When Indonesia’s forests burn, what counts as wealth?

Indonesia’s economic rise has lifted millions from poverty, but wildfires, deforestation and resource extraction reveal the danger of measuring prosperity while ignoring the depletion of the natural assets that sustain it.

Indonesia’s 2026 wildfire season raises a question that goes beyond climate change: what does it mean for a country to become richer if the natural wealth on which its prosperity depends is being depleted?

YKAN (the Nusantara Nature Conservation Foundation) reported 202,000 hectares affected between January and July, with estimates for August pushing the total sharply higher. Satellite and NGO estimates vary, but all point to the most severe fire season in more than a decade. Emissions reached 19.7 million tonnes in the first week of September alone. Haze affected more than 12.5 million people across seven provinces, while reported respiratory cases climbed from 50,891 on 1 September to 174,694 by 21 September.

Authorities describe this as the most intense wildfire season in 11 years, intensified by a super El Niño. El Niño explains the immediate trigger, not the full scale of the damage. Decades of decisions about land use, forests and resource extraction have helped determine how vulnerable the landscape is when drought arrives.

Indonesia is one of the major economic success stories of recent decades. The World Bank has classified it as an upper-middle-income economy since 2023, noting its rise from the world’s 29th-largest economy in 1968 to the 16th. Between 2000 and 2024, unemployment fell from nine to around five per cent and poverty from 19 to nine per cent.

However, roughly 58 per cent of employed Indonesians work informally, often selling street food or driving motorbikes for gig-economy platforms without contracts, pensions or healthcare, and that share has been rising. Indonesia’s challenge is no longer simply to grow, but to create more productive, better-paid work despite barriers to the spread of know-how, restrictive regulation and an excessive concentration of employment in low-value activities.

The 2021 Independent Review on the Economics of Biodiversity (Dasgupta Review), commissioned by the UK Treasury, offers a useful starting point for meeting that challenge: it argues that economies depend on nature rather than existing separately from it. Conventional accounts record the goods and services produced but they largely overlook the depletion of the natural assets that make production possible. Forests, peatlands and mangroves regulate water, protect soil, store carbon, sustain biodiversity and support agriculture and livelihoods. When these systems deteriorate, their costs reappear elsewhere, in disaster response, healthcare and infrastructure spending.

Indonesia’s peatlands illustrate the scale of the problem. Compensating for biodiversity damage from existing oil-palm plantations in Kalimantan could require restoring at least 47,000 square kilometres of degraded land, at an estimated cost of $7.7 billion. Kalimantan, Indonesia’s portion of Borneo, contains valuable timber, minerals and farmland, alongside ecosystems whose worth is rarely reflected in market prices. Forest cover does not necessarily mean a healthy forest: fragmentation and biodiversity loss can undermine an ecosystem even where trees remain. Draining peatlands also turns carbon-storing ground into highly combustible terrain during drought. Fires consequently damage more than timber, harming air quality, health, productivity and community resilience. Smoke crosses into neighbouring Malaysia and Singapore, making the fires an economic and public-health crisis as much as an environmental one.

Recent deforestation reinforces the concern, even if Indonesia has not simply abandoned conservation. Auriga Nusantara, an Indonesian environmental NGO, estimates that 433,751 hectares of forest were lost in 2025, 66 per cent more than in 2024. The reversal of several years of declining forest loss suggests renewed pressure from agriculture and resource development.

Indonesia’s nickel strategy presents the same dilemma. Export restrictions introduced in 2020 helped turn the country into the dominant refined-nickel producer: Indonesia now supplies roughly two-thirds of the world’s refined nickel. The value of nickel-derivative exports rose from $3.3 billion in 2017 to $33.8 billion in 2022. Processing minerals at home is an important attempt to move beyond exporting raw materials, but higher export earnings do not automatically mean greater productivity or technological advancement. The deeper question is whether resource wealth builds skills, innovation, productive employment and human capital that will endure beyond the resource itself.

The costs of extraction are also unevenly shared. On Halmahera in the Maluku Islands, mining concessions overlap forests inhabited by the O’Hongana Manyawa, an Indigenous group. In 2026, the UN Committee on the Elimination of Racial Discrimination (CERD) raised serious concerns about the lack of protection for O’Hongana Manyawa lands and the expansion of mining concessions into their traditional territories. In Sulawesi’s Chinese-funded smelter belt, a 2023 furnace explosion killed more than 20 workers, while residents link continuing pollution to respiratory illness. There is an uncomfortable irony in the promotion of nickel as a clean electric-vehicle input when its production can impose such costs on workers and communities.

This is also a question of who receives the benefits of resource extraction. Land, licences, concessions, finance and market access determine who captures the profits. A project can be legally authorised yet leave the public paying for polluted air, damaged ecosystems and ill health. Conversely, taxation, regulation and effective safeguards can turn temporary resource profits into lasting public benefits. The issue is not simply how much Indonesia extracts, but how effectively it converts that wealth into capabilities and prosperity that last.

The concept of human security broadens this assessment. The UNDP’s 1994 Human Development Report shifted the focus of security from protecting territory to protecting people. The 2003 Commission on Human Security, chaired by Sadako Ogata and Amartya Sen, developed the approach further. A hectare of forest lost is an ecological statistic; smoke inhaled by a child or an interrupted school year is a loss of human security. Both belong in an assessment of national prosperity.

These concerns also help explain Indonesia’s recent political discontent. The 2025 #IndonesiaGelap (‘Dark Indonesia’) protests and the #KaburAjaDulu (‘just flee first’) movement reflected anxiety about economic prospects and the country’s future, particularly among an educated, aspirational middle class rather than the poorest Indonesians – a newly hired plantation or mining worker may experience resource development as an immediate improvement in living standards, even if the benefits prove temporary and the next downturn exposes their insecurity.

Indonesia need not choose between economic growth and environmental protection. Its challenge is to raise productivity and living standards without destroying the natural foundations of prosperity. The World Bank’s 2026 partnership framework for Golden Indonesia 2045 likewise pairs higher-productivity employment with better resource management.

The fires do not prove that Indonesia’s development has failed. They expose the limits of measuring prosperity through economic output while overlooking the assets being depleted. With less than two decades until 2045, Indonesia must show that it can turn resource wealth into technological capability, productive institutions and broadly shared prosperity without destroying the natural capital that makes them possible.