Executive Summary

Indonesia has a key role to play in meeting climate stabilization targets, with its high contribution to global land use, forestry, peatland, and agriculture emissions. The Indonesian government has set emissions reduction targets of 26% below business as usual by 2020, scaling up to 29% by 2030, and increasing their overall ambition to 41% with international support.

The international community therefore has the opportunity to have a large impact. The international community is already supporting changes in Indonesia’s land use sector, contributing USD 323 million climate finance in 2011, with 17.7% of that going to land use (Ampri et al. 2014). However questions remain around the effectiveness of these efforts.

This paper discusses the role of international development partners* in financing mitigation and adaptation actions in the land use sectors in Indonesia. We evaluate what progress has been made to date, what challenges have been met, and what opportunities lie ahead to effectively support Indonesia, reflecting on the value add that development partners bring to the domestic picture. We provide an in-depth sectoral analysis based on international development partner data collected for the Indonesian Landscape (Ampri et al. 2014), supplemented by a literature review, and expert interviews.

Key Findings

International development partners are funding climate actions in land use, but their support is dwarfed by domestic funds for these sectors. The Indonesian Landscape tracked USD 486 million of finance going to the agriculture and forestry sectors in 2011 but just 12% (USD 57 million) was from international development partners, while the bulk (USD 429 million) was from the Indonesian government.

Most international finance is bilateral and channeled by a small group of international entities. Ten bilateral partners, including for example USAID and Norway, delivered around 88% of international finance disbursed to land use sectors in 2011. The remaining 12% came from multilateral organizations and funds.

Most international development partner finance was delivered through contractors or international groups as opposed to through Indonesian government or local organizations. We estimate that approximately 85% of international development partner finance for forestry and agriculture in 2011 was delivered through managing contractors, international governments, international NGOs, international development banks, international universities and UN organizations. While this approach is often favored to minimize bureaucratic government processes and guard against fiduciary risk, in some cases this may minimize the development impact of the actions on government and other target groups on-the-ground. It may also limit the total volume of finance that can be delivered, as it is split between multiple smaller scale mechanisms.

International land use climate finance deployed in Indonesia is dominated by grants. The international land use support that we capture was delivered entirely in the form of grants, apart from concessional loan projects financed by the International Fund for Agricultural Development. These loan finance projects may provide useful lessons for how public finance can be invested to leverage private sector investment and promote sustainable agriculture value chains, including in key sectors such as oil palm.

Land use activities supported by international development partners have focused thus far on capacity building and strengthening enabling environments. We classify 48% of international disbursements in land use in 2011 as ‘indirect’ activities, including training, institutional development, systems development, research, strategy and policy advice aimed at creating the enabling environment for emissions reductions or resilience improvements. They mostly support strengthened timber legality, developing MRV systems, sustainable forest management, and spatial planning. ‘Direct’ implementation (emission reducing or resilience improving) activities accounted for 13% of disbursements. These include ecosystem rehabilitation, as well as management of fire, and protected areas to a lesser extent. A further 39% of disbursements had both indirect and direct components, largely for training related to ecosystem rehabilitation and sustainable agriculture.

Since 2011, the major international partners have put increased emphasis on supporting sustainability of agriculture supply chains. So far this work is largely focused on dialogues and building an evidence base activities are also getting started on the ground. There has also been some recent re-emphasis on agroforestry and community forestry, recognizing the potential for such projects to be locally beneficial, albeit usually small-scale, and to capitalize on the increasing body of local and international civil society and scientific community knowledge in this area.

International development partners’ focus on capacity building and enabling environments is in line with Indonesia’s needs.

We find that Indonesia has persisting weaknesses in its enabling environment that impede efficient land use investments (Lee and Pistorius 2015; Seymour et al. 2015; Lawson et al 2014). This points to the need for sustained attention in this area. Persisting issues include: lack of comprehensive and consistent spatial information including on concessions, licenses, and permits; lack of recognition of customary land rights; conflict over land rights and illegality in land use; limited capacity of institutions and human resources; and lack of political support and corruption.

International development partners’ focus on supporting indirect enabling environment activities is therefore well directed. Support helps to improve information, transparency, and governance, to tackle illegality, and allocate and manage land more efficiently. Such activities are challenging and do not always provide such visible results as implementation activities, but they have the potential to unlock significant streams of future public and private investment in land use. While such activities generally fall within the domain of the Indonesian Government, international partners can help to stimulate action, boost capacity, and provide best practice examples from other contexts.

