Decentralisation has involved a massive reform of Indonesian government that has profoundly affected every area of political, social, economic and even environmental life. As many of the chapters in this book illustrate, the process of decentralisation has been both wrenching and complex. The transfer of political and financial authority to regional governments has occurred very rapidly. Many of the changes in governance have been driven by ad hoc decisions made at the local level rather than by carefully considered central government policies. The process has been marked by contentious decisions and by conflict between all levels of government, with each defending its own political and economic interests. Nowhere has the disorderly and sudden nature of the changes brought about by decentralisation been more apparent than in the management of Indonesia's forestry resources.

This chapter attempts to present a preliminary analysis of the impact of decentralisation on the forestry sector. It highlights some of the important trends in forestry activities at the local level since the inception of the decentralisation laws and provides some illustrations of how the transfer of forestry authority is being played out between the national government and, in particular, the districts.

The analysis suggests that decentralisation has profoundly affected the course of forest management. Almost everywhere the picture is the same: of local governments, motivated by necessity and opportunity, attempting to generate revenue from forest resources without adequately considering the social and environmental consequences. As a result, the impact of decentralisation on the environment has been negative, at least so far. In addition, it appears that local people may gain only limited short-term benefits from timber production. It should be noted at the outset, however, that because the forestry sector in Indonesia is so complex, with many trends and changes being unique to particular localities, the account in the following pages captures only some of the important new trends and issues, and cannot be considered to be a complete account of forestry under decentralisation.

In August and November 2001 the Indonesian government passed laws on special autonomy for Aceh and Papua respectively. Independence movements in both provinces have been gathering momentum since the resignation of President Soeharto in 1998, resulting in violent conflict between the security forces and supporters of independence. But in addressing these growing conflicts, the government has lacked an overall framework. The Special Autonomy Laws, primarily the initiative of the provinces, offer the most systematic attempt to date to manage regional grievances resulting from Jakarta's failed security and development policies.

This chapter examines the Special Autonomy Law for Papua, against a background of continuing political strife. Drafted in response to growing demands that the state uphold Papuans' basic right to development and security, the law involves a broad devolution of powers and the redistribution of revenues to the province. Through sustained advocacy and lobbying, the provincial government was able to extract concessions from a weak central government lacking clear policy directions.

The concessions offered in the Special Autonomy Law have raised hopes that it may result in a de-escalation and eventual resolution of the conflict in Papua. It is still too early to make a definitive assessment of special autonomy, since the law's full implementation requires scores of implementing regulations to be passed by the end of 2003. The devil will be in the detail of implementation. Nevertheless, the general direction of special autonomy is clear, as are the broader national forces that will shape the environment in which it is implemented.

I argue that Papua is likely to see more violence, not less, in coming years. Whatever the potential of the new law to empower local communities, and this is not inconsiderable, Papuans' basic rights will continue to be threatened as long as the cycle of impunity enjoyed by the security forces remains unbroken. An unreformed security sector and mounting government failures to uphold the rule of law will continue to alienate Papuans from the state and reinforce the overwhelming support for independence in the province. In this context, government success in addressing the grievances fuelling Papuan nationalism is conditional on thoroughgoing reform of national institutions. This is a distant prospect, and is not directly addressed by the Special Autonomy Law.

The autonomy laws of 1999 were a product of many factors, foremost among them a strong reaction against what was perceived as the New Order's rigid centralism – a centralism that was damaging to the interests of the Outer Islands. Unexpectedly for some, the laws also brought into the open centrifugal movements directed against local centres outside Java. The creation of the provinces of Bangka-Belitung, Gorontalo and North Maluku were as much expressions of dissatisfaction with local centres (Palembang, Manado and Ambon respectively) as they were expressions of anti-Java or anti-Jakarta sentiment. Indeed, in some instances the move to create these provinces has necessitated the forging of new ties, or the strengthening of old ones, between the proponents of the new provinces and Jakarta (see, for example, Sakai 2003). Perhaps even more unexpected – and certainly little noticed so far in commentary on the decentralisation process – is the appearance of secessionist movements within the provinces of the ‘central’ island of Java itself. This chapter focuses on these movements, looking at the emergence and, ultimately, the fragility of provincial ‘peripheries’ on Java. It sketches the rationales advanced by secessionist activists in Banten, Cirebon, Madura and Surakarta. It also looks at the debate over the identity and basic institutional character of the Special Region of Yogyakarta. In all the cases described, commercial and political opportunism, not to mention brute personal ambition, has shaped the debates and campaigns. But these imperatives have ridden on the powerful tides of local history, identity and chauvinism. It is these forces above all that this chapter explores.

