both 1998 and 1999. A recent study shows that it then fell back to 10 in
2000 SMERU 2002: 16. The sharp rise in the official poverty
estimates for 1998–99 seems inconsis- tent with the region’s relatively strong
economic performance over the crisis period. In any event, figures for 2002
indicate that North Sulawesi, with only 11.2 of its population living in
poverty, had the fourth lowest poverty incidence of any Indonesian province,
whereas Gorontalo, with 32.1 living in poverty, ranked third highest in
poverty incidence BPS 2003.
Exports increased dramatically between 1995 and 1997, almost dou-
bling in dollar terms, but the rate of increase fell to less than 2 per annum
in 1999 and 2000. By 2000, the total value of exports was 328 million,
with the two largest components, coconut oil and canned fish, contribut-
ing 52 and 6 respectively BPS Sulut 2001.
Bank Indonesia reported a decline in investment after 1997 Manado Post,
8101. Planned domestic invest- ments fell from Rp 320 billion in 1997
to Rp 186 billion in 1998. Reported realised foreign investment dropped
from 450 million in 1997 to 93 mil- lion in 1998, and declined further to
19.5 million in 1999 and 13.6 million in 2000 www.bps.go.id.
Given the low rate of investment, how did the region achieve a more
modest decline in GDP than the coun- try as a whole in 1998, and the subse-
quent relatively high economic growth rate? There are three likely explana-
tions. 1 The growth was based on ris- ing exports, with the rupiah depreciat-
ing to 3–4 times lower than its rate in 1997, while inflation only doubled
price levels over the same period. 2 The relatively peaceful environ-
ment in northern Sulawesi enabled business to proceed as usual, as well as
attracting unrecorded savings and
284 Lucky Sondakh and Gavin Jones
TABLE 5 North Sulawesi–Gorontalo: Growth and Percentage Distribution of GRDP by Industrial Origin at Constant Prices, 1988–2000
Sector Growth p.a.
Share 1999
1988–93 1993–96 1996–99 2000 average
average average
Agriculture 10.4
7.9 2.4
6.7 26.9
Mining 17.9 24.2
15.8 13.0
7.2 Manufacturing
11.9 9.8
5.5 6.5
9.5 Electricity gas
11.1 14.2
7.5 4.5
0.8 Construction
7.0 9.9
–2.9 3.4
9.4 Trade, hotels restaurants
10.8 5.9
6.8 12.6
Transport communication 8.0
4.4 4.5
14.5 Finance business services
3.1 –16.3
4.3 3.1
Other services 8.4
2.2 3.1
16.0
Total 8.6 19.7
2.9 5.8
100.0
Sources : 1996–2000: BPS Sulut 2000: table 11.2, as corrected by the author; 1993–96: cal-
culated from Brodjonegoro 2001: table 1; 1988–93: Bappenas 1998: table 7.
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investment from refugees and business people moving from unstable neigh-
bouring regions. 3 The recent com- pletion of the Sam Ratulangi airport
extensions and the improved facilities in the port of Bitung played a role in
increasing trade and tourism.
Over the period 1985–95, employ- ment in agriculture increased by some
10, though agriculture’s share of employment declined table 4. In
1995, those employed in agriculture worked fewer hours than those
employed in any other industry, reflecting the growth of part-time
work. This was true for both males and females, although in agriculture the
average hours worked by females 23 were considerably lower than those
worked by males 37. Agriculture con- tinued to play a vital role in the econ-
omy in 1995, providing the only source of income of 39 of households, the
main source of income of 10 and a partial source of income for a further
10. Yet even in rural areas, non- agricultural activities provided the
only source of income for 26 of households, and a partial source of
income for a further 23. As elsewhere in Indonesia, the employment struc-
ture of rural areas has become quite complex.
The 1995 intercensal survey Supas shows that the monthly earnings of
employees in northern Sulawesi were close to the national average: 70
earned more than Rp 100,000 per month, 36 more than Rp 200,000, and
15 more than Rp 300,000.
Unemployment remains a problem. According to the Susenas data, the
unemployment rate in northern Sulawesi was above the national aver-
age over the entire 1996–2002 period and, although declining somewhat, it
remained around 12 in 2002 BPS 2003. As elsewhere in Indonesia, the
rate is higher for females than for males. On the face of it, high unem-
ployment seems inconsistent with high wage rates in rural areas Rp 20,000 to
25,000 per day, and with the generally good performance of the northern
Sulawesi economy. The explanation probably lies in the reluctance of high
school graduates in rural areas to work in agriculture, making labour hard to
find in peak periods despite the pres- ence of unemployed youth. Senior
high school and tertiary graduates, who are being produced in increasing
numbers, aspire to white collar employment, opportunities for which
are limited except, briefly, in Gorontalo following the creation of the
new province. Only 39 of the 2,000 applicants for employment as public
servants in Manado in January 2001 were accepted. It is not unusual to find
graduates in northern Sulawesi who are not looking seriously for work, or
who take employment such as bus driving that does not fully use their
skills. Others seek opportunities fur- ther afield, in East Kalimantan, Batam
or Jakarta.
