wrJPo ItaZ WORLD BANK TECHNICAL PAPER NUMBER 182 ASIA TECHNICAL DEPARTMENT SERIES Strategy for Forest Sector Development in Asia FILE Copy Land Resources Unit, Asia Technical Department 01FUR TM~~~~~~~DEVELI EVE N ~~~~~~~~AND TI ico~~~~~ NVRONMI II~~OME d~~E HMSTTU DP n EUELN T RECENT WORLD BANK TECHNICAL PAPERS No. 120 Plusquellec, The Gezira Irrigation Scheme in Sudan: Objectives, Design, and Performance No. 121 Listorti, Environmental Health Components for Water Supply, Sanitation, and Urban Projects No. 122 Dessing, Support for Microenterprises: Lessons for Sub-Saharan Africa No. 123 Barghouti and Le Moigne, Irrigation in Sub-Saharan Africa: The Development of Public and Private Systems No. 124 Zymelman, Science, Education, and Development in Sub-Saharan Africa No. 125 van de Walle and Foster, Fertility Decline in Africa: Assessment and Prospects No. 126 Davis, MacKnight, IMO Staff, and Others, Environmental Considerations for Port and Harbor Developments No. 127 Doolette and Magrath, editors, Watershed Development in Asia: Strategies and Technologies No. 128 Gastellu-Etchegorry, editor, Satellite Remote Sensingfor Agricultural Projects No. 129 Berkoff, Irrigation Management on the Indo-Gangetic Plain No. 130 Agnes Kiss, editor, Living with Wildlife: Wildlife Resource Management with Local Participation in Africa No. 131 Nair, The Prospects for Agroforestry in the Tropics No. 132 Murphy, Casley, and Curry, Farmers' Estimations as a Source of Production Data: Methodological Guidelines for Cereals in Africa No. 133 Agriculture and Rural Development Department, ACIAR, AIDAB, and ISNAR, Agricultural Biotechnology: The Next "Green Revolution"? 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Forests and forestry-Asia. 2. Forests and forestry-Economic aspects-Asia. 3. Forest policy-Asia. 4. International Bank for Reconstruction and Development. I. International Bank for Reconstruction and Development. Asia Technical Dept. Land Resources Unit. II. Series: World Bank techiical paper ; no. 182. III. Series: World Bank technical paper. Asia Technical Department series. SD219.S77 1992 333.75'095-dc2O 92-23512 CIP -iii- Foreword More than perhaps any other sector, forestry captures the interrelationships betweern economic growth, environmental preservation and poverty alleviation. For the World Bank to remain relevant to these development issues in Asia, it must continually reassess and adapt its approach to these problems. The strategy described in this paper reflects the results of just such a process of introspection. Together with the recent World Bank Forest Policy Paper and the Operations Evaluation Department Review of Forestry Lending, this paper lays out the basis for future Bank work in forestry in Asia. Its focus on strengthened and diversified institutions, policy reform and popular participation is already being reflected in Bank operation in this sector. Daniel Ritchie Director Asia Technical Department -iv- LIST OF ABBREVIATION AND ACRONYMS FAO - Food and Agricultural Organization of the United Nations FINNIDA - Finnish Department of International Development Corporation ha - hectare ITTO - International Tropical Timber Organization kg - kilogram m - meter m3 - cubic meter NGO - non-governmental organization TFAP - Tropical Forest Action Plan UNDP - United Nations Development Programme UNEP - United Nations Environment Programme WRI - World Resources Institute Table of Contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii Executive Summary ............... .... vii A. Introduction ........................... . 1 B. Evolution of Forestry in Asia .................. . 2 Performance Indicators . ................... . 2 Forest Area ......................... . 2 Deforestation . . . . . . . . . . . . . . . . . . . . . . . . . 4 Plantation Development .................... . 4 Environmental Services and Biodiversity . . . . . . . . . . . . 5 Wood Consumption ....................... . 5 International Trade ..................... . 7 Overall Assessment ...................... . 7 Problem Typologies ....................... . 8 Economic Externalities .................... . 9 Institutional Failure .................... . 9 Scientific Failure .... . . . . . . . . . . . . . . . . . . 10 C. Forest Policy and Resource Management . . . . . . . . . . . . . . 11 Goals of Forest Policy .................... . 11 Economic Goals .................... . 11 Environmental Goals .... . . . ...... . . . . . . . . 12 Social Goals ........................ . 12 Global Goals .... . . . . . . ..... . . . . . . . . . . 13 Constraints on Forestry Development ... . ..... . . . . . 13 Land Allocation ...................... . 13 Prices and Policies .... . . . ...... . . . . . . . . 14 Conditions in Other Sectors ... . . ....... . . . . . . 16 Sustainability .... . . . . . ...... . . . . . . . . . 16 Forest Management Technologies: Options and Prerequisites . . . 16 Natural Forest Management ................. . 17 Plantation Forestry .................... . 19 Forest Inventories and Management Information Systems . . 23 Reinventing Forestry .... . . . . ..... . . . . . . . . 23 D. Evolution of Bank Lending Programs and Practices . . . . . . . . . 24 Development of Current Regional Portfolio . . . . . . . . . . . 27 Ulnspoken Assumptions ..................... . 27 Reliance on the Public Sector ............... . 29 Acceptance of Poor Technology ............... . 29 A Topical Approach ..................... . 29 Choices Facing the World Bank ................. 29 - vi - E. Strategic Recommendations .... . . . ..... . . . . . . . . 30 The Future Ro:Le of the World Bank . . . . . . . . . . . . . . . 30 The Climate for Investment .... . . ..... . . . . . . . 30 Utilizing P:rivate Sector Capability . . . . . . . . . . . . . 32 Environmental Guidelines .... . . ...... . . . . . . . 32 Improving Market Opportunities ... . . ..... . . . . . . 32 Community Based Management ................. . 33 Monitoring and Evaluation and Project Financed Research . . . 33 Policies and Investment Outside the Forestry Sector . . . . . 34 Global Transfers for International Environmental Protection . 34 Investment Requirements and Priorities . . . . . . . . . . . . . 35 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Boxes Box 1 A Country Typology . . . . . . . . . . . . . . . . . . . . . . . 8 Box 2 Protection of Forest Environments in Tree Crop Projects: Oro Smallholder Oil Palm Development . . . . . . . . 26 Box 3 Investment Priorities in the Forest Deficit Group . . . . . . 38 Box 4 Investment Priorities in the Forest Surplus Group . . . . . . 39 Tables Table 1 Forest Areas and Rates of Change in Asia . . . . . . . . . . . 3 Table 2 Apparent Consumption of Wood Products in Asia . . . . . . . . 6 Table 3 Population Growth, Agricultural Productivity and Demand for New Land in Selected Asian Countries . . . . . . . . . 15 Table 4 Land Area Directly Affected by Selected.World Bank- Financed Projects in Asia ............... . 25 Table 5 Total Lending and Proposed Lending to Asian Countries for Forestry Projects . . . . . . . . . . . . . 28 Table 6 Projected Trends in Asian Forestry and Associated Investment Requirements (1990s) . . . . . . . . . . . . . 36 -vii- STRATEGY FOR FOREST SECTOR DEV'ELOPMENT Executive Summary i. This report recommends a shift in the focus of World Bank support for forestry in Asia 1/ away from reliance on public sector institutions, acceptance of poor quality technical standards and exclusive emphasis on narrow subsectors. Instead, the paper proposes that the Bank move aggressively to improve the climate for investment and policy reform and mobilize political commitment on the need for change through an iterative process of sector analysis, policy dialogue and targeted investment. This strategy, which builds upon efforts already underway, will help the governments of the region put into place the essential institutional and decisionmaking capability to resolve forest land use and allocation problems on an ongoing basis, mobilize and deploy investment and other resources in ways consistent with overall national development priorities, and equitably resolve the conflicts which will inevitably accompany forest development. ii. These proposals are based on a review of the forest situation in the region which show that deforestation is proceeding at a pace of over 3 million ha per year at an economic cost of over US$8 billion, that fuelwood scarcities are becoming increasingly acute, and that loss of biodiversity is reaching unprecedented proportions. Two countries in the region, India and China, which have among the world's lowest per capita consumption of forest products, have already virtually depleted their natural forest resource. Other countries in the region, such as Thailand and Malaysia, which were once major exporters on the world market are now experiencing severe timber shortages which already threaten the viability of their export earnings and domestic processing industries. If present trends continue, within ten years the forest area of the region will have fallen to less than 50 percent of the original area and incalculable losses will have been incurred in the region's bioadiversity. Above all, there is a growing crisis of confidence in the ability of existing forestry institutions to effectively and productively manage this important resource. International agencies, including the World Bank, have not proved very effective in improving this situation and need to review their approach. iii. The report shows that this poor performance results from three basic and interrelated sets of problems; economic, institutional and scientific. Divergences between social and private costs are a central feature of forestry, virtually all environmental concerns can be characterized as examples of economic externalities. However, while management of external costs should be among the principal tasks of forestry institutions, those currently in place in Asia were designed to extract surplus from the land and to act as police forces. Finally, the scientific basis for forest management in the tropics is only just beginning to develop. Forestry lags badly behind agriculture and other sectors of the economy in producing and applying technological innovations that will allow for the sustainable utilization of the natural resource base. 1/ This report refers to countries covered by the World Bank's South Asia and East Asia and Pacific Regional offices. -viii- iv. The report recognizes the range of goals that motivates concern with forestry and highlights the need to make choices within a highly constrained environment. Pursuit of economic, environmental, social and global objectives in the face of limited land resources, growing populations, limited employment opportunities, and constrained budgets, has historically taken place at the expense of the forest sector. The policy framework in Asia, as in much of the rest of the world, has been overwhelmingly biased against forestry. Forests, and the goods and services they provide, are systematically undervalued by users and decisionmakers. Across the region policymakers have consistently sought to use foresl: resources for development purposes without providing for the costs of that utilization. v. On the basis of an improved investment climate and with greater borrower commitment, the World Bank can assist countries in the region by enabling an increased role for the private sector in resource management and investment, in expanding the application of improved technologies and environmental safeguards, improving markets and resource rent recovery and in enlarging the role of local communities in forest management. The World Bank can help governments recognize the impact of policies and investment activities outside the forest sector and has already identified critical interventions that can help to stabilize the marginal agriculture that currently threatens much of the regional forest. The Bank continues to play a major role in mobilizing and allocating international transfers in support of conservation of globally important biological diversity. vi. Priority areas of Bank investment in forestry are resource expansion primarily in the wood deficit countries of the region, including plantations and private farm forestry, improved natural forest management and industrial plantation establishment in countries approaching the transition to sustainable forest utilization, and above all in the restructuring of forestry institutions toward a greater emphasis on development, investment performance and public accountability. vii. Any set of actions that the governments of the region and development assistance agencies