WDP-75 World Bank Discussion Papers Ecuador's Amazon Region Development Issues and Options James F. Hicks with the collaboration of Herman E. Daly, Shelton H. Davis, and Maria de Lourdes de Freitas RECENT WORLD BANK DISCUSSION PAPERS No. 16. Macroeconomic Policies and Adjustment in Yugoslavia: Some Counterfactual Simulations. Fahrettin Yagci and Steven Kamin No. 17. Private Enterprise in Africa: Creating a Better Environment. Keith Marsden and Therese Belot No. 18. Rural Water SuPPlY and Sanitation: Time for a Chanqe. Anthony A. Churchill, with the assistance of David de Ferranti, Robert Roche, Carolyn Tager, Alan A. Walters, and Anthony Yazer No. 19. The Public Revenue and Economic Policy in African Countries: An Overview of Issues and Policy Options. Dennis Anderson No. 22. Demographic Trends in China from 1950 to 1982. Kenneth Hill No. 23. Food Import Dependence in Somalia: Magnitude, Causes, and FPolicy Options. Y. Hossein Farzin No. 24. 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Adjustment Programs and Social Welfare. Elaine Zuckerman (Continued on the inside back cover.) 7-5~ = World Bank Discussion Papers Ecuador's Amazon Region Development Issues and Options James F. Hicks with the collaboration of Herman E. Daly, Shelton H. Davis, and Maria de Lourdes de Freitas The World Bank Washington, D.C. Copyright C 1990 The World Bank 1818 H Street, N.W Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing March 1990 Discussion Papers are not formal publications of the World Bank. They present preliminary and unpolished results of country analysis or research that is circulated to encourage discussion and comment; citation and the use of such a paper should take account of its provisional character. 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Because of the informality and to present the results of research w.ith the least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to Director, Publications Department, at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and Nvill normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to photocopy portions for classroom use is not required, though notification of such use having been made will be appreciated. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list and indexes of subjects, authors, and countries and regions; it is of value principally to libraries and institutional purchasers. The latest edition is available free of charge from Publications Sales Unit, Department F, The World Bank, 1818 H Street, N.W, Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. James F. Hicks is senior urban finance specialist and Shelton H. Davis senior sociologist, both in the Technical Department of the World Bank's Latin America and the Caribbean Regional Office; Herman E. Daly is senior environmental econormist in the Bank's Environment Department; Maria de Lourdes de Freitas, a consultant to the Bank, is an environmental planner. ISSN 0259-210X Library of Congress Cataloging-in-Publication Data Hicks, James F., 1944- Ecuador's Amazon region : development issues and options / James F. Hicks, with the collaboration of Herman E. Daly, Shelton H. Davis and Maria de Lourdes de Freitas. p. cm. -- (World Bank discussion papers ; 75) Includes bibliographical references. ISBN 0-8213-1501-3 1. Oriente (Ecuador)--Economic policy. 2. Orlente (Ecuador)- -Economic conditions. I. Daly, Herman E. II. Davis, Shelton H. III. Freltas, Maria de Lourdes de, 1938- . IV. Title. V. Series. HC203.075H53 1990 338.9866'4--dc2O 90-32184 CIP FOREWORD Providing support for sustainable economic development is the cornerstone for the World Bank's assistance to its member countries. As part of this assistance, the Bank undertakes studies of the overall performance of these countries' economies, as well as of their key sectors. These provide a basis for the development of country strategies directed to implementing sound policies for sustainable economic development. Prudent management of a country's environment and natural resources, both renewable and non-renewable, is, of course, a primary concern for development policy. When these natural resources are of a special nature and spatially concentrated, national economic development policy may need to be informed by specific regional analyses. Such studies can clarify how regional natural resource management can contribute to national economic development policy. This is the case with Ecuador's Amazon Region. This report was prepared initially to support a dialogue between the World Bank and the Government of Ecuador regarding issues and options for the sustainable development of Ecuador's Amazon Region. Special attention is given to environmental issues because Ecuador's Amazon Region has a very fragile renewable natural resource base, a rich biological diversity, significant native populations, and large, but diminishing, petroleum reserves. Along with these unique regional characteristics, however, certain national trends, especially population growth and migration out of the Sierra and Costa Regions, are creating extraordinary pressures on the Amazon Region, and these present significant threats to the region's social stability and environmental integrity, as well as to its potential to make long-term contributions to Ecuador's economic development. Because of the relevance of, and broad interest in, sustainable economic development within the constraints and trends noted above, the Government of Ecuador and the Bank have agreed to make this report broadly available, presented in the original English and Spanish translation (published as a separate Discussion Paper). It is hoped that publication of this study will provide an example of how Bank/member country dialogue may contribute to improved decision-making before policy options are severely constrained and reach crisis proportions. In addition, and more importantly, we hope that this study can contribute in a modest way to the important discussions and decisions within Ecuador regarding the role of the Amazon Region in the nation's development. Through the present study, the World Bank is pleased to contribute to the national dialogue regarding measures to enhance the sustainable development potential of the Amazon Region. A clearer understanding of the region's development issues and options, together with an enlightened public debate, should result in improved formulation and implementation of public policy for the nation and the region. S. Shahid Husain Regional Vice President Latin America and the Caribbean The World Bank - iii - PREFACE This report is based partially on the findings of a mission that visited Ecuador in November 1988. The mission comprised the following members: James Hicks (Sr. Urban Finance Specialist, LATIE, and Mission Leader); Herman Daly (Sr. Environmental Economist, ENVDR); and Maria de Lourdes de Freitas (Environmental Planner, Consultant). Mr. Shelton Davis (Sr. Sociologist, LATEN) collaborated through an earlier mission and assisted in preparation of the material on native communities. The study also benefitted significantly from work prepared especially for it by the Fundacion Natura under contract with the World Bank. The Fundacion Natura is a not-for-profit NGO dedicated to promoting the rational use of Ecuador's natural resources, and its report, "Development Policy Issues for Ecuador's Amazonia", was prepared during the January to April 1988 period. The Fundacion Natura's report served as the focus of an in-house Bank seminar in July 1988, and as a baseline study for the November 1988 mission. Of course, the present report is the exclusive responsibility of the World Bank. An earlier version of this report was delivered to the Government of Ecuador in June 1989, and preliminary discussions on it between Bank staff and government officials took place in July 1989. In November 1989, in-depth discussions between a Bank mission and a broad representation of government officials were held, and agreement to present the study as a public document was reached. This report presents a rather broad analysis of the Amazon Region within the framework of Ecuador's national economic development. This results from a conscious decision to emphasize national/regional policy linkages in this study. As with all efforts, this work was influenced by constraints, and as a result, analyses of more specific sectoral issues and options are not presented here. These will need to be the object of future economic and sector work. - iv - TABLE OF CONTENTS Page No. GLOSSARY OF ABBREVIATIONS ............................................. vii EXECUTIVE SUMMARY ...................................................... ix CHAPTER I. GENERAL CHARACTERISTICS OF THE AMAZON REGION A. The Region in National Perspective ............................. l Population .....................................................1 Employment .....................................................1 Public Sector Organization and Provision of Services ...........3 B. Unique Regional Features ....................................... 