Infrastructure The development of the trans-
Sulawesi highway has been an impor- tant factor in making markets work
more effectively in the northern penin- sula of Sulawesi, and in reducing price
variations. In the 1980s it took about 14 hours to go by bus from Manado to
Gorontalo. Nowadays it takes only six hours. Before the 1990s, the poor con-
dition of provincial roads made travel dangerous. These have now improved,
though the condition of roads in gen- eral is not as good as in Java and some
other regions, with over 50 still in quite poor condition and unsafe for
travel by ordinary car. Damage to roads and bridges in heavy rain
An Economic Survey of Northern Sulawesi under Regional Autonomy 285
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still causes difficulties and isolates vil- lages.
The kabupaten of Minahasa is quite well served by the national and pro-
vincial road network, which enables the region to make good use of its
resources. Some people even believe that the sub-region has been over-
exploited. Forest occupies less than 10 of Minahasa, compared to around
65 in Gorontalo and Bolaang Mon- gondow.
Sea transport plays an important role in communication in northern
Sulawesi, especially in commodity trading. Bitung has grown in signifi-
cance as the main international har- bour in the northern part of Eastern
Indonesia. Although the quality of its facilities is far behind that of Sukarno
Harbour in Makasar, it has an advan- tage in terms of depth, good protection
from turbulent weather and strategic location on the Pacific rim. Upgrading
has been taking place, and there has been a significant increase in the direct
trans-shipment of containers from Bitung port to Singapore and other
main ports in the Pacific. Formerly, shipments went via Surabaya and
Jakarta.
Sam Ratulangi Airport has been upgraded and the runway extended to
take Boeing 747s carrying up to 15 tonnes of freight. Plans for further
extension will enable it to take up to 60 tonnes.
MAJOR ECONOMIC SECTORS Agriculture and Fisheries
The economy of northern Sulawesi is principally agri-based tables 4 and 5.
As the backbone of the economy, pri- mary industry provides employment
for approximately half of the total labour force, and contributes around a
quarter of total income and 90 of total exports about 300 million, or
Rp 2.1 trillion. Increased agricultural
286 Lucky Sondakh and Gavin Jones
TABLE 6 Area under Different Plantation Crops in North Sulawesi–Gorontalo, 1987–99 ‘000 ha
Coconuts Cloves Nutmeg
Coffee Cocoa
Vanilla 1987
263.0 41.9
26.2 3.1
0.8 1.4
1988 266.1
42.7 26.4
3.6 0.9
2.0 1989
269.3 43.6
26.4 3.7
2.0 2.3
1990 276.5
43.7 26.4
3.7 3.0
2.5 1991
279.5 44.0
26.8 3.7
4.1 2.6
1992 279.5
43.7 26.9
4.2 6.3
3.8 1993
282.5 43.7
17.6 6.6
7.4 4.0
1994 284.7
43.7 16.9
6.9 8.6
4.7 1995
284.8 43.5
15.8 7.7
8.7 5.3
1996 287.0
42.7 15.8
8.6 9.1
5.3 1997
290.0 43.0
15.7 9.2
9.2 5.3
1998 296.0
43.0 17.0
9.2 9.4
5.4 1999
301.1 43.0
17.0 9.3
10.2 5.5
2000 317.2 43.4
17.0 9.4
10.9 5.6
Source : BPS Sulawesi Utara, Sulawesi Utara dalam Angka, various years.
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productivity is therefore essential to speeding up the post-crisis economic
recovery program. Northern Sulawesi has a strong
comparative advantage in interna- tional trade in copra, nutmeg, vanilla,
cloves, fish and horticulture. Agricul- ture is dominated by plantation crops
especially coconuts, cloves, nutmeg, coffee and recently vanilla and cacao,
though there are also food crops espe- cially corn and rice. The total area of
plantations is more than 400,000 ha, three-quarters of it devoted to coco-
nuts table 6. In fact about 60 of farmers in northern Sulawesi are
coconut farmers, and around 90 of cash crop based exports are coconut
products: coconut oil, desiccated coconut, and coconut meal table 7.
The role of other crops is also impor- tant. Northern Sulawesi produces one-
fifth of Indonesia’s total output of cloves and two-thirds of its nutmeg; it
also produces the best quality vanilla. However, the marketing of some of
these products, and certainly the deter- mination of commodity prices, has
been beyond the control of northern Sulawesi producers.
The Coconut Industry. The coconut
industry dominates northern Sula- wesi’s employment, agricultural pro-
duction and exports. The area planted to coconuts could still be increased if
prices warranted it. According to Litow 2000, 660,000 ha of land in
northern Sulawesi is considered suit- able for coconut plantations, more than
twice the area now under coconuts table 6. Most coconut farms are small:
60 of them grow coconuts on only 0.2–5 ha. Owing to the predominance
of old trees and to poor farm manage- ment, productivity is far less than the
potential 3 tons per ha. Approximately 123,000 ha of coconut palms 30 of
the total stock are more than 60 years old Litow 2000. Appropriate replant-
ing or rejuvenation programs appear to be needed, though rejuvenation pro-
grams in operation since the 1970s have had limited impact. Productivity
could be increased, at least in theory,
An Economic Survey of Northern Sulawesi under Regional Autonomy 287
TABLE 7 North Sulawesi–Gorontalo: Role of Coconut Based Products in Total and Cash Crop Exports
Year Total Total
Cash Coconut Coconut
Based Exports
Exports Crops
Based Products as of:
tons million
million million Total
Total Cash Exports Crop
Based Exports
1985 n.a.
