Excerpts Chapter 4 : Unofficial Timber Rent Appropriation in Sarawak (Part 2 - Samling)

Samling

Sarawak’s and Malaysia’s largest timber concession holding company is the Samling group. As shown in Table 4.4 below, a number of concessions licensed to the Samling group include Chief Minister Taib’s family, proxies and political allies as board members and shareholders. Among the more interesting Taib-linked figures found in the table below are the chief minister’s cousin who serves as a senior business figure in the family, and the chief minister's bomoh (traditional healer and spiritual medium). Among the more straightforward recipients of political patronage are an assemblyman known by the nickname of "Giant Killer" because he successfully defeated Taib’s uncle and political rival in the 1987 election, and a nominee said to represent Sarawak’s Minister of Finance George Chan in two-thirds of Samling's timber concessions.

While many believe Sarawak's and Malaysia's largest timber group is Rimbunan Hijau, an internal spreadsheet compiled by a Samling employee put the total number of Samling concessions at 18, with four in Lawas, seven on the upper Baram region, and seven near Bintulu (Samling 1996). This total just over 1.6 million hectares, which just edges out the 1.5 million hectares of “official” holdings acknowledged by a Rimbunan Hijau official (26 October 1996 interview with William Wong). Samling is also the world’s largest owner of Caterpillar tractors (22 October 1996 interview with Samling official).

A well-placed and knowledgeable Sarawak source suspects that Samling is owned by the chief minister's family through nominees (26 May 1997 interview).

Table 4.4            Samling timber concessions in which family members, friends, proxies or political allies of Taib Mahmud are board members or shareholders.

Name of Samling-linked timber concession	Name of board member or shareholder	Position in or percentage of shares held in company	Relationship to current chief minister, source of information.
Adong; Baram Sawmill, 46,134 hectares; Dayalaba, 16,469 hectares; Kelapang; KTM Timor 71,657 hectares; Majau Timber; Pelutan, 55,912 hectares; Ravenscourt 136,659 hectares; Samling Plywood Miri, 160,954 hectares; Sertama; Syarikat Reloh; Tinjar Logging	Yong Nyan Siong	Holder of a single share; Director; Director and 40 percent shareholder; Director; Director; Director; Director; 30 percent shareholder; Director; Director; Director and 3 percent shareholder; Director	Nominee on behalf of Sarawak’s current Minister of Finance, George Chan (12 August 1997 interview with James Chin).
Paong Timber, 61,892 hectares	Edmund Ang @ Edmund Lea Ang, Bertram Raymond Regie Adai, Narulhuda Binte Mohd Mortadza, and Mustapha Bin Ismail, Sriemar Sdn Bhd.	1 percent shareholder, 1 percent shareholder, 3 percent shareholder, 1 percent shareholder, 5 percent shareholder.	Bertram Raymond Regie Adai is the former Editor in Chief of the Sarawak Tribune (11 June 1997 interview with former Sarawak Assistant Minister of Finance Patau Ubis).  He and three other shareholders, as well as the company Sriemar Sdn Bhd, all give the Chief Ministers palace guest house, Istana Tetemu, as their address (18 August 1997 interview with Raphael Pura).
Pelutan, 55,912 hectares; Sertama, size unknown	Ahmad bin Suut	20 percent shareholder; Director	Chief Minister Taib Mahmud's bomoh (traditional healer and spiritual medium) who owns between 15 and 17 luxury automobiles (4 June 1997 interview with a Sarawak state assemblyman).
Ravenscourt, 36,659 hectares	Abdul Hamid bin Sepawi	Director and 24 percent shareholder	First cousin to the chief minister, and an important business figure in the chief minister's family (6 June 1997 interview with State Assemblyman Aidan Wing). Abdul Hamid is “holding part of the money” for the chief minister (11 June 1997 interview with former Sarawak Assistant Minister of Finance Patau Ubis).

Table 4.4 (continued)    Samling timber concessions in which family members, friends, proxies or political allies of Chief Minister Taib Mahmud are board members or shareholders.

