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# SECTION II: OVERVIEW OF INDONESIA'S KSY ENVIRONMENTAL ISSUES 1/

# Economic Development and Environment

6. Indcnesia's environmental pressures are closely linked to the key development challenges that are faced by the nation. Despite very impressive growth performance since the 1970s and substantial progress in reducing poverty, Indonesia, at $500 per capita income, remains a low income country, with some 30 million people still -emaining below the poverty line. At the same time, an estimated 2.3 million new workers are entering the labor force annually in the 1990s. Consequently, poverty alleviation and employment generation remain among Indonesia's most pressing development challenges.

7. These development challenges have major implications for environmental management. One reason is the spatial pattern of Indonesia's development. Of the population of 179 million, about 62 percent are located in the inner islands of Java, Madura, Bali and Lombok, which together account for only about 8 percent of Indonesia's land. Population densities in Java are among the highest in the world. Yet Java's population continues to grow at about 1.8 percent per annum. There is very little scope to absorb additional labor in Java's agriculture. Manufacturing must necessarily provide the momentum for growth of output and employment in Java and other land-scarce inner islands. The threat to environment arises pr.imarily from the growing population, industrial development, and the resulting pressures on land and water resources. Java's cities, for example, are expected to double in size between 1980 and 2000. Already, increasing population densities along Java's north coast are straining the capacity of coastal ecosystems to deal with municipal waste and industrial pollution, and shortages of clean water threaten both human health and industrial development. Another critical environmental concern in Java is the soil erosion resulting from inappropriate watershed management. In Java, virtually all the high-quality arable land is already under cultivation. The only land available for further agricultural expansion is the often erodible, low-yielding upland areas of upper watershed catchments. The erosion problems result from inappropriate cropping patterns in these upper watersheds.

8. The development process has also produced environmental pressures in the outer islands. These outer islands are the repository of most of Indonesia's forest and land resources. They account for close to 60 percent of all forested area in Southeast Asia, and more than 98 percent of all forests in Indonesia. These closed canopy forests are under increasing pressure as a result of population growth and economic development. In the decade between 1973 and 1983, dryland agriculture expanded at 1.8 percent per annum in Java, 3.7 percent in Sumatra, 4.6 percent in Kalimantan and 5.6 percent in Sulawesi. Since 1980, Government-sponsored programs in the outer islands have put nearly 2 million hectares in production and there has been a rapid growth in the exploitation of timber and other forest products. These factors have led to a sharp increase in the rate of deforestation and an uneven pattern of land use. Deforestation rate for national forests is estimated to have been about 1.3 million/ha (1.2 percent) per annum over the 1/ The discussion of this section draws heavily from World Bank (1990a).