BANTEN: THE RETURN OF THE JAWARA

With very little fanfare, the province of Banten officially came into existence on 4 October 2000. It was the first of Indonesia's post-New Order provinces and the first to be created on the island of Java since 1950 when four were gazetted. With its capital at Serang, some 70 kilometres to the west of Jakarta, Banten has a population of a little over eight million people. It consists of four kabupaten (districts), Tangerang, Serang, Lebak and Pandeglang, and two autonomous city governments (kota), Tangerang and Cilegon. These occupy the western extremity of Java and used to account for about one-fifth of the land area and population of the province of West Java.

The idea of a trans-Pacific institution created along the lines of the Parisbased Organization for Economic Co-operation and Development (OECD) is almost as old as the OECD itself. The Pacific Trade and Development Conferences, which bring together economists from around the Asia-Pacific, discussed proposals for a trans-Pacific intergovernmental forum from the time of the first meeting in 1968. This idea took form in Peter Drysdale's proposed “Organization for Pacific Trade and Development”, which drew on some elements of the OECD while underscoring that the European model was only partly applicable to the Pacific. In 1978, U.S. Senator John Glenn, as chairman of the Senate's Subcommittee on Asia and the Pacific, commissioned a paper entitled “Evaluation of a Proposed Asian-Pacific Regional Economic Organization.” On the eve of APEC's creation in 1989, Australian Prime Minister Bob Hawke also proposed an institution which would “develop a capacity for analysis and consultation on economic and social issues, not as an academic exercise, but to help inform policy development by our respective governments.” The so-called Hawke Initiative made direct reference to the OECD as a model, albeit recognizing that the Parisbased organization operated within a very different context.

The founding members of APEC did not, however, subscribe to Hawke's vision, and the trans-Pacific forum that was created instead adopted a distinctly anti-institutional character. By 1994, with the announcement of the Bogor targets, the focus in APEC was clearly on “free and open trade” (by 2010 for developed member economies, with an additional ten years for developing member economies to achieve the same). The means for achieving the Bogor targets were “open regionalism” and “concerted unilateral liberalization” — a process of voluntary tariff reduction through enlightened dialogue among APEC members, and the extension of these market-opening measures to non-members without a call for reciprocal actions. In 2002, at the half-way mark to the first Bogor milestone, APEC's trade liberalization agenda was sidelined by the rise of bilateral free-trade agreements among APEC members, proposals for Asia-only regional integration, continued momentum towards a Free Trade Area of the Americas (which would include five APEC members), and the launch of a new multilateral trade round.

Introduction

A new metaphor has recently been created for APEC. For a long time, the three functions of APEC have been said to include the support of (a) trade and investment liberalization, (b) trade and investment facilitation, and (c) economic and technical co-operation. These three functions have become the “Three Pillars” of APEC, defining its unique existence and activities. In early April 2001, however, a new analogy was made in Beijing that likened the main functions of APEC to two wheels of a bicycle — the front wheel being trade and investment liberalization and facilitation (TILF), and the rear wheel being economic and technical cooperation (ECOTECH). Since then, this new metaphor has been mentioned in many subsequent APEC-related meetings. It has obviously improved upon the original “Three Pillars” concept of APEC for its dynamic forward movement, and a better sense of balance between trade and investment liberalization and facilitation, and economic and technical co-operation.

