Half of all Indonesian timber harvested from 2003 through 2006 was logged illegally, with no taxes paid, Human Rights Watch said Monday.
The impact of continuing corruption and lost revenue on the rural population is significant, a report from the group said.
The annual lost revenue is equal to the country's entire spending on healthcare, the report said.
"It's a particularly cruel irony that in many of the rural areas that generate the country's forestry income, basic health care services are among the worst in the country," Joe Saunders, Human Rights Watch program director, said. "People who live next door to the very forests being ravaged to line officials' pockets must travel huge distances to reach the nearest doctor."
Those who profit most from illegal logging are seldom held accountable, the report found, because of widespread government corruption.
The forest areas of Indonesia are among the largest in the world, but the country also has one of the highest deforestation rates. Exports from the lucrative timber industry totaled $6.6 billion in 2007.