attempt to undertake will inevitably fail to satisfactorily address all the concerns of all the actors interested in the forestry sector. The World Bank's support to the sector, and its analysis of sector and related Lssues needs to proceed from the premise that unless the fundamental constraLnts described in this paper are seriously addressed, all of the goods and services provided by the forestry sector are threatened. Work also needs to proceed from recognition of the fact that the forestry sector is continuously undergoing changes and development on the basis of its internal dynamics and impacts from other sectors and external factors. Because of this, it is impossible to attempt to immediately identify and resolve all the issues constraining forest development. An ongoing, iterative process of dialogue,, analysis and investment is the only path to sustainable forestry. ASIA REGION STRATEGY FOR FOREST SECTOR DEVELOPMENT A. Introduction Forests are a dominant feature of Asia's environment and its economy. Approximately 635 million ha (34%) of the gross land area of the region is considered forest land, either closed or open, and the export revenue from forest products amounts to well over US$8 billion per year. Growing awareness of the importance of this sector coincides with significant andi far-reaching changes within it. The rate of deforestation is estimated at 1% per year, and in just three countries alone the economic costs of deforestation are estimated to exceed US$8.3 billion per year (para. 18). Once clominant exporters such as Philippines and Thailand have virtually exhausted their forests, and India, historically self-sufficient has become a major importer. The few remaining tropical forests are rapidly diminishing under heavy population pressure. Fuelwood shortages have long been acute in many areas, and the region's biodiversity, found mostly in its moist tropical forests, is disappearing at unprecedented rates. While forestry was once considered a source of industrial wood and land for development, the sector is now expected to contribute to broader economic, social and environmental objectives. The institutional framework for forestry development evolved in the era following independence when management objectives were extractive, when technology was stagnant, when the needs of the poor were neglected and when the ability of the state to deploy resources for development was unquestioned. As a result of this new awareness of forestry's potential, external development assistance to the sector has grown significantly in recent years, and now amounts to over $350 million per year. Development assistance has, however, failed to generate the capacity and commitment necessary for the sector to realize its potential to contribute to a wide range of important development objectives. The forestry sector of Asia is marked by nothing so much as its diversity. Demands on the forest resource range from firewood, to fodder, to industrial wood, to hydrological services, to preservation of biological diversity. Asia's resources include untouched moist tropical forests, temperate forests, severely degraded pasture and wasteland, trees grown on private farms, and rubber, oil palm and coconut estates. These resources are controlled by national and local governments, by corporations, individuals and by traditional clans and kinship groups. The international community is expressing a growing interest in the management of the region's forests and is increasingly being expected to provide concessional resources for preservation and protection. Many of the problems and opportunities, and much of the diversity, in Asian forestry are common to those found in other developing regions. Population growth, institutional problems, environmental degradation and systematic undervaluation of forest resources, have resulted in dramatic deforestation worldwide. Thus, the reforms and investments needed in Asia are not unlike those required in other parts of the world. However, the forestry sector in Asia is set apart by the size of its forest-dependent population, the location of its resources vis-a-vis rapidly expanding markets and trade -2- routes, the relatively larger role of forestry in its economic structure and the human resources that can be mobilized. Asia is also unique in having abundant accessible forest areas in close proximity to areas of rapid economic growth and forest scarcity. Given the level of overall development and mounting weight of demands on the sector in several key countries, the extent of reform over the next 10 years will determine the long-term viability of forestry in Asia. This report reviews the current status of the forestry sector in Asia, proposes typologies for understanding the key problems facing decisionmakers, and analyzes a number of key issues in forest management. The report evaluates the Bank's contribution to forestry development in Asia over the past two decades and explores the assumptions, explicit and implicit, behind its investment policy. Based on the lessons learned, the report proposes a strategy for further Bank involvement in the sector and measurable indicators by which its performance can be assessed. The proposed strategy focuses on building the institutional and decision-making capability for resolving land use and allocation problems on an ongoing basis, mobilizing and deploying investment and other resources in ways consistent with national development priorities, and resolving the conflicts that inevitably accompany forest development. Implementation of this strategy, already reflected in Bank work in Asia, will involve an expanded and ongoing program of sector analysis, reassessment of institutional mechanisms, accelerated application of existing technology, investment in new technology and long-term commitment by governments and donors. B. Evolution of Forestry in Asia Forests are multidimensional resource systems that cannot be adequately captured by individual measures such as area or volume. The changes now under way reflect a similarly large number of competing, complimentary and interrelated interests. Forest area, deforestation, timber use, and biodiversity, while only a few of the important aspects of the region's forests, illustrate the sector's evolution and reveal the underlying economic, institutional and technical forces that result in poor development performance. Performance Indicators Forest Area. Forests in Asia range from deciduous forests on the Indian subcontinent to the moist tropical forests of southeast Asia to temperate forests of northern China and Japan and contain an extraordinary range of biological diversity. By far the largest portion of the resource base is tropical, non-coniferous forest. By 1980, the area of natural closed forest and plantations was approximately 421 million ha, down from an original area of about 725 million ha. Unfortunately, these estimates remain imprecise due to different definitions, methods of analysis and infrequent inventories. Table 1, based on the most recent assessment now available (FAO, 1988), summarizes the distribution in 1980. The data from FAO's 1990 update, -3- TABLE 1 Forest Areas and Rates of Change in Asia (000 hectares) Total TotaL Closed Open Degraded Rate of Rate of PLantation Annual Land Area NaturaL Natural Forest Forest Deforestation Deforestation Area Plantation Forest Forest Area Area (Total (Total Establishment Area Area CLosed Natural Rate NaturaL Forest) Forest) (X) 1/ 2/ 3/ 4/ 5/ 6/ 6/ BANGLADESH 13,390 1,242 927 315 8 0.9 128 17 BHUTAN 4,700 2,370 2,100 40 230 2 0.1 7 1 BRUNEI 590 560 323 237 5 1.5 n.a. n.a. CHINA 932,640 142,777 97,847 17,200 27,730 690 0.6 12,733 4,552 FIJI 1,930 817 811 6 2 0.2 40 n.a. INDIA 297,320 72,082 51,841 5,393 14,848 147 0.3 2,068 138 INDONESIA 181,160 158,155 113,895 3,000 17,360 400 0.3 1,918 131 JAPAN 37,643 13,690 n.a. n.a. n.a. n.a. n.a. 11,590 240 KAMPUCHEA 17,550 13,273 7,548 5,100 625 25 0.2 7 n.a. KOREA 9,820 4,887 4,887 n.a. n.a. n.a. 1,628 67 LAO PDR 23,080 19,360 8,410 5,215 5,735 100 0.7 11 1 MALAYSIA 32,860 25,821 20,996 4,825 255 1.2 26 20 MALDIVES 50 1 0 1 n.a. n.a. n.a. n.a. MONGOLIA 156,500 13,863 9,528 4,335 n.a. n.a. n.a. n.a. MYANMAR 65,770 52,642 31,941 20,700 105 0.3 15 0 NEPAL 13,680 2,461 1,941 180 340 84 4.0 19 4 PAKISTAN 72,830 3,585 2,185 295 1,105 7 0.3 160 7 PAPUA NEW GUINEA 45,180 39,705 34,230 3,945 1,530 22 0.1 22 n.a. PHILIPPINES 29,860 13,030 9,510 3,520 92 1.0 300 50 SOLOMON ISLANDS 2,750 2,480 2,423 17 40 1 neg. 17 n.a. SRI LANKA 6,470 2,727 1,659 1,068 58 3.5 112 13 THAILAND 51,180 16,975 9,235 6,440 1,300 252 1.6 114 24 VIETNAM 32,540 21,190 8,770 1,340 11,080 65 0.6 204 29 TOTAL 2,029,493 623,693 421,007 48,165 116,930 2,319 0.5 31,119 5,295 n.a. Not Avaitable neg. Negligible Sources: FAO (1988) An Interim Report on the State of Forest Resources in the Developing Countries Data for China from Richardson (1990) and World Bank estimates, data for Japan from World Resources Institute (1992) Notes: 1/' World Resources Institute (1992) 2/ Open and Closed Natural Forests and Degraded Forest Lands 3/Forest Fallows and Shrub Land 4/ Deforestation on Closed Forest Formations 5/ Recalculated from FAO (1988) 61 Industrial and Non Industrial Plantations -4- expected to be released soon, should provide a more reliable, but still not completely accurate, picture of areas by forest type and trends in forest loss and plantation development. Area, however, is only a crude indicator of the importance and extent of the forest resource. While India, with 72 million ha, has the third largest forest estate, much of this area is highly degraded and poorly stocked. Considering stocking rates, Indonesia, with 3,160 million m3 of standing volume, is the most well endowed country in the region. Deforestation. By far, the most striking feature of the evolution of the forest resource in Asia over the last twenty years, is its rapid depletion. Loss of closed forest area results from conversion to agricultural use, demand beyond a sustainable level for fuel, fodder and other forest products, and to a much lesser extent, over-logging. The loss of forest area between 1981 and 1985 was estimated by FAO at about 2.3 million ha a year (Table 1). Extrapolation suggests that from 1980-1990 the area of natural closed forest may have decreased 7.5%, or 34 million ha, the decline being especially serious in India, Nepal, the Philippines, Sri Lanka, and Thailand. Preliminary estimal:es from FAO's 1990 update now suggest that "the rate of annual deforestation for 15 countries in the Asia-Pacific region during 1981- 90 was close to 4.7 million ha per year." The World Resource Institute (1991) estimate of regional deforestation is 3.6 million ha per year. However, if it is assumed that deforestation rates held constant in those countries for which "recent estimates" were not available, the regional rate totals to about 3.9 million ha. Although data are contradictory and are not available for some countries, it is likely that the annual regional loss of natural forest exceeded 4 million ha (1.0%). This refers essentially to closed forest with sufficient density to prevent grasses from forming a continuous layer. Other forest areas where trees are widely spaced (open forest), as well as forest fallow and shrub areas which total about 180 million ha, are also being depleted. Plantation Development. Large scale establishment of tree plantations in Asia, as in most of the rest of the world, is a recent phenomenon, and is only now becoming an economically or environmentally significant feature of the forestry sector. Plantation area was about 7% (31 million ha) of the total closed forest area in 1980 (Table 1). Data indicate average annual plantings in the 1980s of just over 5 million ha including establishment of both industrial and non-industrial plantations. These areas do not include regeneration of old forest and may not fully cover smaller non- industrial plantations such as village woodlots. Since 1980 in India and China these have increased significantly: about 4.5 million ha per year by the mid 1980s in China; 8.5 billion trees planted on private land in India and 5.5 million ha on wasteland between 1981-1988 (Saxena, 1989 unpublished; Bhattacharjee, 1989 unpublished; Chambers et al, 1989). The increasing availability and acceptance of wood as a by-product from industrial tree crops, particularly rubber, and their fundamentally similar environmental impacts, means that areas under these crops should also be treated as forest plantation area. In Indonesia, Malaysia and Thailand the replanting of some 150,000 ha of mature rubber plantations will add 27 million