REVIEW OF IMPLEMENTATION OF THE FOREST
SECTOR POLICY
December 5, 1994

index

3. THREE CRITICAL QUESTIONS: BALANCE, LINKAGES, AND
PARTICIPATION

Beyond the assessment of forestry sector work and lending for forestry projects made in Chapter 2, three wider questions have to be addressed to clarify future priorities for the Bank’s work in the forest sector

• Is the Bank contributing to an appropriate pattern of policy reform and investment that properly balances poverty reduction, environmental conservation, and production?
• Are appropriate mechanisms available to ensure that the intersectoral linkages affecting forests are incorporated into policy dialogues as well as into investment programming?
• Is the Bank's approach to reforming forest institutions appropriate and likely to succeed, including its view of the roles of the public and private sectors and the need for enhanced participation in forest decisionmaking?

Balancing Poverty Reduction, Conservation, and Production

The Bank is not the only source of finance and development assistance for the forest sector. An important dimension of the Bank's portfolio is how it complements other recourses flowing into the sector and helps compensate for the limitations of other sources of support. The policy paper's emphasis on conservation and environmental protection does not require that borrowers forego important and rewarding opportunities in directly productive dimensions of the forest sector. Similarly, growing lending for conservation efforts, national parks, and biodiversity preservation does not need to encumber borrowers with an undue economic burden for loan repayment provided that projects are designed as part of an integrated sectoral development program to which governments are thoroughly committed. Assessing the balance of the Bank's new portfolio requires considering the evolution of its involvement in the sector and the particular economic and development assistance niches that the Bank needs to occupy for its work in the forest sector to contribute to its overall development objectives.

The Evolution of Bank Forestry Lending

The historical evolution of the Bank’s forestry investments helps put its current activities into perspective. In the last twenty years, the Bank’s forestry investments have grown from minor involvement to a leading source of capital for sectoral development. Prior to the late 1970s—in keeping with the general perception of forest resources as abundant and essentially inexhaustible- -the Bank approached forests as sources of capital to support growth in other sectors of the economy. The emphasis, therefore, was entirety on industrial utilization and investment in new plantations of fast-growing, usually exotic, species with ready markets. Investment in forestry was nevertheless small until, with the 1978 Forestry Sector Policy Paper the Bank began to focus on the potential role of forestry in reducing rural poverty. Largely in recognition of the importance of fuelwood in the consumption of the rural poor, the 1978 policy directed the Bank toward a new aggressiveness in the sector. This strategy, which the Operations Evaluation Department (OED) has reviewed (World Bank 1991a), focused the Bank on the emerging concept of social forestry.

By the late 1980s, the Bank’s forestry investments were performing well, judging within the narrow scope of project results. The Bank had financed the establishment of more than 1.5 million hectares of plantations, and project returns were satisfactory. In the larger context, however, the Bank's forestry work was beginning to appear marginal and isolated, with insufficient attention given to the environmental aspects of forestry as deforestation continued apace; a more diversified and comprehensive approach to the sector was needed. Beginning first with projects focused on watershed management and soil conservation, Bank lending for forestry began to shift toward an increased emphasis on the sector's environmental aspects. These trends were reinforced by the 1991 policy paper and are now reflected in a forestry portfolio consisting of about 40 percent in each of social and environmental lending, with a 20 percent share for industrial investments, as shown in Figure 3.

Resources for Forest Development: the Bank's Roles

The Bank has particular strengths and capabilities in providing financial resources and other forms of assistance to the forest sector. The Bank's roles have to be assessed with respect to the other actors in the sector, which vary from country to country. Many important avenues for sectoral development are privately profitable and can attract private capital. b areas with proven potential for plantation forestry, such as southern Brazil, Chile, and parts of Malaysia and Indonesia, private investors have demonstrated their ability to respond to profitable opportunities. The increase in plantation establishment during the last decade, which was noted in Chapter 2, was mainly financed from private sources and shows the scope for market-based approaches to wood production. In situations such as these, highly desirable investment opportunities may be available that, within the Bank Group, can be pursued by the International Finance Corporation working with the private sector. Similarly, harvesting operations will seldom present financial needs that private capital cannot meet. An important exception can arise, however, where significant investment is required to upgrade harvesting equipment to meet higher environmental standards, such as the Bank is financing in Poland and envisages in Albania and the Slovak Republic.

