Governments do not like to close down big businesses. But that is the
most likely outcome of a meeting on Bali this week to discuss a new
The big businesses in question are the debt-ridden timber companies
that borrowed billions of dollars in the twilight years of the Suharto
regime. The loans fuelled massive growth in timber-processing industries,
particularly pulp and paper. Indonesia lost millions of hectares of rain
forest, and wood processing industries now need three to four times more
wood than the forests can sustainably produce.
After the 1997 Asian financial crisis, most Indonesian conglomerates
stopped servicing their loans. Some could not pay; others decided not to
pay when they realized there was no functioning bankruptcy system that
could force them to do so.
With frightened bank customers withdrawing their deposits and companies
not paying loans, most banks were on the verge of collapse. The Indonesian
government bailed them out with billions of dollars of taxpayer and aid
In return, the banks handed over their bad loans to the government,
which created the Indonesian
Bank Restructuring Agency to get companies to pay off these loans.
Meanwhile, most forestry (and non-forestry) companies kept on with
business as usual.
Many donors felt that allowing timber conglomerates to continue
destroying some of the world's most valuable rain forest while the donors
picked up the tab for the companies' bad loans was adding insult to
injury. They called on the government to shut down timber companies that
would not pay up. In February 2000, the government promised to do just
Three years later it has yet to close any of the companies. After several
half-hearted efforts to get the companies to pay their loans, the
restructuring agency now wants to call it quits.
It plans to wash its hands of the matter and sell the loans for
whatever price investors - mostly banks - are willing to pay. However, if
the agency does that, it will recover only 15 to 20 cents for each dollar
The real losers will be Indonesian taxpayers and international donors,
as well as the country's tropical forests. The former because they will be
picking up the bill for most of the forest companies' original debt; the
latter because the companies will continue to plunder the forests to
provide timber, wood pulp and palm oil.
The restructuring agency claims that with no functioning bankruptcy
system it has no choice but to sell the loans cheaply. But such a claim
does not hold water. If the government revoked the licenses of some of the
indebted timber companies as it promised it would, other companies would
see the writing on the wall and pay.
There would be less forest destruction, and the government would have
more money for pressing social needs.
If the solution is so easy, why hasn't it happened? Because the big
timber conglomerates have been lobbying hard behind the scenes to avoid
closure and the government wants to raise quick cash by selling the loans
now, rather than wait for a better return in the future. The Bali meeting
was a chance for the government to look beyond its short-term budget
deficit and act to save the country's forests. Failure to do so will not
only further endanger threatened species such as tigers and orang-utans,
but also lead to the eventual collapse of the forestry industry.
Unless debt sales are postponed and unsound companies shut down,
Indonesia will lose most of its high-value timber in the next 10 to 15
years. Instead of providing moderate levels of employment far into the
future, the industry will employ people for a few more years but then
That would be devastating for the country's foreign exchange earnings
and tax revenues. It would also lead to major job losses and more social
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