Indonesia's industrial policy reforms and their environmental impacts

Abstract

The fast growth of the manufacturing sector in Indonesia during the 1970s and 1980s and its relatively steady growth during the 1990s and early 2000s were argued to be the result of the kind of industrial policy reforms that were implemented. However, another important development since the early 1970s has been the rapidly deteriorating quality of environmental conditions in the country. Thus, the purpose of this paper is to analyse how industrial policy reforms have impacted on the environmental performance of industry, as well as to describe whether the introduction of industrial environmental policies has reduced industries' environmental impact.

Keywords:

• Industrial policy
• environmental policy
• economic development

JEL Codes:

• L52
• Q58
• O14

Acknowledgements

The authors would like to thank the UNIDO for partly funding this research and Fajar B. Hirawan for contributions as a research assistant. Any mistakes in this paper are the authors' responsibility.

Notes

* = the New Proper program.

1. Environmental policies discussed in this section are those that relate to industrial pollution. Other environmental policies have been implemented, such as promotion of unleaded gasoline and restricted areas for cars in the case of urban air pollution, the integrated pest management programme in the case of pesticide, no smoking policies in public buildings in the case of indoor air pollution, eco-labelling in forestry, etc.

2. The regulation was re-issued by the enactment of Government Regulation No 51/1993, specifically to clarify which agencies should assess and approve the environmental impact assessment report of a particular project.

3. The number is still relatively very small compared with the total number of rivers in Indonesia, or even to the number of rivers in Java.

4. Note that BAPEDAL was abolished that year and all of its staff were moved to the Ministry of Environment.

5. In 2000, the new regional government taxes and charges Law No. 34/2000 was enacted, which actually provides an opportunity for regional government to implement pollution taxes. However, regional governments do not seem to have used this opportunity yet.

6. Dispenda is a regional body responsible for collecting income (from tax, etc) for the region.

7. A surety bond is a contract agreement between at least three parties. The principal is the primary party who will carry out obligations specified by the contract. The obligee is the recipient of the contract obligation. The surety is the party who guarantees the principal's performance of the obligation.

8. For the East Asian NICs, the main push factors were the rising wages in, and the sharp appreciation of, the currencies of these countries (Thee 1991).