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Financing Sectoral Development and Public Goods

Public expenditure is needed in the forest sector, however, because private capital is unlikely to, or cannot, respond to the wide range of sectoral problems detailed in the policy paper. In countries and regions with severe wood deficits, such as South Asia, the Sahel, and parts of Central America, public investment, including Bank financing for productive undertakings, may be essential to make the forest sector sustainable. Such investment may be needed to demonstrate the viability of forest production (after removing any policy distortions) and to establish the technical and institutional structures to support private forestry. The Bank is now heavily involved in this subset of directly productive forestry activities. In China, for example, by linking investment in resource expansion with policy and institutional reform, the Bank has helped to improve the overall efficiency of the world's largest plantation program and has contributed to the adoption of stiffer environmental standards. In India, where the Bank had, until 1991, focused nearly exclusively on social forestry and fuelwood, it is now seeking to link its support to resource expansion with assistance to policy and institutional reform. In both these cases, as well as in many countries in Sub-Saharan Africa, the Bank's ultimate goal is to help place forest production in the mainstream of self-sustaining rural economic activity.

Public expenditure, including Bank financing, is warranted for public-good activities, typically research and technology transfer, watershed management, forest protection, and parks and protected areas, as well as for protecting the public interest in determining and regulating which forest resources are to be used for what purposes and how. Finally, protection of forest biodiversity and natural habitats are clear cases where concessional finance or outright grants are justified.

Protecting the public interest in forests entails (a) determinating of which areas are to be protected, reserved, or used; (b) promoting improved techniques for resource utilization; and (c) regulating utilization, notably to minimize the damage done by logging. These tasks are particularly difficult and controversial, yet improved use and regulation of forests is essential, not only on efficiency and equity grounds, but also as a necessary complement to forest conservation. The pursuit of improved use and regulation may require policy and institutional changes but will also require improved information and managerial practices by regulators and users alike. Hence, research and resource inventories including land-use assessments will be needed. These kinds of activities warrant public expenditure and Bank support. The Bank Group will continue, however, not to finance commercial logging in primary moist tropical forests.

Financing Reform

In many resource rich countries, especially those of Southeast Asia, Latin America, and parts of Africa, forest use is highly distorted and unsustainable. The systems that have evolved to allocate land and concessions, collect royalties, and manage forest products trade are promoting rapid disinvestment of the natural forest capital stock and impoverishing forest dwelling populations. Under current policy regimes, the rents extracted by entrenched interests are enormous, promote unsustainable resource use, and severely limit the viability of investments in the sector because plantation production can seldom compete with the exploitation of underpriced natural forest areas. Quite apart from concerns about sustainability, full taxation of the economic rent can make an important contribution to overall fiscal management, but governments are often reluctant to move against powerful vested interests. Progress can be made, however, as indicated by the recent excise tax increases in Papua New Guinea and the Solomon Islands.

Consensus about changing forest policies and institutions needs to come from outside the agencies now responsible for forest management. Policy-based lending, policy analysis, and development of local capacities in policy analysis are ways to promote the necessary reforms. All these alternatives expand the range of stakeholders in the reform process and increase local demand for more responsible forest policies. Policy-based lending and the pursuit of policy commitments linked to investment operations seem to have been most productive in situations where there has been strong commitment at high levels and well-developed consensus among many national agencies, such as those responsible for planning and finance, on needed changes (Spears 1994). For example, commitments associated with the Costa Rica Agricultural Sector Investment and Institutional Development Project introduced a policy under which the government's land distribution agency would no longer construct settlements or infrastructure within 10 kilometers of reserved areas, while protecting the rights of occupants of those areas. In the Philippines, under the Environment and Natural Resources Sectoral Adjustment Loan, the government undertook to reform policies related to natural forest areas and forest revenue systems.

A Balanced Portfolio

The Bank's lending portfolio in forestry is striking a much improved balance between poverty reduction, environmental conservation, and production. Having evolved from a narrow focus on industrial plantations, and then a concentration on fuelwood production without much attention to the larger policy context, projects have become more comprehensive and diversified. Much more still needs to be done, however, in targeting the use of forest resources to reduce poverty.

