Readiness for REDD: Financial Governance and Lessons from Indonesia’s Reforestation Fund (RF)

background

This article explains how REDD payments can generate significant financial flows into Indonesia, and how efficient and transparent financial governance is necessary. Using the history of the Indonesia's Reforestation Fund, this article offers recommendations for effective REDD financial management.

Conclusions & Takeaways

The Reforestation Fund, established in 1989, levied a tax on timber concessions in order to fund reforestation projects. However, the authors state that much of the reforestation program payments, toward the development of industrial plantations, favored companies with ties to state elites. Large amounts of funds were lost to fraud and corruption, and fewer plantations were developed than initially planned. In many cases, Reforestation Fund subsidies were carelessly distributed, and did not result in commercially productive plantations. After the Asian financial crisis and the IMF bailout, responsibilities were shifted to the Ministry of Finance, with oversight from the Supreme Audit Agency, and transparency and accountability improved. Nevertheless, in recent years, the provincial governments have not dispersed significant parts of the reforestation money that they manage. The authors conclude that significant financial safeguards need to be in place in order for REDD payments to be distributed equitably and efficiently.