m3/year to the region's wood supplies. Due to declining availability of -5- natural forest timber, Malaysia and Thailand have begun using rubberwood in furniture manufacture for export. Each year, Thailand replants 50,000 ha rubber and cuts 9 million m3 of mature trees, of which 1.4 million is considered useful for processing into high-quality wood. Wood from oil palm plantations, which is actually of higher value than rubberwood and more easily processed will add even more to the region's wood supply. By the end of the decade, in Malaysia alone, oil palm plantations will be yielding more than 10 million m3 per year of high quality timber. Environmental Services and Biodiversitv.y Forests also provide other ecological functions such as water and soil conservation, regulation of stream flows, stability of microclimates, recreation and tourism. China, India, Indonesia, and Malaysia are four of the 12 "megadiversity" countries of the world, in which 60% of the earth's plant and animal species are located. In addition, Papua New Guinea and the Philippines are among the countries with the highest numbers of endemic species. The greatest concentration of species is found in the rainforest complex of Southeast Asia which contains about 20- 25% of the earth's plant species and the greatest number of animals in the region. Diversity is also significant in the wet forests in southwestern Sri Lanka, forests of the eastern Himalayas, and the moist deciduous forests of the Western Ghats in India. Although semi-arid forests have fewer species than moist forest lands, they are important sources of potentially valuable genetic material, having developed a variety of physical and chemical defenses against the harsh environment. Conserving some low-diversity systems may be as important as that of mega-diversity systems. Mangroves, for example, are not diverse from a species standpoint but the species themselves and the niches they provide to other species (especially aquatics), may be more important than many species in highly diverse systems. Wood Consumption. Total wood consumption in Asia in 1988 amounted to over 1 billion m3 per year or nearly 0.40 m3/person (Table 2). In comparison to other regions, consumption of wood products in Asia is very low. In China, for example, consumption of wood products (other than fuelwood) is a mere 0.07 m3 per person per year. This translates to less than the amount of wood in 14 copies of a typical North American newspaper. Fuelwood, which accounts for 82% of consumption, is the only product category in which per capita Asian consumption exceeds that in developed countries. Another 205 milLion m3 of wood are consumed in solid form and the equivalent of 48 million m3 is converted to pulp and paper products. Income growth significantly increases demand for forest products, (other than for wood energy) especially for panels, pulp and paper (Hyde and Newmnan, 1991). In the rapidly growing economies of Southeast Asia, this 1/ Eliodiversity and its preservation in Asia is the subject of a separate report entitled "Conserving Biologi-al Diversity: A Strategy for E'rotected Areas," under preparation by the Asia Technical Department, Environment Division. -6- TABLE 2 Apparent Consumption of Wood Products in Asia (1988) Country FueLwood SawLogs Pulpwood ALL Roundwood - mr3/capita 000m'3 m'3/capita 0O0m^3 m^3/capita 0O0m'3 m'3/capita OOOm'3 1/ BANGLADESH 0.26 28504 0.004 467 0.001 69 0.27 29040 BHUTAN 2.10 2946 0.17 233 0.000 2.27 3179 BRUNEI 0.40 79 0.85 206 0.000 1.19 286 CHINA 0.16 177610 0.06 65967 0.008 9117 0.23 252694 FIJI 0.05 37 0.28 205 0.000 0.33 242 INDIA 0.27 240177 0.02 19319 0.001 1208 0.32 260704 INDONESIA 0.76 133989 0.21 36687 -0.004 -729 0.97 169947 JAPAN 0.01 936 0.36 43556 0.304 37314 0.67 81807 KAMPUCHEA 0.65 5110 0.01 110 0.000 0.61 5220 KOREA 0.11 4491 0.20 8384 0.010 400 0.32 13275 LAO PDR 0.76 3569 0.05 179 0.000 0.96 3748 MALAYSIA 0.35 8273 0.85 14437 0.030 513 1.37 23224 MONGOLIA 0.64 1350 0.50 1040 0.000 1.14 2390 MYANMAR 0.43 '17046 0.06 2583 0.000 0.49 19629 NEPAL 0.91 '16828 0.02 434 0.000 0.96 17262 PAKISTAN 0.19 22478 0.01 1113 0.000 0.22 23591 PAPUA NEW GUINEA 1.50 5533 0.67 2480 0.000 2.17 8014 PHILIPPINES 0.54 31759 0.05 3009 0.008 457 0.59 35225 SOLOMON ISLANDS 0.70 210 1.25 379 0.000 1.95 590 SRI LANKA 0.49 8169 0.01 128 0.002 31 0.50 8328 THAILAND 0.55 33602 0.05 2487 0.000 0.66 36089 VIETNAM 0.36 23248 0.03 1660 0.000 7 0.39 24915 TOTALS 0.28 765,944 0.07 205,063 0.02 48,387 0.37 1019394 Sources: FAO, Forest Products Yearbook, 1988. World DeveLopment Report 1990. Note: 1/ Production -7- translates into potential for considerable growth in demand for industrial wood. Based on population trends over the last 10 years, regional population is expected to be 3 billion before the year 2000 and a demand for at least an additional 100 million m3 of round wood per year can be expected. In crude terms, this is equivalent to 7 million ha of plantation yielding 15 m3/ha/year. International Trade. International trade in forest products is economically important for several countries in the region and a significant component of pressures on the resource base. The total value of wood products traded by the region exceeded US$8.25 billion in 1988. Three countries, Malaysia, Indonesia, and the Philippines, have traditionally accounted for the dominant share (92%) of the region's log exports and revenues. All three have now restricted log exports: complete bans in Indonesia and the Philippines while the ban applies only to peninsular Malaysia. Demand for the region's exports is strong in Japan and Europe, and has increased considerably in Korea and Taiwan. In recent years, efforts to increase domestic value-added by promoting local processing have reduced the share of logs and sawnwood in total trade and increased the volume and value in veneers, panels and pulp. Overall Assessment. By most standards the forestry sector of Asia appears to be in crisis. This extends to both surplus and deficit countries (Box 1) and requires urgent attentions. Demands on the resource are growing, whiLe the resource is declining in both size and quality. The forestry sector, in many cases, is also unnecessarily drawing down public resources due to government investment or subsidy for reforestation programs. There is also the failure to extract full economic resource rent; and inefficient subsidy for processing. As in other regions, forest-based industrialization policies in Asia have been both expensive and unsuccessful. While methods of natural resource accounting are being refined and available data are crude, it is stiLl possible to estimate the costs of forest depletion in Indonesia, New Guinea and the Philippines at nearly US$50 billion in the six years between 1980 and 1985 (in constant 1985 prices)./ Without major changes in forest management, wood scarcities and environmental degradation will continue and intensify. By the year 2000, if current trends continue, imports of timber and forest products will cost the region nearly US$20 billion in foreign exchange per year. By the same time the natural forest will be about 50% of the original area and incalculable losses in biodiversity will have occurred. 2/ For a discussion of methodology see Repetto, et. al. (1989). -8- -nt fry Dypo logy T. hSe- 0;dLverjst.ty -tof fforefsXt00 typeSs,: pro blem ad L'nstitutional .structureds is: 4qas :'great within -0 Asia sa itLt s::bise bet n0As ia. and oter rZegions. Within:~ c,ountries, tere: :can also ~be:... enormousvariationsidemand for forestcproducts then environe:nta.l fcons6euenceis ::iof :lvarious:- orestry xxoperations, and social aspects. With in the region, StScountries -je.can be: broadly grouped asthose in forest -.lsurplus aAnd} those iin tforesft jdefficit}. Indones-ia,;Malaysia ons and0 d-0.Piapua t-;New. -Guinea: ,are:. he :mos signi fican examle 6 'of surplust,-- -jlan.d: -$Banglade sh,f Cna, India, B ngdla sh, 0-:XP.aikiEstan .t.0and -:Nepal ;-bof-.t deficit. Several countries notably _Th aiand and -the Philippines-,-0 are rapidly movinginto . the :de:ficit Scategor:y0, gttif they:have not:: done o dalready. category? ifthey have not done.:soal:ready. While:the -.b.road. s.ituation .of. thesecountries well now considerablqe:- cgapsAs remainm in ;0:understanding. Ethe-: 'needs ::-and d-00:ftfI .i-potential:::::ifor efffectively deployinginvestment resources a-.in.- -these counntfries70.f-;Tc vi|eltries.ur.-p....-'-t- In the face of growing populations and lack of alternate employment opportunities, forests cannot withstand the pressures for land, fuel and capital. The most obvious investment option for the sector, plantations, as discussed later in this report, while crucial, can not by itself begin to put the sector on a solid basis. Above all, there is a growing crisis of confidence, both within the region and on the part of the global community, in the ability of existing forestry institutions to manage the resource effectively and productively. This questioning of capability extends to the World Bank and other international organizations and efforts which have attempted to mobilize support for forestry in the region. Problem Tvpologies Poor performance by the Asian forestry sector derives from three basic and interrelated sets of problems: economic, institutional and scientific. Open access, pollution externalities such as increased sedimentation, and policy induced market failures typify the forestry sector in most of the world and are particularly severe in Asia. In addition, the institutional setting for forestry in Asia grew from a colonial style forestry, to a centralized and bureaucratic approach. The resulting perception of forests as marginal low-value resources, combined with an overly -9- centralized approach has proven incapable of promoting sustainable forest development. Finally, technological progress in forestry has been relatively slow, expensive and painstaking and its application often unrewarding. Economic Externalities. Divergences between public and private costs and benefits are central features of forestry. Virtually all environmental concerns can be characterized as examples of economic externalities. Erosion from deforested hillslopes, releases of carbon dioxide from land clearing fires, losses of biological diversity and forest quality from forest conversion and poorly controlled harvesting, all result from undervaluation of the forest and its products. They are excessive because of inefficient markets, imperfectly defined property rights and the absence of alternate coordinating mechanisms. Forest depletion is often exacerbated by weak or inappropriate tenure and a lack of government policies to temper conflicting demands. In such circumstances, market prices fail to fully capture the social costs and benefits arising from the forestry sector and lead to persistent underinvestment and overexploitation. The magnitude of the economic externalities varies by country and has not been reliably estimated for the region. Examples, however, suggest their policy relevance. In the Philippines, uncontrolled logging of one 7,830 ha watershed imposes net costs on the economy in excess of US$43 million (Hodgson and Dixon, 1988) primarily because of damage caused to lucrative fishing and tourism activities immediately below the watershed. In Indonesia, off-site costs of soil erosion from degraded upland forests and rainfed agricultural land on Java may amount to US$75 million per year. Although its globarl economic significance has yet to be determined, it is estimated that, although fossil fuel based emissions dominate the total, the destruction of tropical forests in the Asia region accounts for over 6% of global atmospheric loadings of carbon. The burden of these externalities varies locally and globally, across time and generations, and between producers and consumers. The impacts of open access to forest for fuelwood collection do include lower prices for some consumers, but negatively affects future consumers by reducing the incentives for regeneration. Burning of forests, for example, benefits local laLnd users, at least in the near term, but may come at the shared expense of those subjected to climate change and foregone alternative uses of the forest. Institutional Failure. While management of external costs should be amiong the principal tasks of forestry institutions, those now in place in Asia were designed to act as landlords. On the periphery of both the economy and state concern, following independence, forest lands almost invariably came under state ownership and control. Forestry agencies have not been mandated to involve local people in either the management