5 Biological Diversity and Fragility ............................. 5 Native Populations ............................................. 6 Petroleum Development .......................................... 6 C. National Policy for Regional Development .......................7 CHAPTER II. ASSESSMENT OF THE REGION'S CURRENT SITUATION AND TRENDS A. Methodology ................ : ................................... 8 B. Directly Productive Activities .................................9 Petroleum and Mining ........................................... 9 Agricultural Production ....................................... 10 Cattle Production ............................................. 14 Forestry ...................................................... 14 C. Land Settlement ............................................... 16 D. Native Populations ............................................ 17 E. Public Infrastructure and Conservation Areas .................. 19 CHAPTER III. DEVELOPMENT ISSUES AND POLICY OPTIONS A. Develoment Issues ............................................. 21 The Concept of Carrying Capacity .............................. 21 Carrying Capacity Applied to Human Populations ................ 21 Carrying Capacity of the Ecuadorian Amazon .................... 22 Scenarios of the Region's Development ......................... 22 B. Regional Policy Options ....................................... 24 Regional Petroleum Development Policy ......................... 24 Regional Land Use Policy ...................................... 24 Institutional Policy .......................................... 25 C. Specific Recommendations ...................................... 25 Population and Carrying Capacity .............................. 25 Petroleum and Mining Developments ............................. 26 Natural Resources Policy ...................................... 27 Agriculture and Forestry ...................................... 27 Transportation ................................................. 28 Native Communities ............................................ 29 Biodiversity and Protected Areas .............................. 29 Municipal Development ......................................... 29 - v - TABLES Table 1.1: Regional Population, 1974, 1982, 1990 ...............2 Table 1.2: Regional Employment Indicators, 1982 ................ 4 Table 1.3: Petroleum Reserves .................................. 7 Table 2.1: Productive Agricultural Land, 1983-1986, and Production Volume, 1986 ........................ 11 Table 2.2: Agricultural Productivity, Amazon vs. National Average, 1985, 1986 ....................... 12 Table 2.3: Soils of the Amazon Region ......................... 13 Table 2.4: Forest Coverage of the Amazon Region, 1978 ......... 15 Table 2.5: Protected Areas of the Amazon Region, 1978 ......... 20 ANNEXES 1. Ecuador - Native Populations and their Organizations .......... 30 2. Ecuador - Summary of Principal Legislation Affecting the Amazon Region ............................................. 35 BIBLIOGRAPHY ........................................................... 39 MAPS IBRD 22047 Population Distribution IBRD 22048 Settlement Frontier IBRD 22049 Potential Use of Local Soils IBRD 22050 Fertility of Soils IBRD 22051 Forest Areas IBRD 22052 Oil Exploration and Exploitation vs. Natural Reserve Areas IBRD 22053 Regional Provinces IBRD 22054 Physical Regions - vi - GLOSSARY OF ABBREVIATIONS AIMA Asociacion de Industriales Madereros del Ecuador (Ecuadorian Assoc. of Wood Producers) API American Petroleum Institute BNF Banco Nacional de Fomento (National Development Bank) BP British Petroleum BRASPETRO Petrobras Distribuidora (Brazilian Petroleum Distributors) CEDIG Centro Ecuatoriano de Investigacion Geografice (Ecuadorian Center for Geographic Research) CEPAR Centro de Estudios de Poblacion y Paternidad (Center for Study of Population and Responsable Responsible Parenthood) CONAIE Confederacion de Nacionalidades Indigenas del (Confederation of Indian Nationalities Ecuador of Ecuador) CONFENIAE Confederacion de Nacionalidades Indigenas de Ia (Confederation of Indian Nationalities Amazonia Ecuatoriana of the Ecuadorian Amazon) DIGEMA Direccion Nacional de Medio Ambiente (National Environment Directorate) DINAC Direccion Nacional de Avaluos y Cadastros (National Directorate for Land Appraisal and Cadastres) DINAF Direccion Nacional Forestal (National Forestry Directorate) FAO Food and Agriculture Organization IERAC Instituto Ecuatoriano de Reforma Agraria y (Ecuadorian Institute for Agrarian Reform Colonizacion and Land Settlement) INCRAE Instituto de Colonizacion de la Region Amazonica (Institute for Settlement of Ecuador's Ecuatoriana Amazon Region) INEC Instituto Nacional do Estadistica y Censo (National Institute of Statistics and Census) ORSTOM Organization Francaise de Recherche Scientifique (French Scientific Research Organization Pour le Development et Cooperation for Development and Cooperation) PETROECUADOR Empresa Estatal Petrolero del Ecuador Ecuadorian State Petroleum Company UNEP United Nations Environment Program USAID U.S. Agency for International Development PRONAREG Division de Regionalizacion Agraria/MAG (Agrarian Regionalization Division) RAE Region Amazonica Ecuatorians (Ecuadorian Amazon Region) - vii - EXECUTIVE SUMMARY 1. Why single out a national region for specific analysis as part of the Bank's country economic studies? The need to undertake this special regional study is based on the following observations: (a) Ecuador's Amazon Region has several unique features, among which are the extreme fragility of the region's natural resources, its rich biological diversity, its significant native populations, and its large, but diminishing, petroleum reserves; and (b) Certain national trends, especially population growth and migration out of the Sierra and Costa Regions,1 are creating extraordinary pressures on the Amazon Region, and these present significant threats to the Amazon Region's potential to make long- run contributions to Ecuador's economic development. Unique Characteristics of the Amazon Region 2. Ecuador's Amazon Region presents very special characteristics, some of which may be considered constraints, others unique opportunities. Perhaps the foremost characteristic that conditions the range of options for the region is the extreme fragility of the region's natural resources. With few exceptions, the tropical rainforest is based on extremely fragile soils with very complex, and easily depleted, nutritional systems. With careless economic and land use management for the region, these resources may be forever destroyed. 3. The region also offers extraordinary and unique biological diversity. Much of this diversity is not yet documented, and the economic and commercial potential for the region and the country (and, indeed, for all mankind, in the case of pharmaceutical breakthroughs, for example 2 ) may be considerable. This potential may remain unknown and lost forever if the tropical rainforest is permanently destroyed through inappropriate land use. 4. The region is also home to approximately 85 thousand to 100 thousand native peoples that have retained a relatively autonomous life style. Over the past years, some of these indigenous groups have remained isolated; others have retained their cultural identity while incorporating some services (e.g., education, health care) offered by the broader Ecuadorian society. The opportunity for preservation of cultural choice (including sophisticated ecological knowledge and resource management strategies) for the Amazon's native populations is another of the region's unique characteristics. 