investing in natural infrastructure

INVESTING IN NATURAL INFRASTRUCTURE: the economic value of Indonesia’s marine protected areas & coastal ecosystems February 2009

Executive summary Coastal and marine ecosystems are critical to local, national and even global economies Indonesia has the longest coastline in the world, and, as part of the “Coral Triangle” which forms the epicentre of the global marine biodiversity, contains the lion’s share of the world’s coral reef and mangrove areas and associated species. More than 60% of the country’s population, including three quarters of cities, are also located in the coastal zone. This makes these areas a centre of human and economic activity, and of global and national biodiversity. Coastal and marine ecosystems (such as coral reefs, mangroves, seagrass beds, estuaries and sandy beaches) are vital to the economic growth which is currently occurring in Indonesia’s coastal zones, and sto future development prospects. This includes both the commodities and raw materials they yield (such as fish, timber or minerals), as well as basic the life support services and support to production they generate (such as protection against coastal erosion, buffering against storms and waves, flood control, maintenance of water supplies and quality, and ensuring the basic production base for extractive industries). It is therefore an important concern in economic and development terms that coastal and marine ecosystems are being degraded – because this means that important economic goods and services are being lost to the Indonesian economy, and substantial costs and losses are being incurred in terms of local and national development. Underlying this is the problem of inadequate funding to conservation, as well as unsupportive economic policies and instruments. The need to make the economic case for investing in marine and coastal ecosystem conservation Given the significance of Indonesia’s marine and coastal ecosystems in both ecological and economic terms, and the growing threats to them from economic activities, this document aims to make the economic case for investing in their conservation. It presents evidence, drawn from a number of sources (including government statistics, research papers and technical reports), that the returns from investing in marine and coastal ecosystem conservation are extremely high in economic and development terms. Marine and coastal ecosystems support key national development goals The document summarises more than 40 studies and reports (in both Bahasa Indonesian and English) which present data on the economic value of marine and coastal ecosystems in Indonesia, including: • The ways in which they help to advance economic growth, as laid out in the Medium-Term Development Plan. For example, the potential value of sustainable fisheries just from coral reef areas is more than US$1.2 billion - almost half of the value of national fisheries production, while degradation of coral reefs as a result of blast fishing, overfishing and sedimentation lead to net present economic losses to the fisheries sector of some US$2.6 billion. Meanwhile, coastal and marine tourism in 2008 accounted for some 5.4% of GDP (or Rp 235,739 billion), and generated Rp 337,901 billion of economic activity in total, including 4.5 million jobs or 5% of total employment, 4.8% of total exports (worth Rp 288 billion), and 7.8% of capital investment (Rp 87,937 billion). • How marine and coastal conservation decrease vulnerability to risks and disasters, according to the priorities articulated in the 2006-2009 National Action Plan for Disaster Risk Reduction and the Disaster Management Law No. 24 of 2007. For example, the coastal protection afforded by coral reefs has an economic value of US$829/km adjacent to sparsely populated areas where agriculture is the main activity, US$50,000/km in areas of high population densities, and US$1 million/km in areas where tourism is the main use. In total, Indonesia’s coral reefs are estimated to have a value of some US$314 million for coastal erosion prevention. • The critical role they play in reducing and alleviating poverty, in support of the 2003 Interim Poverty Reduction Strategy Paper and 2006 Indonesia Poverty Analysis Program. For example, marine and coastal resources provide for the welfare of well over 60% of the population living in the coastal plains, and figures range as high as 60% of the annual net primary income in Kaledupa sub-District of Wakatobi, and more than two and a half times the average annual income of fishing households in Bunaken National Marine Park.

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Key Marine Protected Areas contribute to household livelihoods and regional economies The document looks in detail at four real-world case studies: • In Wakatobi National Park, natural resources make a staggering contribution to subsistence, income and employment in the community, providing for the vast majority of basic needs. One hundred percent of the households depend on seafood as their major (and in most cases their only) source of protein. Around half build the foundation and walls of their houses from coral, and just under two thirds use sand for construction. More than 40% of residents collect mangrove wood to use as domestic fuel, poles for housing, and for fishing equipment. In addition to subsistence uses, around two thirds of the sub-District’s population state that they depend on natural resources for cash income – a figure that far outpaces dependence on the other two most important sources of earnings, agriculture and remittances. • In Raja Ampat Marine Regency, the total economic value of marine and coastal ecosystems is some Rp 182 billion a year, with fisheries alone contributing around half of regional GDP, more than 82% of total PAD, and forming the most significant source of income for almost 80% of residents. • In Bunaken National Park, an innovative new revenue-generation mechanism has managed to allow for the overwhelming majority of the revenues collected to be retained locally to fund management activities and act as leverage for local business, income and employment. These stimuli to local development and enterprise have led to a situation where it is estimated that increased opportunities for employment, business and the development of secondary and support industries add value of more than US$31.5 million a year to the local economy. • In the Togean Islands, a comparison of the economic returns to coral reef tourism, fisheries and logging shows that the environmental and social costs (or “externalities”) associated with logging are larger than the private benefits (or profits) that can be gained: by a factor of more than four. In other words, logging produces more costs than benefits to society as a whole, which are felt primarily by the Togean islanders through reduced fish catch and decreased income from tourism. This provides an economic rationale for rejecting forestry as a development activity. How this makes the economic and development case for investing in marine and coastal ecosystem conservation Perhaps the most important finding of this report is that available data demonstrate, again and again, that marine and coastal ecosystems are essential for much of the economic activity that occurs in Indonesia’s coastal zones – and for development in the future. A key lesson is that investment in marine and coastal ecosystems has many dimensions, which range from purely financial measures to the broader integration of ecosystem values into development planning and policies, and ultimately into the markets and prices that people face as they go about their economic business in coastal areas. Many of the examples presented in the document also underline that investment in marine and coastal ecosystems has important implications in distributional, equity and poverty alleviation terms. A recurrent theme has been that it is frequently the poorest and most vulnerable groups in Indonesia who rely most on ecosystem goods and services, and who stand to suffer most in economic terms when they are degraded. Examples drawn from many parts of the country have shown that, just as the economic and development benefits of well-managed or intact coastal and marine ecosystems are substantial, so the economic costs of ecosystem degradation and loss can be substantial. Yet, despite this large and growing evidence base, natural ecosystems are still not really treated as being essential to economic wellbeing and prosperity. In order to ensure their productivity and continued support to human development, Indonesia’s marine and coastal ecosystems need to be maintained and improved to meet both today’s needs as well as intensifying demands and pressures in the future – just like any other component of the nation’s development infrastructure. In the light of the examples and cases presented, it is clear that “ecosystem investment” has many elements, encompassing the effort, attention and material support provided in public policy, planning and expenditures for economic development. In order to maximise long-term coastal development gains, marine and coastal ecosystems should be considered on an equal footing with other stocks of productive capital and sources of wealth in the economy – in budgetary, policy and statistical terms.

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Table of contents Executive summary.................................................................................................................................i List of figures ........................................................................................................................................ iii List of tables ......................................................................................................................................... iii List of acronyms....................................................................................................................................iv Acknowledgements................................................................................................................................v

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THE CHALLENGE: investing in marine and coastal ecosystems ..................................1 The economic importance of the coastal zone....................................................................................... 1 Prioritising coastal development............................................................................................................ 1 Making the economic case for marine and coastal ecosystems ............................................................. 2

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THE EVIDENCE: how natural ecosystems contribute to economic development..........3 Advancing economic growth ................................................................................................................. 3 Decreasing vulnerability to risks and disasters ...................................................................................... 5 Alleviating and reducing poverty............................................................................................................ 6

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CASE STUDIES: the economic value of key Marine Protected Areas...........................7 Household livelihoods: Wakatobi National Park..................................................................................... 7 The local economy and public budget: Raja Ampat Marine Regency ..................................................... 8 Financial sustainability and commercial earnings: Bunaken National Park............................................. 9 Weighing up coastal development and ecosystem trade-offs: Togean Islands ......................................10

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MOVING FORWARD: maximising long-term development gains through investing in marine and coastal ecosystems...................................................................................12 Investing in marine and coastal ecosystem conservation yields high economic and development returns ............................................................................................................................................................12 Ecosystem investment includes funding, policies and planning.............................................................13

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REFERENCES AND NOTES.......................................................................................15

List of figures Figure 1: participation of Keladupa households in ecosystem-based livelihood activities, Wakatobi NP......... 7 Figure 2: the value of marine and coastal ecosystems to Bajau Sampela villagers, Wakatobi NP ................. 8 Figure 3: the relative contribution of different sources to the Keladupa sub-district economy, Wakatobi NP... 8 Figure 4: financial and tourism trends in Bunaken NP..................................................................................10 Figure 5: ecosystem trade-offs on the Togean Islands.................................................................................11

List of tables Table 1: the value of marine and coastal ecosystem services in Raja Ampat ................................................ 9 Table 2: the relative returns to logging, tourism and fisheries in the Togean Islands ....................................11

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List of acronyms ADB CTC EIA FAO GDP ICRAF IIED IUCN NP NSWA OECD PAD PHKA Rp TNC UNDP UNEP USAID WCMC WRI WTTC WWF

