Financial institutions have been warned today to avoid investments in pulp and paper mills associated with deforestation and human rights abuses in Indonesia. Sixty environmental and social non-governmental organisations, including a dozen Indonesian civil society groups, have sent letters to banks and other financial institutions around the world asking for assurances that they will not invest in increased pulp milling capacity by Asia Pulp and Paper (APP) or other companies associated with the Sinar Mas Group until reforms have been achieved.

In 2001, APP was involved in what was then Asia’s biggest corporate debt default - US$13.9 billion. As part of a restructuring debt agreement it reached with its creditors, APP had the legally binding obligation to develop sustainable forestry operations and pulp and paper production. A recent report4 revealed that APP began clearing the forest just three years after signing this agreement, swallowing one-third of the forest that APP committed to protect. The letter is calling on governments not to fund a new pulp mill proposed by Asia Pulp and Paper (APP), one of the world's most controversial pulp and paper companies. Expanding APP’s production capacity further will inevitably lead to further deforestation, and to increased violations of the terms of its environmental covenants with ECAs.APP has historically been supported by European Export Credit Agencies2 (ECAs) and the letter requests that they end support for all business developments linked to deforestation in Indonesia and elsewhere. The letter is signed by more than 30 environmental non-governmental organisations (NGOs), including all members of ECA-Watch, Greenpeace and WWF. It has been delivered to ECAs from Finland, Denmark, Sweden, Austria, Germany, Italy, Spain and France.

Eyes on the Forest expose APP for breaching the legally binding commitments on achieving "full sustainability" by 2007 and protecting High Conservation Value Forests (HCVF) in the Pulau Muda Forest Management Unit. In the early 2000s, the Sinar Mas Group's Asia Pulp & Paper (APP) defaulted on a debt of U.S. $13.9 billion and became Asia's biggest corporate debt default.

In June 2004, APP's major creditors - comprised of the export credit agencies of Germany, Japan, France, Austria, Sweden, Finland, Italy, Spain and Denmark - announced agreement with APP over the Master Restructuring Agreements , which included some "environmental covenants" as legally binding contractual obligation. Among them, achieving "full sustainability" by 2007 and protecting High Conservation Value Forests.

APP began clearing the HCVF as early as 2007, only three years after it signed its legally binding obligation and the year by which APP had publicly committed to achieve "full sustainability". Eyes on the Forest has reported in detail on APP's history of never fulfilling its sustainability commitments . APP continued to clear HCVF until today, destroying a total of 12,000 hectares of HCVF, one third of the forest it had pledged to creditors to protect.

Sumatra’s peat swamp forests not only provide habitat for endangered species such as the Sumatran tiger, they are also of critical importance in mitigating climate change. The clearing and draining of peatlands is the key reason why Indonesia is the world’s third largest GHG emitter.

The report shows how major brands like Walmart, Auchan and Kentucky Fried Chicken (KFC) are fueling climate change and pushing Sumatran tigers and orang-utans towards the brink of extinction. zoom Download the full report These companies are using or selling paper made from Asia Pulp and Paper (APP), part of the notorious Sinar Mas group that is destroying Indonesia’s rainforests and carbon-rich peatlands. Greenpeace investigated two important rainforest areas on the Indonesian island of Sumatra and discovered that Sinar Mas is wreaking environmental havoc in both. The Bukit Tigapuluh Forest Landscape is one of the last refuges for endangered Sumatran tigers and orang-utans. Kerumutan’s carbon rich peatlands are a key defence against climate change; some of the forest’s peat is deeper than three meters and thus illegal to clear under Indonesian law. Sinar Mas' paper arm APP uses the logs from these rainforest areas to feed its Sumatran based pulp mills, which export pulp and paper products worldwide.

35 Indonesian NGOs sent a letter to companies to ask them to reduce your company’s consumption and environmental footprint by establishing social and environmental safeguards on procurement and by helping to bring about crucial changes to the Indonesian pulp and paper industry’s practices as well as supporting related government policy reforms. The Indonesian NGOs request that investors adopt similar safeguards in relation to investments in Indonesia’s pulp and paper sector.