1 See Map IBRD 22054, located at the end of this report. 2 Approximately one-fourth of the pharmaceuticals in use in the U.S. today contain ingredients originally derived from wild plants. - ix - x The Amazon and National Economic Development 5. This report presents a rather broad analysis of the Amazon Region within the framework of Ecuador's national economic development. This approach is based on the observation that isolated policy analyses that focus narrowly on a region of concern generally result in policies that are (a) wrong from a national development perspective and/or (b) ignored, unless the region in question has decisive political influence.3 6. This choice of study scope has costs and benefits, of course. On the cost side, some specific sector recommendations presented here may need to be detailed in future economic and sector work. As a benefit, the broad analysis sharpens the difficult trade-offs (in space, among economic activities and over time) that must be faced by national decision makers in considering development issues and policy options for the Amazon Region. In summary, policies and actions conceived and i.mplemented at the regional level are necessary but far from sufficient. If the Amazon Region is to have a long-term, positive effect on the nation's economic development, then a national perspective in the analysis of issues and policies (e.g., population pressures, sustainable land settlement, rational use of resources) is indispensable. These are summarized below. National Trends and Issues for the Region's Development 7. Ecuador's total population is estimated at about 10 million people, of which some 350 thousand currently live in the Amazon Region. The growth in national population is estimated to be between 2.5 and 3.0 percent per annum; this means that Ecuador's toL-al population will approximately double over the next 25 to 30 yea:-s if current trends continue. The rural areas of the Sierra and Costa Regions already are experiencing net emigration because of demographic pressures, ecological deterioration and droughts. Thus, urban areas and the Amazon Region would appear to be logical "escape valves" for demographic pressures. However, it is clear that the Amazon Region can make only a very limited contribution to solution of the national population problem because even if the Amazon were populated to the same density as of all of Ecuador, it would absorb less than four million people, a figure far beyond its carrying capacity, yet much below the projected increment of 10 million additional Ecuadorians over the next generation (25 to 30 years). 8. In spite of these limitations, the Amazon population has been growing at almost 5.0 percent per year. If this trend persists, and the fragility of the Amazon Region's natural resources is not properly recognized, the Amazon Region may be projected to absorb a significant part of the next generation's population growth. Furthermore, under existing, and currently foreseen technology, rapid population growth in the region founded on agricultural, cattle, timber and mining activities would result in: (a) irreversible loss of the region's renewable and non-renewable 3 See J. Friedmann and W. Alonso, "Regional Development as a Policy Issue", Regional Development and Planning. (Cambridge: The MIT Press, 1964), pp. 1-7. - xi - resources and of their potential to produce regional and national economic benefits; (b) diminishing returns of economic activities over time as the fragile resource base is depleted; (c) social conflicts between indigenous and migrant populations; and (d) eventually, reverse migration as people must abandon the then resource-poor Amazon Region, thus contributing to even greater population pressures in non-Amazon Regions. 9. If the results noted above are to be avoided, policy and actions at the national and regional scales are required. At the national level, policies directed at (a) expanding economic opportunities (and therefore population carrying capacity) country-wide, but especially in the Sierra and Costa Regions, and (b) reducing the national rate of population growth, are indicated. These would require a long time to show significant effects, however. In the meantime, other national efforts would be necessary, and one, or a combination, of the following may be explored as a preferred alternative to rapid agricultural settlement of the region: (a) significant increases in productivity of existing agricultural areas located in the Sierra and Costa Regions; (b) expansion of agricultural areas outside the Amazon Region, especially the Costa Region; and/or (c) significant expansion of the urban labor market in the Sierra and Costa Regions. 10. In addition to the national measures noted above, regional policies and options, designed to give an opportunity for the region to reach its long-run development potential, may be explored. Chief among these are: (a) a regional petroleum development policy that is consistent with a national natural resource management policy founded on sustainable development; (b) regional land-use policy that strictly adheres to prudent environmental standards and that represents a responsible trade- off between (i) the country's short-term needs for economic stabilization and growth, and (ii) longer-term sustainable development of the region's natural and human resources; and (c) strengthening of the institutions, national and regional, that are primarily responsible for the region's land-use and infrastructure standards and implementation, moving from a sectoral perspective in which regional development concerns are concentrated in the Ministry of Agriculture, to an institutional framework that recognizes that the Amazon Region's contribution to sustainable national development should be incorporated into broader national development policies and decisions. - xii - Report Organization 11. The rest of the report is presented in three chapters. The first two chapters present general characteristics of the Amazon Region and an assessment of the region's current situation and trends. This summary and the last chapter, Development Issues and Policy Options, present the study's major conclusions and normative suggestions. Finally, there are two Annexes, one presenting a more detailed description of the region's native populations and their organizations, and the second, a summary of national legislation especially relevant to the region's development. I. GENERAL CHARACTERISTICS OF THE AMAZON REGION A. The Region in National Perspective Population 1.01 Ecuador's Amazon Region (RAE) is comprised of four Provinces (Napo,1 Pastaza, Morona Santiago and Zamora Chinchipe -- see Map IBRD 22053, located at the end of this report), with a population estimated at approximately 350 thousand, about half of which lives in Napo. The region's population density is only two inhabitants per km2, compared to about 60 for the rest of the country. Thus, although the RAE accounts for almost half of Ecuador's total territory, its population represents only about four percent of the country's total. 1.02 Although the RAE still has a very low population density, it has recently experienced a high rate of population growth. Over the 1974-82 period, the region's population grew at 4.9 percent per year, versus 2.5Z for the country as a whole. The Province of Napo's population grew 8.0 percent per annum over the period, and several of its municipalities recorded double-digit annual growth rates (Table 1.1). 1.03 This fast population growth has been fueled primarily by in- migration to the region. As of the last census year, 1982, almost half (47 percent) of RAE's population was born outside the region, with two-thirds of these immigrants coming from the Sierra Region (UNEP, 1986, pp. 38-39). This strong migration pressure has been relatively recent, with 70 percent of the total immigrants to the RAE in 1982 having established residence there after 1972 (Fundacion Natura, 1988, pp. 10-11), when significant petroleum development began. Employment 1.04 From the national perspective, the region's economy is dominated by the petroleum industry, which produced an average of almost 90 million barrels per year during 1980-85. This production was concentrated in Napo Province, coming from 700 thousand ha. of concession areas. The national petroleum monopoly, PETROECUADOR,2 manages the overall production, and it may do so either alone or through consortia. By the end of 1987, almost three million ha. were under exploration in 11 blocks located in Napo and Pastaza Provinces by PETROECUADOR in consortia with international petroleum companies (Map IBRD 22052). 