Name of Samling-linked timber concession	Name of board member or shareholder	Position in or % of shares held in company	Relationship to current Chief Minister, source of information.
Ravenscourt, 136,659 hectares	Wahab Dollah, Assistant Minister for Infrastructure Development (28 May 1997 interview with a Sarawak journalist).	Director	Known as "Giant Killer" because he defeated former Chief Minister Tun  Rahman in the elections in the aftermath of  the 1987 Ming Court affair.  Dollah acted on the chief minister's behalf in an attempt to obtain editorial control in the Borneo Post, where he is now a shareholder. Together with the chief minister's first cousin, Hamid Sepawi, Dollah owns 25 percent of the parent company of the Utusan Sarawak newspaper.  Dollah serves as political lieutenant of Taib by controlling political activities and seeing to material needs of eight PBB state assemblymen.  He is a strong public proponent of continued Melanau leadership in Sarawak.  Dollah is said to have been awarded eight timber concessions by Taib (Sayottaib 2001:  sulit 6, dokumen 1-4), although my study identified only five.  He makes profits from his timber concessions available to the PBB during election time (10 June 1997 interview with Kueh Yong Ann).
Seriku, 85,559 hectares; Sertama	Abang Abdul Karim Tun Abg. Hj. Openg	Director and 0.5 percent shareholder; Director	Older brother of one of the chief minister’s most important ministers, Abang Johari, Minister of Industry (28 May 1997 interview with a Sarawak journalist).
Seriku, 85,559 hectares	Abang Hj. Mohamed Bin Abang Sharkawi	Director, 0.5 percent shareholder	Former associate of Wahab Dollah.  Former official of Sarawak Economic Development Corporation (7 June 1997 interview with State Assemblyman Aidan Wing). A “Taib nominee” (12 August 1997 interview with James Chin).
Wan Abdul Rahman Timber, 28,407 hectares.	Thomas Kana	Director, 3 percent shareholder	Former senior official with the SNAP party (12 August 1997 interview with James Chin).  In the Sarawak state cabinet as a minister from about 1967-1969 (26 May 1997 interview with a reliable and informed academic).  Former state assemblyman  (4 June 1994 interview with state assemblyman Aidan Wing).  Still active with the PBB (11 June 1997 interview with former Sarawak Assistant Minister of Finance Patau Ubis).

Excerpts Chapter 4 : Unofficial Timber Rent Appropriation in Sarawak (Part 1)

Sarawak politics and forest management

"Although Sarawak is only a state within the Federation of Malaysia and not a country, Sarawak will be considered as a nation for the purposes of this dissertation as it maintains complete control over its timber resources and, in that sense, retains the policy characteristics of national sovereignty.

During the period covered by this study, Sarawak had two chief ministers: Tun Rahman Abdul Yakub, who served from 1971 to 1981, and his nephew, Taib Mahmud, who served from 1981 to the present. As with the recently deposed Suharto, Taib Mahmud's power is almost absolute. Asiaweek identified nine "political warlords" in Asia: two each were identified in Thailand, the Philippines, Pakistan, and India, and one in Malaysia, the chief minister of Sarawak. Taib Mahmud is described: "He has no private army, but he runs the closest thing to a Malaysian political fiefdom. Kuala Lumpur leaves the Sarawak chief minister alone in return for keeping the state sweet at election time. Massively wealthy from timber concessions, he drives around in a Rolls Royce" (Asiaweek 1995b)."

"The Sarawak Forest Department controls the majority of Sarawak's forests and issues regulations designed to achieve the sustainable harvest of those forests. The autonomy of the department, however, is severely limited due to the fact that it is under the control of the Ministry of Resource Planning. Taib himself has held the position of Minister of Resource Planning since 1985. Therefore, Taib has the final say over the level at which timber revenues will be collected from concessionaires and over the distribution of timber concessions. A source makes the following observation about Taib's omnipotence in the awarding of timber concessions:

         At the top of the hierarchy is the minister of resource planning, who has sole discretion to give out logging concessions. Taib finds the time to hold this portfolio himself, along with that of chief minister. Under the law, he can grant concessions to anyone he wants: relatives, friends, political associates, or nominee shareholders - people who hold concessions on behalf of secret beneficiaries. The concessions are granted free of charge, and the holder isn't required to know the difference between a live tree and a telephone pole (Sesser 1989: 282).