Nonetheless, parallel support is needed to further scale up direct implementation activities that can help develop sustainable agriculture and agro-forestry value chains, support ecosystem restoration, and produce sustainable livelihood options for rural communities. Such support will help implementation activities scale up as the enabling environment is strengthened, providing proof of concept and also helping to push forward linked reforms in governance and regulation.

To increase the effectiveness and scale of international cooperation, stakeholders will need to work together to address implementation challenges

Development partners and their counterparts face numerous practical cooperation challenges and there is room for systematic improvements to increase effectiveness and disbursements. Challenges include: inconsistent, fragmented or unclear reporting and regulatory requirements; complex application procedures and safeguards; staff changes, which mean capacity building and outreach are continuous activities; duplication of donor efforts; insufficient understanding of risk or unrealistic delivery timelines; lack of ownership or incentives where money is not channelled through Indonesian organisations; and slow approval processes. Furthermore, there is a mismatch between the short-term project approach and political cycles that determine development cooperation agendas, and long-term objectives and delivery timeframes for the necessary changes in the land use sector.

There are mixed opinions on the influence and effectiveness of international support in the land use sectors in Indonesia. Efforts in recent years to explore new and more efficient ways to cooperate and increase
aid effectiveness, such as the Indonesia-Norway results-based agreement and Indonesia Climate Change Trust Fund (ICCTF), have thus far encountered hurdles, and have yet to deliver at the envisaged scale or pace.

Ways forward

Implementation of the Paris Agreement will require ongoing, concerted efforts by all countries, including well-targeted support from international development partners to support delivery of the ambitions set out in Indonesia’s intended nationally determined contribution. Important lessons can be taken from current international contributions to support low carbon, climate resilient land use in Indonesia to strengthen efforts going forward.

1. Development partners and the Government of Indonesia need to coordinate more systematically to reform regulations and improve systems. The Indonesian government is providing the largest share of climate financing in the land use sector. However, our research shows that there are capacity gaps. In addition, development partners are not currently channeling much of their finance to the government. Working in closer alignment with the government will be critical to overcoming challenges, reforming regulations, and improving systems for more effective finance overall. Two opportunities for coordination include:

• Working together to form a vision for land use that is cross-ministerial, cross-jurisdictional, and cross-donor, and away from current silos. This vision can help minimize duplication and maximize reach; and
• Creating a comprehensive public database of international development partner activities and associated annual disbursements to enhance development partner and practitioner coordination and cooperation, and therefore effectiveness. We recommend establishment of a streamlined, simplified, and standardized reporting system and database, managed by the Government of Indonesia, with modalities for international organizations to update information regularly.

2. Development partners can make adjustments to their programs to improve effectiveness. Four opportunities to improve effectiveness are:

• Provide support for land use projects over extended durations. Several findings highlight this need, including the current, low levels of disbursement, the experience drawn from international fund set up, and the challenges experienced by large program implementations, such as the Kalimantan Forest and Climate Partnership (Rosenberg and Wilkinson 2013). Longer support can enhance impact, provide sufficient time to build partner capacity, implement activities on the ground, and deliver desired results. In essence, development partners should work to delink their funding from the shorter-duration political cycles of donor governments.
• Take care during project inception to prepare full risk assessments and realistic implementation plans that are understood by all relevant parties. Careful and participatory planning can facilitate smooth implementation.
• Aim to provide systems and outputs that can quickly transfer data and information to new officials, given frequent rotation of responsibilities.
• Involve Indonesian local academic or civil society advisors in development programs to help manage knowledge and develop stronger relationships with government partners.

3. Development partners can build up the capacity of Indonesian organizations and explore innovative public private funding partnerships in order to leverage greater finance and impact, for example by:

• Assisting Indonesian institutions meeting accreditation requirements to access international funds. Support is needed to build capacity of prospective Indonesian institutions (governmental and external) on safeguards,
  fiduciary standards, and on operating policies and procedures.
• Forging public private partnerships involving state-owned enterprises and reputable foundations and local NGOs.
• Streamlining administrative requirements and offering support to potential local implementing organizations (e.g. academic or civil society organizations) / on financial management, proposal preparation, and program management. This would help a larger pool of local actors to access finance at scale.

*We define ‘international development partners’ as institutions outside of Indonesia. These include bilateral donors such as the United Kingdom Climate Change Unit and bilateral and multilateral development finance institutions such as Kreditanstalt für Wiederaufbau (KfW) and the World Bank.