US Swaps Debt with Indonesia to Preserve Borneo Forests

17 October 2011

The US and Indonesia have struck a seldom seen debt-for-nature exchange deal aimed at helping to protect rapidly declining forest cover in Indonesian Borneo. The deal will divert US$28.5 million intended to repay Indonesia's debts to the US into a fund for improving local land use techniques. The forests are widely known as critical habitats for a wealth of unique and endangered species as well as their ability to keep carbon out of the atmosphere.

The new fund will apply to three targeted districts in Kalimantan, the Indonesian part of Borneo. Berau and Kutai Barat in East Kalimantan Province and Kapuas Hulu in West Kalimantan Province are considered hotbeds of threatened biodiversity and carbon-rich tropical forest. Experts say local governments, which are largely responsible for land use regulation, are better suited to applying the funds effectively than provincial or national governments.

Under the plan, the three district governments will receive periodic grants from the fund in order to direct development to already degraded lands. The fund will also support efforts to improve land-use planning and management of protected areas, as well as other projects aimed at preserving intact forests.

The debt-for-nature swap is authorised under the US Tropical Forest Conservation Act (TFCA), which is intended to divert foreign debt to the protection of critical forest habitats. It is the second such deal for the US and Indonesia, building on a similar effort on the island of Sumatra in 2009.

Indonesia attracts sustainability investment

The island of Borneo - which is shared between the countries of Indonesia, Malaysia, and Brunei - has attracted much attention from international environmental groups in the past. The island is home to orangutans, clouded leopards, "pygmy" elephants, and myriad flowering plants, yet it has lost a dramatic amount of forest cover in recent decades.

According to US-based environment group The Nature Conservancy, Borneo lost an average of 850,000 hectares (2.1 million acres) of forest per year between 1985 and 2005, leaving only half of the island's forest cover intact today. The rapid expansion of oil palm plantations, illegal logging activities, and mining have all contributed to the staggering losses, according to the group.

Deforestation has also added to concerns over the island's mounting carbon emissions. Borneo's peatlands, like its forests, act as major carbon sinks. The traditional land-clearing method of burning peatlands has reduced the land's ability to absorb carbon emissions, sending clouds of black smoke over much of the region as far as Singapore. According to The Nature Conservancy, 60 percent of Indonesia's emissions derive from forest loss and land conversion. .

Indonesia's renowned biodiversity and land-use challenges have placed it on the frontline for international forest conservation efforts (see Bridges Trade BioRes Review, July 2011). The Nature Conservancy and WWF each contributed US$2 million to the US debt-for-nature deal. In May 2010, Norway signed a US$1 billion deal with Indonesia to put a two-year moratorium on new logging permits for primary forests and peatlands, implemented this year (see Bridges Trade BioRes, 30 May 2011). Indonesia receives additional forest aid from the UK and Australia and has been a key participant in bilateral and multilateral REDD+ initiatives.

Indonesian President Pledges Sustainable Economic Growth

The US debt-for-nature deal and other international aid-for-conservation efforts have been important factors in Indonesia's sustainable development strategy. Recently, Indonesian President Susilo Bambang Yudhoyono dedicated his last three years in office to preserving the country's forests.

"We must change the way we treat our forests, so that they are conserved even as we drive hard to accelerate our economic growth," declared President Yudhoyono to an audience of 1,000 attendees at the Forests Indonesia Conference on 27 September, an event hosted by the Center for International Forestry Research (CIFOR).

President Yudhoyono repeated a 2009 pledge to maintain 7 percent economic growth while cutting Indonesia's greenhouse gas emissions by 41 percent by 2020, a dual goal that relies substantially on foreign investment. According to Environment News Service, forest industry watchers project that up to US$30 billion could flow from developed to developing countries each year to help mitigate deforestation and carbon emissions, including funding through REDD+.

ICTSD Reporting; "US and Indonesia Announce $28.5 Million Debt Swap To Protect Borneo's Tropical Forests," THE NATURE CONSERVANCY, 29 September 2011; "US, Indonesia sign $30m debt-for-nature swap," AGENCE FRANCE-PRESSE, 29 September 2011; "Indonesian President Vows to Protect Rainforest," ENVIRONMENT NEWS SERVICE, 4 October 2011; "Indonesia pays $28.5 million debt to US through forest protection deal," LINCOLN TRIBUNE, 3 October 2011.

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