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Billions of dollars set to flood into the nation under a UN-backed forest protection scheme are at risk from graft unless the government puts strong oversight mechanisms in place, a report released on Tuesday warned.

Indonesia has the world’s third-largest area of tropical forest and stands to gain billions of dollars every year from a proposed greenhouse gas offset scheme called reduced emissions from deforestation and degradation that was formalized at the recent global climate talks in Copenhagen.

REDD allows polluters to earn tradeable carbon credits by paying developing nations not to chop down their trees.

However, a two-year study by the Bogor-based Center for International Forestry Research warned that cases of corruption and financial mismanagement in the nation’s forestry sector revealed systemic weaknesses that could scuttle REDD.

“Investors should be looking very carefully at the financial governance conditions in the countries where they will be investing their funds. Like Indonesia, many countries with tropical forests have long track records of mismanaging public financial resources, particularly in the forestry sector,” said one of the report’s authors, Christopher Barr.

But the Ministry of Forestry said the government was committed to transparency. “Everything is now transparent, measured and monitored. Not just in the REDD sector but in all our financial management, it’s now very tight,” said Masyhud, a ministry spokesman.

“It’s not possible to play around. Every institution has an inspector general and we also now have the Supreme Audit Agency [BPK] and the Corruption Eradication Commission [KPK].”

Indonesia last year set up a legal framework for REDD. Several pilot projects are under way and the governments of Norway, Australia, Germany and the United States have promised millions of dollars in funding for REDD activities.

The Cifor report recommended that Indonesia set up new mechanisms to monitor the money flowing into the country for REDD projects, and to strengthen existing oversight bodies such as the KPK.

The report revealed details of mismanagement of the Reforestation Fund, which was established in 1989 under former President Suharto and which collected billions of dollars in levies from timber concessionaires to pay for reforestation.

The Cifor study was partly based on a previously unpublished 1999 audit by Ernst & Young, which found $5.25 billion was lost from the fund through systemic financial mismanagement and fraud between 1993 and 1998.

Control of the Reforestation Fund has now been transferred to the Ministry of Finance and institutions such as the KPK and BPK have helped to improve the situation since the fall of Suharto in 1998, Barr said.

“But significant problems have continued through the post-Suharto period, many of which raise fundamental questions about how future REDD payment schemes will be managed,” he added.

KPK spokesman Johan Budi said the agency was now investigating senior Forestry Ministry officials and lawmakers suspected of taking bribes for a radio communications system contract in 2007.

“The problems that have plagued the Reforestation Fund over the last 20 years are likely to reoccur” without further strengthening of oversight systems, Barr said.

Indonesia last week revealed an ambitious plan to create an additional 21.15 million hectares of forest by 2020.



Reuters