In Sarawak, as in Indonesia, the head of state has found it to serve his financial and political interests to informally appropriate timber rent. One source estimated that Taib has amassed $4 billion through his connections to the timber industry (Rainforest Action Network 1993). According to an interview with a former Sabah chief minister, Taib personally takes RM30 ($12) from each cubic meter of timber cut in the state (1 and 2 October 1996 interview with Harris Salleh). The chief minister is the state's third largest timber concession holder (see Table 4.3 below). His appropriation of timber rent is in large measure intended to augment his and his family's personal wealth.

The use of timber rent to further national and state political objectives is also important. As Chief Minister Taib Mahmud stated succinctly, "'Sarawak politics is timber politics'" (FEER 1987). Since the early 1970s, Sarawak has unofficially delivered to the national ruling party a share of Sarawak's timber rent. The rent is used by the national ruling party both for political expenditures at election time and for financing the business objectives of ruling party-linked conglomerates (28 March 2001 interview with Daniel Lev).

At the state level, the use of timber rent for political ends was perhaps best demonstrated in the Ming Court affair of 1987, when Taib fought off a challenge from his uncle and former chief minister, Tun Rahman. Although the seeds of the Ming Court affair were sown long before, the crisis was precipitated by Taib's cutting off timber rent to a wide range of politicians, especially state assemblymen loyal to his uncle, and by his move to gain full control over the granting of concessions by assuming the additional portfolio of Minister of Resource Planning. Both actions created considerable resentment among politicians who had been tacit supporters of Taib up to that point. As recounted in one publication:

        In early May [1985], Taib all but named three principal 'co-conspirators,' in a plot to oppose his leadership. . . . But the orchestrator of the machinations, Taib alleged, was his uncle. [The chief minister told this reporter that] the depressed timber market had put concession operators in a tight spot, leading in turn to pressure for relief on some payments to business partners [‘business partners’ here denotes Sarawak politicians]. These partners need more funds, it was suggested, but the current leadership [Taib] balked at their incessant demands. The statutory powers to supervise the granting of concessions, which reside in the minister of forests, obviously command close political attention - especially as the minister potentially has wide powers to revoke
licenses. . . . The Review understands that Taib intends, personally, to assume the portfolio [of minister] . . . in June (FEER 1985f).

Plots by co-conspirators continued during 1986, driven by Taib's threats to take away their lucrative timber concessions. The Ming Court affair in 1987 was precipitated by the chief minister’s plan to "screen," in reality to single out for punishment, concessions held by politicians whom Taib chose to no longer favor and to revoke those concessions. As described by a Sarawak-based correspondent who followed the story closely at the time,

The Sarawak political crisis is believed to have been triggered by the move to screen timber licenses in the State – a great portion of which belong to certain politicians and their supporters. To date, about 30 timber licenses of companies linked to an ex-politician [Taib’s predecessor Tun Rahman] have been revoked. According to sources, the State Government’s recent drive forced an ‘underground movement of politicians’ linked to timber concessions to act fast to protect their interests . . . Recently the state government stepped up its drive against Datuk Taib’s detractors and revoked the timber licenses of two businessmen for transferring their concessions without informing the authorities. Following that, the State Government announced that it would screen all timber licensees who ‘abused the timber industries.’ This included licensees who sold or transferred their licenses or sold or transferred shares. Last week’s screening of timber licenses made mandatory the obtaining of approval from the Government even for a change in partnership in a timber company or appointment or change of logging contractors, otherwise the license would be rendered invalid. According to Taib loyalists, the move hurt the pockets of the ‘Old Guards’. . . The sources said the political group opposed to Datuk Taib’s administration was desperate (Sunday Mail 1987).

The revocation of timber licenses on the magnitude of that precipitating the Ming Court affair is unprecedented in Sarawak's history, as shown in Table 4.1.