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Asian Development Bank Coral Triangle Centre (of The Nature Conservancy) Environmental Impact Assessment Food and Agriculture Organisation of the United Nations Gross Domestic Product World Agroforestry Centre International Institute for International Development International Union for Conservation of Nature National Park North Sulawesi Watersports Association Organisation for Economic Cooperation and Development Pendapatan Asli Daerah (a government account for public projects) Perlindungan Hutan dan Konservasi Alam (Directorate General of Nature Conservation) Indonesian Rupiah (US$1 = Rp 10,500 in January 2009) The Nature Conservancy United Nations Development Programme United Nations Environment Programme United States Agency for International Development World Conservation Monitoring Centre (of the United Nations Environment Programme) World Resources Institute World Travel and Tourism Council WorldWide Fund for Nature

Acknowledgements As part of their support to the Government of Indonesia in implementing the Programme of Work on Protected Areas of the Convention on Biological Diversity, the Coral Triangle Center and the Global Protected Areas Team of The Nature Conservancy (TNC) conducted a study to value the benefits and services provided by Marine Protected Areas in Indonesia, and their contribution to human well-being and to poverty alleviation. This first phase of the project consisted of the compilation of primary and secondary data and information, followed by a report summarising the findings. The following document presents the second phase of the project, which involved framing the information collected during the first phase, plus additional materials, within a conceptual model. The second phase also entailed producing a final report on the economic and development value of marine and coastal ecosystems in Indonesia. The second phase report is envisaged as a policy document, targeted at economic and financial planners, that will present the economic case as to why the government should to take action to reduce coastal and marine ecosystem degradation, and increase levels of public investment for protected areas and conservation in Indonesia. This report, authored by Lucy Emerton of Environment Management Group, is the phase two report of the project described above. It relied on the assistance of a great many people. Luis Pabon of the TNC Global Protected Areas Team coordinated and provided oversight to the study, and Abdul Halim and other staff members of the TNC Coral Triangle Center in Bali gave generously of their time and expertise. Alan White provided valuable comments on the draft report. Thanks are also due to Dr Akhmad Fauzi, Chair of the Department of Resource and Environmental Economics at Bogor Agricultural University, who undertook the first phase of this project and produced the report ”Valuing The Socio-Economic Contribution of Protected Areas to Human Well-Being in Indonesia”.

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1 THE CHALLENGE: investing in marine and coastal ecosystems This chapter introduces the study. Its starting point is to highlight the critical role of coastal areas as drivers of Indonesia’s – and even the world’s – economy, and as the means of survival of a large human population. However, in turn, it is important to recognise that natural ecosystems, too, form an essential component of coastal development and economic growth, and that adequate investment in their conservation is also required to meet Indonesia’s economic and development challenges.

The economic importance of the coastal zone Indonesia forms the world’s largest archipelago. Its 81,000 km coastline is longer than that of any other country, and, potentially, is one of the most economically important. Unsurprisingly, coastal zones are centres of human settlement and economic activity – around 75% of the national territory is sea, and the remaining 25% is land that is spread across more than 17,500 islands. Over 60% of the population live 1 2 3 around the coast , including more than 60,000 villages , as well as three quarters of the nation’s large cities 4 which contain a quarter of urban dwellers . Indonesia’s coastal population continues to swell, as industry, commerce and settlement expand, and as more and more people enter the coastal zone in search of income, employment and economic opportunities. Fisheries, aquaculture, salt-making, tin mining, oil and gas exploration, shipping, trade, agriculture and tourism all serve as a magnet for human in-migration, and act as engines for local, national and even international economic growth. Meanwhile, Indonesia’s role in both the regional economy and the global economy continues to grow. Already, more 70% of the world's trade activities take place in the Asia-Pacific region, and three quarters of traded goods, products and commodities are transported through Indonesian 5 sea routes such as Malacca Strait, Sunda Strait, Lombok Strait and Makassar Strait . Coastal zones of the country look set to become ever more important in the future, as the centre of global economic activities shifts increasingly eastwards, from the Atlantic to the Pacific Rim. Despite this concentration of economic resources and activities, and alongside high levels of industry and affluence, many coastal communities however remain at the margin in economic terms. Arguably, much of the rapid economic growth that has taken place along Indonesia’s coastline has largely by-passed the poorer and more vulnerable groups. A high proportion of coastal areas have an incidence of poverty far above the 6 national level (currently estimated as 17.8% ), with poverty being particularly pronounced in outlying Eastern 7 Provinces (as high as 39% of the population ). Poor coastal communities lack access to basic services, and continue to rely primarily on subsistence-level fisheries, agriculture and wage labour. They also remain extremely vulnerable to the recurrent natural hazards and economic risks that form a part of day-to-day life in coastal areas.

Prioritising coastal development Given this juxtaposition of wealth and commerce, combined with glaring poverty and a rapidly growing human population, it is hardly surprising that Indonesia’s coastal zones have long been the focus of intense development. With pressing needs to find new sources of income, employment and opportunities to support Indonesia’s growing population and the national economy as a whole, economic activities continue to expand, drawing on the rich resources of coastal and marine ecosystems. There are inevitable trade-offs in choosing how to invest funds, and manage lands and resources, in coastal areas. On the one hand, there is little doubt that there still remains considerable untapped potential for expanding coastal industries still further. One recent article estimates that the 1.2 million ha of coastal lands that are suitable for aquaculture could provide job opportunities for at least 3 million people, 1.5 million ha of coastal waters could be used for seaweed farming in order to generate annual export earnings of $8 billion and employment for 2 million, and the prospective economic value of Indonesian capture fisheries, 8 mariculture, coastal aquaculture, and marine biotechnology industries is no less than $85 billion per year . Almost all of these economic production activities and human settlements depend on the ecosystems that are found in the country’s marine and coastal areas, such as coral reefs, mangroves, seagrass beds, 2 estuaries and sandy beaches. Across the country, there are more than 35 thousand km of coral reefs, 46 2 2 9 thousand km of mangroves, and 18 thousand km of seagrass beds . These natural habitats do not just produce raw materials and commodities such as fish, timber or minerals. They also generate vital life support 1

services (which are explained in more detail in the next chapter of the report) such as protection against coastal erosion, buffering against storms and waves, flood control, maintenance of water supplies and quality, and ensuring the basic production base for extractive industries. However, at the same time as coastal zones are growing in economic terms, it is apparent that rising consumer demands and changing economic aspirations are putting Indonesia’s valuable marine and coastal environments under stress. Activities such as overfishing and destructive fishing practices, mineral and oil exploration, pollution, deforestation, and the conversion of other natural habitats for settlement, infrastructure and industry are all taking their toll on these fragile ecosystems. This is certainly of local and national concern, given the fact that they represent the “natural capital” upon which so much economic activity depends. Marine and coastal ecosystem degradation is also of regional and even global significance: together with Malaysia, the Philippines, Papua New Guinea, the Solomon Islands and Timor Leste, Indonesia forms part of the “Southeast Asia Coral Triangle”. This is recognised to be the epicentre of marine biodiversity, containing some of the highest coral and reef fish diversity in the world. Indonesia alone hosts 10 11 around one-eighth of global coral reefs and a quarter of mangroves . Substantial efforts are being made by the Government of Indonesia and others to address these environmental problems, and to conserve marine and coastal ecosystems. There are already more than 70 12 Marine Protected Areas in the country, covering almost 9 million hectares . Plans are currently underway to 13 more than double this area . Unfortunately these efforts are hindered by a severe lack of funding, and often lack the policy priority that is accorded to other sectors of the coastal economy. Only 2% of the expenditures made on coastal infrastructure by the Ministry of Marine Affairs and Fisheries and eleven Provinces is 14 allocated to conservation and environment-related activities . As a result, many Protected Areas in the 15 country are poorly resourced, and some receive no regular budgets at all . National and local government funding in 2006 to Marine Protected Areas across the country was estimated, at some Rp 25 billion, to be 16 only just over half of the amount required for effective management . At the same time many of the economic instruments and policies that are being used to promote coastal development and industry do not encourage environmental conservation. For example a recent study highlights the many ways in which subsidies to the fisheries sector harm natural ecosystems in coastal and marine zones of the country – and, 17 by so doing, may actually undermine the very basis of the fisheries industry itself .

Making the economic case for marine and coastal ecosystems Given the significance of Indonesia’s marine and coastal ecosystems in both ecological and economic terms, this document aims to make the economic case for investing in their conservation. It presents evidence, drawn from a number of sources (including government statistics, research papers and technical reports), that the returns from investing in marine and coastal ecosystem conservation are extremely high in economic and development terms. The data that are presented demonstrate that coastal and marine ecosystems provide substantial economic benefits across most sectors, regions and stakeholder groups in Indonesia. Conversely, their degradation and loss causes significant costs and losses that are felt throughout the economy. In short, the document argues that a shift in the way in which development and conservation trade-offs in coastal areas are calculated is required — moving from approaches which fail to factor in ecosystem costs and benefits, to those which recognise, count and invest in natural ecosystems as a key part of Indonesia’s economy and future development prospects.

