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The development of environment is an important part of the ecosystem functioning as a buffer to the life of all living beings. The development of the environment shall be directed towards bringing about continuity of environment functions in a dynamic balance and harmony with the population growth for ensuring sustainable national development. The development of the environment shall be aimed at improving quality and at utilizing the natural resources in a sustainable way, at rehabilitating environmental damages, and at controlling pollution and promoting the quality of environment.

The objectives in the development of environment during REPELITA VI are, among others, for improving the identification of the number and size of natural resources and the environmental functions, identification of damage levels, its utilization, and possible development, maintaining the natural resources and environmental functions; maintaining conservation areas and protected forests, biodiversity, DAS (river basin) areas, coral reefs, and mangroves ecosystem forests; establishing a more efficient and effective institutional system of environment; the control of air and water pollution, caused by developmental activities or by people's way of living; pollution control of 101 most important rivers all over Indonesia, which have been heavily polluted; control of coast damages and the maintenance of quality and function of coastal areas; and recovering production potentials of critical soil in at least 39 DASes.

In order to reach these objectives, certain policy measures shall be adopted. The portfolio requires that the selection of location for development is always be based on the capability of the environment to support the development. Other policy measures include the efforts to reduce industrial hazardous wastes the efforts for managing the waste and adequate control of pollution, efforts in determining environmental quality standard; efforts in conservation and rehabilitation of natural resources and the environment; and effort in developing institutions, people's participation, and capability of human resources in managing the environment.


Environmental Objectives play a key role in REPELITA VI. The Plan targets improvements in the management of natural resources and minimization of pollution as key objectives. Achieving these goals will entail a three-pronged approach focusing on policy, investment and institutions. Successful environmental and natural resource management depends on maximizing the links, between sound economic policies and sound environmental outcomes. In particular this entails taking full advantage of "win-win-win" pricing policies that reflect the true value of fuels and energy, forests, water, and land to the country. But moving to market prices is not sufficient in many cases, such as clean air and water. Here it will be necessary to use a mix of regulatory policies and market-based policies such as pollution charges to limit environmental degradation. These policies will encourage private investment in pollution control. In the public sector, investments in reducing congestion, and in water, sewage treatment, and sanitation will be key factors in maintaining a healthy urban environment. Finally, achieving REPELITA VI's environmental goals will entail improvements in the design, scope and effectiveness of institutions charged with meeting those goals, coupled with information campaigns to enlist the support of the public in the sound management of the environment.

REPELITA VI and the Second 25 Year Long-Term Development Plan aim to improve natural resource management and minimize pollution. Problems of natural resource management are the sustainability of forestry and potential declines in oil & natural gas reserves, with water basin and aquifer management becoming important issues. The highest priority pollution problems are water supply and sanitation, vehicle emissions, and industrial pollution in the main urban centers.

Better use of incentives, in particular pricing that more closely reflects the true value of resources and the costs of activities to the environment, would encourage more efficient use of resources, less damage to the environment, and more fiscal revenues, a so-called "win-win-win " solution. A good example is the 1993 increase in petroleum prices. Other important areas where higher prices would generate win-win-win solutions are, first and foremost, forestry royalties and stumpage fees (with revenues brought into the budget), but also electricity and fertilizer prices. In addition, there is considerable scope for increasing water charges and effluent fees, although these measures would have to be complemented with institutional developments that discouraged tapping of aquifers and self-disposal that would harm water resources. Fees for parking or access to congested urban zones could reduce bottle-necks and associated vehicle pollution.

Investment will also be necessary to reduce pollution. Massive public investments will be needed to limit urban congestion and realize REPELITA VI's ambitious targets for delivery of safe water (from 50% to 75% of the population) and sanitation (from 25% to 54% of the population). A key issue will be implementation of the investment plan; over the last five years, investments in urban water and sanitation fell significantly short of targets. Effectiveness of service delivery could also be improved by greater reliance on contracts with the private sector for construction and management of systems. In addition, private investments will be needed to reduce the enormous projected increase in industrial pollutants that otherwise would accompany the projected industrial growth. Adjustments in investments need to begin now, because 85% of the projected increase in pollution over the PJP II would come as a result of growth, not existing production. A mixture of pollution charges, regulation, and development of institutional enforcement capacity will be needed to encourage these private investments.