1/ In January 1989, the Province of Napo was subdivided, with the southern portion retaining the Napo name. The northern part of the former province, comprising the Cantones oa Gonzalo Pizarro, Lago Agrio, Shushufindi, Putumay and Sucumbios, is now the Province of Sucumbios, with Nueva Loja (Lago Agrio) as its capital. Because all of the data for Napo Province available for this report refers to the pre-1989 provincial boundaries, all subsequent references to Napo Province refer to these past boundaries. 2/ The Ecuadorian State Petroleum Company changed its name from CEPE (Corporacion Estatal Petrolera Ecuatoriana) to PETROECUADOR (Empresa Continued on next page - 2 - Table 1.1: ECUADOR - REGIONAL POPULATION, 1974, 1982,- 1990 Region, Population Density Growth Population Province, 1982 per/km raLtes projection County ('000) 1982 1974-82 1990 ('000) AMAZON 263.8 2.0 4.9Z 407.3 NAPO 115.1 2.2 8.02 192.1 Tena 22.1 4.6 4.4Z 36.3 Archidona 15.0 - 2.9Z 20.7 Aguarico 3.2 0.2 1.3% 4.0 Orellana 29.2 3.0 14.32 42.3 Putumayo 3.1 3.5 14.5Z 5.1 Lago Agrio 23.9 - 15.0Z 47.8 Quijos 9.2 3.0 1.5% 13.3 Sucumbios 5.5 1.1 5.7Z 8.4 Shushufindi - - 14.2 PASTAZA 31.8 1.8 3.9Z 44.4 Pastaza 27.6 1.0 4.4% 39.3 Mera 4.1 5.1 0.9% 5.1 MORONA SANTIAGO 70.2 2.9 3.5Z 99.4 Morona 23.7 2.0 6.3Z 37.1 Gualaquiza 10.5 4.0 2.8? 14.2 Limon-Indanza 10.7 4.1 0.1Z 14.0 Palora 5.4 2.0 3.0 7.6 Santiago 7.6 2.9 1.9Z 9.6 Sucua 12.3 6.5 3.0Z 16.9 ZAMORA CHINCHIPE 34.9 3.4 4.41 71.5 Zamora 21.6 6.8 4.4% 35.2 Yantzatza 13.3 - 20.7 Chinchipe 8.7 2.3 1.9% 11.6 Yacuambi 3.0 2.3 3.7Z 4.0 SIERRA 3,799.6 58.7 2.2Z - COSTA 3,994.2 59.1 2.5% GALAPAGOS 6.1 0.8 4.9Z - ECUADOR 8,072.7 29.8 2.5Z 10,781.6 Source: Fundacion Natura, 1988, p.7 Continued from previous page Estatal Petrolero del Ecuador) through Special Law No. 45, of September 26, 1989. 1.05 From the perspective of employment generation within the region, however, the petroleum industry is basically an economic "enclave" with few backward or forward employment generation linkages. Factor inputs, including materials and labor, predominantly are imported into the region, and skilled, as well as semi-skilled, labor live almost exclusively in petroleum camps during their "shifts" in the region, leaving their families, and most indirect employment generation potential, outside the region. 1.06 Although the RAE accounts for less than four percent of the country's total employment, it contributes a disproportionately high share of national employment in the primary sector: 5.6 percent in agriculture and related activities; and 23 percent in mining, including petroleum extraction. This comparison of regional concentration of employment by sector is conveniently summarized through Location Quotients, defined for this analysis as the share of a given sector's regional employment in a region's total employment divided by the total sector's share in total national employment. 1.07 Analysis of regional Location Quotients indicates a relative concentration (Quotient greater than one) of Ecuador's primary sector employment (Sectors 1 and 2 of Table 1.2) in the RAE. From the perspective of sectoral contribution to total RAE employment, however, mining contributes a very small proportion (2.2 percent) of total regional employment. The sectors that provided the most regional employment in 1982 were agriculture (56.4 percent) and houcing services (22.5 percent). Recently, however, regional agriculture and housing services employment have experienced rather dramatic shifts: down from 68 percent of total regional employment in agriculture in 1974 to 56 percent in 1982; and up from 15 percent in housing services in 1974 to 22 percent in 1982. These shifts in employment are reflected in the region's increased urbanization, with RAE urban population increasing at 12.2 percent per year over the 1974-82 period, compared to an increase in national urban population of 5.1 percent per year. Public Sector Organization and Provision of Services 1.08 Although not formally having a federal system of government, Ecuador has a significant proportion of its total public sector services provided by sub-national governments, primarily denominated Provinces and Municipalities. These accounted for 2.6 percent and 9.2 percent, respectively, of total public expenditures in 1987. Although the Central Government dominates total public expenditures, municipalities have significant, formal responsibilities, including water, sanitation, solid waste management and land use. 1.09 There has been a notable increase in the number of sub-national governments. From 1974 to 1987, there wzs a 40 percent increase in the number of municipalities (108 to 150), and in March 1989, total municipalities numbered 162. Although municipalities legally are supposed to have an economic and fiscal base sufficient for substantial municipal autonomy, this frequently has not been the case in newly formed municipalities, resulting in either a substantial financial burden on the Central Government in order to provide basic municipal services or a lack of these services. In fact, municipalities of the RAE are noteworthy for their general lack of basic municipal services, especially in the sanitation area (Fundacion Natura, 1988, pp. 19-20). Table 1.2: ECUADOR - REGIONAL EMNPLOYMENIT INDICATORS. 1982 E MP LO0Y ME NT ('000) I ~~~~A ma z on Reag io n II ----- ---- ---- ----- -------- ---- ----- ---- ---- ----LOCATION QUOTIENTS 21 I ~~~~~Morons Zamora : Regional Column I Sierra Column I Costs Column National Column ---------------- SECTOR INapo Pastaza Santiago Chinchipe SulbTotal % Region I Region I Total I/ 1 Amazon Sierra Costa 1. Agricult., Silviculture .III Cattle, Fishing, Etc. j 18.5 4.0 13.2 8.2 43.9 56.41 401.8 34.51 335.8 30.81 781.5 33.51 1.68 1.03 0.92 Row I 5.61 51.41 43.01 100.01 2. Mining I 1.1 0.1 0.1 0.4 1.7 2.21 3.0 0.31 2.7 0.21 7.4 0.31 6.88 0.81 0.78 Row 1 23.051 40.51 36.51 100.01 3. Manufacturing I 1.2 0.6 0.7 0.4 : 2.9 3.71 168.9 14.51 113.9 10. 51 285.7 12.31 0.30 1.18 0.85 Row 1 1.01 59.11 39.91 100.01 4. Construction I 1.8 0.7 1.2 0.7 : 4.4 5.71 86.1 7.41 66.9 6.11 157.4 6.81 0.84 1.09 0.91 Roe I 2.81 I 54.71 42.51 100.01 5. Co-mrce (Retail, Trans- .III port. Finance. Etc.) I 2.4 0.9 1.1 0.6 : 5.0 6.41 174.6 15.0 ox 233.7 21.51 413.3 17.71 0.36 0.85 1.21 Rc.. % 1.21 42.21 56.51 100.01 6. Housing Services 6.8 3.6 4.0 3.1 17.5 22.51 274.9 23.61 259.5 23.811 551.9 23.71 0.95 1.00 1.01I Roe 1 3.21 49.81 47.01 100.01 7. Others I 1.3 0.3 0.5 0.3 2.4 3.11 55.8 4.81 76.0 7.01 134.2 5.81 0.54 0.83 1.21 Roe 1 1.81 41.61 56.61 100.01 8. TOTALS I 33.1 10.2 20.8 13.7 : 77.8 100.01 1165.1 100.01 1088.5 100.01 2331.4 100.01 1.00 1.00 1.00 R-e % 3.31 50.01 46.71 100.01 1/ Excludes Galapagos. 2/ Defined as LQOu - (Rij/Rj)/(Ni/N) where: LOU = Location Quotient for Sector i in Region j; RU = Emnploynment in Sector i in Region j; Rj = Employm.ent in .ll sectors of Region j; Ni = Employment in Sector i in the Nation and N = Employment in all sectors in the Nation . SOUARCE: Employment data presented by Fundecion Nature, 1988, p. 13, based on INEC, 1982 data. B. Unique Regional Features 1.10 Although the RAE has numerous ;haracteristics that make it unique, three features stand out as conditioning its development options: biological diversity and fragility; native populations; and petroleum production. Biological Diversity and Fragility 1.11 The term biological diversity (or biodiversity) refers to the variety and variability among living organisms and among the ecological systems in which they occur. Diversity is demonstrated by the relative number of interacting ecosystems, taxa, genetic systems, and their abundance within a geographic area (Cabarle, et. al., 1989, p.3). 