As seen on the Jakarta Post

Business players in the country’s declining forestry sector lack financial support from banks and other financial institutions” the industry association has claimed.

Forestry enterprises find it hard to get capital loans to develop their businesses due to the uncertainty of the sector and high risks such as forest fires” social conflict” encroachment and natural disaster” Association of Indonesian Forest Concessionaires (APHI) chairman Soegiono has said. 

”It is not easy for us to persuade banks and financial institutions to lend to us”” he said. 

According to Bank Indonesia data” in 2011 total bank loans for investment in the forestry” agriculture” fishery and animal husbandry sectors accounted for only 1 percent of a total US$491.05 billion in investment loans.

In addition” a log export ban and low domestic prices for timber have made the business unappealing for companies” many of whom have chosen to leave the industry.

Soegiono said the forestry sector used to be a major source of state revenues in the 1970s but has since declined. 

The APHI says forestry’s contribution to Indonesia’s gross domestic product (GDP) fell from 1.87 percent in 1987 to 0.7 percent in 2011.

The association’s data also shows that less than half of a total of 235 natural forest concessionaires and only 39 percent of a total of 294 industrial forest units are still active.

Concessionaires” who have been restricted to selling their product to domestic customers due to the government’s 2011 log export ban” have had to endure low timber prices of between $23 to $33 per cubic meter in the domestic market” compared to international prices of between $60 and $75 per cubic meter.

Forestry Ministry secretary-general Hadi Daryanto said businesses should go to the government’s Forest Development Financing Agency (BLU) as the sector was basically not bankable.

“Forestry concessionaires operate in state areas that can not be used as collateral [for bank loans]”” he said. 

Hadi added that the sector was not bankable as it took a long time to see returns. Soegiono cited as an example industrial forest (HTI)” which takes six to eight years to produce yields.

Finance Ministry interim fiscal policy head Bambang Brodjonegoro said the Forestry Ministry should optimize the use of its agency” which already “offered competitive interest rates” and unlike other financial institutions provided incentives such as extended credit grace periods of more than eight years.

The agency is now working under the auspices of the Forestry Ministry’s secretariat general” and is only permitted to finance development of community plantations and industrial forest outside protected forests.

It currently has up to Rp 3 trillion (US$302 million) in reserved funds.

Besides the agency” Bambang also suggested the utilization of the State Investment Agency (PIP) to support forest industry players.

“PIP currently finances infrastructure and fund management for geothermal resources. It could also be used to finance forestry”” he said.