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2 THE EVIDENCE: how natural ecosystems contribute to economic development This chapter presents data that describe how marine and coastal ecosystems contribute towards current socio-economic development priorities in Indonesia, as articulated in the Medium-Term Development Plan for 2004-2009, 2009 budget statement, Poverty Reduction Strategy for 2004-15, and National Action Plan for Disaster Risk Reduction for 2006-2009. It focuses on four key areas of economic development that are highlighted in these strategies and plans: advancing economic growth in the fisheries and tourism sectors, earning public revenues, decreasing vulnerability to risks and disasters, and alleviating and reducing poverty. A striking conclusion of the literature and figures reviewed is that the natural environment not only generates significant economic values, but also that well-managed coastal and marine ecosystems play a critical role in saving costs, and helping people to avoid economic losses and damages. Adequate and timely investment in ecosystem conservation comes out clearly as an essential condition for achieving the goals that are stated in current economic and development policy. In contrast, under-investment in coastal and marine ecosystems may ultimately undermine many of the policy, programme and project goals that so much public funding and policy effort are being directed towards: a dynamic and growing economy, and cost-effective, equitable and sustainable development for all.

Advancing economic growth The paragraphs below look at how marine and coastal ecosystems help to advance economic growth, as it is conceptualised in the key goals of the current Medium-Term Development Plan – the government’s main strategy for economic development in the period 2004-2009. It focuses on the stated goal of improving the rate and quality of growth through stimulating employment, accelerating investment, exports and tourism, and revitalising the fisheries industry. The fisheries sector The value of coastal and marine fisheries in Indonesia is extremely high, at both national and local levels. According to the Food and Agriculture Organisation of the United Nations (FAO), marine and coastal capture fisheries yield around 6 million tonnes of production a year in total, which is worth more than $3 billion (including export earnings of some $1.7 billion), generates jobs for almost 4 million people, and generates 18 more than 4.6 million tonnes of food supply for the country . The contribution of marine and coastal ecosystems to fisheries does not however stop here. There is now a substantial body of evidence to show that marine and coastal ecosystems do not just support the fisheries industry directly through yielding fish as a commodity, but they also underpin the productivity of the sector as a whole. In other words, well-managed coral reefs, mangroves, seagrass beds and other natural habitats are essential to fisheries because they provide the habitat, breeding grounds and nurseries that sustain the yields of commercially and nutritionally important fish species. It is estimated that the potential value of sustainable fisheries just from coral reef areas is more than US$1.2 19 billion - this is almost half of the value of national fisheries production cited above. However, to maintain and sustain (and maybe also improve) this catch it is necessary to ensure that the natural ecosystems that sustain fisheries activities are conserved. All over the world, Marine Protected Areas and other types of 20 reserves have been found to lead to increases in the abundance, size, weight and output of fish species . Work carried out around Apo Island Reserve in the Philippines (a neighbouring part of the “Coral Triangle” of which Indonesia also forms a part of) shows a sevenfold increase in the densities of large predatory reef fish 21 after eleven years of protection through the establishment of Marine Protected Areas , and a tenfold 22 increase in catch per unit effort in the hook and line fishery between over two decades . In Indonesia, the creation of Taka Bone Rate Marine Protected Area has likewise been demonstrated to have had a tangible 23 impact in improving fish stocks and yields . Work carried out in the Philippines also shows that sustainable fish yields from areas where coral reefs are in good condition are estimated to be more than double those 2 24 from reefs in fair condition, contributing an additional 10 tonnes per km per year . Similar findings come from Lampung Province, where each additional metre of coral coverage increases fishing productivity by 25 more than 2 kg a year . Across the country, a clear correlation has also been found between shrimp landings, fish catch and mangrove areas26.

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In contrast, there is a growing body of evidence that when marine and coastal ecosystems are degraded, high economic costs arise to fisheries production – directly, in terms of lost catch, but also indirectly because of the destruction of the habitats which are so important for maintaining the productivity of the sector. Unsustainable logging on the Togean Islands of Central Sulawesi has resulted in a 50% decrease in the amount of fish caught from coral reefs, which translates into a loss of more than Rp 30 million a year, 27 because the resulting sedimentation has choked almost 40 km of coastline and reefs . This figure is significant, bearing in mind that many of the Togean Islanders classified as poor, with a per capita income of 28 less than Rp 0.75 million a year . Coral mining has also caused untold harm to the economy in many parts of the country. To take just the case of Lombok, research shows that the damage to live reefs caused by coral mining for the construction industry has resulted in net present costs29 of US$74,900/km2 in decreased 30 terms of fisheries production . Environmentally-damaging fishing techniques (which, unfortunately, are all too widespread across many parts of the country) also wreak long-term and costly damages to the fishing industry, which are in most cases far higher than the immediate profits generated. Overall, it has been calculated that fishing sustainably 2 on healthy reefs can generate as much as US$63,000/km more in Indonesia over a 20 year time period 31 than overfishing . For the country as a whole, the costs of coral reef overfishing are estimated at some 32 US$1.9 billion over 20 years . The large-scale cyanide fishery is an example of a specific practice which leads to high economic losses: here, the losses to society have been calculated to be US$46 million over four years, as compared to a net present value of more than US$320 million from the employment, income 33 and foreign exchange benefits of sustainable hook-and-line fishing . In total, it is predicted that, over a 20year period, blast fishing, overfishing and sedimentation in Indonesia could lead to net economic losses to 34 the fisheries sector of some US$2.6 billion - equivalent to about 1% of the current annual contribution of 35 fisheries to national GDP . The tourism sector The Medium-Term Development Plan’s goal of accelerating the tourism sector is equally dependent on marine and coastal ecosystems being maintained in a healthy state. A large proportion of overseas visitor arrivals to Indonesia, as well as domestic recreation, is linked to coastal and marine tourism. Surfing, sailing, snorkelling and diving are especially lucrative sub-sectors in the tourism industry, and yield particularly high premiums when beach and coral reef areas remain relatively pristine and undisturbed. Looking at the tourism industry as a whole, personal travel and tourism accounts for around two thirds of total arrivals. It can be conservatively assumed that at least three quarters of these recreational visitors are motivated in some part by a wish to visit Indonesia’s beaches and coast, and spend considerable time in them. While coastal and marine tourism makes an immense recorded contribution to Indonesia’s national economy, its total economic impact is even greater than this because it touches on so many other sectors and industries. Tourism makes a substantial contribution to employment, earnings and consumption in coastal areas, not only directly via hotels and recreational activities, but also through multiplier effects in secondary and support industries such as food and beverages, transport and retail outlets. The resulting levels of economic activity are enormous. Based on these figures, and looking at both its direct and indirect economic contribution to the economy, coastal and marine tourism in 2008 accounted for some 36 5.4% of GDP (or Rp 235,739 billion), and generated Rp 337,901 billion of economic activity in total . This figure incorporates 4.5 million jobs or 5% of total employment, 4.8% of total exports (worth Rp 288 billion), and 7.8% of capital investment (Rp 87,937 billion). Marine and coastal tourism earnings are also typically significant at the local level, to District and Provincial public revenues, as well to household and business earnings. Weh Island Marine Protected Area in Aceh 37 has, for example, been found to contribute almost two thirds of regional GDP . Eco-tourism revenues in 2 Wakatobi National Park in Southern Sulawesi had a value of around US$1,320/km of coral reef area in 2007 (as a point of comparison, average household earnings from tourism were more than twice as high as those from agriculture)38. The economic value of Bunaken National Park for visiting tourists has been estimated at 39 US$4.2 million per year ; when the tourism multiplier effect and secondary jobs and benefits are added, the total benefit to the local economy from dive tourism was estimated to be the equivalent of US$220 million 40 from 1998 to early 2005 . Just the entrance fees charged for the Pula Weh Marine Protected Area 41 contribute more than 60% each year to regional GDP . Studies have found that the expenditures made by visitors to Komodo National Park in 1995-96 on transport, accommodation, guiding, meals and retail purchases in the surrounding area were, at some US$1.1 million, more than seventy times as high as 42 entrance fees collected . As is the case with the fisheries sector, the degradation of marine and coastal ecosystems can make a sizeable dent in tourism profits. The damage caused to reefs as a result of coral 4

mining in Lombok is for example calculated to have a net present cost 44 through reduced tourism earnings .

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of between US$2,900-481,900/km