1.12 By any standard, Ecuador in general, and the RAE in particular, are characterized by extraordinary biological diversity. Although Ecuador has a land area approximately equivalent to that of the State of California, its number of plant species is estimated to be between 20,000 and 25,000, compared to some 17,000 for all of North America. Animal diversity is also impressive, with 2436 terrestrial vertebrate species estimated in 1988. This compares to 1394 for the continental United States and accounts for 55 percent of all such species estimated for the Tropical Andes Region, and 25 percent of the known species for all of Latin America and the Caribbean (Cabarle, et. al., .1989, pp.3-4). 1.13 The potential contribution of this biological diversity to Ecuador's economic development appears to be considerable but currently not quantifiable in reasonably precise terms. Potential economic benefits currently are unknown in many cases, but appear to be most promising in modern tropical forest management,3 pharmaceutical products and tourism. However, in almost all cases it appears that a reasonably long planning horizon will be necessary if the biological diversity present in the RAE is to produce national economic development benefits. This presents a potential dilemma for national development policy, as many areas of national concern are perceived to be quite urgent, thus leading to a potential neglect of the longer-term benefits of rational exploitation of the region's natural resources. In economic terms, taking advantage of the region's biological diversity may be relegated to a very low national priority if the nation's social time preference is very short, or, in other words, if its economic discount rate is very high. 1.14 The dilemma regarding timing of resource development is compounded by the fragility of the region's resources. Contrary to temperate climate forests, the region's tropical rainforests are founded on soils that generally are poor for uses other than forest maintenance. Furthermore, if 3/ A study undertaken by North Carolina State University and financed by U.S.AID indicates that forest production investments in Ecuador produce real (not considering fiscal incentives) financial rates of return in the range of 6 percent to 12 percent. The study included the Cordia Alliodora, Schizolobium Parahyba and Tectona Grandis species in the Amazon Region. See Ian McCormick, ed., Analisis Economico de Inversiones en Plantaciones Forestales en Ecuador, (Quito: AIMA, 1987). - 6 - the region's rainforests are destroyed in order to make way for other land uses, with current levels of technological knowledge, this destruction would be largely irreversible. Thus, large-scale conversion of the tropical rainforest to alternative uses for short-term gain may result in the permanent loss of the long-term economic potential offered by the region's diverse natural resources. Native Populations 1.15 The region's native population is estimated to represent between one-third and one-forth of its total population, some 85 to 100 thousand people. This population is composed of six native groups that have retained a relatively autonomous life style, with the Quichua and Shuar groups representing about 85 percent of the total. 1.16 Prior to significant petroleum development in the RAE, the government's policy toward the region's Indians was effectively to delegate their acculturation to missionary groups. More recently, with development of the region's petroleum reserves, official policy has shifted to integration of the native populations into the national society, primarily through agricultural land settlement policies. As a response to this national policy, native populations have organized themselves into regional federations such as CONFENIAE, calling for state recognition of native culture, land rights and resource control. For additional information on native populations and their organizations, see Annex 1; for their geographical distribution, see Map 22047. Petroleum Development 1.17 Essentially all of Ecuador's lnown petroleum reserves are located in the RAE. As of June 1988, proven and developed petroleum reserves were estimated at about 1,100 million barrels (World Bank estimates). At the current production rate of about 310,000 b/d they would last for about 10 years. After the discoveries of the late 1960s and early 1970s, exploration was neglected. As a result of the ].ack of new discoveries and increased extraction, reserves declined rapidly to a low of about 880 million barrels at the end of 1983, reducing the reserves-to-production ratio below 10. Since 1983, this ratio has recovered. In addition to proven and developed reserves, official sources classify another 40 million barrels as probable. Finally, it is estimated t:hat Ecuador has important additional reserves of heavier crudes, which should be studied for use early in the next century (see Table 1.3 below). It must be emphasized that all figures are estimates and there is always considerable uncertainty present in estimating probable and possible oil reserves. Recovery costs are likely to be an increasingly important cons:ideration as most of the recent discoveries are small separate pools of crude and of average (15-25 API) or higher (8-15 API) densities. 1.18 Development of the petroleum industry has opened up the region to other economic activities. The primary determinant in the spatial occupation of the region has been the road network constructed primarily to build and service the petroleum fields, pipelines, and transformation areas. Although primarily designed to support the petroleum industry, this transportation network has made viable significant migrations to the region. The region's migration patterns and land settlement are discussed in paras. 2.23 to 2.27 below. Table 1.3: ECUADOR - PETROLEUM RESERVES Million Barrels Proven Reserves (developed) 1,100 Proven Reserves (not developed) 40 Probable Reserves 700 Total 1,840 Source: World Bank estimates, June 1988. C. National Policy for Regional Development 1.19 Ecuador's policy for development of the RAE is based essentially on the Law for Settlement of the Amazon Region (Ley de Colonizacion de la Region Amazonica; see Annex 2). This Law has the status of "special law", meaning that it takes precedence over any other legislation pertaining to the same matter. It establishes that settlement of the RAE should be encouraged as an urgent national priority, and that the Ministry of Agriculture's Institute for Settlement of Ecuador's Amazon Region (INCRAE) is responsible for formulating settlement policy and for providing settlers with legal land titles through the Ecuadorian Institute of Agrarian Reform and Land Settlement (IERAC). 1.20 As will be noted below (para. 3.32), the present study concludes that Ecuador's land settlement policy for the RAE is fundamentally flawed. However, at least Ecuador has not established other policy instruments that could make the situation worse. For example, Ecuador does not have (as in the case of Brazil) credit or tax policies that favor certain regions, and it does not have regional development authorities or banks. 1.21 The Government of Ecuador app¢-rs to be reassessing its policy to promote significant land settlement in the RAE. For example, in late 1988, the Government created an inter-ministerial commission for the RAE. Although the commission's membership favors the Ministry of Agriculture,4 the inclusion of mining, energy and forestry representatives is an indication that consideration of the region's development options is going beyond that of settlement frontier, and this is an encouraging step. 4/ The Commission is composed of representatives from the following: Ministry of Agriculture -- Regional Subsecretary for the Amazon, IERAC, DINAF and INCRAE; Ministry of Energy and Mining -- PETROECUADOR and DIGEMA. - 8 - II. ASSESSMENT OF THE REGION'S CURRENT SITUATION AND TRENDS A. Methodology 2.01 Assessment of the region's status and trends is based here on the assumption that sustainable development is a fundamental goal of the Ecuadorian society, with sustainable development defined as one that "optimizes the economic and other societal benefits available in the present, without jeopardizing the likely potential for similar benefits in the future" (Goodland, 1987). 