Exporting Destruction is the conclusion of research that included fieldwork in China, desk studies, and a new financial review, all commissioned to shine a light on the role that export credit agencies (ECAs) play in financing global deforestation. Through detailed case studies and historical research, FERN has been able to produce a set of policy recommendations that would, if implemented effectively, bring export credits in line with other publicly-funded insti- tutions and reduce their potential for negative social and environmental impacts.

The forest destruction, social conflict and financial crisis of Asia Pacific Resources International Holdings Ltd (APRIL), and the role of financial institutions and paper merchants.

This report reveals the damaging environmental and social impacts of Asia Pacific Resources International Holding Ltd, otherwise known as APRIL, one of the biggest pulp and paper companies in the world. It also examines the influential role played by financial institutions and paper merchants in fuelling this damage. It provides recommendations for urgent action to be taken by all these groups in order to help bring an end to the destruction of Indonesia’s forests, one of the most precious and threatened natural habitats on Earth.

In 1997, a major financial crisis struck Asia. In the wake of that crisis, the International Monetary Fund and the World Bank provided large loans to the Indonesian government in return for their commitment to implement policy reforms intended to stabilize the economy and rekindle growth. Those reforms included various measures explicitly designed to improve forest management, most of which focused on forest concessions run by large Indonesian conglomerates.
The strategy those two agencies adopted had three major flaws regarding forests. First, at the same time that the two agencies were supporting forest policies intended to limit unsustainable logging, they also encouraged several non-forest policies that actually stimulated deforestation and more widespread logging. Second, by the late 1990s large forest concessions were responsible for an increasingly small portion of forest clearing and unsustainable logging. Logging outside concessions and land clearing for agriculture had become the main sources of forest destruction. Hence, focusing on concessions dealt with only a limited piece of the problem. Third, a number of the specific forest concession reforms endorsed by the IMF and the World Bank may have actually increased pressure on Indonesia's forests.

The research conducted for this study was funded, in part, by WWF-Austria, WWF-Switzerland, and the United Kingdom’s Department for International Development. WWF-Indonesia has also assisted in the dissemination of some of the study’s preliminary findings. I gratefully acknowledge the support of each of these organizations. Any opinions presented in the following chapters, however, are those of the author and do not necessarily represent the official policy of any of these organizations.

Asia Pulp & Paper (APP) is one of the biggest pulp and paper companies in the world and is responsible for destroying a large area of Indonesia’s rainforest. This briefing examines the destructive practices of APP and the Indonesian pulp and paper industry. It also reveals how international financial institutions are responsible for funding the activities of APP.

Since the late-1980s, Indonesia’s pulp and paper industries have undergone very rapid expansion to push the country into the ranks of the world’s top 10 producers. The meteoric growth that has occurred in both industries, however, has proceeded far more rapidly than efforts to secure a sustainable supply of raw materia ls through the development of pulpwood plantations. The growth of Indonesia’s pulp and paper industries over the past decade has involved an aggregate capital investment of approximately US$ 12 billion. These large investments have often been justified as enabling Indonesian producers to remain profitable in highly cyclical pulp and paper markets by producing large volumes of product at low cost. Indonesian companies have made investments on this scale without first securing a legal and sustainable raw material supply, however, suggests that many of these projects carry a substantial degree of financial risk. Indonesian pulp and paper companies have been motivated to invest such large sums in high-risk projects because their owners have been able to avoid much of the financial risk involved. Three factors have enabled them to do so: First, the Indonesian government has provided substantial capital subsidies to pulp and paper producers, including the provision of pulpwood fiber at costs well below its stumpage value. Second, the government’s weak regulation of the nation’s financial system has enabled pulp and paper companies to employ a variety of illegal practices to obtain discounted finance. Third, international financial institutions have helped Indonesian producers to borrow billions of dollars from offshore investors without rigorously assessing either the long-term viability of those firms’ fiber supplies or the legality of their financial practices. The current economic crisis has compounded the problems of financial risk and poor corporate governance associated with large-scale pulp and paper investments in Indonesia.