Table 4.1 Natural forest timber concessions granted and revoked by Chief Minister Taib during his first twelve years in office, 1981-1993


Year                   Number of concessions granted                     Number of concessions revoked
1981                                   7                                                                    0
1982                                   3                                                                    0
1983                                   8                                                                    0
1984                                 17                                                                    2
1985                                 35                                                                    1
1986                                 19                                                                   10
1987                                 36                                                                   26
1988                                 13                                                                    7
1989                                  7                                                                     4
1990                                 23                                                                   21
1991                                  4                                                                     3
1992                                  6                                                                     4
1993                                24                                                                    20

Source: Annual Reports of the Sarawak Forest Department (1981-1993)


Once the press reported which politicians would lose their timber concessions, events moved quickly. Threatened politicians flew to the Malaysian capital for a secret summit on unseating Taib. Tun Rahman, who had started a new party called Permas, led the rebels. The rebels also included PBDS, a party that had broken away from the ruling coalition. The rebels planned to bring a vote of no confidence in the state assembly and to obtain a parliamentary majority. Chief Minister Taib responded to this threat by dissolving the state assembly and by calling for elections to be held a month later. The rebels responded by promising cash payments of $500,000 to every state assembly contestant who joined the opposition camp, a sum that would have been paid out of timber rent had the opposition won. However, in the end, Taib maintained his power. These events are summarized in Table 4.2.


Table 4.2 Dates and key developments during the Ming Court Affair of 1987


Date of event                             Key development
Friday, 6 March 1987                People’s Mirror carries story of Chief Minister Taib’s intention to put
                                                  a  “Screen on Timber Licenses” (Ritchie 1987: 18).

Sunday, 8 March 1987               Anti-Taib rebels fly from Kuching (capital of Sarawak) to Kuala Lumpur                                                     (capital of Malaysia) to meet and discuss how to unseat Chief Minister Taib

Monday, 9 March 1987             Secret meeting begins at Ming Court hotel in Kuala Lumpur. A journalist                                                        monitoring events conjectures that there was “sufficient resentment for with                                                     rebellion. Those who would be dissatisfied would include those . . .                                                      timber concessions. . .” (Ritchie 1987: 17).


Tuesday, 10 March 1987          Four ministers, three deputy ministers resign from Taib’s cabinet and join the
                                                 opposition. Taib announces at press conference that there is a plot forming
                                                 against him at the Ming Court Hotel. Mood of opposition politicians said to
                                                 be “euphoric” as they decide amongst themselves, “who gets what . . . who
                                                was going to take over the various government statutory bodies and
                                                corporations” (Ritchie 1987: 27)

Friday, 13 March 1987            Taib dissolves the Sarawak state assembly. It is announced that a statewide
                                                vote will follow on 15-16 April 1987. “[W]hen it appeared clear that an
                                               election was imminent, two reliable . . . sources said that value of each rebel
                                               went up to the tune of $500,000 per contestant” (Ritchie 1987: 38).

15-16 April 1987                   Statewide elections are held. Pro-Taib forces prevail, maintaining a majority of
                                              seats in Sarawak state assembly. Taib is nominated to a third term as Chief
                                              Minister.



The Ming Court affair is perhaps the most visible instance of the use of the state’s timber resource to achieve political objectives. However, timber rent is used in more direct ways to achieve political objectives, such as buying votes at election time. Elections in Sarawak are expensive. 

To illustrate the high cost of buying elections, the ruling party spent about $400 per voter, or $4 million to defeat a candidate for the state assembly, Chiew Chin Sing, who would have represented only about 10,000 voters. During the weeks approaching the election, ten different teams of senior Sarawak Alliance officials, their officeholders and retinues visited all of the 180 longhouses in the district, holding parties each night in ten different longhouses. Chiew explained how these 10,000 voters were wooed:

Expenses were as follows: most members of the traveling parties were paid a salary. For each longhouse party that was held, five pigs and fifty cases of Heineken beer were purchased. In addition to the good times at the parties, where many promises were made, each family was given RM1,200($480) to vote for Chiew’s opponent.

The ruling coalition ensured that a family whose head received a $480 bribe would actually vote for the ruling coalition candidate by paying only $240 per family up front, with the remaining half to be paid only if the ruling coalition candidate carried a large majority in that longhouse.

To pay the second installment, the ruling coalition rented out as campaign headquarters the entire Lee Hua hotel in Sibu, the large city downriver from Chiew's largely rural district. Chiew said after the election, the headman from each longhouse would travel to stay at the hotel, and collect the second installment of the bribes for the families in his longhouse. In that particular election the ruling coalition candidate defeated Chiew by a vote of 6,938 to 1,457 (19 July 1997 interview with Chiew Chin Sing).