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Decreasing vulnerability to risks and disasters Coastal areas of Indonesia are extremely vulnerable to natural hazards and disasters, and experience recurrent storms, floods, typhoons, cyclones and earthquakes. This obviously has shattering effects on coastal development, economic security and human wellbeing. Particularly since the devastating Indian Ocean Tsunami of late 2004, the need to increase the resilience and reduce the vulnerability of coastal communities to natural disasters has been accorded a high priority in national development policies and plans. For example the need to reduce vulnerabilities and risks among poorer households is highglighted by 45 the Indonesia Poverty Analysis Program , and is a key element of the Poverty Reduction Strategy for 200446 47 15 . In late 2007, the 2006-2009 National Action Plan for Disaster Risk Reduction was launched . This important document (also backed up by legislation via the Disaster Management Law No. 24 of 2007) makes repeated mention of the importance of natural ecosystems and a healthy environment in disaster risk management and reduction. Ecosystem degradation is mentioned as one of the major factors which interact to cause disasters, and the Plan itself includes a series of actions to encourage the sustainable use and management of ecosystems. Available data lend great support to these statements. Well-functioning natural ecosystems play a significant role in protecting coastal settlements and infrastructure, reducing the risk of disasters occurring (including periodic disasters such as extreme weather events, as well as the intensifying risks posed by ongoing processes such as climate change), and mitigating their effects. Coral reefs and mangroves form natural barriers and breakwaters, and thus provide protection against the buffering of winds and waves which is caused by storms, typhoons and hurricanes. Research has found that they absorb at least 70-90 per cent of the energy of wind-generated waves, depending on how healthy these ecosystems are and their physical 48 and ecological characteristics . Reefs and mangroves also play a role in the accretion of coastlines, and guard against shoreline erosion. The sediment accumulating when corals and other calcified organisms break down after their death produces sand that forms and replenishes sandy beaches and islands. Mangroves help to stabilise coastal land, by trapping sediment washed down in rivers or from more general run-off. Along Indonesia’s coastlines, the value of marine and coastal ecosystems in decreasing vulnerability to risks and disasters are manifested as damage costs avoided – which are typically substantial. A study in Bintuni Bay, West Papua, valued mangroves at US$600 per household per year based on their ability to control 49 erosion - comparing this figure to the cost of building a house for the average fishing household (estimated at just under $1,000) underlines just how significant this value is. A range of values have been calculated for the coastal protection functions of coral reefs in Indonesia, depending on their location: reefs adjacent to sparsely populated areas where agriculture is the main activity have been valued at US$829/km (based on the value of agricultural production that would be lost), reefs adjacent to areas of high population densities at US$50,000/km (based on the cost of replacing housing and roads), and reefs in areas where tourism is the 50 main use at US$1 million/km (based on the cost of maintaining sandy beaches) . In total, Indonesia’s coral 51 reefs are estimated to have a value of some US$314 million for coastal erosion prevention . When marine and coastal ecosystems are degraded, and these important coastal defence functions are lost, high economic costs arise. The value of coastline protection by coral reefs in Wakatobi National Park has been estimated to be worth $473/km (which can be compared with the local costs of building a coral platform 52 of between US$150 and S$ 500) . The damage caused to reefs as a result of coral mining in Lombok is 53 2 calculated to incur net present costs of between US$12,000-260,000/km in terms of the resulting increase 54 in coastal erosion . Figures are cited for a hotel in West Lombok which has spent US$880,000 over a 55 seven-year period to restore a 250 m stretch of beach which had been damaged by past coral mining , and more than US$1 million has been spent in Bali to protect 500 metres of coastline that is no longer protected 56 by coral reefs . The economic importance of marine and coastal ecosystems for carbon sequestration is another category of ecosystem values that has recently been the subject of much attention. It has been estimated that the world’s oceans absorb approximately 30% of the CO2 emitted from human activities, and therefore play a 57 key role in global climate regulation . By their very nature, coral reefs store substantial quantities of carbon 2 58 in the form of carbonate rock; their primary net productivity is around 2,500 grams/m /year . Mangroves, too, act as a carbon sink. The potential net primary production of mangrove forests in Indonesia is estimated to be between 40-45 kg of carbon/ha/day, and for Rhizophora mucronata plantations the annual above ground net primary production is 21-25 tonnes carbon/ha/year59. 5

Alleviating and reducing poverty Poverty alleviation and poverty reduction form perhaps the most pressing items on today’s development agenda in Indonesia. They are repeatedly underlined as an core theme in the current Medium-Term Development Plan, and lie at the basis of most sectoral strategies and plans. The 2003 Interim Poverty 60 Reduction Strategy Paper lays out a specific agenda for reducing long-term poverty, emphasising economic opportunities for the poor as a core key element. More recently, the Indonesia Poverty Analysis Program again stresses that economic growth that benefits the poor has been, and will continue to be, the 61 main route to poverty reduction . Many of the economic activities that the coastal poor are engaged in are based directly on, or rely upon the continued provision of, environmental goods and services. Marine and coastal ecosystems thus play a key role in alleviating poverty in Indonesia, through ensuring that the poor have adequate access to the products and income opportunities that they require for survival. In many cases natural infrastructure is the only source of essential goods and services that available or affordable to coastal populations, especially in more remote areas of the country and for poorer and more vulnerable sectors of the community. The critical importance of natural ecosystems to household livelihoods across South and Southeast Asia is 62 well-documented , and Indonesia is no exception. Marine and coastal resources provide for the welfare of 63 well over 60% of the population living in coastal plains of Indonesia . Fishing is of course a particularly important activity at the local level – it is estimated that small-scale fishers are responsible for almost 95 64 percent of the total marine catch in the country . Fisheries support the livelihoods of nearly 5.5 million people in Indonesia, and are the primary source of dietary protein for more than half of the nation’s population65. In addition to fisheries, there are many examples of the ways in which other coastal and marine resources provide the basis for local livelihoods in Indonesia, generating income and employment as well as supplying basic needs such as food, healthcare, fuel and building materials. For example, rolling cigarettes using young Nypa leaves (found in mangrove ecosystems) is one of the major secondary livelihood activities for 66 many households on the West coast of Aceh, earning up to US$220 for every hectare harvested . In Papua, 67 local harvests of medicinal plants from mangrove areas are worth some US$15/ha/year . Communities living around Wakatobi National Park, are heavily reliant on the marine environment for their basic needs, 68 income and employment . Marine and coastal resources together account for around 60% of the annual net primary income in Kaledupa sub-District of Wakatobi: all residents name seafood as their main (and in many cases their only) source of protein, half or more had built their houses from natural materials, over 40% utilise mangroves for fuel and other purposes, and almost two thirds stated direct financial dependence on 69 natural resources . Local resource utilisation activities in Bunaken National Marine Park, including artisanal and commercial fisheries, seaweed production and gleaning, provide almost US$4 million a year to more 70 than 2,500 nearby households . Again, this is substantial when compared to the average annual income of 71 fishing households of approximately $600 – it is more than two and a half times this amount. Marine and coastal ecosystem-based activities are often particularly important for the livelihoods of the poorest and most vulnerable members of coastal communities, who lack access to alternative products, or simply cannot afford to procure them through the market. Work carried out in Bintuni Bay, West Papua, for example shows that the value of production from mangroves for local residents (including traditional fishing, 72 hunting and gathering) exceeds that from both cultivated crops and from formal sector wage income . In addition, traditional mangrove use contributes proportionately more to low income households, even though absolute levels of use are substantial even for richer families. In many cases there is considerable potential to add value to the local use of marine and coastal ecosystems, or to use them as the basis of developing new businesses and enterprises. In some instances, this can help to reduce local poverty by providing opportunities for long-term economic growth and permanent improvements in socio-economic status. Surveys carried out in and around Bunaken show, for example, that both tourism and fishery-dependent households are better off in the Marine National Park 73 compared to non-Marine Park areas in terms of cash income earnings . The total value to the local economy from dive tourism, including secondary jobs and benefits added, has been calculated to be the 74 equivalent of US$ 220 million between 1998-2005 .

6

3 CASE STUDIES: the economic value of key Marine Protected Areas This chapter looks in detail at four real-world case studies of the way in which Indonesian marine and coastal ecosystems which have already been designated as conservation sites (“Marine Protected Areas”) yield concrete economic and development values. It presents data relating to Wakatobi National Park, Raja Ampat Marine Regency, Bunaken National Park, and the Togean Islands. Key development indicators, and the gains accruing to specific beneficiary groups, are illustrated, encompassing household livelihoods, the local economy, public revenues, commercial earnings, and damage costs avoided.

Household livelihoods: Wakatobi75 National Park Wakatobi is an acronym combining the first two letters of each of the names of the four main islands of Wangi Wangi, Kaledupa, Tomia, and Binongko that, together with smaller islands, comprise the Tukang Besi Archipelago at the south-eastern tip of Sulawesi. Wakatobi ranks as one of the highest priorities for marine conservation in Indonesia in terms of biodiversity, scale, and reef condition. Renowned by divers for its 2 spectacular coral gardens, Wakatobi’s 1.4 million hectares of islands and waters, including 600 km of coral reefs, patches of mangroves and seagrass beds, were declared a national park in 1996. All four of the main Wakatobi islands are inhabited, with a total population of around 100,000. The National Park is gaining popularity as a tourist destination, although as yet there is little infrastructure and relatively few visitors. Currently, there is one hotel (on Wangi Wangi), a small dive operation (on Tomia), and two home stays (on Kaledupa). Extensive work on the economic value of marine and coastal ecosystems for resource utilisation and tourism has been carried out on one of the island groups in Wakatobi National Park, Kaledupa sub-district, and among the Bajau community living in one of Kaledupa’s villages, Sampela. Kaledupa comprises three islands, Kaledupa, Hoga and Lentea, and is home to around 17,000 people or 4,500 households, spread across 17 villages. Natural resources make a staggering contribution to subsistence, income and employment in the community, providing for the vast majority of basic needs. Almost all of the residents of Kaledupa are fishermen who rely wholly on the reefs and inter-tidal areas for their daily survival (Figure 1). One hundred percent of the households depend on seafood as their major (and in most cases their only) source of protein. Around half build the foundation and walls of their houses from coral, and just under two thirds use sand for construction. More than 40% of residents collect mangrove wood to use as domestic fuel, poles for housing, and for fishing equipment. In addition to subsistence uses, around two thirds of Kaledupa’s human population rely on marine and coastal ecosystems to generate cash income. Figure 1: participation of Keladupa households in ecosystem-based livelihood activities, Wakatobi NP 100% 80% 60% 40% 20%

