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After the collapse of the centralized Soeharto regime, deforestation caused by over
logging accelerated. To tackle this problem, an IMF/World Bank-led forestry sector
reform program adopted a market-friendly approach involving the resumption of round
wood exports and raising of the resource rent fee, with the aim to stop rent
accumulation by plywood companies, which had enjoyed a supply of round wood at
privileged prices. The Indonesian government, for its part, decentralized the forest
concession management system to provide incentives for local governments and
communities to carry out sustainable forest management. However, neither policy
reform worked effectively. The round wood export ban was reimposed and the forest
management system centralized again with cooperation from a newly funded industry
led institution. In the midst of the confusion surrounding the policy reversal, the gap
between the price of round wood in international and domestic markets failed to
contract, although rent allocations to plywood industries were reduced during 1998
2003. The rents were not collected properly by the government, but accumulated
unexpectedly in the hands of players in the black market for round wood.