Charges of vote buying in Sarawak were confirmed in a review of Malaysian politics:
[T]he High Court made political history when it declared an election victory by the ruling Barisan Nasional (BN) coalition null and void due to vote buying. The judge ruled that "vote buying was so extensive [that] it had affected the election result" in the Bukit Begunan constituency in the September 1996 Sarawak state election. Although vote buying by the BN is widespread in Malaysia, hitherto it has been almost impossible to prove it in court. In this case, however, there was clear evidence including photographs showing cash being handed out by BN campaigners to voters just prior to election day. In the subsequent by-election, the same BN candidate from Parti Bansa Dayak Sarawak (PBDS) who had won in the voided election easily won the seat again (Asian Survey 1997).

Another source who was in Sarawak for the 1996 state elections said that on the final day before polling, he saw RM660,000 ($264,000) in bribes being given out to voters in a single location. The bribes ranged in size from RM600($240) for each indigenous voter to RM2,200 ($880) for each Malaysian Chinese voter (1 October 1996 interview with a knowledgeable Sabah-based source).

In Sarawak, much of the money to buy votes comes not from timber rent appropriated by the chief minister but from that of his political supporters, who have been given timber concessions for that purpose. Sarawak Alliance party operatives and Sarawak Alliance state assemblymen are awarded timber concessions provided that they make cash available during election time. Similarly, politicians who can secure large majorities for the Sarawak Alliance in their areas can prevail upon the chief minister to award them timber concessions (26 May 1997 interview with Lao Siew Chang).

For timber conglomerates themselves, so long as they are willing to make money available to the ruling party during election time, this will ensure their ongoing ability to gain access to new timber concessions as they exhaust old ones. Some conglomerates control so many concessions because during election time senior politicians come to them for campaign donations. Once the politician has been re-elected the timber conglomerate comes back to the politician and requests his help in obtaining new concessions from the chief minister (26 May 1997 interview with Lao Siew Chang).

When political supporters serve as board members and shareholders in timber concessions, they do not simply serve as a conduit for funds to the ruling party during election time but also gain personal wealth as a payment for their loyalty. At some level, it is a meaningless exercise to try to determine whether a political supporter's position on the board of a timber company signifies that they are there to get rich and in exchange for that privilege remain loyal to the chief minister, or to finance the political expenses of the chief minister’s party. According to James Chin, board members and major shareholders work both for themselves and their parties, depending on the electoral cycle. If it is not election time, then the board members and major shareholders bank substantial salaries. However, if it is election time, especially during the final months, the political supporter is expected to contribute funds to the ruling party. If they do not perform this latter function or if they have otherwise demonstrated disloyalty, when their concession is up for renewal the "chief minister asks the forestry department to rigorously enforce" its regulations with respect to that disloyal politician's concession, which provides a pretext to deny the renewal of the concession (30 June 1997 interview with James Chin).

In short, timber wealth is used both to create wealth for the chief minister and his political supporters and to ensure his political longevity. My analysis rests on a review of the managerial and equity profiles of the timber concessions licensed to each of the state's four largest private timber groups and more general types of information on the state's fifth through ninth largest private groups. Sarawak's nine largest private timber groups are ranked by size of concession holdings in Table 4.3 below. The forest areas being logged by the four largest groups are mapped in Figure 4.1.



Table 4.3 Ranking of Sarawak timber groups by concession holdings, 1996


Ranking   Name of timber conglomerate     Senior figure             Total area (hectares)    Source(s)

1                Samling group                 Yaw Teck Sing               1,636,320                 Samling Corporation internal document obtained 22 October 1996; written estimates of a Sarawak-based researcher obtained 15 November 1996.

2                Rimbunan Hijau group           Tiong Hiew King           1,500,000             Remarks of William Wong, head of investor relations for Jaya Tiasa, Rimbunan Hijau’s publicly listed flagship, during a 29 October 1996 visit to Rimbunan Hijau headquarters.