152.2 83.2
72.1 47.4
86.7 1996
341,382 188.7
141.6 133.7
70.9 94.4
1997 398,103
297.2 156.5
142.6 48.0
91.2 1998
482,672 317.7
128.1 114.2
35.9 89.1
1999 403,944
323.4 154.2
145.8 45.1
94.6 2000 505,744 328.1 n.a. 126.7 38.6 n.a.
Source : Dinas Perindustrian dan Perdagangan Propinsi Sulawesi Utara North Sulawesi
Industry and Trade Service.
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from the existing 1.1 tons per ha to 2.6–3.3 tons per ha by improving farm
management and fertiliser use Allore- rung 2000.
The main constraint on increasing coconut production is the volatility of
copra prices. They were Rp 4,000 per kg in 1999, but plummeted to Rp 1,200
in June 2000 and remained at Rp 1,100 in April 2001, rising again to an aver-
age of around Rp 1,700 per kg in 2002–03. The longer-term trend of
gradual decline in copra prices has apparently been caused by coconut
oil’s image as a cholesterol-rich edible oil.
Before 1990, the marketing of copra was excessively regulated under the
copra marketing board Badan Pen- gelola Kopra, Bapengko, in order to
ensure that the copra needs of Java were met. In 1990, the government
deregulated the marketing system. Nevertheless, the market continues to
be strongly influenced by a few coconut oil companies e.g. Bimoli and
Inimexintra, which have traditionally controlled the buying of copra from
farmers by providing ‘advance pay- ments’. More recently, the government
has tried to respond to the low prices by encouraging farmers to set up a
coconut farmers association, Apeksu Asosiasi Petani Kelapa Sulawesi
Utara. Apeksu has blamed PT Bimoli, the largest copra buyer, for applying
low monopsony prices. Bimoli coun- ters that it can do nothing to increase
copra prices, whose level is due to the deterioration of commodity prices in
the world market.
With an average ownership of 1.5 ha per farm household, a coconut farm
family cannot earn sufficient income to meet its basic needs. Even if copra
achieved a price of Rp 4,000 per kg, a coconut farm with an average pro-
duction of 1.1 tons would yield a net income of only Rp 2.5 million
assuming harvesting costs of 40 of income—below the absolute rural
poverty line for the region, which was over Rp 3 million per family per year
in 2001. The coconut farmers are sur- viving by planting land under coconut
trees with food crops, and by seeking employment elsewhere, for example,
in small-scale gold mining which may yield an income of Rp 150,000 per day.
The role of coconuts as the main income source of the majority of north-
ern Sulawesi’s people demands seri- ous government effort to ensure that
incomes of coconut-producing house- holds are adequate, either through pro-
ductivity measures, or through helping coconut growers gain access to other
sources of income, or both. The stan- dard approach to increasing produc-
tivity is to apply fertiliser, improve farm management and undertake re-
planting. In the long run the industry must make the best use of the 220,000
ha of uncultivated land under the existing coconut palms Litow 2000,
and diversify the range of coconut products to include coconut meal,
coconut fibre, desiccated coconuts, fresh coconut juice, coconut milk,
detergent, concentrated coco milk, dis- tilled glycerine, distilled fatty acid,
charcoal and carbon fibre. It cannot survive the low copra prices if it relies
only on copra and crude coconut oil Sondakh 2000a. The main barriers to
diversification have been high trans- port costs and ineffective application
of agro-industrial technology.
The present targets of the North Sulawesi government are to rejuvenate
41,000 ha, plant new palms on about 31,000 ha, increase farm productivity
to 1.5 ton per ha by 2005, and increase intercropping with cocoa 22,000 ha,
vanilla 5,000 ha, coffee 2,500 ha, fruit 2,500 ha and food crops 45,000 ha.
288 Lucky Sondakh and Gavin Jones
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Productivity will be increased through better drainage and application of fer-
tiliser. The Clove Industry.
Cloves are the second most important agricultural
product in northern Sulawesi. The area planted in recent years was 43,000 ha,
of which 20,000 ha was in good condi- tion, 15,000 ha in poor condition and
8,000 ha in very poor condition. Native to the neighbouring Moluccan Islands,
cloves have long been grown in north- ern Sulawesi, mainly on the slopes of
the Minahasa region. Even the posses- sion of a few trees can mean important
cash income for a family. Prior to ‘great harvests’ which occur every fourth
year between more normal annual har- vests, consumer goods flood into vil-
lages, supplied by traders as advance payments for specific quantities of
dried cloves. The cloves are exported to Java, largely to be used in scented
kretek
cigarettes, which contain as much as 50 clove powder by weight.