2.02 From the perspective of economic prograrmning and evaluation, this definition of sustainable development may be sta1:ed as a constrained objective function:1 Maximize the present value of the region's contribution to national income, subject to the following constraints: (a) preservation of cultural choice for the region's native populations; and (b) preservation of the region's biological diversity and renewable resources so that the region may contribute significantly to national income over many generations. 2.03 The maximization expression could apply to almost any region or sector of any country; the constraints focus concern on the Amazon Region's unique characteristics. The first constraint, of preserving cultural choice, clearly is a normative statement outside of generally accepted economic concerns. Emphasis is on preservation oi' choice, and over time this may become a more or less binding constraini:, depending on the degree to which the native populations choose to become integrated into, or remain as distinct cultural groupings within, the larger society. The second constraint is more within traditional economic analysis and reflects the concern with inter-temporal time preferences. Because of our limited knowledge of precisely how, and when, the region's biologically diverse resources may contribute significantly to econom:ic development, preservation of these potential development inpul:s requires a long planning horizon. Placing this preservation as a constraint effectively forces the "present value" criterion to include a relatively low discount rate; it may be interpreted as a "shadow price" for preserving options for future generations. 2.04 In the sections below this general methodological framework is used for assessing the current status and trends of the RAE's directly productive activities, land settlement, and native populations, as well as of the public sector's activities in the region. 1/ In order to focus on the key regional development variables of this analysis, the objective function presented is highly simplified, specifically "assuming away" for discussion purposes additional constraints such as the production function, budgetary limitations, and inter-personal and inter-regional income distributions. - 9 - B. Directly Productive Activities Petroleum and Mining 2.05 Following the discovery and development of important reserves in the late 1960s and early 1970s, petroleum cecame the main element in Ecuador's energy balance and an important source of growth, foreign exchange earnings and fiscal revenues. Although the benefits of petroleum development have been largely national in impact, many of the costs have been concentrated in the Amazon Region. The financial costs of the region's petroleum industry appear on the balance sheet of PETROECUADOR and/or its affiliates and development partners. The economic costs are concentrated in the region, and they frequently have negative impacts on the objective function's constraints. When these negative impacts are not assessed, however, the overall economic development impact of the activity may be much less favorable than is possible and desirable. 2.06 Substantial economic costs of the region's petroleum industry do not appear to be adequately considered in the industry's production and pricing decisions; these costs may be classified in two broad categories: direct and indirect. The industry's direct, generally not measured, economic costs may be summarized according to its production cycle, as follows. (a) During the petroleum production phase, water systems surrounding extraction sites frequently are devastated through uncontrolled petroleum drainage pools and emulsion processes. (b) During the petroleum transportation phase, external costs result from leakages or major spills that may be produced from poor maintenance, from natural disasters such as earthquakes or landslides,2 and from sabotage. 2.07 Although the direct economic costs resulting from the region's petroleum industry may be significant and may result in distorted economic decisions, they appear to be small when compared to the industry's indirect economic costs. Direct costs may be classified in generally known categories, and with sufficient effort in data gathering and analysis, these costs may be estimated and used with some confidence in decision- making models. In turning to evaluation of the indirect costs of the region's petroleum industry, however, the picture is quite different: explicit value judgements are equally important yet much less clear. For example, it is clear that the road networks built to support petroleum development have provided an essential pre-condition for much of the region's land settlement. As noted in paras. 2.20-2.22 below, this settlement is resulting in significant, and apparently irreversible, destruction of the tropical rainforest and its rich biological diversity. 2/ These have occurred at least twice. First, more than 30 km of the Trans-Ecuadorian Petroleum Pipeline was destroyed by the March 1987 earthquakes. The emergency reconstruction of the pipeline was financed by Loan No. 2803-EC. In May 1989, another spill resulted from landslides that apparently were caused by heavy rains combined with deforestation. - 10 - Evaluation of this indirect cost requires a judgement on the absolute value of the benefits expected (but not guaranteed) to be received from these resources, as well as a judgement (social time preference) on the relative value of short-term, generally certain, benefits to be received from immediate land settlement versus the long-term, uncertain, benefits to be received from preserving the region's biologically diverse resources. 2.08 In planning for a society with many urgent, material needs, it is understandable that arguments calling for evaluation of biological diversity based on stochastic models with wide ranges of benefits' probabilities have a very limited appeal. In contrast, petroleum development offers immediate, predictable benefits for which the most influential social groups are clamoring. Thus, it appears evident that petroleum development will continue in the Amazon Region for at least another generation. For the region's longer-term contribution to national income, it appears that the best that may be achieved is to develop the petroleum industry with a minimum of irreversible destruction of the region's renewable resources. 2.09 Mining is another sector for which the region's potential is being identified. Mineral reserves appear to be concentrated in the region's watersheds, and include: metallic and non-metallic ores; radioactive ores; raw materials used to prepare cement, ceramics, carbon and oil products, and glass; and precious and semi-precious stones. Of particular concern is artisan mining of gold in the region's rivers; if undertaken without proper safeguards, this may result in dangerous mercury pollution, with damages reaching beyond the borders of Ecuador. This problem is shared by Ecuador's Amazon Basin neighbors, and significant gains may be achieved through joint research and action plans. Agricultural Production 2.10 The area devoted to agricultural production in the RAE has boomed. Between 1983 and 1986, the area under production doubled for the region as a whole, with a greater than three-fold increase in Napo Province (Table 2.1). This production may be classified in three broad production systems (Fundacion Natura, 1988, pp. 43-44). (a) Traditional subsistence systems -- Common to most indigenous groups, these systems are characterized by hunting, fishing, food collection and itinerant farming. As the region has been opened to settlers, with more area put into producl:ion, this system has been threatened and in some areas replaced by cattle ranching and sedentary agriculture. (b) Corporate plantations -- These are located in Napo province and are primarily monoculture plantations, especially of palm oil and tea, using relatively capital-intensive cnd chemically based (fertilizers and pesticides) cultivation methods. (c) Mixed systems -- Practiced mainly by the settlers, these systems generally include three activities on the "family farm": vegetable garden for household