of this trade is between a small number of associated companies. Much may subsequently be re-exported from China. The principal such company, APP, is bankrupt (but is being propped up by the international community - which tends to confirm that speculative investment in the timber processing industry is risk free - and its auditors were Arthur Andersen).

Organised crime is said to be the principal link between Indonesia's teak plantations and Indonesia's teak garden furniture producers. Indonesia is the world's leading producer of such furniture. All the output of the state-owned monopoly supplier, PT Perhutani, used to be FSC-certified. None now is - much promotional material related to such furniture is misleading. Wealthy corporate and private consumers in the EU and USA continue happily to buy much of that furniture.

Importers would be prudent if they treated all wood-based products from Indonesia as being illegal (and unsustainable) - unless certified to standards equivalent to those of the FSC which demand legal compliance. It is possible for the timber trade to conduct profitable and responsible business from natural tropical forests. Organisations that are vertically integrated from forest concession through to retail outlet, such as the Tropical Forest Trust, are setting a commendable precedent rather than wait for governance in the forestry and timber processing industries to be transformed.

For many years the Indonesian state has been allowed by the international community to be in breach of its constitution - to manage all resources for the well-being of all its people.

With exhaustion likely later this decade in Sumatra and Kalimantan, the logging frontier has shifted to regions where ethnic tensions provoked by transmigration and the military (/politicians) are already high.

Indonesia, like other producer countries, appears to have focussed on supplying basic raw material for uses in which non-tropical timber would (if the social and environmental cost of timber extraction were taken fully into account) probably have been both fit for purpose and competitively priced. In doing so it has chosen to follow the short-sighted example of the Philippines, previously a leading tropical timber supplier but now, because its forests are exhausted, obliged to meet its timber consumption by imports (requiring foreign exchange which the country can ill-afford).

This has helped prevent tropical timber, with its many excellent properties, attracting a price premium. It has also held back investment in local employment (particularly on heavily populated Java) and small to medium sized enterprise in the finished and semi-finished products sector - indirectly helping its competitors develop such industries.