Production per hectare in peak harvest years ranges from 500 to 800 kg,
depending on the variety of clove and fertility of soils.
Since 1970, clove marketing has attracted serious attention from the
central government. At least three main systems have been applied: first,
the partially regulated pre-1991 mar- keting system, which granted roles to
farmers’ cooperatives in the collection and marketing of cloves; second, the
over-regulated marketing system under BPPC Badan Penyanggah dan
Pemasaran Cengkeh, the Clove Buffer- stock and Marketing System from
1991 to 1999; and third, the current ‘free trade’ marketing system.
During the 1970s, farmers enjoyed high clove prices owing to rising
demand for kretek cigarettes and a lim- ited supply of cloves. High prices
encouraged the import of cloves from Malagasy and the expansion of clove-
growing areas, until supply began to exceed domestic demand in the late
1980s. In the 1970s, clove farmers sold to small traders, who sold to inter-
island traders, who in turn sold to kretek
manufacturers in Java. In 1976, the government encouraged village
cooperatives to collect cloves from farmers, but shortage of capital limited
their role. The inter-island traders, closely linked to the kretek manufactur-
ers, played the dominant role in clove gathering as well as in pricing. Ijon
advance payment was common, and this depressed farmgate prices.
In 1980, Presidential Decision No. 81980 granted a bigger role to village
cooperatives Koperasi Unit Desa, KUD in clove collection and distribu-
tion from farmers to kretek factories via inter-island traders. Between then and
1990, clove farmers were required to sell their output through KUD to inter-
island traders at or above the floor price of Rp 6,500 per kg. In reality, the
proportion of cloves sold by farmers through KUD was only about 4 in
Maluku Godoy and Bennett 1990 and about one-third in North Sulawesi.
Prices paid by KUD were frequently below farmgate prices, and the KUD
and domestic agents did not have the financial resources to support the floor
price. The marketing system was rela- tively competitive, with inter-island
traders being the main buyers in the clove producing centres, and also
transporting the cloves to Java.
This phenomenon attracted the attention of Tommy Soeharto the son
of former President Soeharto, who entered the clove business to capture
the benefits enjoyed by the traders and clove manufacturers. This rent seeking
activity underlay the establishment of BPPC in 1991 Sondakh 1999. BPPC
was granted a ‘very soft loan’ of about
An Economic Survey of Northern Sulawesi under Regional Autonomy 289
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350 million to act as the sole market- ing agent, collecting cloves from farm-
ers via KUD and their Puskud Pusat Koperasi Unit Desa, village coopera-
tive centres, and selling them on to the kretek
manufacturers. The stated rationale for this decision was that the
practice of ijon was prevalent and clove traders were exploiting producers.
Consumer and producer surpluses were transferred from the kretek facto-
ries and clove producers to the market- ing agents imposed by the state: BPPC,
KUD, Puskud, Inkud Induk Koperasi Unit Desa, the Central Village Cooper-
ative Board of Management, Suco- findo Superintending Company of
Indonesia, a state enterprise in charge of quality control and the govern-
ment, in the last case in the form of SRC Sumbangan Rehabilitasi Ceng-
keh, the Clove Rehabilitation Fund. The BPPC period from 1992 to 1997
was a disastrous one for the clove industry, because BPPC bought at only
Rp 4,000 per kg, far below the world price of Rp 13,500 and the kretek manu-
facturers’ prices. Significant declines in area, production and productivity
resulted.
5
The average ‘peak year’ pro- duction of 20,000 tons per year fell to
below 8,000 tons in 1999 a peak year. Clove producers were exploited in
an additional way during this period. Before its disappearance in 1998, Inkud
retained the so-called ‘dana SWKP’ sumbangan wajib kepada petani, an
obligatory payment to the farmer of Rp 1,900 per kg. The funds were sup-
posed to be returned to the farmers in cash. The SWKP for North Sulawesi
amounted to about Rp 200 billion over five years, of which Rp 150 billion was
supposed to be returned to the province. It remains unclear whether
these funds are still in accounts associ- ated with the now abolished BPPC, or
have vanished due to corruption. What is clear is that the farmers who are enti-
tled to receive reimbursement are never likely to see these funds.
One of the main undertakings the government made in its January 1998
Memorandum of Understanding with the IMF was to deregulate the clove
marketing system. This has been done, government intervention has ceased,
and restrictions on imports have been removed. Farmgate prices rose dra-
matically after BPPC was abolished, from Rp 4,000 per kg in 1998 to
Rp 90,000 in late 2001. In response, the government and farmers began
replanting and rehabilitation of clove trees in poor condition. However,
prices gradually fell during 2002, set- tling at a figure of around Rp 25,000
from June 2002 to mid 2003. This is still well above the break-even point for
profitability of clove monoculture— about Rp 17,000 Dumais et al. 2002.