Accounting for Intersectoral Linkages

Because forestry lending accounts for less than 3 percent of total Bank lending, but activities in other sectors can affect forests, attention must be paid to intersectoral linkages. Project designs in a variety of sectors demonstrate the progress made in incorporating concerns for intersectoral impacts on forest resources into operational practice.

The Effects of Operations in Other Sectors on Forests.

Bank policy does not prohibit investment in projects in other sectors that could damage forests, but does direct that potential impacts be assessed, minimized, and mitigated. Wherever possible, the Bank endeavors to avoid forest damage by locating such projects on forest lands that have previously been cleared and to avoid lands that may have been converted in anticipation of financing.

The Bank's environmental assessment process is another key instrument for reducing the effects of projects on forests. Full environmental assessment and detailed mitigation plans are required for all projects that are expected to have significant adverse environmental effects (category "A" projects). Less extensive environmental analysis, but still including definition of appropriate mitigation measures, is required for projects expected to have less significant adverse

effects (category "B" projects). Where initial environmental screening indicates that there are no expected adverse effects, no further environmental analysis is required (category "C" projects). The category of environmental assessment given to Bank projects is influenced significantly by the expected impact on forests. Some 14 percent of the 418 projects under preparation in FY93 were rated category "A". However, of the 91 projects for which forest impacts of any kind were foreseen, nearly twice as high a percentage, 26 percent, was rated "A"". Full environmental assessment work and mitigation planning required by "A" ratings has clearly influenced project design, as illustrated below. For an evaluation of the Bank's overall implementation of the environmental assessment process, see World Rank (1994j).

Agricultural Operations

Agricultural operations other than those in the forestry subsector can have important effects on forestry and forests. Because agriculture is a key alternative source of employment for the growing populations that put pressure on forests, maintaining a strong and effective agricultural portfolio is critical to the Bank's overall effectiveness in the forest subsector. Improving the performance of the agricultural portfolio is a major challenge in its own right, but also one that has critical additional impacts on the Bank ability to meet its goals for forests.

Agricultural adjustment operations typically seek to render the whole agricultural sector more profitable. Increasing agricultural income and employment on-farm can be expected to reduce migration to resource frontiers, which are often forested. While the migration impact would be beneficial for the forest, the net impact of adjustment on the forest will depend on shifts in the relative profitability of cropping, ranching, and forestry. This net impact could go in either direction, depending on the relative severity of the initial commodity-specific distortions to be adjusted. In contrast to crops, and even livestock, however, investment in forestry will not be guided by minor shifts in short-term price. More important to the forest sector are macroeconomic stability, land tenure security, and investors' assessment of long-term comparative advantage. Agricultural adjustment operations can, however, make both intensive and extensive farming more profitable. This may pose a sequencing problem, because an increase in extensive farming can quickly cause considerable forest degradation, whereas agricultural intensification may be a more gradual process. The negative (extensive) impact may well supersede the positive (intensive) impact in the short term, depending on whether or not effective mitigating measures have been taken. The ultimate test of agricultural adjustment operations will be whether more resources are put into on-farm investments and practices that raise productivity, expand employment opportunities, and sustain the resource base.

Agricultural investment operations typically seek to render agriculture more intensive. As agriculture intensifies in low-income countries, labor input will increase unless there arc major distortions in the relative prices of labor and capital, migration will be reduced, and forest conservation will gain. In addition, many Bank financed agricultural investment operations contain forestry activities (see Annex 3), either as explicit forestry components or, increasingly, as part of holistic national programs of research, extension, and natural resources management. Such national programs include Ghana Agricultural Research, Malawi Agricultural Services, and Mali Natural Resources Management. Prominent features of natural resources management projects that are relevant to forestry include (a) local land use planning and management by geographical unit (the microcatchment in Latin America) or by socially operational unit (the terroir) in West Africa, (b) watershed management and reforestation, (c) vegetative methods of water and soil conservation, and (d) natural resource monitoring and assessments. These activities are not necessarily recorded as "forestry," but the interlinkage is clearly positive.

