Extractive Economy Trap

Pursuing economic growth through extractive activities can lead to disaster with greater losses.

The obsession with economic growth encourages humans to take a diametric position towards nature preservation. This is very obvious in developing countries which are trying to change their economic orientation from agricultural to industrial.

In fact, ignoring nature conservation will only bring about disasters whose nominal losses are immeasurable. In 2006, for example, we experienced an environmental disaster as a result of drilling by PT Lapindo Brantas. Mud gushed from the ground submerging tens of thousands of residents' houses in several sub-districts in Sidoarjo, East Java.

Recently, a case of alleged corruption in the trading of tin commodities at PT Timah's mining business permit (IUP) in Bangka Belitung Province was revealed. The analysis conducted by expert teams appointed by the Attorney General's Office showed that the environmental losses caused by illegal tin mining from 2015 to 2022 amounted to 217.06 trillion.

This could set a precedent for calculating losses caused by natural disasters such as floods, landslides, pollution, and global warming, which are mostly triggered by human economic activities.

Also read: Mining Exploitation and End-of-Life Threats for Small Islands

KOMPAS/TOTOK WIJAYANTO

Landscape of the Namang Desert, tin mining area in Namang District, Central Bangka Regency, Bangka Belitung, Thursday (21/7/2022).

Depends on limitations

These events should raise awareness not to view extractive activities solely as a source of economic growth. The results of research by Kunny Izza Indah (et al) in Coal Mining Sector Contribution to Environmental Conditions and Human Development Index in East Kalimantan Province (2019) found that along with coal exploration activities, various problems were found to increase, such as land disputes, damage land, deforestation, environmental pollution, and public health problems.

On the other hand, coal remains the largest non-oil and gas commodity in Indonesia's exports. Based on the release from the Ministry of Energy and Mineral Resources (15/1/2024), in 2023, the realization of the target of 695 million tons reached 775 million tons. This production figure continues to increase compared to that of 2020, which was 564 million tons.

From this data, it can be seen that coal will become one of the commodities that supports the Indonesian economy. Indeed, our coal reserves are estimated to still be around 35 billion tons. This amount is if the average annual production is 700 million tons per year (2023 target is 695 million tons), the exploration period that will be carried out could be up to the next 50 years. The duration of these five decades cannot be seen solely as an economic opportunity, but at the same time ecological losses and potential social problems during the same period.

These events should raise awareness not to view extractive activities solely as a source of economic growth.

We must not forget that after the oil boom in the 1970s, Indonesia together with Canada, Norway and Oman were included in resource-driven economies with sustainable economic growth reaching 2-4 percent above the global average (McKinsey Global Institute, 2013). In fact, we recorded a percentage of oil and gas exports that reached 82.4 percent of Indonesia's total exports in 1982.

However, this cannot always be enjoyed because after that, Indonesia's oil and gas exports have had a downward trend. This was also the case during President Joko Widodo's administration, where in 2014, our oil and gas exports were 17.06 percent of Indonesia's total exports, and continued to decline to 6.15 percent in 2023.

The government must take into account these facts and be cautious in managing natural resources. As seen with the oil and gas commodities, it's only a matter of time before we transition from being an exporter to an importer.

Pragmatic temptation

The government's goal of pursuing economic growth is a noble thing. Various efforts have been made to improve regulations and institutional arrangements. One of the monumental ones is Law Number 11 of 2020 concerning Job Creation which uses the omnibus law method by combining 74 regulations at law level.

Unfortunately, in the Job Creation Law support for nature conservation has actually weakened. One of them is regarding the adequacy of the minimum forest area which was removed through this law.

Previously, the provisions were regulated in Law No. 41/1999 on Forestry, so that the government could establish and maintain the sufficiency of forest areas and forest cover for each river basin and/or island, at least 30 percent of the area with proportional distribution. The loss of this regulation raises concerns about deforestation without control for the sake of investment and job creation.

Recently, the government also plans to distribute mining business permits (IUP) to community organizations (ormas) through the revision of Government Regulation No. 96 of 2021 concerning the Implementation of Mineral and Coal Mining Activities. This plan has received attention as it is considered a pragmatic concession rather than a systematic effort to strengthen the economic independence of social organizations.

If the plan is implemented, the challenge lies in the technical capacity to carry out mining operations. Without this, mining efforts can fail and even lead to environmental disasters. In addition, mining requires significant costs and, like any other business, also has the potential to experience losses.

In this situation, instead of promoting economic self-reliance, the plan to distribute IUPs has the potential to trap organizations in dependency on others. It would be better if support for economic self-reliance is manifested in forms that are suitable for the organization’s capacity. Moreover, if we want to become a developed country, the imagination of the nation's youth should be encouraged to create innovations, not to exploit the earth's resources.

Agus Pramono, Statistician at the Central Statistics Agency