Other Plantation Crops. Nutmeg is
another important tree crop in north- ern Sulawesi. A sourish fruit that
grows on tall trees, its hard kernel pro- duces nutmeg biji pala, while the
beautiful lacey vermilion surrounding it is dried and ground to become mace
fulli. Candien, the nutmeg fruit, is a pleasant treat and has been exported to
Java as a snack food. The main issue facing the nutmeg industry is that even
as the world’s main nutmeg producer, supplying 70 of world demand,
northern Sulawesi has not been suc- cessful in determining nutmeg prices,
apparently because there is no effective nutmeg producers’ association to
influence production and sales Marks 2002.
Vanilla production grew rapidly during 1990–97, replacing cloves, but
difficulties were encountered in man- aging quality, high prices causing
farmers to harvest too early. Exports of vanilla amounted to 30 million tons in
290 Lucky Sondakh and Gavin Jones
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1997, 66 million tons in 1998 and 41 million tons up to October 1999, with a
value of 1.08 million, 1.46 million and 0.85 million respectively Deper-
indag Sulut 2000.
As for coffee and cocoa, both have good potential, and cocoa could be
intercropped under coconuts. There is a strong domestic demand for both cof-
fee and cocoa, and a tradition of coffee production and export to Europe. Since
the late 1980s, production of both crops has increased sharply, indeed spectacu-
larly in the case of cocoa table 6.
Food Crops. Corn and rice are the
main food crops produced in northern Sulawesi, well known as one of Indo-
nesia’s main corn-producing regions. Traditionally corn had been the main
staple food, but nowadays it is a sub- stitute for rice. Approximately 35,000
ha is suitable for wet rice cultivation, and most of this can be cultivated
twice a year, resulting in production of over 62,000 ha of irrigated rice per
annum; a further 21,000 ha of rice is produced each year on rainfed land
BPS Sulut 2001. The area suitable for other food crops, mostly ‘dry land’
lahan kering, is about 500,000 ha, over 80 of which is presently in use.
Northern Sulawesi is self-sufficient in rice, because of increased productiv-
ity per hectare in recent times, as has also occurred in many other food
crops. With a population of over 2.8 million in 2000, and per capita rice
consumption of 120 kg, the province needs approximately 340,000 tons of
rice per annum. In both 1999 and 2000, production exceeded this figure BPS
Sulut 2000, 2001. Other food crops worth noting are soybeans, groundnut,
mungbeans, cassava, vegetables and fruit. There is potential to export pota-
toes, other vegetables, pineapples and flowers, but this would require better
post-harvest technology. Livestock.
Livestock production is mainly on a small scale. Its share in
GRDP is therefore relatively low, only 2.8 of the 26 share of primary
industry in GRDP in 2001. About 30,000 head of cattle out of a total cat-
tle population of 280,000 are exported per annum, but there is a danger that
this rate may decline owing to the sale of heifers. Horse raising is becoming a
more important industry in Minahasa. Breeding is targeted to supply domes-
tic demand, especially in Jakarta. The new North Sulawesi is one of the few
provinces in Indonesia that raises pigs. Availability of feed, especially copra
meal, corn and fish meal, provides good potential for increasing pig pro-
duction. However, poor agri-business infrastructure, a limited local market
and high transport costs may prevent this potential from being realised.
Fisheries. The fishing grounds of
northern Sulawesi are a small but important part of the larger fishing
grounds of Indonesia’s ZEE exclusive economic zone territory, used by
fleets based in the fishing ports of Gen- eral Santos the Philippines, Ambon
and Ternate no longer operating owing to internal conflict in the
region, Benoa, Biak and Bitung. It is estimated that the capacity of Indone-
sian fishing vessels is only about 30 of the total capacity of fishing vessels
exceeding 20 gross tonnes operating in Indonesian waters personal commu-
nication, Mr. Richard Solarngs, Chair, Himpunan Nelayan Seluruh Indone-
sia, or Indonesian Fishermen’s Organi- sation, Manado. The other 70 are
foreign vessels, some of them operat- ing legally and some illegally. Illegal
‘super pulseiner’ and longline fishing vessels owned by Philippine interests
but flying Indonesian flags and giving the impression they are Indonesian
owned have been catching millions of
An Economic Survey of Northern Sulawesi under Regional Autonomy 291
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tons of fish each year in Indonesia’s fishing grounds.
Northern Sulawesi’s fishing terri- tory has recently been divided into
three areas, based on distance from the coastline: the 2–4 mile, 5–12 mile and
beyond 12 mile areas, the latter includ- ing the ZEE areas. These are under the
jurisdiction of the kabupatenkota gov- ernments, the provincial government,
and the national government, respec- tively. Unfortunately, there is a built-in
conflict between different levels of government here. Foreign boats fish-
ing in Indonesian territory have to pay a tax of 2.5 of the price of the catch.
The payment goes to the central gov- ernment in the case of boats exceeding
30 gross tons, and to the provincial government in the case of smaller
boats. The central government has been content with the income derived
from licensing large foreign-owned boats operating beyond the 12-mile
limit which also gives the officials involved considerable opportunity for
corruption, even though these vessels are seriously affecting the local fishing
industry. The government of the new North Sulawesi has recently proposed
to the central government the decen- tralisation of the authority to issue
licences and permits for fishing in Indonesian territory, or at the very
least, to raise the size limit of boats licensed by the province to 60 gross
tons.
