With an estimated loss of up to 20 million ha of forest over the past decade, deforestation in Indonesia has come to the forefront of global environmental concerns. Indonesia is one of the most important areas of tropical forests worldwide. In addition to providing a multitude of benefits locally, including both products and services, these forests are also of global importance because of their biodiversity and the carbon they sequester. Despite the benefits they provide, Indonesia’s forests have been under considerable threat in past decades, and the extent of forest cover has declined considerably. This paper takes advantage of new data on the extent and distribution of forest cover change in Indonesia to examine its causes and effects. The paper begins by summarizing the long-term trends in land use change in Indonesia, and the new data on loss of forest cover during the period 1985-1997. It then discusses why this land use change is likely to be undesirable in many cases. Land use change can at times be beneficial, but there are good reasons to believe that current patterns of land use change in Indonesia are in fact socially sub-optimal. The paper then reviews the incentives faced by the major actors in land use change—loggers, estate crop producers, and smallholders—and the reasons their decisions concerning land use change, while privately optimal, are likely to be socially sub-optimal. It also briefly examines the effect that the East Asian financial crisis has had on these incentives. Particular attention is paid to mangrove forests, because of their important ecological role.