Institutional development also will play a major role in improving management of natural resources and reaching the Plan's environmental goals. In the area of natural resource management, institutional development will be critical to enforcement of higher charges for logging and water/sanitation. In the area of oil and gas, a decision will be needed soon on whether what adjustment, if any, would be desirable in contract terms, given the long lead times for development of fields, the projected decline in net oil & gas exports, and the projected trends in world oil prices. Institutional development also will be needed to limit the growth of pollution, by strengthening the capacity of the local governments, which will increasingly implement urban infrastructure investments, and the institutions charged with monitoring and enforcing environmental standards. A final, important institutional element will be to build a public consensus in favor of environmental protection, particularly in the business community, and to provide public information about environmental problems and solutions.


Environmental quality and sustainability are an integral part of the Indonesian Government's development concerns. As REPELITA VI states: "Environmental values influence all of the desirable development activities of the Second 25 Year Plan.'

The growing attention to these issues in the Government's development strategy reflects an increased awareness of the costs and risks of the worsening environmental conditions due to past growth, and potential for continued environmental degradation in the future. Past growth was heavily dependent on natural resources--oil, gas and forest products. Although the Government has successfully reduced that dependence, the sustainable management of natural resources and the environment remains a major challenge.

The environment provides two key functions in support of economic activity. First, it is a source of natural resources, both renewable and non-renewable, for use in production. Natural resources must be managed over time, in light of opportunities for trade, to maximize sustainable growth. Second, the environment must absorb waste products created during the production of goods and services. The environment's capacity is limited and use of that capacity must be explicitly managed because externalities and poorly defined property rights make leaving such management to the market an incomplete solution. For both natural resources and the environment, efficiency and sustainability could be enhanced by greater reliance on fees that reflect the economic costs and benefits of resources (so-called win-win policies because they simultaneously improve environmental and economic outcomes). Improvements in incentives will need to be coupled with institutional improvements, particularly in forest, land and marine fishery management.

Unless existing policies and practices are changed, analysis of current environmental conditions and the likely impact of future growth and development indicates that three main problems will emerge that will threaten overall GDP growth and equity in REPELITA VI and the Long-Term Development Plan.

First, future growth and development, including the process of industrialization, would increasingly strain Indonesia's stock of key natural resources (land, forests, water and energy) and the sustainability of critical ecosystems (including groundwater aquifers in cities, and watersheds and coastal and marine ecosystems throughout Indonesia). This would occur despite the shift away from growth based directly on natural resources. Moreover, inefficiencies in the allocation and use of natural resources and the prospects for, continued degradation of critical ecosystems, call into question the sustainability of even current levels of economic activity in a number of key sectors.

Second, pollution from industrial and urban sources (human waste, solid waste and vehicle emissions), already poses a threat to health and welfare. This threat would increase because of the concentration of industry in cities. Moreover, continued growth of congestion and pollution in Indonesia's main cities would erode the efficiency of public and private sector investment, reduce Indonesia's ability to attract foreign investment, and could lead to strong community resistance to industrial expansion, again with serious implications for overall growth.

Third, the poor are particularly vulnerable to growing pollution and the erosion of natural resources. Lacking the resources to protect themselves, they would bear the brunt of polluted water and air in the cities and the falling productivity of marginal lands in the country side. The poor would also contribute to environmental degradation through unsustainable production practices and the unsafe disposal of human and other wastes. Dealing with these environment-related issues of equity will become increasingly important in the coming years.

The potential consequences of these issues have led to a growing awareness in Indonesia of the need to improve the management of natural resources, reduce the level of urban and industrial pollution, and enhance equity in the outcomes of future growth and development. This will require continued improvements in the policies and incentives for environmentally responsible behavior, a substantial increase in investments in environmental protection by both the Government and the private sector, and sustained efforts to strengthen the institutions responsible for environmental planning and management.


The Changing Reliance on Primary Commodities. Indonesia has the good fortune to own vast and varied natural resources: the world's second largest expanse of tropical forest, fertile soil, teeming seas, prolific oil and gas deposits, and