consumption; a pasture area; and an area devoted to cash crops, primarily coffee, naranjilla and cocoa. * 11 - Table 2.1 - ECUADOR: AMAZON REGION PRODUCTIVE AGRICULTURAL LAND, 1983-1986, AND PRODUCTION VOLUME, 1986 Crops 1983 1986 (Z change) Prod. Vol. 1986 (ha) (ha) (metric tons) rice 491 300 -39% 291 kidney beans 411 1,500 +264Z 813 hard corn 8,487 14,700 +73% 13,332 sweet potato 673 n.d. -- n.d. potato (papa china) 3,612 n.d. -- n.d. manioc (yuca) 6,421 8,200 +27% 48,734 bananas 995 3,100 +211% n.d. citrics 648 400 * -38% n.d. naranjilla 2,404 n.d. -- n.d. papaya 402 n.d. -- n.d. ananas (pina) 198 n.d. -- n.d. plantain 3,402 8,600 +152% 89,083 oil palm 400 7,700 +1825% 105,350 cocoa 1,080 6,300 +483% 1,712 coffee 19,202 38,700 +101% 63,806 tea 284 n.d. -- 28,315 sugar cane 3,414 n.d. -- n.d. total: RAE 53,088 106,000 +99% Napo 19,646 65,300 +232% Pastaza 6,775 7,900 +16% Morona-Santiago 20,191 17,000 -15% Zamora-Chinchipe 6,476 15,800 +143% * Only oranges Source: Fundacion Natura, 1988, p. 39 2.11 Although the RAE accounts for only some five percent of Ecuador's agricultural production in volume terms, it is a significant producer of several crops, including tea (100% of national production), naranjilla (79%), "papa china" (43%), manioc (41%), papaya (16%), palm oil (16Z) and coffee (14%). In terms of the value of agricultural production, the RAE contributes some seven percent of the national total. This production is highly concentrated in three crops, coffee, plantain and manioc, that account for about 85 percent of the region's total value of agricultural production. - 12 - 2.12 Agricultural productivity in the Amazon generally is lower than in other regions (Table 2.2). However, the region appears to offer a slight comparative advantage in some commercial and cash crops, especially palm oil, coffee and plantain. Table 2.2 - ECUADOR AGRICULTURAL PRODUCTIVITY, AMAZON vs. NATIONAL AVERAGE 1985, 1986 (metric tons per hectare) Crops AMAZON REGION NATIONAL AVERAGE 1985 1986 1935 1986 rice 1.74 1.00 2.70 2.50 kidney beans 0.51 0.50 0.60 0.50 hard corn 1.07 0.90 1.70 0.30 potatoes 6.80 4.60 4.70 -- manioc (yuca) 6.66 5.90 10.30 5.90 plantain 9.87 10.40 13.80 9.90 oil palm 18.14 13.70 13.40 15.00 cocoa 0.36 0.30 0.50 0.30 coffee 0.52 1.60 0.28 1.20 tea 7.14 -- 7.10 5.90 bananas 9.07 9.10 30.20 20.70 Source: Fundacion Natura, 1988, p. 42 2.13 National policy and public investments i-or the region send mixed signals to the sector. On the one hand, national policy has encouraged agricultural settlement of the region (see paras. 2.23-2.25). However, public infrastructure has been focused on support: to the petroleum industry and generally has lagged behind population growth.3 Thus, new agricultural production areas have followed the petroleum transport network, and this has produced agricultural settlement patterns frequently not in harmony with the region's soils and productivity potential (see Table 2.3 and Maps 22048, 22049, and 22050). 3/ Although the RAE accounts for three to four percent of the nation's population, it received on average less than two percent of national public sector investments in the agricultural sector during the 1981-84 period. - 13 - Table 2.3 - ECUADOR: SOILS OF THE AMAZON REGION Notes on Use Area Terrain Order Sub-Order Great Group Soil Type Potential 1. Settlement piedmont inceptisols andepts hidriandepts ashy, water low fertility frontier (Idl) retention>100% 2. Lago Agrio alluvial inceptisols andepts distrandepts volcanic projec- medium fertility plains (Id3-If3) tions; recent ash 3. N-E of alluvial inceptisols tropepts eutropepts sedimentary, recent, limited use Lago Agrio plains (Ig2-HO) fine clay, lime, due to water sandy; swampy saturation 4. Lower basin, hilly inceptisols tropepts distropepts sedimentary, low fertility; in between (If2) ancient, red, com- compactation rivers pact clay, shallow, risk high toxic Al contents 5. Center-east; hilly, inceptisols tropepts distropepts sedimentary, recent, very low fertilit mid-plateau; plateau (If3) clay, compact, compactation Pastaza, poorly drained, high risk Bobonaza A toxic Al contents Curaray 6. South, broken entisols/ orthents/ troporthents/ sandy, severly very low fertilit Santiago £ hills inceptisols tropepts distropepts eroded Morons heads (Es4-Ifl) 7. South, broken inceptisols tropepts distropepts sandy, severly low fertility Zamora river hills (Ifl) eroded 8. River edges flood- enceptisols aquepts tropaquepts sedimentary, high fertility plains (Ial) alluvial clay over seasonal use organic horizon Source: Fundacion Natura, 1988, p. 22. - 14 - 2.14 The new agricultural settlers have tended to produce the same crops, using the same basic technology, as they did in their regions of origin (Costa and Sierra), and this technology frequently leads to rapid depletion of the region's generally poor soils. Recent studies on soil erosion (CEDIG, 1986) identify both natural and human influences on soil deterioration in the region. In the more recently settled areas, soil erosion was identified as potential or active, with the probability of active erosion increasing with the settlements' age. In the areas settled for longer periods, and concentrated near the urban areas of Zamora, Puyo, Tena, Baeza and the valleys of Nangaritza, Upano, Puyo and Tena, erosion is active, with substantial soil compaction and some land slides. Technical assistance for improved soil management in the region has not been available on a significant scale. Cattle Production 2.15 Cattle production has grown significantly in the RAE, and it may soon supplant agriculture as the region's largest, non-petroleum, productive sector. The number of hectares of pastureland increased by 22 percent (to 483 thousand ha.) over 1983-85, and the number of heads by 47 percent (to 340 thousand) over 1983-86. 2.16 Although low levels of animal nutrition and health care technology result in the region's relatively long animal growth periods and large pasture requirements, the expansion of the region's cattle production may be attributed to the following main reasons (Fundacion Natura, 1988, pp. 49-51). (a) Conversion of forest area to pasture use has been used as sufficient evidence of productive land possession that is consistent with land tenure legislation (see Annex 2); and pasture land generally has been developed at lower mit costs than agricultural land. (b) Generally inadequate transportation support to rural development areas makes the marketing of all products risky, but cattle can be moved from farm to market on foot, slowly buit predictably. (c) Cattle production generally requires less labor than agriculture. (d) Urban centers of the country are growing rapidly, with increasing demand for meat. (e) The Government has provided preferential credit to cattle production through the Banco Nacional de Fomnento. Z.17 Thus, cattle raising presents several financial advantages for production. However, significant economic costs are associated with cattle production, including deforestation and soil compaction and erosion. These costs generally are higher than those of rotational agriculture. Forestry 2.18 There are no reported forest plantations in the region. Thus, all of the RAE's forest resources are natural, predominantly tropical moist forests (Table 2.4). - 15 - Table 2.4 - ECUADOR FOREST COVERAGE OF THE AMAZON REGION, 1978 Forest Surface Mean Annual Mean Annual Altitude Types area (ha) temp.(cent) precipt.(mm) Range (m) -Tropical Moist forest 6,750,000 >23 2,000-4,000 100-600 -Tropical wet forest 230,000 >23 >4,000 100-600 -Pre-montane rain forest 360,000 18-22 >4,000 600-2,000 -Pre-montane tro- pical wet forest 1,850,000 18-22 2,000-4,000 600-2,000 -Pre-montane moist forest 970,000 18-22 1,000-2,000 600-2,000 -Tropical dry forest 150,000 >23 1,000-2,000 0-600 Total 10,310,000 Source: Fundacion Natura, 1988, p. 27. 2.19 Information regarding the current status and trends for the region's forest coverage is spotty and incomplete. It has been more than a decade since a field survey was conducted on land occupation, and estimates of more recent trends vary greatly. For example, estimates of the Amazon Region's contribution to the nation's forest industry wood supply have varied from eight percent, based on 1982-83 data (UNEP, 1986, p. 20), to 40 percent, based on a 1987 survey (Cabarle, et. al., 1989, p. 55). 