However, while this development can be seen as part of the efforts to enhance the status of ECOTECH in APEC, there are many more developments that are required to truly push ECOTECH onto a higher ground of official and popular recognition in APEC. In this short chapter, I would like to discuss some of these developments or changes that are required. However, before discussion of this point, the past achievements of APEC on ECOTECH matters and the reasons behind these achievements will be dealt with. The following section will then discuss forthcoming changes and expectations that may give the APEC forum that handles ECOTECH matters its new enhanced status. Finally, the chapter concludes with some observations on the future success of APEC as a result of these new developments.

Past Achievements in ECOTECH Matters

By now, ECOTECH is a well-known acronym in APEC. What is not well known, however, are ECOTECH's achievements in the APEC process. The ECOTECH agenda is run by the Senior Officials’ Meeting (SOM) Subcommittee on ECOTECH, or ESC. According to the terms of reference (TOR) for the ESC, this subcommittee will assist the SOM in co-ordinating and managing APEC's ECOTECH agenda, as well as in identifying value-added initiatives for co-operative action.

Foreign direct investment (FDI) has played a significant role in the growth and dynamism of the member economies of the Asia-Pacific Economic Co-operation (APEC). Most APEC economies are both recipients and sources of FDI. Up to the late 1980s and early 1990s, a number of these economies pursued highly restrictive policies towards FDI for fear that multinational companies would control important activities in their domestic economies (Bora and Graham 1995). However, the development experience of the newly industrializing economies (NIEs) of Asia in the late 1980s has fundamentally changed this view. The capital as well as the technology, management skills, and other expertise brought in by the multinational companies (mostly from Japan and the United States) have played a major role in the unprecedented growth experienced by these economies that has become the envy of other developing economies.

As a consequence, a number of economies began reorienting their FDI regimes towards greater openness and less regulation. This eventually led to the surge of investments into the region during the last decade. At the same time, however, this flow of FDI facilitated industrial adjustment in the source economies as it enabled them to relocate their labourintensive industries in Asia, where labour is relatively cheap, as part of their global strategy to remain competitive. This was also true of the experience of the NIEs when they themselves later became sources of capital, targetting labour-intensive industries in ASEAN and China (ESCAP 1998). Such a development strategy ultimately increased economic integration among many APEC economies where the production networks of multinational companies located in the region are now interlinked in technologically advanced industries.

The region's dependence on FDI as a source of capital has not diminished and the role of the region in global FDI flows continues to be strong. In light of the general recognition of the importance of FDI in the economic development of the region, an investment environment that facilitates the smooth flow of FDI becomes crucial. To this end, APEC is aiming for free and open investment no later than 2010 for its developed member economies and by 2020 for its developing member economies.

This practical chapter describes the APEC project approval and evaluation process, and the roles of the Budget and Management Committee (BMC) and the APEC Secretariat in the project cycle. It explores weaknesses in these procedures and institutions and concludes with various policy recommendations to enhance the efficiency and transparency of APEC decision-making and to bolster project quality and impact.

Background: The APEC-Funded Project Cycle

Most APEC-funded projects consist of workshops and conferences, short-term capacity-building training sessions, construction of databases, surveys, and policy-oriented research and publications. APEC is not in the business of financing large-scale, brick and mortar projects. A significant percentage of APEC funding is allocated to participant travel and per diem and to consultant fees. Few APEC projects receive more than US$300,000, and most receive considerably less. Yet, projects are vitally important to many APEC fora, embodying their objectives and making concrete their agendas.

There are two sources of project funding (which together make up the “APEC Central Fund”): the Operational Account, which is funded from APEC member economy annual contributions; and the Trade and Investment Liberalization and Facilitation or TILF Special Account, which to date has received funding only from Japan. Each year, the Operational Account allocates about US$2 million and the TILF Special Account up to 500 million yen, or an annual total of US$5–6 million in project funding.

The project approval process, similar in most respects for both accounts, is as follows:

1. 1. The proposed project manager (“overseer”) and APEC member economy sponsor or sponsors initiate discussion within an appropriate APEC forum (for example, a Committee or Working Group, or with increasing frequency within the Senior Officials’ Meeting or SOM). Most project overseers are themselves government officials, although occasionally an academic or independent expert with close ties to his/her government can play that role.