An additional concern regarding agriculture is the extent to which Bank-supported agricultural projects explicitly target forest conservation. Perennial crop projects are good examples of agricultural investments that are intimately linked to forests. Site selection criteria for such projects exclude the conversion of primary forest, but other issues can arise. In the Papua New Guinea Oro Smallholder Oil Plan Development Project, potential oil palm blocks are sited exclusively on degraded grasslands or secondary forest. The latter areas are, however, part of the habitat of the endangered Queen Alexandra Birdwing Butterfly, the largest butterfly in the world. The project therefore includes a screening process to determine the butterfly's habitat value of all land proposed for oil palm development, and uses this value as a criterion for making the final selection of oil palm planting blocks. The project is in its first year of implementation, and oil palm activities are concentrated in the grasslands only pending demarcation of the conservation areas, for which a conservation team has been contracted.

Energy Operations

Energy operations can affect forest resources in a variety of ways. Possible negative effects include the inundation of forest tracts in hydroelectric dam reservoirs, the clearance of forest areas for transmission lines, and the easier access to forested areas created by roads built for energy project construction. Possible positive effects include the provision of more accessible and/or lower-cost energy alternatives to fuelwood and efficiency gains in the use of fuelwood and the manufacture of charcoal. While the Bank's energy portfolio represents a small fraction of total energy investment in the developing countries, the practices and procedures that the Bank follows in anticipating and mitigating potential damage to forest resources from energy projects can have an important impact on how governments and others approach the issues.

The environmental assessment process has proven to be an effective tool for drawing attention to the possible negative effects of energy operations on forest resources and for bringing mitigating or remedial measures into project design. The environmental assessment for the Argentina-Paraguay Yacyreta Hydroelectric II Project prompted the development of an updated, comprehensive resettlement and environmental management plan. Accordingly, the project supports a network of 80,000 hectares of compensatory protected areas, as well as wildlife rescue and relocation to offset the loss of natural ecosystems to the reservoir. Specific provisions to prevent encroachment were also included in the Philippines Leyte-Cebu Geothermal Project. By demonstrating the value of environmental assessments in reducing environmental stress and in improving investment performance, Bank work in the energy sector provides good-practice examples that other agencies can adopt (see, for example, World Bank 1994h).

A good illustration of the positive effects of energy projects on forest resources is the Niger Energy Project. Under this project's household energy component, a new regulatory framework provides incentives for rotational harvesting of fuelwood by local people, supported by better regulated marketing. A fuelwood trade monitoring and taxation system has been developed and applied to demarcated areas around urban localities. Fifty rural fuelwood markets are now operative, with 350 more planned. Fuelwood conservation is also encouraged through support for marketing kerosene stoves. More than 10,000 stoves have been sold, with the responsibility for production and marketing vested entirely in private hands. Similar projects have been appraised in Guinea and Mali, with one in Chad under preparation. Many other projects have also included the dissemination of improved fuelwood stoves. Box 8 summarizes a recent review of these experiences.

Box 8. 
Promoting Fuelwood Efficiency: Lessons on Improved Wood Stoves

Infrastructure Operations

Infrastructure projects can be another source of forest damage. Road construction and the provision of utility corridors, such as power lines, provide easier access to agricultural settlers and loggers, which can lead to accelerated forest degradation and loss. Project design and environmental assessment are increasingly recognizing the possibility of such problems. Potential forest impacts associated with roads and power line projects have, for example, been identified in the India National Highways II Project, the India Powergrid System Development Project, and the Madagascar Energy II Project. In the latter project, power line routings were deliberately chosen to minimize the effects of line construction on forests. At least one proposed infrastructure project, the Malaysia Sarawak Roads Project, was withdrawn from consideration because of issues raised in the environmental assessment process. In another instance, during preparation of the Third National Roads Sector Project in Colombia, environmental assessment work raised concerns that a proposed subproject would contribute to deforestation and have an adverse effect on indigenous people in the area. As a result, this component has been excluded pending additional economic and environmental studies.