3               Taib family group                  Chief Minister Taib Mahmud   998,011       Ritchie 1987: 84-85; Sarawak Tribune, 11 April 1987

4               KTS group                            Lau Hui Kang                        500,000       The Edge 1995d

5               WTK group                            Wong Tuong Kwang            400,000       The Edge 1995d

5              Shin Yang group                     Ling Chiong Ho                     400,000       Sarawak Securities 1997b: 22

7               Ting Pek Khiing group           Ting Pek Khiing                     311,239       Business Times 1992a&b; Jardine Fleming 1993; Star 1995b

8               Limbang Trading                   James Wong                          185,490       Asian Wall Street Journal 1994b

9               Ling group                            Ling Beng Siew                      120,000       Sarawak Securities 1996: 4

Excerpts Chapter 2 : The Unofficial Appropriation of Rain Forest Rent by Rulers In Insular Southeast Asia Between 1970 and 1999

"Indonesia, Sarawak and Sabah were the three largest tropical timber exporters in the world over the period covered by this study, 1970 to 1999 (World Bank 1992o)."

"Forestry agencies are unable to stop heads of state who, in order to increase their wealth and maintain power, are dependent on funds diverted to them and their followers unofficially from the timber industry. Neither patrons nor clients want to see their personal income stream diminished by an increase in official timber revenues paid to the government. Therefore, clients to some extent, and definitely patrons, place pressure upon departments of forestry not to increase timber revenues. "

"The degree to which state leaders and their political supporters have personal financial interests in the forest products industries of Indonesia, Sarawak and Sabah, the independent variable, is measured in terms of their stakes in the control of timber concessions, that is to say, licenses to harvest timber from specific areas of public forests.

The first step in measuring this variable was to obtain lists of timber concessions in Indonesia, Sarawak and Sabah. The better part of two years was spent trying to piece together a list of timber concession holders in Indonesia and Malaysia, based on what I was able to glean from the business press, investment bank reports, intergovernmental organization documents, nongovernmental organization reports, but all without much success. Finally I found a variety of published sources and individual researchers who had compiled this data. "

"Obtaining data on concession holders in Sarawak and Sabah was even more difficult than in Indonesia. As Chee Yoke Ling, then Secretary of Friends of the Earth Malaysia, put it, "[Even] the [federal] government has had a hard time getting state governments to provide a list of legal concession holders" (FEER 1993). As to state-owned forestry entities like the Sabah Foundation, "Unlike Northeast Asia where information has been made readily available for . . . rigorous assessment . . . most data on state sponsored enterprises are held in secrecy in Malaysia" (Rajah 1996: 6). Notwithstanding these difficulties, I eventually was able to compile reliable lists of the timber concessions of the top timber conglomerates in Sarawak and Sabah.

With respect to Sarawak (see Table 4.3), a graduate student from a leading Southeast Asian university provided me with a list of the timber concessions controlled by the state’s three largest private concession holders. I cross-checked the contents of this list with an internal list of the timber concession holdings of the largest of the three private groups, and the two lists verified one another. A separate list revealing the timber concession holdings of the current chief minister of Sarawak was made public by his uncle, a major political rival at that time (Sarawak Tribune 1987). I removed duplicates from all of these lists and then compiled a master list of all timber concessions controlled by Sarawak's four largest concession holding companies (see Table 4.3)"

"In Malaysia, I spent weeks in the Kuala Lumpur Registry of Companies, where I purchased microfiche documents of incorporation for the largest timber concession holding groups in Sarawak and Sabah. For Sarawak, I obtained documents of incorporation for concessions said to be controlled by the chief minister of Sarawak as well as by the Samling, Rimbunan Hijau, and KTS conglomerates. For Sabah, I obtained documents of incorporation for all timber concessions larger than 5,000 hectares, and for logging contractors to the Sabah Foundation. In order to obtain data on timber companies that were not on file in Kuala Lumpur, special trips were made to the Kota Kinabalu (Sabah) and Kuching (Sarawak) Registry of Companies. "

"Given the difficulty of identifying proxies, if a relatively clear consensus was lacking among informants as to the identity of a shareholder or board member or their relationship to senior officials, then that individual is not included. Lack of agreement among informants led to the exclusion of many possible proxies from this report. "

"It also tells us that the bomoh for Sarawak's Chief Minister Taib, who may be thought of as a proxy, earned $4.8 million from a single concession in a single year."

"Finally, and by far the most important, the story I uncovered is an important one: heads of state had appropriated money crucial to the economic development of the states they governed while destroying an irreplaceable biological treasure. The next three chapters tell this tragic story."