100%

75%

24%

48%

63%

41%

2%

67%

Food

Fishing

Seaweed

Coral

Sand

Mangroves

Tourism

Cash income

0%

In one village of Kaledupa sub-District, Sampela, 90% of local Bajau villagers carry out fishing as their main economic activity. A high proportion of households also engage in seaweed harvesting, gleaning, use of coral to build the platforms on which houses stand, trading in fish, and employment in the National Park and tourism industry. Across the Bajau community in Sampela Village, more than 80% depend on marine and coastal ecosystems for their livelihoods, and almost half specifically from coral reefs. In addition, reefs and other natural habitats provide a wide range of other goods and services which are important to the day-today lives and culture of local residents, including physical protection from waves, recreation and social values. The total annual economic value of these marine and coastal ecosystem goods and services is substantial: more than Rp 24 billion a year for the whole village, or an average of Rp 107 million per household (Figure 2). 7

Marine and coastal ecosystem value

Figure 2: the value of marine and coastal ecosystems to Bajau Sampela villagers, Wakatobi NP Local recreation & non-use values Rp 2,64 bill/yr Physical protection from storms Rp 0.95 bill/yr Tourism-related income Rp 2.64

Fishing, gleaning, coral and seaweed Rp 20.65 bill/yr

0%

20%

40%

60%

80%

100%

Overall, two thirds of the sub-District’s population state that they depend on natural resources for cash income – a figure that far outpaces dependence on the other two most important sources of earnings, agriculture (just 22% of households) or remittances from family members elsewhere (5%). Average annual household earnings per year from marine and coastal resource use and tourism are, at some Rp 6.1 million and Rp 7.2 million respectively (or US$612 and US$784), around half as high again as those from agriculture, and substantially greater than trading (Rp 4.2 million or US$460) and remittances (Rp 4.5 million or US$492). At the whole sub-District level, the direct use of marine and coastal ecosystems generate around a half of income from primary activities, equivalent to US$1.2 million a year (Figure 3). Figure 3: the relative contribution of different sources to the Keladupa sub-district economy, Wakatobi NP Other sources 12% Trade 3% Farming 12% Remittances 3%

Marine & coastal ecosystems 49%

Civil Service earnings 21%

The local economy and public budget: Raja Ampat Marine Regency76 The Raja Ampat, or “Four Kings,” archipelago encompasses more than 4 million hectares of land and sea off the north-western tip of Indonesia’s West Papua Province. Raja Ampat includes the four large islands of Waigeo, Batanta, Salawati, and Misool, plus hundreds of smaller islands. It hosts what is possibly the richest variety of marine biodiversity in the world – an incredible 75% of all known coral species, and more than 1,000 types of fish, are found in the surrounding seas. The islands themselves contain lush forests, rare plants, limestone outcrops, and nesting beaches for thousands of sea turtles. The archipelago is part of an area known as the Bird’s Head functional seascape, which also contains Cenderawasih Bay, the largest marine National Park in Indonesia. An economic valuation of the natural resources in Raja Ampat was recently carried out, aiming to provide the Government of Raja Ampat with current and accurate economic data to use as a reference as they develop policies and management strategies for their natural resources. This found that the total economic value of marine and coastal ecosystems was some Rp 182 billion a year, or, if calculated as a long-term return on ecosystem investment, had a net present value of Rp 1,717 billion in terms of the value of goods and services rendered (Table 1). Harvesting of marine resources (including fisheries, gleaning, pearl culture and seaweed) form by far the largest component of this value, generating income worth Rp 126 billion a year. 8

Table 1: the value of marine and coastal ecosystem services in Raja Ampat Annual value (Rp billion)

Harvesting of marine resources

Traditional fisheries

63

Commercial fisheries Pearl culture

20 41

Reef gleaning Seaweed culture

Net present value 77 (Rp billion)

1,200

2 0.02

Tourism

Land-based resorts & liveaboards

14

289

Mangrove ecosystem services

Fisheries productivity, coastal protection

18

180

Coral reef ecosystem services

Shoreline protection Total

0.5 159

48 1,717

These values were compared with the income generated by extractive land-based activities, including nickel mining, oil drilling and timber harvesting (all of which give rise to some level of negative environmental impact on the coastal zone), in terms of their contribution to Raja Ampat’s Gross Domestic Product (GDP), Pendapatan Asli Daerah (PAD), and direct income-generation for local communities. GDP is the total market value of goods and services produced within Raja Ampat, while PAD is a government account for public projects funded by each economic sector. The findings of this comparative analysis further underlined the importance of marine and coastal ecosystems to Raja Ampat in economic and development terms. The fishery sector makes by far the largest contribution to GDP (around 50%), and the Office of Marine and Fisheries Affairs is easily the largest contributor to PAD (providing more than 82% of total revenues), followed by the Office of Tourism and Culture (7.5%). Although generating revenues to the national government, mining and forestry sectors provide no contribution at all to Raja Ampat’s public budget. In terms of economic and financial gains to households and businesses, marine and coastal ecosystem goods and services also demonstrate a much higher value-added and multiplier effects at the local level than do mining, drilling and logging. The fisheries sector is the most significant source of income for almost 80% of residents, worth an average of Rp 10 million year per fishing household. Tourism makes a substantial contribution from sales of souvenirs (Rp 207 million), wages (Rp 41 million) and employment (75% of workers come from the local community). In contrast to the 100% of income from fisheries and 34% from tourist activities that come directly to local residents, only 14% of timber value and 10% of earnings from mining are retained at the local level.

Financial sustainability and commercial earnings: Bunaken National Park78 Bunaken National Park covers an area of some 89,000 hectares in Sulawesi, encompassing five islands and two sections of the mainland. Established in 1991, Bunaken hosts extensive coral reefs and mangrove forests, and is well-known as one of Indonesia’s premier tourist destinations. There are around 20 dive operations and resorts in and around the National Park, receiving nearly 10,000 overseas visitors and 15,000 Indonesian guests a year. There are 22 villages in the park, with approximately 30,000 residents. In total, an estimated 40,000 people rely on economic benefits deriving from the park. Over recent years, Bunaken has been pursuing an innovative financial planning exercise which aims both to diversify the funding portfolio of the National Park and to maximise local development returns through stimulating sustainable business and commercial enterprises. This was stimulated by growing concerns about the financial sustainability and viability of the National Park, both for the government managers and as a component of the local economy. By the late 1990s, in the face of growing threats to the National Park, the need for development of a more diversified portfolio of funding sources was felt acutely by both park management and local stakeholders. Perhaps the most vocal proponent for increased management funding was the North Sulawesi Watersports Association (NSWA), a group of private sector dive tourism operators who were alarmed at the rapid increase in cyanide and blast fishing incidents in the park and saw the urgent need to find funding sources for a more proactive patrol system. By May 2000, the NSWA began charging a voluntary “preservation fee” of $5/diver, which, combined with donations from the operators themselves, was used to purchase fuel for patrols by police and rangers. However, this was clearly a stopgap measure, and the NSWA advocated strongly for an official entrance fee system for the park. Additionally, local village stakeholders joined the 9

chorus calling for funding for more patrol activities, and a host of village development projects and mangrove rehabilitation. Various valuation exercises were carried out to determine the optimal level of fees for the park. Tourist willingness to pay was established to be US$31/international visitor/visit, or a total of US$4.2 million a year, and so charges were set at a level somewhat below this figure (about half of tourists’ stated willingness to pay). Based on ground-breaking provincial laws, and with the agreement of the PHKA (Department of Nature Conservation), an innovative new entrance fee system for Bunaken National Park was introduced in 2001 which allowed for the overwhelming majority of the revenues collected to be retained locally to fund management activities and act as leverage for local business, income and employment. This decentralised system, largely operated through tour operators themselves, instituted a one-time charge of US$15 for overseas tourists (via numbered plastic tags which are valid for a period of one year) and Rp 2,500 a trip for domestic visitors (via a ticket). Revenues more than doubled in the first year of operation, and had risen by a factor of almost three and a half by 2007 (Figure 4).

40,000

1,600

30,000

1,200

20,000

800

10,000

400

0

0 2001

2002

2003

2004

2005

2006

Revenues (Rp mill)

Tourists (no.)

Figure 4: financial and tourism trends in Bunaken NP International tourists

Domestic tourists

Revenues

2007

What makes this system innovative, aside from the high level of participation of the private sector and the use of market-based mechanisms to determine the pricing structure, is the way in which revenues are collected and utilised. Here, strong business principles are also applied, based on maximising cost effectiveness, cost-recovery and commercial impact. From the revenues earned, 80% is retained by the National Park Management Advisory Board (a multi-stakeholder body with representatives from government, the private sector and local communities) for management and conservation activities, and 20% is allocated to local government. Just under a third of revenues are used to fund a small grants programme for each of the villages in the park. These stimuli to local development and enterprise have led to a situation where it is estimated that increased opportunities for employment, business and the development of secondary and support industries add value of more than US$31.5 million a year to the local economy. Echoing the strong involvement of the tourism industry in designing and implementing the new fee system, under an agreement with private sector tourism operators, a 5% “commission” is also offered by the Management Advisory Board on all entrance tag sales. To promote institutional strengthening of the tourism sector and better cooperation, this incentive is not paid directly to individual tourism operators, but rather to the trade association of their choice (including the NSWA, the local cottage-owner association, the charter boat association, and the travel agents’ association).