or benefits of the forest resource. Instead they attempted to administer large estates as a raw material source for large industries. Their accounting systems and procedures are, in general, not appropriate to managing large economic assets, to producing and marketing output, to planning and implementing investments or to introducing technical innovations. With low levels of compensation and 3f The only exceptions are Papua New Guinea and the Pacific Islands whose ownership is vested in clans. -10- limited public accountability, rent seeking became the basis of forest land administration. Despite the shrinking size of the resource, the civil service attached to forestry has grown continuously, with no apparent improvement in sectoral performance. In many countries in the region, legislation and regulation directly and indirectly affecting forestry has proliferated. Intrusive regulations on felling of privately owned trees, log transport, pricing, land ownership and other aspects of forestry pose significant obstacles to responsible private investment. Laws and policies relating to rights of local people and forest dwellers are frequently inadequate and are often overridden by contradictory regulations. Legal obstacles to nongovernment organizations (NGO) are also common and limit opportunities to utilize important means of mobilizing popular participation. Forestry agencies in the region have generally been unable to resist political demands for special treatment of interest groups. Forestry agencies are expected to provide low cost and reliable supplies of raw material to industry, rural employment opportunities to the landless poor and a multitude of other goods and services. Agencies lack the political support and expertise to integrate these multiple, and sometimes incompatible, functions into coherent programs. Conflict resolution and mediation were not anticipated as roles of forestry agencies. Nor was the potential importance of forestry to the akchievement of overall national development objectives or the alleviation of poverty properly understood or even imagined. Finally, at the global level, there is not even an. organization responsible for, or capable of, monitoring the impacts of emerging patterns of forest use. Scientific Failure. The basis for management of the tropical forest as an ecosystem, as well as for production of timber species is only beginning to be understood. Forestry research has lagged behind agricultural research and adoption of new practices, arising from scattered experiments and trials, has been slow. In Asia, outside of China and India, it is estimated that fewer than 1,000 scientists conduct forestry research (Bengston and others, 1988). In India, annual forestry research expenditures are less than 0.01% of the value of forest products. As a result of this underinvestment, forest policy is based on a desperately inadequate understanding of the biological and physical consequences. Furthermore, the likelihood of high quality technology being systematically utilized in forestry operations is small. Unlike agriculture, which is essentially privately owned and operated, the long term nature of forestry and the predominance of state ownership impose different constraints on adoption of improved techniques. Provenance performance evaluation takes a minimum of 10 years. Addressing the implementation of improved natural forest management systems creates uncertainty for government technical staff due to lack of background knowledge, and scarcity of experimental evidence. With uncertain career prospects, it is safer for the forester-bureaucrat to make no change. The latest technical uncertainties in forestry involve the need to more fully take into account multiple objectives, including environmental improvement and income generation for the poor. Overall, slow uptake of new technology in forestry is largely due to poor incentives in the public sector, inadequate knowledge among forestry officials at the policy level, and lack of appreciation of those foresters who do have technical capability. -11- C. Forest Policy and Resource Manaaement Forest policy in Asia, as elsewhere, has to address numerous and oftien conflicting goals: generating revenues and products for industry and urban development, providing land for agriculture, reducing foreign exchange commitments, meeting rising consumer demands for forest products, maintaining adequate forest reserves, poverty alleviation, environmental protection for local and global ends, conservation of unique biodiversity, and protection of the livelihoods of indigenous peoples. The relevance of the World Bank to forestry in Asia will largely depend on its ability to assist governments in adjusting to a rapidly changing economic, political and technological environment and helping them to continually reassess sectoral objectives. This chapter explores the economic, environmental, social, and global goals that shape forestry in the region, considers key constraints, and evaluates promnising investment alternatives for overcoming them. Policy, especially toward wood pricing and land tenure, is the critical determinant of successful forest development. The chapter concludes by identifying the essential features of the changes that are necessary as forestry in Asia enters the 21st century. Goals of Forest Policy The goals proposed for forest policy in Asia are changing rapidly. PopulaLtion growth and rising incomes are increasing demand for forest products. Population growth is also creating demand for agricultural land and for greater employment opportunities in the agricultural sector. Rising incomes, higher levels of environmental awareness and the growth of an urban middle class are also resulting in more widespread concern for environmental values and the distributional consequences of forest policy. Concern outside the region, regarding environmental issues and continued existence of tropical rain f-orests and other ecosystems, as well as global warming and treatment of indigenous peoples, place additional demands on forest policy. Economic Goals Economic goals in forestry encompasses a broad range of objectives. The forest sector provides industrial raw material, firewood for domestic and other small-scale uses, fodder and other non-timber forest products, and recreational and environmental benefits. Many of these products, services and benefits do not enter directly into domestic cash markets or international trade, but clearly have considerable economic importance. For some countries, especially Indonesia, Papua New Guinea and Malaysia, the forest is a significant source of revenue for development and other budgetary needs. Historically, however, the major contribution of forestry to economic growth has been to provide land for conversion to other uses. While experience in many government-sponsored settlement programs and spontaneous settlements suggest that only relatively small areas of high-quality agricultural land remains under forests, considerable areas of forest land are suitable for marginal agriculture. The forest estate continues to be seen as a vrent for expanding populations and as a site for food and cash crop development. There has, however, been a marked change in thinking about the nature of forestry's contribution to economic development in the last 15 years. Starting with recognition of the role of fuelwood in the energy economy, and more recently with research on the economic significance of nonwood forest products, there is a greater awareness of the real economic -12- contributions of the forest and the implications of this diversity for forest management. Environmental Goals. Forestry policies in the region formally recognize the environmental values of forests, in protecting watersheds, fragile soils and wildlife habitat, and in providing visual amenity and recreation areas. In response, most countries have established forest reserves, national parks and protected areas. The total area designated as forest reserve in the region is 19 m ha, or 4.7% of the region's closed forest. While sevieral countries in the region, notably India (30%), Thailand (40%) and China (20D%) have formally adopted percentage goals for the proportion of their land area to be covered by forests (compared with 18, 18 and 12, respectively, at present), in practice these goals have proven difficult to realize. Environmental concerns, while moving to a position of greater prominence on the forest policy agenda, are themselves developing to have multiple and sometimes conflicting dimensions. They include desires to maintain land in its natural state, to avoid monocultures in industrial plantations, and desires to restrict the use of particular silviculture techniques. They are enunciated by forestry officials, the concerned public (both local and international), scientific experts and political activists, often in ways threatening to conservative and often underqualified, forestry bureaucracies. Social Goals. Until the 1970s, the forestry sector was not expected to contribute directly to such broad goals of social policy as poverty alleviation and income distribution. However many projects initiated since this time were designed to deal with the problems of increasing forest degradation and shortages of forest products, especially fuelwood, needed by local people and paLrticularly by the poor. Similarly, recognition that traditional systems; of exploitation have become unsustainable due to population growth and the expropriation of land by outsiders, and that important elements of traditional systems can be adapted for better forest management, accelerated interest in the social aspects of forestry. In many ways, this new emphasis reflects the unique potential of forestry to provide goods, incomes, services and homes to low income people, many of whom have been pushed to the margins of society or otherwise left out of the development process. This is particularly true for the 100 million forest dwellers in Asia who hold traditional rights in forests through customary law. It also reflects a dissatisfaction with, and rejection of, conventional development strategies and the failure of those strategies to equitably distribute development benefits. From a different perspective, recent programs view social forestry as an instrument for the achievement of other forestry objectives, such as the increased supply of industrial products, better management of natural forests, or generation of greater revenues through promotion of non-timber products. These projects attempt to involve local people more directly in the planning and implementation of activities, recognizing that this leads to better performance and enhanced sustainability. For example, devolving responsibility for forest management in state forest lands to local users is becoming recognized throughout the region as an important means to reduce the -13- burden of protecting the forest from local and commercial pressures, while also ultilizing the forests for non-timber as well as timber forest products. Global Goals. A unique challenge to Asian forestry in the 1990s is the inlternational constituency now involved in the policy process. There has been a revolutionary change in the way in which tropical forests are viewed by the global community and in the extent to which these views are being brought to bear on national level policymakers. International interests in forestry are as widely varied in objective and approach as are the advocates of the more conventional domestic interests discussed above. Until recently international interests in tropical forestry, other than for extraction, were confined to a small group of scientists and sportsmen who limited their demands on policymakers to the allocation of relatively small areas for protection, research and tourism. The costs of these allocations and other nonwood uses of the forest by the international community, such as collection of genetic material and medicinal plants, were insignificant. Now advances in biotechnology may be dramatically increasing the value of the genetic material existing in the tropical forest, affecting bothl the incentive to charge for its exploitation and the demand for its preservation. Moreover, within the last ten years, increased environmental awareness, doubts about the performance of development assistance, and the emergence of new global environmental threats, especially the loss of biodiversity and the possibility of global warming, have brought an entirely new and international set of actors into forestry. The political environment in which many of these international interests operate has led, variously, to