The fisheries service of the former North Sulawesi estimated the prov-
ince’s fisheries potential in 2000 to be approximately 322,800 tons annually,
consisting of 125,900 tons in the 2–4 and 5–12 mile areas and 196,900 tons in
the ZEE areas Kaunang 2000. From 1994 to 1998 excluding illegal and for-
eign catches, the subsector produced around 120,000 tons annually, and this
increased to almost 200,000 tons in 1999, with sea fishing contributing
over 90 of the yield. The increase was caused by a rise of nearly 10 per
annum in the number of fishing ves- sels, from 26,777 in 1994 to 42,947 in
1999 BPS Sulut 2001: 171.
Fish production in northern Sulawesi comes mainly from vessels
based in Bitung, and a little over 30 is exported live, fresh, iced or smoked.
Fish exports were about 70,000 tons in 1999 and 2000, valued at 63–65 mil-
lion, around 16 of the total value of former North Sulawesi’s exports in
those years. The province’s competi- tive weakness relative to General San-
tos in the Philippines and to Taiwan, Korea and Japan, whose fleets domi-
nate Indonesia’s fishing grounds, pre- vents it from reaching its production
and export potential.
Northern Sulawesi has lagged behind neighbouring regions of the
Philippines in making the best use of its fisheries potential. With the assis-
tance of USAID and JICA the Japan International Cooperation Agency,
the government of the Philippines has successfully established General San-
tos as a leading fishing port, landing about 300 metric tonnes of fish every
day, the second largest total daily fish landing in the Philippines. The new
North Sulawesi provincial government has proposed the building of a similar
fishing port. It is expected that the completion of the project in the next
few years will increase the ability of the province to make better use of its
fisheries potential.
Summary. The primary industry sec-
tor in northern Sulawesi has a number of areas of high potential, and every
effort should be made to develop them further. The basic problem, however, is
that most primary producers rely on the coconut industry, which has a lim-
ited potential to yield satisfactory
292 Lucky Sondakh and Gavin Jones
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incomes. Overall, agriculture is unlikely to be the main engine of
growth in the future. The longer-term strategy must therefore focus on the
sectors with the potential to expand more rapidly, provide higher incomes
and absorb workers from the coconut industry in particular. Mining, trans-
portation, tourism and services have been the best performing sectors over
the past decade, though for different reasons none of them can be relied on
for steady long-term growth.
Mining As shown in table 5, mining’s rapid
growth from the late 1980s made it an important contributor to northern
Sulawesi’s economy. The area is quite rich in geothermal energy with a
potential of 640 megawatts per annum and minerals, especially gold and cop-
per; there are also some valuable mar- ble and granite quarrying areas. Min-
ing has increased considerably in importance in recent years, with the
opening in 1996 of the gold mining venture of PT Newmont Minahasa
Raya in Ratatotok, whose initial pro- duction was about 12 tons per year,
worth about Rp 600 billion. There are six other licensed mining activities.
Small-scale gold diggings can also be found in many places, for example the
hilly areas surrounding the Dumoga Valley, and in parts of Minahasa and
Sangir Talaud. There are about 5,500 ‘gold extracting units’ tromol employ-
ing about 13,000 labourers all over northern Sulawesi. One estimate puts
the number of illegal miners in the region at 22,000, of whom 1,500 were
working at Australian mining com- pany Aurora Gold’s Talawaan conces-
sion.
Illegal miners are a threat to licensed mining interests, some of which have
been forced to cease or not begin pro- duction because of occupation of their
concessions. The illegal gold miners do not pay royalties to government, and
cause serious environmental damage. The Department of Mining in the for-
mer North Sulawesi province esti- mated that illegal miners had poured
300–600 tonnes of mercury into the environment 400–800 kg per day
since illegal mining became wide- spread in the late 1990s, contaminating
the environment and creating serious health problems. Samples from the
Talawaan River show mercury levels 70 times higher than the internation-
ally accepted limit for drinking water McBeth 2000.
Both of the large gold mining ven- tures—Newmont production and
Aurora Gold prospecting—faced dif- ficulties in relations with different lev-
els of government, and these illustrate some of the problems of regional
autonomy. Newmont’s contract with Jakarta exempted it from paying taxes
on ‘overburden’ materials waste rock or soil removed to access mineral
deposits, but the head of Minahasa district assessed Newmont under a
local tax code related to the sale of these materials as owing more than 8
million in back taxes Wall Street Jour- nal
, 11402. The North Sulawesi provincial government is also not
encouraging mining, largely for envi- ronmental reasons. Facing contract
conditions in relation to disposal of tailings, the problem of illegal miners
and, it is rumoured, lower than expected gold reserves, both compa-
nies have now pulled out of the province.
Manufacturing and Agro-industry The manufacturing sector has been the
major disappointment in recent macro- economic performance. The small local
market, the difficulty of competing in
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export markets, and the general eco- nomic malaise facing Indonesia since
1997 have combined to hinder invest- ment and prevent any major new man-
ufacturing activities. Manufacturing has therefore failed to provide an
‘engine of growth’.