Weighing up coastal development and ecosystem trade-offs: Togean Islands79 The Togean Islands comprise seven main islands and a number of smaller ones, located in Tomini Bay in 2 Sulawesi. Together they cover a land area of 700 km , approximately 60% of which is forested. There is a wide variety of coral reefs, as well as mangroves and white coral sand beaches. The rich fauna that are present on the islands include species are found only on Sulawesi or the Togeans themselves, such as the Togean macaque, lizard and tarsier. Marine biodiversity includes endangered species such as the dugong, and hawksbill and green sea turtles. Tourism has developed over the last two decades, and the Togeans now provide a popular destination for diving, snorkelling and beach recreation. The main threats to marine and coastal ecosystems in the Togean Islands include commercial logging, conversion of forests for agriculture, hunting, over-harvesting of non-timber forest products, and overharvesting of mangroves. As well as threatening rate species and biodiversity, these activities lead to deforestation, and increase erosion rates, transporting silt and sediments into coral reef areas. In turn, sedimentation on reefs smothers the corals, killing them and resulting in a reduction in living coral cover. This 10

diminishes fish populations and fish catches, and lowers the value of reefs for tourism. Such effects are exacerbated by the fact that the lack of strong currents and tides around the Togeans worsens the risk of sedimentation impacts on coral reefs. Logging and agricultural conversion can also lower water tables, particularly in a small watershed such as that found on the Togeans. In addition to the difficulties caused to the islands’ residents by reduced water supplies and quality, these effects would restrict the volume of tourism that the Togeans can support. Decision-makers have tended to make land and resource use decisions in the Togeans based on financial analyses of development activities, which describe the private costs and benefits that accrue to investors or others directly involved in the development activity. These types of calculations do not however account for the full range of costs and benefits, and may therefore supply decision-makers and stakeholders with misleading information about which is the “best” development option. In 1997, an economic valuation exercise was carried out to weigh up the trade-offs associated with the development of logging, in terms of its impacts on marine and coastal ecosystems. The valuation exercise looked at the economic returns to coral reef tourism, fisheries and logging. Its aim was to quantify the trade-offs between competing and interacting development options and resource uses and determine the true economic – rather than just financial – performance of development activities, taking account of all costs and benefits, both public and private, and on-site and off-site. Thus it was hoped that valuation could assist in identifying which of these competing and interacting development activities and land-uses would produce the highest benefits for the Togean communities, and for Indonesia as a whole. For logging to be the economically rational development choice in the Togean Islands the benefits from logging must be greater than the costs that arise. The overall economic case for logging can be determined by comparing the costs of the impact to tourism and fisheries to the estimated profits from logging. In this case, a very conservative analysis was carried out, looking minimum fisheries and tourism revenues and basing estimates of forestry profits on high-value logging. This was done so as to be sure that there was no bias towards conservation in the calculations, and to provide a “maximum” scenario which would show the greatest likely profits that could be gained from logging. The valuation exercise found that logging, tourism and fisheries all generate substantial profits (Table 2). Table 2: the relative returns to logging, tourism and fisheries in the Togean Islands Net revenues or profit (Rp million/year)

Net Present Value (Rp mill)

3

Logging

750 ha logged, yielding 30 m /ha

Tourism

3,500 tourists with average trip length 7 days

Fisheries

3,609 fishers with total catch of 13,400 tonnes

80

Total revenues (Rp million/year) -

563

4,113

980

588

5,337

13,400

4,000

36,310

The valuation exercise however also found that the environmental and social costs (or “externalities”) associated with logging are larger than the private benefits (or profits) that can be gained: by a factor of more than four (Figure 5). In other words, logging produces more costs than benefits to society as a whole, which are felt primarily by the Togean islanders through reduced fish catch and decreased income from tourism. This provides an economic rationale for rejecting forestry as a development activity. Even though some enterprises would obtain private benefits from logging, local fishers and tourist operators would stand to lose more if the logging activity were allowed.

Change in profits under logging (Rp mill)

Figure 5: ecosystem trade-offs on the Togean Islands 10,000 5,000

Profits from logging

0 -5,000

Reduced profits to fisheries due to lower catch

-10,000

Net economic value of logging

-15,000 -20,000

Reduced profits to tourism due to lower visibility, damaged reefs and less fish

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4 MOVING FORWARD: maximising long-term development gains through investing in marine and coastal ecosystems This chapter draws out conclusions and economic policy implications from the data that have been presented in earlier sections of the report. An overarching finding is that that marine and coastal ecosystems should be treated, counted, and invested in as productive (and cost-effective) part of the infrastructure that is required for local and national development in Indonesia. A key lesson is that investment in marine and coastal ecosystems has many dimensions, which range from purely financial measures to the broader integration of ecosystem values into development planning and policies, and ultimately into the markets and prices that people face as they go about their economic business in coastal areas.

Investing in marine and coastal ecosystem conservation yields high economic and development returns The report presents a series of extremely interesting findings from coastal and marine ecosystem valuation studies which have been carried out in Indonesia, and which provide strong evidence of their economic and development importance. In total, the project identified around 40 studies and reports (in both Bahasa Indonesian and English) which have been carried out since the mid-1990s, and deal specifically with marine and coastal valuation in Indonesia. Approximately twice this number of documents are available on the value of other natural ecosystems in the country, particularly forests. Perhaps the most important finding of this report is that available data demonstrate, again and again, that marine and coastal ecosystems are essential for much of the economic activity that occurs in Indonesia’s coastal zones – and for development in the future. The products, facilities and services that they yield has been seen to range from basic needs such as food, fuel and building materials (such as in Wakatobi), through income and employment (such as in Raja Ampat), important market commodities and raw materials for commercial industries (such as for tourism and fisheries sectors), through to vital protection against natural hazards and disasters (such as in Bali and Lombok). Many of the examples presented in the document also underline that investment in marine and coastal ecosystems has important implications in distributional, equity and poverty alleviation terms. A recurrent theme has been that it is frequently the poorest and most vulnerable groups in Indonesia who rely most on ecosystem goods and services, and who stand to suffer most in economic terms when they are degraded. In contrast, more privileged economic groups often reap the lion’s share of the economic benefits of environmentally unsustainable activities, while bearing few of the economic costs that arise – as has been described for Bintuni Bay and Raja Ampat. Examples drawn from many parts of the country have shown that, just as the economic and development benefits of well-managed or intact coastal and marine ecosystems are substantial, so the economic costs of ecosystem degradation and loss can be substantial. Key examples include the impacts of logging in the Togean Islands, or the effects of dynamite fishing and coral mining across the country. The main concern is the resulting disruption of the ecological and economic goods and services normally generated by undisturbed systems, upon which so many human processes rely. Yet, despite this large and growing evidence base, natural ecosystems are still not really treated as being essential to economic wellbeing and prosperity. Statistics have been presented which show that budgets to marine and coastal conservation remain extremely low (around half of what is required). They also continue to be positioned as pure “conservation” funding (to Kawasan Konservasi Lau Daerah, Marine Protected areas, or through the Directorate General of Nature Conservation) rather than as investments in vital economic infrastructure. If marine and coastal ecosystems are to be recognised as assets which yield a flow of services that are required for the economy and society to function properly, then the human, social and financial capital that is required to sustain them (and which they, in turn, sustain) also needs to be allocated to their upkeep – at sufficient levels, and from all sectoral budgets. In order to ensure their productivity and continued support to human development, Indonesia’s marine and coastal ecosystems need to be maintained and improved to meet both today’s needs as well as intensifying demands and pressures in the future – just like any other component of the nation’s development infrastructure. 12

Ecosystem investment includes funding, policies and planning The report has concluded that the maintenance of healthy and well-functioning marine and coastal ecosystems is an investment priority that yields high returns in economic and development terms. In the light of the examples and cases presented, it is clear that “ecosystem investment” has many elements, encompassing the effort, attention and material support provided in public policy, planning and expenditures for economic development. In order to maximise long-term coastal development gains, marine and coastal ecosystems should be considered on an equal footing with other stocks of productive capital and sources of wealth in the economy – in budgetary, policy and statistical terms. Budget allocations One important component of ecosystem investment is ensuring sufficient public funds (and other resources, such as land and sea areas, staff, capital and equipment) are allocated to the government agencies and other groups responsible for marine and coastal ecosystem management. An example of this is the need to give priority to funding of the more than 8 million hectares of marine and coastal protected areas which have been designated across the country and which currently lack adequate funds to operate effectively, and the planned additional 12 million hectares which the government has committed to gazette in order to built a representative system of protected areas. The allocation of sufficient budget to marine and coastal ecosystem conservation also extends to covering costs incurred outside the public sector. As several examples presented in this document have illustrated, there are economic trade-offs involved in choosing to conserve the environment. Even when there is a net social benefit from conservation, certain groups stand to lose out in economic terms because they must restrict their economic activities to sustainable levels, or forego access to economically valuable resources. Funding these broader opportunity costs and transactions costs is also an important component of ecosystem investment, and a key concern in ensuring that equity and distributional issues are addressed. Policy prioritisation A range of cases, such as those from the cyanide fishing and coral mining industries have illustrated the fact that there are substantial private profits and gains to be made from the unsustainable use of marine and coastal ecosystems. This is because many of the markets and profits which drive economic decisions in coastal areas do not currently reflect ecosystem costs and benefits. A second important element of ecosystem investment is thus to ensure that economic and fiscal policy instruments work to improve markets and prices which prejudice against sustainable land, sea and resource uses. This includes dismantling the subsidies and perverse incentives which encourage the economic activities which contribute to ecosystem degradation, as well as supporting new markets and pricing mechanisms which will make conservation more economically attractive to coastal communities and businesses. The case of Bunaken National Park, for example, illustrated how government intervention to create a realistic price for marine and coastal ecosystem services where none existed, based on their value to tourists, can prove to be effective mechanism for revenue generation. Other examples, such as Komodo National Park, Pula Weh, Bintuni Bay and Aceh, showed how support to sustainable marine-based enterprises can alter radically the incentives for local communities and the private sector (and indeed Provincial and District governments) to invest in ecosystem conservation. An important point to make here is that existing government documents already call for the use of these types of policy measures. The Environmental Management Act No. 23 of 1997 requires the government to develop and implement economic and financial instruments to enhance environmental management in Indonesia. The Ministry of Environment has, over the last few years, begun to pilot some innovative incentive schemes. A recent example is the decision to embark on a series of environmental-fiscal reforms, as well as initiatives such as the 2005 regulation which demands the inclusion of environmental performance within the Bank of Indonesia’s credit policy. Marine and coastal ecosystems are however as yet weakly represented in these efforts. In particular, there are currently few incentives or requirements for developers and investors to take account of ecosystem values when calculating land, resource or investment trade-offs, or to conserve valuable natural infrastructure in the course of planning and carrying out economic activities. Despite the relatively comprehensive body of environmental legislation in Indonesia, there remain few economic or financial instruments in place which can back up their provisions, or encourage compliance.

