November 2000, Gary McMahon, Elly Rasdiani Subdibjo, Jean Aden, Aziz Bouzaher, Giovanna Dore, Ramanie Kunanayagam / The World Bank
Despite years of steady and considerable progress in socio-economic development, Indonesia was one of the first countries to feel the brunt of the East Asia financial crisis in 1997. Because of the traditional dependence of the country on its natural resource base leading to unsustainable use levels and considerable degradation threats over time, serious concerns have arisen regarding the extent to which the economic crisis would lead to environmental neglect and further undermining the sustainability of natural resource use.
This study focuses on the potential environmental impacts of the economic crisis in the mining sector in Indonesia. The findings and recommendations in this study are summarized from two separate but complementary studies undertaken during the past two years by the World Bank (forthcoming): an analysis of current environmental issues in Indonesia and a regional assessment of the environmental implications of the East Asian economic crisis, with a particular emphasis on the sustainability of natural
resource management. Because of the short time elapsed since the onset of the crisis and the time lags involved in identifying impacts, the present study examines the long-term relationship between the mining sector and the environment, as well as more specific crisis-induced changes or repercussions.
It was conjectured that the economic crisis would lead to an expansion of mining activities in Indonesia for various reasons, including promotion of the sector by the Government of Indonesia in order to increase foreign exchange and tax revenues, the fall in local production costs due to the large currency devaluation, and a poverty-driven increase in small-scale mining. An increase in mining would have implications for the environment from nothing other than the scale effect. In addition, it was expected that fiscal contraction and short-term policy objectives would lead to weakening monitoring and enforcement by regulatory agencies which would further undermine environmental objectives.
The results of the current studies--keeping in mind the limited nature of the data collected--present a mixed picture of the environmental performance of the mining sector in Indonesia. The sector's overall track record is mostly driven by longer-term trends and policies similar to trends in other parts of the world, particularly in the large- and medium-scale metal and coal mining sectors. The sector's substantial financial contribution to the economy (over US$5 billion annually) comes with important social and environmental dislocations (close to US$ 0.5 billion in estimated annual environmental mitigation costs alone), some of which are yet to be well identified and understood (such as long-term impacts of acid rock deposition on terrestrial and aquatic biological resources). One of the important findings in this study relates to the artisanal and small-scale--gold and to a lesser extent coal--mining sector, which experienced the greatest impact from the economic crisis, resulting in immediate and visible environmental degradation with potential long-term damage, especially from mercury contamination. In this case, lessons from the crisis point to the need to strengthen the institutional framework to effectively deal with both the current situation and potential future crises