In Indonesia, the Bank's increased sensitivity to intersectoral linkages to forest resources is illustrated by environmental review procedures integrated into two rural infrastructure projects. In the Kabupaten Roads and Eastern Indonesia Kabupaten Roads projects, screening procedures have been designed so that prospective subprojects with potential environmental impacts can be identified and subjected to appropriate assessment and mediation. Only subprojects for which negative impacts will be mitigated will be approved for disbursement, and no road works will be eligible for disbursement if they provide access to areas where induced development might have significant indirect environmental impacts.

The Chile Third Roads Sector Project and the Panama Roads Rehabilitation Project both have requirements for individual environmental assessments and, if necessary, subsequent design modification. In the case of the Chilean project, this involved specific assessments and design modifications for S of the 500 subprojects included in the project proposal. The India National Highways II Project involved the adoption of a code of practice that incorporates environmental protection provisions. The Bank is now developing a manual on methods to incorporate environmental concerns, such as deforestation consequences, into infrastructure project design (World Bank forthcoming).

Mining Operations

Another sector in which investment activity can have negative effects on forest resources is the mining sector. Large-scale mining often disturbs soil and vegetation, while small-scale, artisanal mining can increase the demand for fuelwood and industrial wood.

In Brazil, the objective of the proposed Small-Scale Mining Environmental Protection Project is to promote economically viable and environmentally sound mining activity in the Amazon and to strengthen the government agencies responsible for regulation and control of "wildcat" gold, tin, and other heavy metal mining in the region. The project will support an environmental recovery and modernization component in the Tapajos river basin in the state of Para and in northern Mato Grosso and thc collection and evaluation of environmental, social, and health data. The project will also support the development of an improved regulatory framework, define procedures for the recovery and rehabilitation of degraded environments, and help organize social services for groups engaged in small-scale mining. In Mali, the Bank is now working with the government on the preparation of a project that will help minimize the impact of artisanal mining on the country's fragile dry forests.

Macroeconomic Linkages

As macroeconomic policies can have a major influence on environmental behavior, the Bank has undertaken research to examine the environmental consequences of economywide policies. Due to the complexity of poverty-environment interactions, an empirical, case-study oriented approach, was adopted. From the eleven country cases examined, four main findings emerged. The first is that removing major price distortions, promoting market incentives, and relaxing other constraints, which are among the main features of adjustment-related reforms, will generally contribute to both economic and environmental gains. For example, reforms of stumpage pricing practices and land tenure systems not only yield economic gains, but also promote better environmental stewardship.

The second finding is that unintended adverse effects may occur when economywide reforms are undertaken if policy, market, or institutional imperfections persist elsewhere in the economy. For example, reform of energy pricing that includes raising the price of kerosene could exacerbate overharvesting. The remedy is to be sought in specific additional measures to remove those imperfections. Such measures are not only generally environmentally beneficial in their own right, but are also critical complements to the broader economywide reforms.

The third finding is that even short-run adjustment efforts aimed at restoring macroeconomic stability will generally be environmentally beneficial, because instability critically undermines sustainable resource use. For example, as shown in Argentina (World Bank 1993a), inflation retards commitment to long-term investments and severely damages prospects for sustainable forest management.

However, a fourth finding is that stabilization efforts may also have undesirable short-term environmental impacts. For example, and this has been an important forest sector concern in several African countries where forestry was not a high priority prior to stabilization, across the-board reductions in government spending will further reduce availability of staff and funds for forest protection and development programs. This highlights the advantage of targeting budget cutbacks and of bringing environmental judgments into the design of stabilization packages.

The study also found that even though the environmental impacts of economic reform are complex, certain direct consequences of economywide policies are not difficult to identify. Through the tracing of such links, the study identified several practical implications that have already emerged in recent Bank operations. As illustrated in Annex 3, macroeconomic and sectoral adjustment operations approved during the last three years have included special provisions concerning forest issues. Operations in Benin, Costa Rica, Honduras, the Philippines, and Togo addressed land and resource tenure issues; in Honduras, Mexico, Peru, and Sri Lanka, reforestation and resource management activities were included in social adjustment programs.