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Integration into statistics and planning A third challenge is to work to integrate measures of marine and coastal ecosystem values into the many regulations, guidelines and procedures which exist in Indonesia for measuring and tracking economic and investment performance, and choosing between different development options. Most programmes, projects and policies are required to undertake these types of economic and financial assessments before proceeding. Although several examples have been presented which illustrate how ecosystem values can be incorporated into economic appraisals, cost-benefit analyses, and investment planning (for example in the Togean Islands and Raja Ampat), these types of more inclusive and more comprehensive exercises remain the exception rather than the norm. Yet until ecosystem values are included in the bottom line when different coastal development options are weighed up and assessed in terms of their economic desirability, calculations will be inherently biased against investing in natural infrastructure – and may thereby miss out on securing valuable benefits. The indicators which are used to track sectoral and macroeconomic performance at both national and decentralised levels, too, are in need of some reform if they are to accurately represent growth and depreciation in marine and coastal ecosystem assets and economic flows. Particularly in relation to official estimates of GDP and PAD, there are a number of fundamental flaws and omissions in existing systems of statistics which may lead to real coastal development trends being misrepresented. These include that expenditures on ecosystem remediation or protection are counted as increases in GDP or PAD, even though this expenditure is not economically productive and in fact represents compensation for the depreciation of natural infrastructure. Official indicators of economic activity and growth also do not account for unmarketed goods and services: as we have seen in many of the examples presented in this report, this means that the bulk of coastal and marine ecosystem values remain unrepresented. A third issue is the differential treatment of the depreciation of manufactured capital and natural capital; the former is depreciated in accordance with conventional business accounting principles, while all consumption of natural capital is accounted for as income. Thus accounts of a sector or Province that utilises marine and coastal ecosystem assets unsustainably will show high income, but will not reflect the destruction of these productive assets. Indonesia already has some early experiences with natural resource accounting (in fact one of the world’s first applications of green accounting was in Indonesia). These include estimates of net domestic product for the period 1970-84 (incorporating changes in the stocks of oil, forests and soil in the GDP capital and flow 81 accounts) , as well as “genuine saving” indicators covering environmental damage and resource 82 83 depreciation , estimates of “genuine savings ”, Central Bureau of Statistics efforts to come up with 84 measures of “Eco-Domestic Product” (covering timber, oil, gas, and coal) , and the most recent trials of a System of Integrated Environmental and Economic Accounting for Indonesia covering the years 1990 and 85 1995 . All of these represent one-off attempts to demonstrate “real” economic stocks and flows to the country, but none have yet been extended to specifically include marine and coastal ecosystems or to systematically track ecosystem costs and benefits alongside conventional measures of economic growth and performance.

14

5 REFERENCES AND NOTES 1

Indonesia Integrated Coastal Management profile: http://www.globaloceans.org/icm/profiles/Indonesia.html. Accessed 7 January 2009.

2

Soegiarto A. and N.V.C Polunin. 1981. The marine environment of Indonesia. International Union for the Conservation of Nature and Natural Resources (IUCN) and WorldWide Fund for Nature Indonesia Programme, Bogor. 3 With populations exceeding 100,000. 4

Balk, D., McGranahan and B. Anderson. Undated. Preference and Risks of Coastal Population Distribution: A systematic assessment of population and land area in urban and rural areas of coastal zones. Princeton University. 5 Dahuri, R. 2007. Transforming ocean's wealth into Indonesian prosperity. Jakarta Post Opinion and Editorial August 13, 2007. 6

World Bank. 2006. Making the New Indonesia Work for the Poor. The World Bank, Jakarta.

7

ADB. 2006. From Poverty to Prosperity: A Country Poverty Analysis for Indonesia. Asian Development Bank, Manila.

8

Dahuri op. cit. Carter, E. and A. Darmawan. 2008. Marine Protected Area Gap Assessment Indonesia. The Nature Conservancy - Coral Triangle Center, Bali. 9

10

Cesar, H. 1996. Economic Analysis of Indonesian Coral Reefs. Environment Department Work in Progress, World Bank, Washington DC.

11

UNEP-WCMC. 2006. In the Front Line: Shoreline Protection and Other Ecosystem Services from Mangroves and Coral Reefs. UNEPWCMC, Cambridge. 12 Carter, E. and A. Darmawan. 2008. Marine Protected Area Gap Assessment Indonesia. The Nature Conservancy - Coral Triangle Center, Bali. 13 McQuistan, C.I., Fahmi, Z., Leisher, C., Halim,A. And S.W. Adi, 2006, Protected Area Funding in Indonesia. Study Implemented Under the Programmes of Work on Protected Areas of the Seventh Meeting of the Conference of Parties on the Convention on Biological Diversity, State Ministry of Environment, Government of Indonesia. 14

Calculated from budget data presented in Ghofar, A., Schorr, D.K., Halim, A. and Purwanto, 2008. Selected Indonesian Fisheries Subsidies: Quantitative and Qualitative Assessment of Policy Coherence and Effectiveness. The Nature Conservancy - Coral Triangle Center, Bali. 15 Sumardja, E.A. 2003. Public Sector Support and Management of Protected Areas in Indonesia. Paper presented at Sustainable Finance Stream, 5th World Parks Congress, Durban. 16 McQuistan et al op. cit. 17

Ghofar et al op. cit.

18

FAO, Fish er y and Aq u acultur e C ountr y Pr of il e Indonesia http://www.fao.org/fishery/countrysector/FI-CP_ID/en

19

Burke, L., E. Selig and M. Spalding, 2002, Reefs At Risk in Southeast Asia. World Resources Institute, Washington DC.

20

Gell, F.R. and C.M. Roberts. 2002. The Fishery Effects of Marine Reserves and Fishery Closures. WorldWide Fund for Nature US, Washington DC. 21 Russ, G.R. and A.C. Alcala. 1996. Marine reserves: rates and patterns of recovery and decline of large predatory fish. Ecological Applications 6: 947-961, quoted in Gell and Roberts op. cit. 22 Maypa, A.P., Russ, G.R., Alcala, A.C. and H.P. Calumpong. 2002. Long-term trends in yield and catch rates of the coral reef fishery at Apo Island, Central Philippines. Marine and Freshwater Research 53: 207-213, quoted in Gell and Roberts op. cit.. 23

Cesar, H.J.S. 2002. The biodiversity benefits of coral reef ecosystems: Values and markets. Working Party on Global and Structural Policies Working Group on Economic Aspects of Biodiversity, OECD, Paris.

24

McAllister, D.E. 188). Environmental, economic and social costs of coral reef destruction in the Philippines. Galaxea 7: 161-178.

25

Putra, D.P. 2001. Ecological-Economic Analysis of Coral Reef protected area in South Lampung. Thesis Presented for Master of Arts, Graduate Program of Coastal and Maine Resources, Bogor Agricultural University.

26

Sukristijono S.J. 2002. Integrated Coastal Zone Management (ICZM) in Indonesia: A View from a Mangrove Ecologist. Southeast Asian Studies 40(2): 200-218; Putra, D.P. 2001. Ecological-Economic Analysis of Coral Reef protected area in South Lampung. Thesis Presented for Master of Arts, Graduate Program of Coastal and Maine Resources, Bogor Agricultural University. 27 Canon, J. 1999. Participatory Economic Valuation of Natural Resources in the Togean Islands. Jakarta: NRM/ EPIQ Program. 28

“Rare Pride helps Togean Islands Establish National Park” http://www.rareconservation.org/programs/page.php?subsection=Rare%20Pride&name=PrideSuccess_togeanislands 29 Calculated over 30 years. 30

Cesar, H. and C.K. Chong.2004. Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies. in Ahmed, M. Chong, C.K., and H. Cesar. 2004. Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs. WorldFish Center, Penang.

31 32

Burke et al op. cit. Burke et al op. cit.