Excerpts Chapter 1 : The Unofficial Appropriation of Rain Forest Rent by Rulers In Insular Southeast Asia Between 1970 and 1999

"First, proponents of the comparative political economy of development point to the importance of states' accumulation of investment capital. Johnson (1987) for example notes that the Korean government controls up to 80 percent of the country's investment capital, which the government makes available to strategic industries in the Korean economy. The steps by which governments achieve such capital accumulation vary from case to case. In Korea, the state encouraged high personal savings rates. State-controlled banks loaned money saved by Korean citizens to businesses that occupied strategic sectors of the economy (Johnson 1987: 148-149).


In the case of Taiwan, revenue collection was the path taken by the state in order to accumulate capital. After World War II, the state extracted taxes from newly prosperous farmers and redirected those moneys toward increasingly higher valued-added types of production (Amsden 1985: 84-87). In short, in the northern tier Asian industrial economies, government financial institutions raised financial capital, through revenue collection and other means, to subsidize a succession of sectors that were increasingly higher-technology, export-oriented, and value-added. These sectors then accelerated, transforming Korea and Taiwan into high growth economies.


The relevance here to timber rent capture is that timber revenues could comprise a substantial portion of the state budgets in Indonesia, Sarawak and Sabah. Timber revenues could be targeted by these states in an economically strategic fashion as happened in Korea and Taiwan. Thus, an evaluation of the success or failure of the major tropical timber producing and exporting states to capture optimal levels of timber revenue should be a matter of practical interest to the comparative political economy of development school, which emphasizes the accumulation and dispersal of strategic investment capital. 


Less developed nations, according to comparative political economy scholars, have no long-term prospects for economic growth unless they manage to export high technology, high value-added goods. Industry of this type requires significant capital investment. Unless foreign banks, bilateral donors, or multilateral banks step in with capital, or unless there is a large domestic financial capitalist class, there is no possibility for domestic capital formation"


"Under simple timber rent appropriation, timber concessions are awarded to companies run or owned by rulers, their proxies, families, friends, business partners, or political supporters. These licensees then harvest the timber and appropriate the difference between, on the one hand, the cost of extracting the timber, a margin of normal profit, plus whatever revenues they are required to pay to the state and, on the other hand, the price at which the timber sells on the world market. The difference between the two is typically quite large and represents, again, the share of economic rent not captured by the state but rather, appropriated by timber concessionaires and the powerful interests with whom, in many cases, they are aligned."

"Another form of complex timber rent appropriation takes place when heads of state, their families, and proxies control timber shipping and related insurance monopolies which provide a cash flow of $40 for each cubic meter of timber shipped. Yet another example of complex timber rent appropriation is when the head of state exacts payments from timber conglomerates, sometimes on the order of hundreds of millions of dollars in a single instance, over and above timber rent already appropriated as a result of direct or indirect managerial and equity positions held by the head of state in these conglomerates. "

"Two notable patterns emerge from the above discussion. First, capital will typically take the path of least resistance, choosing to earn profits in a monopolistic or oligopolistic fashion, rather than a competitive one, if it can convince government agencies to arrange it so. Second, government agencies must be able to withstand these types of socially unproductive, privatistic, parasitic, rent seeking demands by capital, if they wish to achieve and maintain sustained levels of economic growth.

Again, that the state apparatus withstands pressure from capital is critical. However, capital is not the only structural force from which bureaucracies must insulate themselves. In the developing world, it is a huge problem that industry tries to manipulate government agencies, with the public suffering as a result. However, just as often, the problem is that heads of state manipulate government agencies, with disastrous results. Thus, one may view the state as comprised of two analytically distinct categories: bureaucrats and rulers. Evans recognizes this trend in Zaire, where he points out that government agencies lack the autonomy to resist predatory demands made by heads of state:

Is Zaire's state 'autonomous'? If . . . 'autonomy' implies the ability to formulate collective goals instead of allowing officeholders to pursue their individual interests, then Zaire fails the test. Instead, it embodies the neo-utilitarian nightmare of a state in which all incumbents are out for themselves (Evans 1995: 45)."

"In short, in the developing world, it is likely that heads of state will place pressure upon departments of forestry to enact policies or make decisions that will be of material benefit to them. Only autonomous agencies can withstand such predatory demands. If departments of forestry do not possess autonomy from heads of state, they will put in place policies that will make the head of state or his clients material beneficiaries."