Yet policy-environment interactions are complex and not all consequences of economywide policies can be anticipated. To follow up the initial research efforts summarized above, therefore, further work on economywide policies and the environment is underway, including another, more in-depth round of country case studies. In addition, on economywide policies and forests in particular, work is in hand as part of ongoing research into the causes of tropical deforestation. Moreover, a forthcoming study on Bolivia (Anderson 1994) finds that the impact of structural adjustment on forestry was mostly to bring informal logging activities into the formal sector, without clear output effects. This study also finds that migration increased after adjustment, but consisted mainly of urban-urban and rural-urban movements rather than movement toward the frontier. These two findings thus do not support the hypothesis that, in the case of Bolivia at least, structural adjustment contributed to deforestation.

Institutional Reform and Participation

The policy paper highlighted the need to reform and redirect forest institutions, to address land tenure issues, and to create a framework in which forest users have a direct role in decisions affecting resource management. The Bank also encourages a more active role for the private sector in forestry and the transfer of some traditionally public sector functions to the private sector. The Bank is mindful, however, that a private sector strategy can exacerbate the problems confronting the sector and can exclude poor people from exactly the kind of expanded involvement that is desirable. In addition, the promotion of participatory systems of resource management has not been guided by a clear analytical framework, thereby creating significant uncertainties as to how benefits from forest resources should be allocated and conflicts between users resolved. The Bank's approach to institutional reform and development in the forestry sector is still evolving. Nevertheless, two characteristics are prevalent in its work: institutional reform to improve forest- governance and, linked to that, innovative institutional arrangements and financing mechanisms to deepen the participation of poor people in resource management.

As recognized in the policy paper, an unfortunate reality of the forest sector is that driven by poverty and a lack of alternatives, the rural poor account for substantial damage to forest resources. Without mechanisms to involve forest dwellers and those living on forest margins in the development process, and without providing them with a tangible stake in conservation, some forests may have no chance of survival.

Bank experience has shown that reform of forest governance is essential, and that while it is likely to be a slow and difficult process, it is possible to deepen participation in the governance of the forest sector. In general, when the design of institutional arrangements has actively involved various stakeholders and when agreements were reached between governments and affected groups of stakeholders regarding benefits and management responsibilities, the likelihood of a successful outcome was greatly improved.

Problems of Forest Governance

With one quarter of the world's land occupied by forests, the institutions responsible for forest management exert enormous influence. Unfortunately, as the discouraging trends discussed in Chapter 1 indicate, these institutions are failing. Changes in the perception of the role of forests in recent decades unmatched by changes in forestry departments' behavior have resulted in those departments having programs and structures that do not relate to contemporary needs, and even their well-trained staff have skills of limited current value. Forest management institutions in developing countries are frequently understaffed, with outdated mandates, undefended and politically weak. They often lack the responsibility, accountability, and transparency needed to ensure the effective use of resources as valuable as forests

Forests provide substantial public-good services, implying that a high degree of public sector involvement is both inevitable and desirable. In view of the overall resource constraints facing developing countries, however, governments must focus on those aspects of the sector that only they can undertake, leaving others to the private sector, communities, and individuals. Uniquely public sector responsibilities include policy development, law enforcement, development of standards and regulations, and environmental protection. Beyond plantation forestry and harvesting, activities suitable for the private sector could include infrastructure development, some aspects of research (particularly technological adaptation), and some kinds of resource assessments and monitoring. With appropriate land tenure policies, contracts, supervision, and regulation, the private sector could perform such functions without compromising either environmental values or the welfare of the poor. For examples of the devolution of traditionally public services in the agricultural sector to private suppliers see Mali 1992 and Mali and Schwartz 1994.

In Belarus and Poland, Bank work is directed at expanding the role of the private sector in harvesting and thinning and reducing the fiscal drain caused by inefficient state logging enterprises. In both cases provisions are made for the strict enforcement of environmental standards and other performance requirements. In Indonesia, work is continuing on the development of private sector forest management planning for concession areas and on the use of commercial inspection services to audit compliance with concession terms.