33

Cesar, H. 1996. Economic Analysis of Indonesian Coral Reefs. Environment Department Work in Progress, World Bank, Washington DC. 34 Burke et al op. cit. 35

FAO, Fish er y an d Aqu acultur e C ou ntr y Pr of ile Indonesia http://www.fao.org/fishery/countrysector/FI-CP_ID/en

36

Assuming that three quarters of personal travel and tourism is related to marine and coastal areas. Estimated from data presented in WTTC. 2008. The 2008 Travel & Tourism Economic Research: Indonesia. Tourism Satellite Accounts, World Travel and Tourism Council, London. Travel & Tourism Satellite Accounts are analogous to the national income accounts routinely published by government statistical offices worldwide. The WTTC/Oxford Economics 2008 Tourism Satellite Accounting research constructs such accounts for 176 countries and follows the standardised United Nations’ methodology for measurement of Travel & Tourism’s economic impact on

15

personal consumption, business spending, capital investment, government expenditures, exports and imports, culminating in quantification of the contribution to gross domestic product and employment. 37

Iqbal, M. 2006. Economic Valuation of Protected Area of Marine National Park in Weh Island. Thesis presented for Master of Arts, Bogor Agricultural University. 38 Hargreaves-Allen, V. 2004. Estimating the Total Economic Value of Coral Reefs for Residents of Sampela, a Bajau Community in Wakatobi Marine National, Sulawesi: A Case Study. Thesis submitted for the Degree of Master of Science, Facility of Life Sciences, Imperial College of Science, Technology and Medicine, London. 39 LaFranchi, C. 1999. Valuing Resources: Fisheries, Tourism and Preservation Values Bunaken National Marine Park. Natural Resources Management Project, Jakarta. 40 41

Davis, T.B. 2005. Local and Semi- Local Economic Impacts of Dive Tourism in Bunaken National Park, North Sulawesi, Indonesia. Iqbal op. cit.

42

Walpole, M.J., Goodwin, H.J. and K.G.R. Ward. 2001. Pricing Policy for Tourism in Protected Areas: Lessons from Komodo National Park, Indonesia. Conservation Biology 15(1): 218–227. 43 Calculated over 30 years. 44

Cesar and Chong op. cit.

45

World Bank. 2006. Making the New Indonesia Work for the Poor. The World Bank, Jakarta.

46

As laid out in Government of Indonesia. 2003. Interim Poverty Reduction Strategy Paper: A Process Framework of Strategic Formulation for Long Term Poverty Alleviation. Committee for Poverty Alleviation, Jakarta. 47 Government of Indonesia. 2006. National Action Plan for Disaster Reduction 2006 – 2009. Office of the State Minister for National Development Planning/National Development Planning Agency, with National Coordinating Agency for Disaster Management, Jakarta. 48 UNEP-WCMC op cit. 49

Ruitenbeek, J. 1992. The rainforest supply price: a tool for evaluating rainforest conservation expenditure. Ecological Economics 6(1):57-78. 50 Cesar, H. 1996. Economic Analysis of Indonesian Coral Reefs. Work in Progress, Environment Department, World Bank. 51

Burke et al op. cit.

52

Hargreaves-Allen op. cit.

53

Calculated over 30 years. Cesar and Chong op. cit.

54 55

Riopelle, J.M. 1995. The economic valuation of coral reefs: A case study of west Lombok, Indonesia. Thesis submitted for the Degree of Master of Arts, Dalhousie University, Halifax. 56 Cesar 1996 op. cit. 57

Sabine, C.L., Feely, R.A., Gruber, N., Key, R.M., Lee, K., Bullister, J.L., Wanninkhof, R., Wong, C.S., Wallace, D.W.R., Tilbrook, B., Millero, F.J., Tsung-Hung,P., Kozyr, A., Ono, T. and A.F. Rios. 2004. The Oceanic Sink for Anthropogenic CO2. Science 305(5682): 367-371.

58

Aylward, B. and J. Spurgeon. 1992. The Economic Value of Ecosystems: Coral Reefs. Gatekeeper Series GK 92-03, London Environmental Economics Centre, International Institute for Environment and Development (IIED) and University College, London. 59 Sukristijono op. cit. 60

Government of Indonesia 2003 op. cit.

61

World Bank 2006 op. cit. 62 Emerton, L. 2006. Counting coastal ecosystems as an economic part of development infrastructure, Ecosystems and Livelihoods Group Asia, World Conservation Union (IUCN), Colombo. 63

Asian Development Bank News Release 26 October 2000: Helping Local Government In Indonesia Take Over Coastal Resource Management. http://www.adb.org/Documents/News/2000/nr2000110.asp. Accessed 10 January 2009.

64

ADB. 2006. From Poverty to Prosperity: A Country Poverty Analysis for Indonesia. Asian Development Bank, Manila.

65

Ghofar et al op. cit. Kanagaratnam, U., Schwarz, A-M, Adhuri, D. and M. Dey. 2006. Resilience, Rights and Resources: Two years of recovery In coastal zone Aceh. Rehabilitating mangroves in the West Coast of Aceh. World Agroforestry Centre ICRAF Southeast Asia Regional Office, Bogor. 67 Ruitenbeek, H.J. 1992. Mangrove Management: An Economic Analysis of Management Options with a Focus on Bintuni Bay, Irian Jaya. EMDI Environmental Reports 8, Environmental Management Development in Indonesia Project (EMDI), Dalhousie University, Halifax. 68 Hargreaves-Allen op. cit. 66

69

Cullen, L. C. 2007. Marine resource dependence, resource use patterns and identification of economic performance criteria within a small island community: Kaledupa, Indonesia. Thesis submitted for the degree of Doctor of Philosophy, Department of Biological Sciences, University of Essex.

70

USAID. 1996. Economic Value of Fisheries to the Residents of Bunaken National Marine Park. Report No. 62. Natural Resources Management Project, Jakarta. 71 Fauzi, A. and S. Anna. 2005. Who Owns the Strait?: Conflicting and Competing over Uses of Fishery Resources in the Lembeh Strait, Indonesia. Department of Resource and Environmental Economics, Bogor Agricultural University 72 Ruitenbeek op. cit. 73

LaFranchi op. cit.

74

Davis, T.B. 2005. Local and Semi- Local Economic Impacts of Dive Tourism in Bunaken National Park, North Sulawesi, Indonesia.

75

Compiled from work presented in Hargreaves-Allen op. cit. and Cullen op. cit.

16

76

Compiled from work presented in Dohar, A. and D. Anggraeni. 2006. Economic Valuation of Natural Resources and Ecosystem Services, Raja Ampat. Universitas Negeri Papua (UNIPA) and Conservation International Indonesia, Jakarta; and Sumaila, U.R. and M. Bailey. 2007. Towards Ecosystem-Based Management in the Birds Head Functional Seascape of Papua, Indonesia: The Economic Sub-Project. The Nature Conservancy, Conservation International and WorldWide Fund for Nature Indonesia, Jakarta. 77 Calculated over 20 years, at a 10% discount rate. 78

Compiled from work presented in http://www.bunaken.org/, accessed 15 January 2009; LaFranchi, C. 1999. Valuing Resources: Fisheries, Tourism and Preservation Values Bunaken National Marine Park. Natural Resources Management Project, Jakarta; Davis, T.B. 2005. Local and Semi- Local Economic Impacts of Dive Tourism in Bunaken National Park, North Sulawesi, Indonesia; USAID. 1996. Economic Value of Fisheries to the Residents of Bunaken National Marine Park. Report No. 62. Natural Resources Management Project, Jakarta; Erdmann, M.V., Merrill, P.R., Arsyad, I. and M. Mongdong. 2003. Developing a diversified portfolio of sustainable th financing options for Bunaken National Marine Park. Paper presented at Sustainable Finance Stream, V World Parks Congress, Durban; Van Beukering, P.J.H., Scherl, L., Sultanian, E., Leisher, C. and J. Fry. 2007. Case study 3: Bunaken National Marine Park (Indonesia). The Nature Conservancy (TNC), Brisbane. 79 Compiled from work presented in Cannon,J. 1999. Participatory Workshop for the Economic Valuation of Natural Resources in the Togean Islands, Central Sulawesi. NRM/EPIQ, Jakarta. 80 Calculated over 25 years, at a 10% discount rate. 81

Repetto, R., Magrath, W., Wells, M., Beer, C. F. and Rossini. 1989. Wasting Assets: Natural Resources in the National Accounts, World Resources Institute, Washington DC. 82 Pearce, D.W. and G.D. Atkinson. 1993. Capital Theory and the Measurement of Sustainable Development. Ecological Economics 8: 103-108. 83 Hamilton, K. and M. Clemens. 1999.Genuine Savings Rates in Developing Countries. World Bank Economic Review 13: 333-356. 84

Biro Pusat Statistik. 1996. Trial Estimates of the Indonesian System of Integrated Environmental and Economic Accounting: 1990-9. Biro Pusat Statistik, Jakarta. 85 Alisjahbana, A.S. and Y. Arief Anshory. 2000. Trial Estimates of the 1990 and 1995 System of Integrated Environmental and Economic Accounting, Report submitted to the United Nations University/Institute for Advanced Studies, Tokyo; Alisjahbana, A.S. and Y. Arief Anshory. 2000. Indonesia’s Genuine Savings Rates: 1980 - 1997. Report submitted to the United Nations University/Institute for Advanced Studies, Tokyo.

17