"There does appear to be evidence of the lack of autonomy of the forest departments in Indonesia and Sarawak. Research already completed shows that heads of state, their families, and their proxies control a substantial portion of the timber concessions licensed to the top five timber conglomerates in Indonesia (Brown 1999: 12-24), and the top four timber conglomerates in Sarawak (Sarawak Tribune 1987).

Although it was eventually shown not to be so, I initially surmised that the Sabah Forest Department was autonomous, for a number of reasons. The first piece of evidence of the putative autonomy of the Sabah Forestry Department was the fact that two chief ministers, whose terms spanned almost two decades, appeared to lack significant ties to the timber sector. Harris Salleh (whose term ran from 1976 to 1985) told me that, when he assumed the chief ministership, that he did not have a high level of timber holdings (1 and 2 October 1996 interviews with Harris Salleh). As for Joseph Pairin Kitingan (whose term ran from 1985 to 1994), a member of the international press observed, "Kitingan's modest lifestyle has apparently won him the hearts of . . . villagers. Kitingan does not have 'business interests left and right' . . . and villagers perceive this as a sign of his 'withstanding corruption'" (FEER 1985a).

A second indicator of the supposed autonomy of the Sabah Forest Department is the dominant role played in the timber sector by the state-owned timber corporation, the Sabah Foundation. Although the Sabah Foundation is not formally linked to the Sabah Forest Department, both are government entities engaged, at least nominally, in ensuring the long term sustainable harvest of the state's production forests. Thus, the foundation appeared to provide the department with a degree of institutional support, seeming to reinforce the department's autonomy. Moreover, the foundation itself looked to be more capable of resisting predatory demands by virtue of two facts: that it was a state-owned corporation and possessed some degree of bureaucratic coherence and because it had a non-revocable 100 year license to timberlands under its control. This stood in sharp contrast to the state's smaller, private timber concessionaires, which by definition had no bureaucratic coherence, and had only one to five year licenses to the timberlands under their control (Gillis 1988: 132). The simple arithmetic of having a majority of the state's timberlands in the hands of the Sabah Foundation, and only a minority of Sabah's timberlands in the hands of private timber concessionaires, appeared to leave fewer opportunities for the Sabah Forest Department to be buffeted by predatory demands from the state's chief ministers. But again, the autonomy of the Sabah Forest Department turned out to be illusory."

"Several theorists, among them Dauvergne (1997), Ross (1996), and Samego (1992), argue that Indonesia, Sarawak, or Sabah have diverted timber resources to patronage. In order to find out whether these conclusions are accurate, we focus on the timber concession holdings of all major timber conglomerates to ascertain the degree to which managerial and equity positions are held by political supporters. In all three places timber concessions were awarded to conglomerates in which senior managerial positions and shares were held by political supporters of the government. "

"The principal hypothesis underlying this study is that Indonesia and Sarawak have failed to properly regulate their timber sectors because these states lack autonomy from the predatory demands of rulers and favor expenditures aimed at maintaining power, or even less productive ends, instead of developmental ones. I will prove that Indonesia and Sarawak have failed to administer their timber sectors in a developmentally focused fashion, by showing the extent to which they have fallen short of capturing timber rent at optimal levels. I will also demonstrate that Indonesia and Sarawak lack autonomy from the demands of rulers and use timber revenues not only for patronage, but also for objectives even less conducive to economic development, and thus fail to satisfy the dual imperative. This will be proved by showing that heads of state and their political supporters are permitted by forestry bureaucrats to run or own a substantial portion of the concessions licensed to top timber conglomerates.

It had been my intention to contrast the cases of Indonesia and Sarawak with that of Sabah, showing how that state had succeeded in managing its timber sector in a more developmentally optimal fashion. I intended to show this by verifying that Sabah had in fact captured timber rent at near-optimal levels. I had also intended to show that Sabah was autonomous from the demands of rulers and had balanced the dual imperative by showing that state leaders and political followers did not run or own a substantial portion of concessions.

While empirical evidence confirmed my hypothesis with respect to Indonesia and Sarawak, it refuted the reports of some journalists, as well as the conclusions of the economics literature, about Sabah. The leaders of Sabah turned out to have numerous personal ties to the timber industry, and the state turned out to have suboptimal levels of timber rent capture."