calls for increased development assistance to developing country forestry through such mechanisms as the Tropical Forest Action Plan (TFAP), to calls for curtailment of international development assistance to the forestry sector base3d on the premise that it abets exploitation, and even to demands for prohibitions on international trade in tropical forest products. Constraints on Forestry Development Development of the forest sector, like other sectors, takes place in the face of limited resources and in the context of an overall national development process. Constraints of particular importance in forestry are availability of land, the framework for mobilizing resources, and the overwhelming way in which policy has neglected the capital value of the forest resource. Finally, while sustainability has always been an implicit concern of forest policy, translating the current emphasis on sustainability into practice is increasingly a major issue. Land Allocation. Forestry competes with essentially every other sector of the economy for land resources. As noted above (para. 32), historically, the forest sector has been, and will continue to be a source of land. Within the Asia region the strongest demands for forest land in the next 20 years will come from agriculture. Table 3 provides a simple analysis of demand for selected Asian countries. Based on recent rates of increase in yields; of major cereal grains, which have been high in much of Asia and will be difficult to sustain, and current estimates of population growth, unless there are significant changes in the share of grain consumption obtained from international markets, a demand for an additional 9.1 million ha of -14- agricultural land can be anticipated.9 In addition, degradation of the currently cultivated land base, if allowed to continue, will further accelerate demand for forest land conversion. Of this, a considerable amount will need to be released from the forest estate. This demand can be offset to some degree by improving agriculture on areas adjacent to the forest. Prices and Policies. A fundamental constraint on forest development in Asia, one shared with essentially every country in the world and for many other natural resource sectors, is the overwhelming way in which policy ignores the opportunity cost of exploiting natural capital. Across the region, and particularly in the resource rich countries of southeast Asia, development policymakers have sought to utilize forest resources for development objectives without providing for the costs of that utilization. Repetto and Gillis (1989) and others have shown that forest based industrialization policies in Indonesia, Malaysia and the Philippines have been based on systematic underpricing timber to domestic processors. In Indonesia alone the costs of this underpricing, and the inefficiency it condones, amount to nearly US$500 million annually. Policies, such as timber export bans and concessional timber pricing, that lower the perceived economic value of the forest, have impacts on both the resource owner and on the consuming industry. Artificially depressed prices redtuce the incentive for forest management and replanting, and, in the case of the public sector, ultimately lead to underfunding of forestry agencies. While possibly promoting industrial investment and growth, low raw material prices are also weak incentives for investment and growth in processing efficiency. Inefficient industries, in turn, subsequently put inordinate pressure on the resource base. In addition to direct intervention in timber markets, a wide range of trade, fiscal and monetary policies can influence results in the forestry sector. Tariff protection is a frequently used device to promote deepened domestic processing. As shown by Repetto and Gillis (1989) tariff protection is analogous to underpricing of timber in terms of promoting processing is analogous to inefficiency. Similarly, restrictions on exports of unprocessed or semi-processed products, common trade measures in the region, lead to inefficient processing and reduce returns to the resource. Policies toward other sectors, perhaps most importantly tree crops and livestock, also frequently impose costs on the forest sector. Low or zero fees for gazing on public lands, which sometimes benefit subsistence herders, also benefit absentee owners of large herds. Similarly, although localized increases in the cost, especially in terms of women's labor, have been widely observed, increases in fuelwood prices are constrained by the growing availability, often at subsidized prices of commercial, fossil fuels. One of the contradictions of the deforestation crisis is the modest impact that deforestation seems to be having on industrial timber prices. In real terms, the delivered price of high quality Malaysia hardwood, delivered to Japan, has risen at an annual rate of approximately 3 percent over the last 20 years. High quality sawnwood prices have risen only about 1 percent per 4/ The analysis assumes that land brought into production will be of lower Table 3: POPULATION GROWTH, AGRICULTURAL PRODUCTIVITY AND DEMAND FOR NEW LAND IN SELECTED ASIAN COUNTRIES Annual rate of growth of Population Average average Agricultural Required growth cereal cereal area Incremental Population rate yields yields (1987) area 1988 1988-2000 (1986-87) (1976-1988) (000 ha) by Y 2000 millions (X) (Kg ha) () 00 ha) a Bangladesh 108.9 2.4 2,177 1.6 9,164 1,319 Bhutan 1.4 2.4 1,591 1 103 27 China 1,088.4 1.3 3,945 5.1 96,976 Fiji 0.7 1.6 2,181 0.9 240 30 India 815.6 1.8 1,627 2.5 168,990 Indonesia 174.8 1.7 3,573 4.5 21,220 Lao PDR 3.9 2.9 5,723 6.6 901 'Malaysia 16.9 2.2 2,670 0.2 4,380 1,697 L Kyanmar 40 2 2,810 5 10,060 Nepal 18.0 2.5 1,600 -0.3 2,339 1,334 Pakistan 106.3 3.1 1,733 1.9 20,760 4,593 Papua New Guinea 3.7 2.2 1,546 0.5 386 125 Philippines 59.9 1.9 1,880 2.8 7,930 Solomon Islands 0.3 3.9 4,000 3.2 57 7 Sri Lanka 16.6 1.1 2.973 4.9 1,887 Thailand 54.5 1.3 2,052 1.3 20,050 Vietnam 64.2 2 2,647 3.4 6,470 Total 2,574.1 371,913 9,133 LA Assumes constant rate of growth of population and cereal, and that land brough into cultivation is 70% as productive as average land now in production. Sources: World Bank (1990) World Resources Institute (1992) -16- year during the same period. These price trends reflect both the under- evaluation of governments and the gradual drawdown of old growth resources, combined with the gradual introduction of lesser used species and the "back stop" effect of supplies of nontropical timber supplies in the United States, Canada, Scandinavian and other exporters (Hyde and Newman, 1991). Conditions in Other Sectors. Forestry is not the highest development priority of most countries of the region. Other pressing concerns divert the attention of policymakers and dilute the commitments that must be made to long term investment in areas such as forestry. More importantly, development, or its absence, in other sectors helps to create or mollify the pressures that degrade the forest resource. Growth in agriculture and industry determines opportunities for landless laborers and hastens their pursuit of land for cultivation along forest boundaries. Similarly, rapidly growing populations, low levels of education and the marginalization of the poor, all make progress in the forestry sector more difficult. Vibrant and robust national economies are a prerequisite for sustainable forestry. Sustainabilitv. Forestry is committed to some form of sustainability in a way that is unmatched by almost any other discipline (see for example, Faustmann, 1849, Pinchot, 1947, Davis, 1966). Unfortunately, experience has shown that, in developing countries, sustainable yield management is rare (Poore, et al 1989). The World Commission on Environment and Development (1987), Pearce, Markandya and Barbier (1989), Daly and Cobb (1987) and numerous others have discussed and promoted the notion of sustainable development. While definitions and approaches vary, all substantive approaches to sustainable development involve nondeclining consumption paths and, in some cases, nondeclining capital stocks as well. The possibility of sustainability and the policy framework(s) that might lead to it are the subject of considerable ongoing debate and research but little progress has been made toward developing operational results. For example, the relationship between the sustainability criteria of maintaining the aggregate level of assets and other economic criteria has not yet been fully developed (see Pezzey (1989)). Withholding investment in forestry until such analytical difficulties are resolved is not an option. The fact is, for most accessible forested areas in Asia, sustained yield forest management is the only alternative to destructive logging and conversion. The option of merely preserving large areas of forest does not exist. Accelerated development efforts in the sector cannot await a final answer on the question of what should be sustained: based on current trends, most accessible remaining natural forest cover will disappear. Forest Management Technologies: Options and Policy Prerecruisites Forest management is an inherently capital-intensive process. The standing stock of forest represents a heritage of foregone consumption, and any action to augment or alter the growth of the forest stock is, by definition, investment. Historically, in Asia, most forest activities have constituted disinvestment, either through the conversion of forest land or through extraction. Currently investment in the Asian forestry sector is -17- substantial and increasing L principally in intensified natural forest management, inventory work and establishment of management information systems, tree planting and plantation establishment, human resource development and research. The viability of these efforts, and scope for expansion depend largely on the extent to which policy reforms are instituted to ease the constraints discussed above. The technical feasibility of sustained yield tropical forest management is subject of considerable debate, due to the importance and multiplicity of management objectives, uncertainty over biodiversity and the role of non-timber forest products. Plantations on the other hand, are imperfect substitutes for natural forest from both economic and ecological perspectives. Rather than exploiting existing stocks, building up a plantation diverts investment from other sectors or forest subsectors. While technically, the viability of plantation establishment on particular sites can be readily established, their environmental and social impacts can be varied and difficult to predict. Depending on the condition of the land, forested, agricultural, degraded, claimed or abandoned, management and other conditions on adjacent lands, plantations can be environmentally or socially beneficial, damaging or of little consequence. Economically, forest products prices are difficult to predict and the long gestation period of plantations inhibits private sector investment (just as they reduce the likelihood of private sector involvement in natural forest management). Prerequisites for efficient sectoral development are a pricing framework that enables rational allocation of investment between various investment options, and tenure institutions that protect investors and mobilize participation. Natural Forest Management. Of the total forest estate of the region, approximately 70% is closed forest. All countries in the region have some reserves of natural forests, but just four countries - Indonesia, Malaysia, Myanmar, and Papua New Guinea - account for two-thirds, or nearly 200 million ha, of the resource. While sustained management is an objective in all countries, ITTO estimates that in Asia only about 1 million ha is under genuinely sustainable yield management. Technically, success in natural forest management depends upon adequate site information, understanding of plant communities and associations, inventory data, and logging methods that preserve and enhance soil quality, nutrient availability and regeneration. Combined with adequate areas of forest under preservation and conservation management, sustained yield management for commercial forest areas is a technically viable option. ITTO (Poore, et al, 1990) concluded that for most tropical forest types, systems of management are available that can ensure sustained production. If performed carefully, selective logging can have minimal impacts on the ecosystem and damage from roading and log skidding can be effectively localized (Bushbacher, 1990). Known and tested management systems include ones dependent on significant canopy opening followed by