Preliminary Analysis of REDD on Indonesian's Economy

Approximately 10 per cent of the world’s tropical forests or around 144 million ha are located in Indonesia, scattered from the westernmost tip of Sumatra to the eastern border of Papua, occupying approximately 70 per cent of the country’s land area (Barbier, 1998). Thus, Indonesia ranks third — after Brazil and Zaire — in its endowment of tropical forests (Forest Watch Indonesia, 2002). Indonesia’s forests have been one of its most important natural assets. Forestry related activities have provided an important source of formal as well as informal employment for many people and have generated large amounts of both government revenue and foreign exchange (Indonesia-UK Tropical Forest Management Program, 2001). Meanwhile, deforestation and forest degradation has been the main source of Indonesia’s Green House Gas (GHG) emission; i.e. 70-80% of Indonesia’s GHG emission. Incentive to reduce the rate of deforestation, through the Reducing Emissions from Deforestation and Forest Degradation (REDD) program, has recently widely discussed. In general, the program allows international communities to transfer a certain amount of funding to Indonesia to compensate its successful efforts to reduce its rate of deforestation. The question is what will the likely impact on the Indonesian economy, if Indonesia commits to be involved in this REDD program. This report illustrates the impacts of reduced deforestation have on the Indonesian economy and demonstrates the complexity in distributing Reducing Emissions from Deforestation and Forest Degradation (REDD) fund to compensate the negative economic impacts of reduced deforestation.