Obstacles to Institutional Change and Conflict Resolution

Several constraints stand in the way of changing the way forests are governed, including government agencies' reluctance to share management responsibilities, local groups and intermediaries that are unorganized and not yet capable of dealing with complex management decisions, conflicting interests that make consensus or agreement difficult to achieve, and powerful social classes that can dominate decisionmaking. Nevertheless, several countries have initiated major reforms to provide an appropriate legislative and managerial framework for stakeholder empowerment and participation in decisionmaking processes. Examples of reforms undertaken during the 1980s include the decentralization of management to forest users or villages (India, Nepal); the deregulation of farm forestry and marketing (Haiti, Indonesia, Kenya, Philippines); and the recognition of tenure and customary rights of indigenous groups (Brazil, Colombia, Peru, Philippines, Zimbabwe).

Along with a growing understanding that participation in the forest sector must extend beyond the mere planting of trees, the need for improved methods of resolving environmental conflict has been recognized worldwide. The range of stakeholders in forest management decisions has broadened as the diversity of forest values has become apparent to policymakers and as new demands for benefits from forest products and services emerge. In many cases these pressures have always existed, but have been largely unrecognized because of the perceived abundance of forests. They have, however, become more apparent with increased competition for the use of particular forest resources, formalization of forest boundaries, concentration of power in government forest management bureaucracies, and exclusion of traditional users. Reconciling divergent interests in the uses of public forests becomes the key task for government forest institutions. Public policy needs to work toward development of a broad social consensus on the purposes and objectives of forest conservation and management. It must also aim to develop a shared set of clear and transparent expectations about the distribution of benefits from the forest.

Distributional Aspects of Public Ownership.

One particular feature of the forest sector that distinguishes it from many others is the high concentration of public ownership, both of land and of other productive assets. A frequent problem with public ownership is that rights are given away without adequate rent capture. At the other extreme of complete private ownership, problems can also arise because the government's regulatory and conservation options are severely limited, as in Melanesia and Papua New Guinea. In contrast to public resource ownership, however, many benefits flow directly to private parties in such diverse forms as rents from industrial concessions, which typically benefit people other than forest dwellers, to nontimber forest products used by poor forest dwellers. The Bank is not neutral to distributional consequences, and it is striving to target benefits from publicly-owned forest resources to the rural poor. To date, however, development strategies in the sector have tended to be oriented toward increasing public revenues, through improved revenue collection or other mechanisms, or have focused on developing means of drawing the poor into forest production on their own lands. The strategies have paid much less attention to the fundamental redirection of benefits from extant public forest lands. There is seldom consensus on who should benefit (or lose) from forest reform and by how much or on the basis of any compensation that might be provided to those adversely affected.

In some circumstances, reallocating public land rights to traditional users or to others may be desirable. The Bank has supported such activities in the Colombia National Resources Management and Philippines Central Visayas Regional projects. Projects in Eastern Europe and Belarus have facilitated the transfer of forest management and harvesting away from inefficient state-owned firms into the emerging private sector. In Algeria, Andhra Pradesh, Kenya, Tunisia, West Bengal, and Zimbabwe, the Bank is supporting innovations in joint forest management that transfer a share of benefits from government to rural communities in exchange for the implementation of agreed management programs. The viability and impact of these promising innovations need to be monitored closely so that positive lessons can be applied more broadly.

Toward Deeper Reform and Participation

Attempts to involve local people in forest resource management must offer them significant increases in income and security. The most dramatic successes in social forestry have been the rapid uptake of private tree planting by small farmers in response to market opportunities and family needs. These kinds of responses have been seen in South Asia, Africa (see Dewees 1993), and Latin America (see Lutz, Pagiola, and Reiche 1994). In many cases, this rapid uptake has been assisted or promoted by government sponsored programs, but more often it has been a spontaneous response to new scarcities and changing prices. The most effective way for governments to assist the tree planting efforts of small farmers is by developing and disseminating well-tested technical packages, ensuring security of tenure through both formal titling and guarantees of traditional land rights, and relaxing the intrusive restrictions on fellings on private lands and log transport. Recent innovations in Bank-financed projects have been geared toward further devolving the management of forest to users, such as fostering industry-farm linkages (Cote d’Ivoire, India, Pakistan); regulating private contracts for reforestation and industrial plantations (Algeria, Andhra Pradesh, Tunisia); and strengthening the public partnership with nongovernmental organizations (NGOs) by recognizing their roles in forest management (Brazil, Indonesia, Mexico, Zimbabwe).