intensive silvicultural treatment to ensure effective regeneration (the Malaysian Uniform System); and strip clear felling methods which leave areas of forest virtually intact between strips heavily logged and regenerated. S/ Although as noted in para. 15, depletion of natural capital in only 3 countries amounts to nearly US$8.3 billion/year. -18- The Bank's forest sector review for Malaysia, showed that with adequate tenure security and access to credit, sustainable forest management is preferable to liquidation, even according to narrowly defined economic criteria. Although technically and economically possible, much of Asia's commercially accessible forest area is not managed under genuinely sustainable systems because political, institutional and market factors militate against such management. For example, as noted (para. 24), forest management agencies often lack the commitment, political strength and presence needed to control concessionaires and other users of the forest. Illegal logging occurs frequently and violence is not uncommon. In Bangladesh, India and the Philippines forestry officials have been killed and foresters are frequently exposed to physical violence in other countries. Production management models that take into account nonwood products and services have not reached the same level of development as timber management systems. The economic contribution of nonwood products is virtually unknown and the importance of medicines, foods and other outputs used routinely by local people is even less known or appreciated. Furthermore, models based on a few forestry products are simpler than those integrating a multitude of nonwood products. Individual nontimber products may not have a significant effect on the choice of the most economically desirable management system. Collectively, however, their contribution can be important. Lack of employment and income-generating opportunities for rapidly growing populations also complicates forest management. Poor performance in other sectors increases demand for agricultural land and in several countries has subjected large areas to damage. In some cases, otherwise well planned forestry operations have been thwarted: for example, construction of logging roads improves access to forest areas and logged areas are most easily converted to agriculture. These intersectoral impacts affect all forms of forest management, but are particularly problematic in natural forests due to the large and difficult to patrol areas involved and the traditional view of natural forests as frontiers to be tamed. From the point of view of soil protection and stabilization of stream flow, intact natural forests are one of the most effective land uses owing largely to ground cover from undergrowth and leaf fall. The economic value of this protection, and the cost of disruption, is highly site-specific and a function of human activity and investment in adjacent downstream areas. It is feasible that alternative land uses including plantations (forest or tree crop), and even annual agriculture, can provide many of the same protective watershed functions. The substitution of alternatives for natural forest can, from a soil conservation point of view, be nearly perfect, provided careful attention is given to well known and accepted land use practices, including contour operations, maintenance of continuous ground cover, and protection of buffers along watercourses. Commercial timber harvests of forests in steeply sloping watersheds can also be consistent with preservation of hydrologic properties as long as similar methods of resource husbandry are employed. Global environmental benefits from tropical forests are the most difficult to replace with alternative land uses. Tropical forests are major global sinks of carbon. Releases of carbon into the atmosphere result from burning and decomposition. In a climax state carbon flux due to decomposition -19- is balanced by fixation due to growth so that a climax forest makes no contribution to global climate change. In this sense, retention of biomass in tropical forests is equivalent to measures taken anywhere else to control the release of greenhouse gases. The Bank's analysis of natural forest management in Mlalaysia not only clarifies the options for owners of tropical forests, but also helped quantify the nature of financial transfers which the international community may wish to consider, to produce and maintain biodiversity and achieve sequestration. Use of the forest for wood production will release a certain amount of carbon, in decay of biomass destroyed in the logging process, and in whatever carbon is eventually released by the forest products made from logs taken. However, regeneration of the forest will begin the carbon-sequestering process, and the net result will be lower carbon release than under deforestation. Multiple use management of forest around protected areas offers excellent opportunities for extending the range of biodiversity and can generally enhance the conservation value of the protected areas themselves. Isolation of protected areas, as "islands" amid intensively used production forests, plantations, agricultural land and human settlements can result in a progressive erosion of biological diversity within the protected areas as a result of barriers to mixing and outbreeding. A number of countries have forest working plans that include zoning and silvicultural practices that encourage dispersal from core protection zones. These include maintenance of natural forest strips along streams and water courses and along migratory routes, species, selective thinning that favors the more rapid emergence of the species structure of the natural forest, staggered harvesting to suppress weed growth, strict observance of cutting intervals and preservation of selective old growth stands. Many of these, as noted above (para. 57), are alsa, consisted with protection of soil and water resources. Unfortunately, as yet, few countries actually follow these practices to any extent. It is often difficult to identify discrete investment opportunities in natural forest management because expenditures are intimately linked with revenue-generating harvests. Prospects are improving, however, for ilentifying a range of investment options in natural forest management. These include support for new, low-impact harvesting methods, improved multipurpose inventory work, preparation of management plans, and improved supervisory systems for management investments in modernized harvesting and processing plants and equipment could also assist in maximizing the efficient of use of industrial raw materials. Plantation Forestry. Plantations account for only a small portion of the Asian forest, expanding from 28 million ha in 1980 to 82 million ha in 11990 (see Table 1). Five countries, China, India, Indonesia, Japan and Korea account for most of the forest plantation area of the region. In the 1970s and 1980s plantation establishment accelerated for fuelwood and other community uses. Small-scale plantings on farms and areas outside the forest are increasingly common throughout the region as rural people adapt to increasing scarcities. The rate of establishment has now reached an estimated 5.6 million/ha/year. Plantations can easily achieve twice the growth rates of natural forest (10 m3/ha/year compared with 5 m3/ha/year). Actual regional growth -20- rates are in the 6-35 m3/ha/year range. In addition, output is more uniform from plantations than natural forests which facilitates processing. However, plantations should not be seen as a direct substitution for natural forest. For example, the species for which plantation production is economically or technically viable is still limited to a relatively small, albeit increasing, number. The financial constraints on plantation management also encourage management for short rotation, small diameter products. Commercial production of large-diameter raw material, such as veneer logs, has yet to be demonstrated as viable on a large scale for all but a very small handful of species. In developed countries the transition from exploitation of old growth forests to plantation forestry has also often been associated with major geographic shifts in the sector and considerable lags between exhaustion and achievement of steady state supply (Hyde and Newman, 1991). Optimal plantation investment involves predicting the timing of the exhaustion of old growth,V the mix of products that will come into short supply, the costs of idle processing capacity or imported raw material and a host of other considerations. Risks can be minimized by choosing species with alternative uses depending on age of harvest, by selecting those species with processing characteristics complementary to the existing resource (for example, fiber length, wood density and disease resistance), and opportunities competitive in international markets. The role of plantations in addressing deforestation and forest degradation is likely to be secondary to efforts in the natural forest. Forest cover has receded to such an extent in much of the region that watershed protection and other environmental motivations can be a significant factor driving national tree planting programs. Recent estimates of potential economic returns illustrate the scope for successful plantation forestry in the region. Analysis of plantation economics in China (World Bank, 1990) showed rates of return of 15-30% based on currently available technology in commercial conifer and broadleaf plantations. In India, plantations of eucalyptus for fuelwood yield up to 20 m3/ha/year with economic returns of about 15% provided appropriate technology is applied. Small-farmer response to these opportunities is encouraging; in nine states, between 1982 and 1990, smallholders established the equivalent of nearly 800,000 ha of plantation, according to the number of seedlings distributed (which may overstate the area). In Uttar Pradesh about 4,000 ha of poplars are planted annually as intercrops on irrigated farms. There are no reliable data on plantation survival rates but field observations in India, for example, indicate survival rates at 30-40%. With improved extension and better quality planting material, even higher planting rates can be anticipated. The actual success of plantation investments has not been measured, but has been impeded by weak technology and poor planning. Over the past two decades site preparation and species site-matching have improved significantly, the latter due to identification of seed provenance and the inception of clonal planting stock. Though important, these practices have yet to become widely applied and the introduction of improved practices can 6/ Exhaustion can be determined by physical, economic or administrative criteria. -21- mean the difference between plantation success and failure. Experience shows that al:L too often a tolerant species is retained because it produces adequate rather than optimal growth, whereas another species, perhaps more difficult to establish, would provide significantly higher yields and profits. Systems of identifying provenances and seed certification, similar to those used for agriculture crops, are needed as well as increased production of clonal planting stock. Available or foreseeable technologies can significantly improve returns to plantation establishment. Australian experience indicates that use of imported high-quality planting material can add 2% to overall rates of return Ito plantation establishment. Use of other innovations such as root trainers, clonal propagation, more intensive culling of seedlings, better site preparation, possibly tissue culture and embryogenesis will become increasingly common over the 10 years. These are mainly simple technologies, using low cost facilities and materials or labor-intensive practices. Individually, or in combination, they have the potential to revolutionize forest nursery and plantation practices. Despite ambitious planting programs by some countries in the region, partiLcularly China and Indonesia, economic prospects for significantly expanded industrial plantation development in the region can only be described as mi.xeid. The region has significant areas suitable for plantation deveLopment and reasonably good access to important markets, particularly Japani and Korea. Competition from maturing plantations outside the region, partiLcularly in Chile and New Zealand, however, may constrain large-scale plantings. Also, the enormous natural timber resource of the former USSR (totall 535 million ha, conifers 406 million ha) is expected to become available at relatively low cost and will