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The economic justification for public expenditure is especially strong in the case of environmental management. Yet expenditures on environmental management have received little attention in public expenditure reviews by the World Bank and other international development organisations. An initial analysis of environmental expenditures in the Indonesian government budget between FY1994/95 and FY1998/99 yields four basic findings. First, most spending in the nominal environmental sector, sector 10 (Environment and Spatial Planning), is on non-environmental activities, and much environmental expenditure occurs in other budget sectors. Second, environmental expenditures fell sharply in real terms during the economic crisis, to levels far below those in FY94/95. Third, they also fell sharply relative to the budget and to GDP. Finally, environmental expenditures declined more in Indonesia during the economic crisis than in Malaysia, Thailand and Korea, relative to both the budget and GDP.

This article reports on a survey of the environmental behaviors of manufacturing plants in a large industrial city in Indonesia. The survey identified plant-level environmental behaviors and measured the extent of exposure of plants to regulatory, community, and market pressures and to government incentives designed to get plants to install pollution control equipment. Statistical findings show that plant characteristics, regulatory actions, community and market pressures, and government incentives all influence whether a plant invests in pollution control, whether it engages in environmental management, and the extent of environmental management practices. But findings also show that only characteristics of plants (size and sector) exert influence on the level of pollution abatement expenditures. Because exposure to regulatory actions and community and market pressures is low, these findings are not surprising, but they do suggest that plants respond to these pressures and actions.

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