2. 2. Project documentation is cumbersome and project overseers may work closely with the professional staff member (PSM) at the APEC Secretariat assigned to that subject or forum. Nevertheless, project submissions often do not fully conform to the detailed format requirements laid out in the official Guidebook on APEC Projects (available on the APEC Secretariat website). These discrepancies may be due to the many obligatory clearances, the time pressures imposed by the various deadlines in the project cycle, and the permutations of the requirements themselves.

APEC's Trade Liberalization and Facilitation Objectives

APEC's trade and investment agenda began to take shape in 1993, with the release of the first report of the Eminent Persons’ Group (APEC/ EPG 1993), followed by the articulation at the 1993 APEC Economic Leaders’ Meeting (APEC/LM 1993) in Seattle of the vision of the Asia- Pacific as a region of free trade and investment. This was followed at the 1994 APEC Economic Leaders’ Meeting (AELM) by the landmark Bogor Declaration (APEC/LM 1993), in which APEC's members committed themselves to the establishment of free trade and investment in the Asia-Pacific region. The Bogor Declaration states that the goal is to be achieved by 2010 in the case of the developed members of APEC, and by 2020 in the case of the developing members. No definition of “developed” or “developing” economy status was provided then nor has one been provided since, so that the choice of target applicable to each individual APEC member is effectively a matter of self-selection. There has likewise been no definition of the precise meaning of “free trade and investment”, leaving the way open for debate whether free trade means “zero tariffs” or the reduction of tariffs to a range of very low values, such as 0–5 per cent.

The Bogor Declaration envisaged that action towards the achievement of the free trade and investment targets should begin immediately. This was a significant departure from the caution expressed only a short time earlier in the second EPG report, which had recommended that implementation should begin in 2000. The Pacific Business Forum, on the other hand, had recommended that action should begin immediately, and it was this approach that was adopted in the Bogor Declaration. This confident approach reflected the high expectations which were held for APEC at that time, and which were maintained during the subsequent three years as APEC moved quickly forward to establish first the Osaka Action Plan (OAA) in 1995 (APEC/MM 1995) and then the Manila Action Plan for APEC (MAPA) in 1996 (APEC/MM 1996), before embarking on the ambitious Early Voluntary Sector Liberalization (EVSL) initiative in 1997.

APEC's human resource development (HRD) activities are second only in importance to the trade and investment liberalization and facilitation (TILF) agenda. No other issue, apart from TILF, has drawn such universal and consistent commitment from member economies involved in the APEC process. The significance attached to HRD in APEC derives from two factors. First, few now challenge the view that in a progressively more integrated global economy, in which new technologies are increasingly the key to international competitiveness, the quality of human resources present in an economy or enterprise is the key to economic and commercial success. Improving HRD is now a sine qua non in national and enterprise planning. It follows that any efforts on this front in a regional body such as APEC will be supported, particularly where there is also advantage created for the TILF agenda. HRD for TILF is now an important sub-set of the wider HRD agenda in the region.

Secondly, the consensus around HRD makes it an ideal rallying point for institutional identity within APEC. APEC needs more than the TILF agenda to provide long-term substance. This need has three dimensions. There is a natural desire to use the framework provided by APEC for activities beyond the TILF focus. Equally, however, for economies to be involved in APEC, but not wholly convinced by the TILF model, HRD provides an area for involvement which is universally recognized and legitimized. Finally, for some economies and notably Japan, HRD is a strategic issue, central to the needs of overseas subsidiaries operating in APEC member economies.

The Institutional Framework: A Preliminary Note

To set the scene, some discussion of the APEC HRD Working Group (WG) is needed. APEC's early agenda for HRD, laid down in Beijing in 1995, was formulated for eight priority areas of work. These were:

1. • The provision of quality education for all;

2. • The development of regional labour market analyses;

3. • An increase in the supply and quality of managers, entrepreneurs, and training in the areas central to economic growth;

4. • A reduction in skill deficiencies and unemployment by designing appropriate training priority areas and outcomes;

5. • An improvement in the quality of curricula, teaching methods, and materials;

6. • An improvement in access to skill acquisition;

7. • The preparation of individuals and organizations for economic and technical change; and

8. • Support for the TILF agenda.