soon influence the Asian market. Often classed separately, woodlots and tree planting activities promoted by social and community forestry programs have the same important investment characteristics as traditional plantations, but generally better economic prospects. While greater efforts are typically required in organizing the provision of planting materials to support large numbers of independent planting decisions, demand in rural areas for small dimension wood is strong through the region. Establishment of small woodlots and farm forest plantings requires much better and more homogeneous seedlings than normally used in government-sponsored plantations. Due to the limited area currently planted, the environmental impact of plantations has been negligible in the region. Forest plantations are at best, imperfect replicas of natural forest. In plantations the species, age distribution and spacing are designed to meet the objectives of the investor. Plantations for fast-growing pulp wood will be different from plantations established to protect a watershed. Concerns have been raised about the local environmental impact of large-scale monoculture plantations, particularly eucalyptus and other exotic species. While plantations (especially eucalyptus) may consume more water than other crops or natural forests, they do not require substantially more water to produce a unit volume of wood than other forest types. Large areas of a single species, especially exotic speciess, run the risk of insect and disease attack as experienced with many agriculture corps and this must be guarded against through plant breeding, hygiene, use of multiple species and other well known measures. Many tree plantations established for reservoir protection actually increase erosion -22- hazards due to diminished ground cover. Better application of site preparation technologies and species choice, including use of shrubs would help resolve these concerns while also lowering costs and improving returns. Environmental pressures, similar to those favoring enhanced protection of natural forests, favoring establishment of large-scale plantations on bare areas have recently emerged due to the possibility of using trees to sequester carbon. Justification for plantation investment on the basis of a greenhouse abatement has yet to be made, although there have been several examples in other regions of creative financing, in which carbon fixation benefits have been considered. Many of the environmental concerns raised about eucalyptus and other exotic species such as pines, acacias, prosopis and leucaena actually reflect concern about the social and distributional consequences of plantation development. Changing prices and investment opportunities sometimes result in efforts to establish plantations on land that was previously available, often to the landless, for purposes such as grazing of scrub cattle. Displacement of agricultural crops by less labor-intensive tree plantations may also result in resentment due to opportunities lost when alternative employment is not available. It is crucial, from both ethical and practical perspectives, to distinguish between social and physically-based environmental issues in the design and implementation of plantation projects to ensure that appropriate ameliorative measures are in place. Although negative environmental impacts of plantations are not yet widely evident, studies are needed to compare production and product value, of indigenous and exotic species, in both human and environmental terms. Frequently exotic species are the only plants that can grow on severely degraded soils. When returns to tree planting are attractive, competition with other crops is inevitable. However, unless policy interventions manipulates relative prices, it is difficult to see a justification for policies to control farmer adoption of tree planting. Plantations could eventually become a major source of pulp wood and fuel and, depending on technological progress in processing, solid wood products. Development of small wood technology is likely to have a widespread effect in the next decade. Processes already developed and commercially available allow for the use of small logs as raw material for wood substitute materials. This will greatly improve the financial viability of certain plantations, and especially trees grown on farms. For the foreseeable future, high-quality veneers and specialty hardwood will continue to come from natural forests. While economically and technically similar, the institutional arrangements needed to support widespread tree planting by small farmers are quite different from those needed for large-scale commercial plantations. The different factor endowments of smallholders and commercial organizations imply a need for different technological packages. Support services for farm forestry and agroforestry, such as marketing intelligence, extension, credit, and input supply, are more similar to the services usually provided in conventional agricultural projects than for large-scale plantations. The NABARD/WIMCO poplar planting project in north India required creation of an administrative group to assist farmers with arranging Bank loans. Because of the long production periods in forestry, the usual distinction between seasonal and long-term credit is not relevant to forestry. -23- Forest Inventories and Management Information Systems. Natural forest inventories are carried out periodically in China, India, Malaysia, Philippines and Thailand and have been started in Bangladesh, Indonesia, Papua New Guinea and Sri Lanka, but for the most part, there simply are no reliable data on the status of the forest. The absence of reliable data on forest resources in the region makes management difficult nearly to the point of impossibility. Inadequate data on the potential of forested lands leads to poor decisions on land use, conversion of forest to unsustainable uses, and prevents monitoring of program implementation. In those countries, such as China and India, with continuous inventories, data can not be used to influence decisions due to weak data management. In several countries, for example, India, remote-sensing data, which could be invaluable in analyzing the evolution of forest and environmental processes, are handled as military secrets and are inaccessible to resource managers. Often work plans for timber-harvesting operations are poorly prepared and give inadequate attention to environmental safeguards, especially post-harvest treatment and management. Developing local capacity, preferably in the private sector, to plan forestry operations, while not expensive, should be a high priority in the Region. In Indonesia, the Bank is financing the planning of concession areas totaling 50 million ha (at a total cost of US$7.5 million). Only recently has the economic significance of nontimber forest products started to be recognized. Existing inventories of nontimber products and the methodologies for data collection and fieldwork are rudimentary. The financial cost of the training, research preparation and introduction of the basic elements of good forestry practice in the region are easy to minimize. In addition to large amounts of high quality technical assistance and equipment, there is an overwhelming need for commitment to confront the basic forces that drive poor results in the sector. Reinventing Forestry. The most important set of investments needed in the Asian forestry sector involve the continued reorientation of forestry away from mechanical application of silvicultural treatments toward an emphasis on development, investment performance, and public accountability. Efforts to apply expertise from other disciplines--ecology, economics, sociology--to problems in the forestry sector need to be accelerated. The broad demands now being placed on the forest sector--environmental protection, protection of forest dwelling people, balancing global environmental concerns- -need to be matched with changes and improvements in the skills available to support the sector. Furthermore, earlier legislation emphasizing conservation may not address current pressures on forests. If countries began to support institutions to ensure the continuation of stocks of productive assets-- assuring the rights of future generations to natural and other assets--the depletion of forest assets without replacement would no longer be efficient. If local communities had clearer control over the diverse forest products, and forest concessionaires held longer-term timber contracts (under a pricing structure which rewarded careful operation), sustainable management would be more efficient than depletion. In the tropical forestry sector of Asia the reality is that most development work remains to be done in the areas of policy and institutional reform. -24- Forestry education in the region is changing and needs to continue to change to equip foresters, particularly those dealing directly with communities, with the social and environmental skills now needed. The assumption that professional forestry training is a prerequisite for employment in forestry agencies also needs to be relaxed. Expertise in nontraditional areas such as, minor forest products, public administration, law and other fields needs to be developed within the sector or brought in from outside. A major effort is required to use well-adapted, scientifically sound techniques for man-made forest development, as well as better understanding of biophysical interactions within natural forest ecosystems. The dominant role of the state in forestry also needs to be challenged. In some countries of the region the tradition of public ownership of forests and government involvement in tree management on private land is starting to weaken. Given the constraints on the capacity of forest agencies it may be more constructive to contract out field management and supervision to private firms enabling governments to focus on legislative and policy reform. The record suggests that measures aimed at improving the performance of stumpage markets should be the basis for linking the resource sector with the processing sector. In much of Asia, the future role of the government will be in providing regulatory, policy development and services such as extension and research to the private sector. D. Evolution of Bank Lending Programs and Practices Bank involvement in the Asian forest sector has only recently become significant. Impeded by a general neglect of natural resource management and the extractive approach to the sector, borrower receptivity to external involvement in forestry has, until recently, been low. With the emergence of a poverty focus to the Bank's rural development activities and the perception of severe stress on low-income groups from fuelwood and energy shortages in the 1970s, the Bank moved to the forefront of donor involvement in community and social forestry. Increasing recognition of the sector's ineffective contribution to economic development has at the same time increased borrower interest in Bank participation. In fact, Bank operations outside of the conventional forestry sector have actually been a key factor in its impact on the forestry sector itself. Bank support for land settlement, tree crop development, power and infrastructural development have actually impacted a larger area of forest land, an estimated 5.9 million ha, than all its forestry projects combined (Table 4).V Greater awareness and sensitivity to the environmental problems and potential benefits of investments outside of the sector is now resulting in significant changes in the design of such projects Box 2 illustrates the kinds of safeguards now being built in to Bank projects with measures to protect an endangered butterfly species in the vicinity of an oil palm project in Papua New Guinea. 7/ The total area of plantation establishment ever financed by the Bank, is Asia for example, is less than 2 million ha. -25- Table 4: LAND AREA DIRECTLY AFFECTED BY SELECTED WORLD BANK-FINANCED PROJECTS IN ASIA Ha Hydroelectric and Irrigation Reservoirs (1978-89) 3,700,800 Agriculture Settlement Indonesia Transmigration 1,861,500 Malaysia Nepal 18,600 Tree Crop Development Indonesia 201,500 Malaysia 129,567 Papua New Guinea 4,580 Sri Lanka 1,800 West Samoa 1,240 Subtotal 338.687 Total 5,919,587 -26- Protection of6f'Forest Environments in Tree Crop Projects. Oro Smallholder Oil'Palm DeveloIDpment-. Althoughe:dffortshave long been taken to site tree rop 0projects :on environmentallly robust 0as arneas : and: dg degraded areas, ;the Bank has ~supported. conversion, of tropical: fores3ts to :make way~ for: alternative: land: uses.