Agro-industry has made little progress. Most export products from
northern Sulawesi are unprocessed: coconuts in the form of crude coconut
oil, nutmeg in the form of fulli, clove in the form of dried cloves, vanilla in the
form of dried vanilla, fish in the form of canned fish. If such products could
be processed to intermediate or advanced states, export receipts could
be doubled Sondakh 1999. A program of agro-industrialisation would allow
the receipts from tuna to be increased from Rp 10,000 to Rp 50,000 per kg.
Similarly, copra, which now fetches Rp 1,200 per kg, could be exported in
the form of refined edible oil and other processed products such as desiccated
coconut for Rp 15,000 per kg. Factors constraining the further processing of
coconuts and copra include high trans- port costs to world markets and low
economies of scale owing to the pre- dominance of small producers.
Tourism The importance of tourism to the
northern Sulawesi economy parti- cularly the new North Sulawesi
province was increasing steadily up to the beginning of the economic crisis in
1997. Its growth has slowed since then, although thanks to increasing interna-
tional flights to Manado and the repu- tation of northern Sulawesi as a ‘safe’
region, it has not been as badly hit as most provinces.
6
Promotional efforts have been continuing in countries such
as Taiwan and the US. In late 2002, Manado was being served by Silk Air
from Singapore four times a week, Philippine Airlines once a week to
Davao and Manila, Bouraq Indonesia Airlines once a week to Davao, and
daily Garuda services linking Jakarta, Manado and Taipei.
Tourism to northern Sulawesi is based mainly on the region’s natural
attractions. The area is rich in scenic landscapes and seascapes, and ‘has the
potential to develop a unique set of quality, sustainable and diverse
tourism sites throughout the Province which would spread the economic con-
tribution of tourism beyond the islands and the Manado area’ PATA Task
Force 2000: 12. The diving location at Bunaken National Marine Park near
Manado is world famous, but concern about its carrying capacity has led to a
recommendation that further expan- sion of diving-oriented resorts along
the coast of Manado should be avoided PATA Task Force 2000. North Sula-
wesi’s imposition in March 2001 of a Rp 150,000 annual entrance fee to the
marine park or Rp 50,000 per day for one or two day visits, used for envi-
ronmental protection and village development in the park, has won
international commendation from groups such as the Worldwide Fund
for Nature. Nature-based themes appear to be the appropriate basis for
future tourism strategies.
KAPET AND BIMP–EAGA In 1996, President Soeharto called for
the establishment of 13 integrated eco- nomic development zones Kawasan
Pengembangan Ekonomi Terpadu, Kapet throughout Indonesia. The cor-
ridor from Manado to Bitung was one of them, and was seen as a key locus
for developmental activities in Eastern Indonesia. Its management is directly
under the president, with the assis- tance of a steering committee.
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The establishment of a Kapet is based on the idea that backward areas
with good growth potential can have their growth accelerated by improved
infrastructure, provision of market access and introduction of incentive
policies designed to bolster investment and trade. Through flow-on effects, the
Kapet is expected to boost economic growth in its entire region. Meeting the
preconditions for growth should enable the area to attract investment,
and transform the economic structure into one with an industrial orientation
Sondakh 2000b. It is further expected that the establishment of a Kapet
will promote tourism, develop agro- industry, raise the export of finished
products, and spur the growth of the financial services and other sectors
through forward and backward link- ages. At the same time, there is the
danger that the Kapet will serve to exacerbate centre–periphery inequali-
ties within the region.
Thanks to its international-level air- port and port, high population density
and good levels of education, the Manado–Bitung zone very satisfacto-
rily meets the requirements of a Kapet area PT Soilex Sulut Sejati 1999. This
zone has long been designated the key export centre and industrial zone for
the region. The central government aims to develop the port of Bitung into
an international hub port by 2010. On 16 July 2001 President Abdurrahman
Wahid inaugurated the upgrading of Bitung port and opened the upgraded
Sam Ratulangi airport. Kapet Manado– Bitung, under the chairmanship of
North Sulawesi’s governor, has been given a national mission to develop the
surrounding area further through investment in infrastructure and indus-
trial zones, and to issue one-stop indus- trial permits to increase private invest-
ment in many aspects of development. Another regional program with a
capacity to influence the development of northern Sulawesi is the BIMP–
EAGA ADB 1996. This is a regional economic cooperation scheme involv-
ing Brunei, Indonesia, Malaysia and the Philippines BIMP in the East
ASEAN Growth Area EAGA. Origi- nally, the Indonesian provinces
included in this scheme were East Kali- mantan, West Kalimantan and the for-
mer province of North Sulawesi. In 1996, seven more provinces were
added. This program does not appear greatly to have affected developments
in northern Sulawesi, though through visits and activities under the program
it has linked the region a little more closely to nearby Mindanao in the
Philippines and Sabah in Malaysia.