Experience with forest institutions and participation indicates that change will proceed slowly and that Bank support needs to build on a consensus with borrowers on the need for change. The policy paper provided a broad agenda for the Bank’s work on institutions, including promoting greater intersectoral oversight, improving differentiation of public and private sector roles, and enhancing the performance by public institutions of properly public service functions. While the Bank's approach to forest institutions and participation has changed significantly, the broad agenda is largely unfinished: institutions have been strengthened. but not reformed.

Some recent Bank-financed projects are seeking deeper institutional reform. The Andhra Pradesh Forestry Project in India sought to balance the role of the Forest Department's role in managing the sector through the cooperation and involvement of other rural agencies, NGOs, and smallholders and through fostering the involvement of local people in forest management by means of joint forest management. The Maharashtra Forestry Project incorporated institutional change into project design by trying to restructure and rationalize the organization of forest administration. The government undertook to make reforms by including other agencies and institutions, such as NGOs, village panchyats, cooperatives, and the private sector, in forest management. Under the China National Afforestation Project, the Ministry of Forestry created a new management system and organizational structure at the central, provincial, and county levels to design, prepare, and implement the project on more than 1 million hectares. In Tanzania, the Forest Resources Management Project builds upon the Tanzanian tropical forestry action plan to strengthen the capacity of forestry and land institutions, support the development of national land policies, and introduce improved operational planning and extension work in selected regional and district forest services. In Laos, a recently approved project will attempt similar fundamental changes in the institutional framework. The project's objective is to help transform forest utilization by providing incentives for community participation in the management of traditionally controlled land, strengthening forest management in production forests, and extending the system of protected areas. Other projects now under preparation in Argentina, Nepal, and Nigeria will try to introduce innovative institutional approaches to sectoral development.

The Bank is seeking deeper participation through innovative institutional arrangements and financing mechanisms. Innovative institutional arrangements include (a) joint government-private partnerships, such as contract reforestation in the Central African Republic and Cote d'Ivoire and park management by NGOs in Kenya and the Philippines; and (b) joint private-private arrangements between NGOs, firms, and local users (households or groups of households) such as the NGO-assisted Sumba Project in Indonesia, as well as Boscana in Costa Rica and Dzanga-Sangha in the Central African Republic.

The Bank has introduced innovative financing mechanisms in newer forestry projects as it moves away from an exclusive focus on government institutions. Direct grants to nongovernmental entities such as NGOs and village groups (Kenya, Philippines); state administered trust funds for conservation activities (Thailand); and joint state- and locally-administered trusts through multisectoral committees or advisory bodies (Bhutan, Uganda) are examples of mechanisms to channel funds directly to forest users. Greater collaboration has been sought with non-Bank donors, who can sometimes be more flexible in dealing with nongovernmental institutions and in financing field operations (Algeria, Haiti). Some projects have made we of locally-generated revenues from tourism, sales of timber and other products, and royalties to sustain project operations beyond initial start-up periods (Colombia, Morocco, Samoa).

Assessment of the Critical Questions

On each of the critical questions—balance, linkages, and participation—this chapter has indicated that the Bank has made significant progress, but that important challenges remain. The lending portfolio in forestry is striking a much improved balance between the objectives of poverty reduction, environmental conservation, and production. Much still needs to be done, however, in targeting the use of forest resources to reduce poverty.

With the diversity of the Bank’s overall investment portfolio, assuring consistent linkages between all operations and the forest policy will require continued vigilance. Many operations in other sectors influence forest resources. The effects cannot always be anticipated, and monitoring is difficult. Further refinement of environmental assessment methodologies will help, together with dissemination of the increasing stock of good-practice examples.

While the Bank has made substantial progress on some aspects of institutional reform, participation in decisionmaking remains far from adequate. Some good models for local participation in forest management have been identified, together with some innovative institutional arrangements and financing mechanisms to deepen participation in project implementation, but forestry departments are slow to change, and possible alternative institutional models are not yet proven, even in high-income countries. Genuine institutional change, from being simply resource custodians for narrow sectoral interests to acting as agents of sustainable development, remains a challenge for forestry departments and the forestry profession.

World Bank User
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