2.20 Estimates of deforestation vary widely, but all provide concern. Cabarle, et. al. (1989, p. 8) cites estimates that 75,000 ha. of lowland forests are being cleared annually. All estimates indicate a significant deforestation that could lead to a total depletion of closed forests as soon as the year 2030. 2.21 Approximately two-thirds of the region's forest area has been assigned to private firms for timber production. To the extent that these firms act in accordance with the policies expressed by their representative body, AIMA, however, they do not appear to be the chief contributors to - 16 - deforestation. Rather, some of these firms have demonstrated a concern with the long-term sustainability of the region's forestry production through rational tropical forest management (KcCormack, 1987). The primary contributors to the region's forest depletion appears to be the settlers (UNEP, 1986, pp. 20-21), as well as those timber extraction firms that do not follow their Association's guidelines. In clearing new land for agricultural and/or cattle production, relatively little of the forest's resources is exploited commercially, and almost no provision is made for replenishment. Rather, the forest resources of the settlement frontier (Map 22048) tend to be used on-site, locally for construction purposes, and/or destroyed. 2.22 Deforestation of the Amazon represents a significant waste of natural resources. These resources are being depleted, perhaps irreversibly, with a potentially huge opportunity cost over several decades, and with very few compensating short-term economic benefits. C. Land Settlement 2.23 Migration to the Amazon from the Costa and Sierra regions has been significant since the 1960s, and encouraged by national policy (see para. 1.19 and Annex 2). The explanation for this migration may be found in two broad categories: socioeconomic and geo-political (Fundacion Natura, 1988, pp. 31-37). At the core of the socioeconomic explanation is the perception of the Amazon region as a huge area with almost infinite resources. This makes the region an excellent "escape valve" for socioeconomic imbalances in other regions; it offers a "land without people' to 'people without land". Thus, the Amazon has been viewed as a natural frontier apt for absorbing people displaced from traditional areas because of the nation's general population growth pressure, technoiogical changes requiring less rural workers per area of productive land, business cycle downturns and/or natural disasters, such as prolonged droughts. This perceived frontier vocation has been enhanced significantly by the petroleum boom, especially beginning in the 1970s, that has resulted in road networks, designed for support to petroleum development, but that also have served as the natural locational determinants of land settlement by the migrants. 2.24 The perception of the Amazon as an "escape valve' also has had appeal for geo-political reasons. First, a continued high rate of population growth could be maintained without major social upheavals, at least in the short-term. Furthermore, frontier settlement has been perceived as contributing to national security, as unoccupied land in remote areas has been viewed as a risk to the nation's physical integrity. 2.25 Thus, the socioeconomic needs of the migran: have been perceived to be met at a relatively low cost. Public forest land was converted (generally into areas in the range of 10 to 100 ha.) to the settler's ownership if he presented evidence of agricultural and/or cattle production, according to the provisions of 1978 Law :Eor Settlement of the - 17 - Amazon.4 Although not meeting rational land use criteria, transportation infrastructure was provided to the settlers at little marginal cost, as settlers took advantage of the petroleum industry transportation network. 2.26 Initially, this settlement policy produced a relatively homogenous size distribution of land settlement. In the mid-1970s, the Gini Coefficient for land settlement (percentage distribution of rural land units by size categories vs. percentage distribution of rural land by size categories) of the Amazon was 0.36 vs. O.te for the Sierra and 0.63 for the Costa. However, with longer tenure in the region, the settler has encountered numerous, unanticipated difficulties. Among these are poor soils, with a propensity to erosion, and market demand for more commercially oriented products, such as cattle and palm oil. These difficulties probably have resulted in an increased concentration of land in fewer, larger property owners (Fundacion Natura, 1988, pp. 34-36). 2.27 In summary, data provided by the Military Geographical Institute indicate that 23 percent of the region's land has been legalized by IERAC, 15 percent is designated as conservation areas, three percent as native territories, 10 percent are new settlement areas and 49 percent has unknown or unclassified use (including military installations and indigenous areas; see UNEP, 1986, pp. 55-57). Although precise data sufficient to evaluate this land settlement pattern are not available, it is illustrative to compare actual use with the PRONAREG/OSTROM classification of land use zones (see Map 22049): areas that should be protected and with soil and other natural conditions that indicate only limited, low density land use is appropriate account for 86 percent of the region's territory; three percent should be protected from any use; six percent may have unrestricted use; and information is insufficient to classify five percent of the region's territory (UNEP, 1986, pp. 58-65). Although these data should be interpreted cautiously, there appears to b'o a serious imbalance between settlement areas (some one-third of the region's territory) and areas that may provide sustainable production under existing technology (perhaps five to 20 percent of the region's territory). D. Native Populations 2.28 The major problem faced by the indigenous groups of the Amazon region, and one which has created tension between the government and the native communities, is that of the recognition, titling and protection of native lands. The reasons for such land tenure insecurity are two fold. First, there is a legal vacuum in Ecuador in terms of native land rights, especially in relation to the indigenous groups who occupy the lowland forest region and whose traditional land tenure and use systems are different from those of the indigenous peasant communities in the Sierra Region. The current legislation on land and natural resources--the 1964 Agrarian Reform Law, the 1978 Law for the Settlement of the Amazon Region, and the 1981 Forestry and Natural Areas and Wildlife Conservation Law- -refers to the land rights of indigenous communities, but within the 4/ In addition to the Law for Settlement of the Amazon, the primary legislation regulating property rights in the Region (as well as the rest of the country) are the laws of 'Unoccupied" Lands and Settlement, and of Agrarian Reform. For additional information, see Annex 2. - 18 - framework of their increasing integration into national agrarian reform, land settlement, and forestry development programs (Ley de Reforma Agraria, 1964; Ley de Colonizacion de la Region Amazonica, 1978; and, Ley Forestal y de Conservacion de Areas Naturales y Vida Silvestre, .1981). 2.29 Under current law, the lands occupied by indigenous communities in the eastern part of the country are classified as tierras baldias ("unoccupied lands"5 ) and are subject to state ownership and regulation. The Ecuadorian Institute of Agrarian Refoz_ and Land Settlement (IERAC) is supposed to set aside and title such lands in the names of indigenous communities, but only if they organize themselves in ways which are similar to those of non-Indian settler populations (i.e., into cooperative organizations) and agree to convert their lands to pasturage or other "productive" purposes (MacDonald, Jr., 1984). 2.30 The second reason for the insecure land tenure situation of the lowland indigenous communities is the frequent shifts which have taken place in state policies toward these communities and their organizations. Government policies, especially of agencies such as I]