Wednesday, June 30, 2010

Excerpt - Abstract : The Unofficial Appropriation of Forest Rent by Rulers in Southeast Asia 1970-99


"Natural resources are easy for governments to tax, as they embody high amounts of windfall profit or "economic rent." According to resource economics, it is optimal for governments to collect as revenues nearly all of the economic rent earned by resource extractors. For example, the Indonesian and Malaysian governments collect revenues from oil producers equal to 80 to 85 percent of economic rent.

The actual level at which these same governments collect economic rent from rain forest timber is generally quite small: 26 percent in Indonesia and 18 percent in the East Malaysian state of Sarawak. In contrast, experts claim that the capture of rent is quite high in the East Malaysian state of Sabah, where 88 percent of timber rent is collected. The dissertation seeks to explain this seemingly wide variation.

The study argues that government agencies fail to collect timber rent at optimum levels because they are prevented from doing so by rulers who use their positions to build and maintain hidden ties to the timber industry through which they appropriate vast amounts of timber rent. Conversely, the study argues that governments that succeed in collecting timber revenue are able to do so because they possess the institutional capacity to prevent rulers from absconding with timber rent.

Proving whether or not rulers are appropriating timber rent is accomplished through archival research, primary documents, and five years of field work to identify all forest areas licensed to the largest timber conglomerates in Indonesia, Sarawak and Sabah. This research is corroborated and supplemented through structured interviews to find out whether rulers, their families, proxies, business partners, and political supporters and financiers run or own these timber concessions.

The study concludes that in Indonesia, Sarawak, and surprisingly, Sabah as well, each head of state has multiple ties to timber concessions. Moreover, rates of timber rent capture in Sabah are not nearly as high as believed by experts. This dissertation estimates that the three governments failed to collect 40 billion dollars in timber revenues over thirty years. "

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