MEETING THE CHALLENGES OF REGIONAL AUTONOMY
The creation of the new province of Gorontalo, and of several new kabu-
paten
and kota, occurred just at the time that regional autonomy was intro-
duced in Indonesia. The new province and districts therefore faced a double
challenge. Absence of volcanic soils and frequent flooding restricts agricul-
tural productivity in kabupaten Goron- talo, though the smaller population in
kabupaten
Boalemo is more prosperous because it is concentrated in the rich
Randangan River basin. The govern- ment of the new province plans to
boost local corn and fish production, which are the two economic main-
stays, and to develop the agri-business side of the corn industry. It is also seek-
ing central government funding to lengthen the airstrip of Gorontalo’s
Jalaluddin airport and improve the two small seaports. Nevertheless, it is
hard to envisage much potential for manufacturing in the province, or a
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lessening of the need for it to rely heav- ily on the airport, port and other infra-
structure of neighbouring North Sula- wesi province.
Regional autonomy has brought with it many new challenges for devel-
opment planning. Whereas formerly the regional planning office Bappeda
submitted its development plan to Jakarta, and the province essentially
had to live with the decisions taken there, now the plans made by the tech-
nocrats at the provincial level have to face two hurdles in implementation:
the political process of clearing the plan through the provincial assembly
DPRD, where party politics and per- sonal interests tend to take precedence,
and the greater authority of the kabupaten
–kota level in implementa- tion. An example of the kinds of issues
faced is provided by the reclamation of the Manado waterfront. Comparable
on a smaller scale with waterfront land reclamation in Manila and Singapore,
this has provided centrally located land that is of considerable value for
commercial development, and also has great potential to provide much
needed park space facing the sea. However, the provincial government’s
aim to reserve some of the land for such public uses has met resistance
from the municipality, which seeks to maximise its rental returns.
THE IMPACT OF LAW 251999 ON THE REGIONAL FINANCE OF
NORTHERN SULAWESI The reform era in Indonesia has been
marked by administrative and finan- cial changes in relations between the
central government and the regions, as set out in Law 221999 on regional
administration and Law 251999 on fiscal decentralisation, both imple-
mented in 2001. Law 22 grants the provinces, kabupaten and kota auton-
omy in electing their local govern- ments, making their own regional
development plans and managing most of their affairs. Law 25 provides a
new formula for the sharing of rev- enues between the centre and the
regions table 8, the replacement of the former SDO sumbangan daerah otonom,
autonomous region subsidies with DAU dana alokasi umum, or general
purpose funds, and permission for local governments to raise foreign
loans. The sectoral budgets formerly reaching local governments through
the regional offices kanwil of central government departments are now paid
as ‘deconcentrated funds’ to the office of the corresponding sectoral agency
dinas responsible to the provincial governor for more details, see
McLeod 2000: 33–7; Lewis 2003. The goal is the decentralisation of responsi-
bility for a broad range of functions.
The major problem is that the fiscal capacity of local governments varies
according to resource endowments, economic structure and stage of eco-
nomic growth. The new law benefits areas rich in natural resources, espe-
cially the oil and gas producing regions Riau, Aceh, East Kalimantan
and Irian Jaya, and also Jakarta. Poor districts will suffer because their ‘own-
source revenues’ PAD, pendapatan asli daerah
from local taxes and user fees retribusi cannot match the local
expenditure needed to finance the tra- ditional routine and development
budget. Typically, PAD contribute only 4–15 of regional budgets; the gap is
filled by central budget allocations in the form of ‘routine’ and ‘develop-
ment’ funds in the New Order era, and DAU, DAK dana alokasi khusus, special
purpose funds and foreign loans under the new law. There are only five
provinces whose ‘fiscal potential’ from
296 Lucky Sondakh and Gavin Jones
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own-source revenues exceeds fiscal needs.
Is northern Sulawesi worse off or better off under the new law? Accord-
ing to the initial formula used, kabu- paten
and kota fared better and provinces worse table 8. This was the
result of less DAU funding being allo- cated to the province and more to the
kabupaten and kota. All kabupaten and
kota show significant increases in their
budgets in nominal terms. Under the new law, the provincial government of
the new North Sulawesi received only Rp 76 billion of DAU, compared to esti-
mated fiscal needs of around Rp 230 billion Mailangkay 2001. This was
exacerbated by the limited size of the development budget, only Rp 8 billion,
down from Rp 68 billion in 199899 and nearly Rp 90 billion in 19992000.
As a result, the province faced a real problem in meeting fiscal needs, espe-
cially the wages and salaries of provin- cial public servants who had not been
transferred to the kabupatenkota level or to the new province of Gorontalo.
There are about 16,000 public servants at the provincial level in North
Sulawesi, compared to not more than 5,000 in Gorontalo. The annual DAU of
only Rp 75 billion allocated to the province was clearly not enough to pay
about Rp 11 billion in salaries per month. The problem was simply caused by
the formula for distribution of DAU
An Economic Survey of Northern Sulawesi under Regional Autonomy 297
TABLE 8 Changes in Central Government Allocations to Provincial and District Budgets in the Current Province of North Sulawesi, 2000–02
a
Rp billion Bolaang Mina-
Sangir Kota Kota North Total Mongo-
hasa Talaud
Bitung Manado Sulawesi
ndow Province
b
2000 80.1
162.9 67.8
32.1 70.4