- An example of recent efforts is the Oro Smallholder; Oil jPalmA Development Proj-ect.1 This -pro:jet :0will: finance the. bestablishmnt of :6,Z500 ha: of:.E oxl: palm by 3,250. poori: smallholder families ::gin Eastern, *T.Papua VNewvqGuinea: while l seeki ng0topreserveA the habitat of the, endangeredOQueen :Alexandr aBirdwingbutterf ly (QAB), Ornithotera alexandrae, :the lagsI tb btterflyinh the: world. The : QAB: ConservatSion Program o jjis iba sed bon the principle: that local landowners will, ultimately determrineo' whethe r.: aor not :the QAB survives:i.I. In rural. S.PNG, development: is :usually: translated:.,as I"makingk.. money ,"hence to sbe: s,6ucceissful, conservation:of the butterfly must be implemented: inwsuch :0a way as s to a make morneyv for fpeople taking prt. The:iproject'V:s :conservation:-officers, withYthe assistance of fANGOs ,will Sdevelop ::and yencourage income generatg oortunitientides toprovide landowners::withalter natives: to oil pam development. Potential oil palm oblocks pl ocare located 0fonh 0Sdegraded tgrasslands or:::::: .::secondary :fo6rest used by: QAB. :.;:Under the project no primarvy forest will :~be accepted fQr: conversion to oil palm. A screeningprocedsshas.. been designed to assess:the potential:QAB,::habitat value of proposed land for oil palm development. On :sites: assessed as: "tprime habitat," Ctor SSas "S0epotentfiaflly 00ustefu'l',00" landowners 0will ttbe -0.encourfageS0fo0d teop develop0000000 oil:palmAe elsewhere or undertake otherjincome generating activities. Should }they decline, they:-will be askedo& too allow the& 0:removal 6of the"I'll 'buttterfly'Isfoodvines:to alternatives:i:t:es.- fneoti:atinsfail , projectEX authorities will]delin eto assist the landowners. ThiS would :0bel used as a: last resort option, as, tinthe i"paybackl society of PNG, landowners could:retaliate -jfagainst: both vines and:butterflies.- i0 :The conservati-on sprogvram :wougld awlId:so ';include: other:' activities such: as research to: improve knowledageX o;f 'the- jbutterfly :f:and: its:: .] ecological:requgirements; EARdevelopment :::of f;i..ncome::generatingh4 alternativesg: to plantation crops for landnowners; andeducation to raise public awareness of the ~butterfly and: its ~~6cnservation:needs. '~:These.other acivtes, which are importantfrteln term suvvlo h butterfly, would be closely coordinated withthe: project:siconservation activities described6above -. . t;00; 'Ti1!|! ; ; 1::::>0'1Y1itWlllllil0; >: :sX 0 :t:::;i;., 11110W,~~~~~~~~~~~~~~~.... . .. . . -27- Deve.opment of the Current Portfolio World Bank forestry lending to Asia started in 1955, with support of the Karnaphuli paper mill in Bangladesh (then East Pakistan). Later, support was provided to timber extraction projects, followed by land settlement, in Malaysia and Nepal. An additional early project, included support for sawmill and logging operations and technical assistance in Myamnar. Several rural development projects in the region, notably in the Philippines and the Republic of Korea, included components that set the tone for the Bank's early work on social and community forestry. Bank involvement stepped up in the late 1970s with a series of social forestry projects in south Asia, starting with projects in Gujarat and Uttar Pradesh States in India, later in Nepal and ultimately through a multi-state national social forestry project in India. From 1980 to 1992, total regional forestry lending was US$1.9 billion, of which nearly 52% was for social forestry (see Table 5 for a summary of the region's portfolio of projects since 1980, including those under preparation). Lending to China for plantation development began in the 1980s, as did additional lending for watershed management, including projects in the Philippines and India. The Indian watershed management projects were heavily oriented toward agricultural development and included introduction of soil conservation, fuelwood plantations and fodder development. The Bank has made few investments in natural forest management in the region. It has supported forest inventory work and, in several projects, road construction and saw milling. It has also supported improved management of existing forests throlagh changes in harvest techniques and cutting cycles in the Nepal Hill Forestry Project which expects to increase output of wood and, forest fodder. While generally limited to area-specific investments and special purpose projects such as community forestry, in the last five years Bank lending in the region has begun to tackle a broad range of sectoral issues and policies. The Bank's forestry operations are constrained by the implicit acceptance of several critical assumptions about how the sector should operate. Unspoken Assumitions In many crucial ways the Bank has been an unquestioning and passive participant in its forestry portfolio. It has largely accepted the institutional structure of clients' forestry sectors and, due partly to its own lack of technical expertise, has not challenged its borrowers level of technology. Internally, the Bank, as in other sectors, has employed a target- driven style in forestry project processing. With few exceptions, the Bank has emphasized a supply side orientation to the sector and has been too willincl to accept poorly conceived, and sometimes completely unstated, sectoral development strategies. Although, on the whole, the portfolio has been judged satisfactory, the weakness of this passive approach is reflected in slow disbursement, delays in implementation, and, more importantly, the negligible impact of Bank investments on borrowers' overall forestry sector. Table 5: TOTAL LENDING AND PROPOSED LENDING TO ASIAN COUNTRIES FOR FORESTRY PROJECTS La (US$ miltion) 1980-1995 1980-95Lb Total 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993Lb 1994/b 1995Lb BangLadesh 89 11 28 50 Bhutan 12 6 1 5 China 1,191 47 40 57 300 147 150 450 India 1,043 37 30 29 134 58 197 150 158 125 125 Indonesia 251 11 34 20 16 100 70 Lao PDR 12 12 Malaysia 46 7 9 30 Nyanmar 92 35 32 25 Nepal 91 17 18 31 25 Pakistan 64 21 43 Philippines 250 26 224 PNG 10 10 SoLomon Islands 5 5 Sri Lanka 29 20 Thailand 20 20 OveraLl Yearly 3,205 100 62 29 143 154 262 28 49 92 51 475 240 238 264 398 620 Totals/a /a Includes Watershed Management Projects. Lb Projected. -29- Reliance on the Public Sector. A central problem among borrowers has been their overreliance on existing government forestry bureaucracies. while repeatedly recognized by Bank staff as a constraint to forestry development, efforts to improve institutions have been limited to staff training and civil works. The fundamental issues of accountability and delinesating responsibility in forestry agencies, although recognized, have been ignored. The Bank's past reliance on area-specific projects has limited the extent to which these systemic issues can be addressed. Apart from private farm forestry and social forestry projects that have, to some extent, escaped public sector management, the Bank has not identified mechanisms for developing effective private sector involvement in forest management. Acceptance of Poor Technologies. The Bank and other international development agencies, have not been sufficiently adamant about the need to improve technical performance in forestry. Unlike tree crops and agriculture projects, the Bank has not ensured the use of high quality planting material; poor nursery practices and use of poor genetic material are common. High quality technology and proper standards of nursery operations are not incompatible with small-scale, labor-intensive application, even in remote social forestry sites. In fact, when trying to interest small farmers and communities in tree planting and sustainable forest management through the supply of planting materials, there is a strong need for quality control. In many other ways, including its emphasis on quantitative targets, the Bank has promoted a neglect of quality considerations. A Topical Approach. The size and scope of the forestry portfolio owe much to the emphasis on social forestry and to forestry as a component in an integrated approach to rural poverty alleviation. However, this approach has restricted the Bank's ability to address the full range of sectoral issuets. Implicit has been low priority on other aspects, especially international trade, industrial raw rffaterial, rational exploitation of existing forests, efficient utilization of forest revenues, and environmental concerns. Without diminishing its efforts in social forestry, the Bank needs to, and can, move aggressively toward a more catholic approach to the sector. Choices Facing the World Bank The World Bank is heavily involved in the forestry sector of most countries of the region (lending US$100 million annually). The Bank has revised its overall policy in the forestry sector and the Operations Evaluation Department (OED), in its 1991 review, heightened attention to policy and institutional reform. The Bank's new forest policy paper reaffirms its commitment to using forestry to support poverty alleviation in rural areas, to the development of additional wood energy resources and to protection of fragile lands through afforestation and introduction of improved farming practices. It also commits the Bank to working with NGOs and requires thorough environmental assessment of future forestry lending. The policy prohibits direct Bank support to logging in primary tropical moist forests and calls for adoption of policy and institutional reform as conditions for Bank involvement in all but environment and poverty targeted forestry projects. In this context, regional Bank operations could continue their standard approach to forestry projects and even expand lending in the context of the existing economic, institutional and technological environment. While higher levels of lending could be achieved, the basic problems in the forestry sector would remain unresolved and outside the boundaries of Bank-financed projects, -30- deforestation would continue to accelerate, environmental degradation would worsen and the sector would become increasingly unsustainable. Alternatively, the Bank can address the underlying defects and priority issues in each country's forestry sector. Recent projects in China, Indonesia, Malaysia, Sri Lanka have adopted this strategy and are attempting to advance policy reform and implement priority investments simultaneously. While the potential benefits of this alternative are obvious, there are also significant costs and risks. Governments of the region may not be willing to, or capable of implementing the necessary reforms. Less strongly conditioned assistance from other sources may weaken the incentive to adopt Bank recommendations. Rapid processing of projects conflicts with the time and other resources required to identify and prepare integrated policy reform and investment packages. The pressures of population and poverty in the meantime continue to erode the forest resources of the region. Nevertheless, borrower receptivity, the undeniable importance of comprehensive reform, the availability of a few high return technological opportunities, and the Bank's visible role, point to this strategy as feasible and desirable. E. Stratecic Recommendations Progress in the forestry sector will depend on mobilizing commitment and resources to resolve the interconnected web of economic, institutional and policy failures. Given the diversity of the sector, and the need for indepth country analysis, the World Bank will adopt a forestry strategy based on sector-wide analysis and reform simultaneously linked with large-scale investment. In addition to pursuing the specific policy reform and investment opportunities described below, the Bank has an important role in promoting the environment conducive to investment and in mobilizing commitment among client governments and donors. Future Role of the Bank The Climate for Investment. Forestry is a politically charged sector, perhaps more so than any other in which the World Bank operates. Strong conflicting interests in the sector could easily lead to a halt in sectoral investments. Cessation of Bank forestry lending has, in fact, been advanced as a serious proposal by some environmental groups. Other proposals, not aimed at the Bank, are equally disconcerting. There have been serious call for bans on the importation of tropical timbers into developed country markets and for prohibition of logging in moist tropical forests. Among regional policymakers, this climate has created great uncertainty about the viability and value of efforts to preserve and manage the remaining tropical forest resource. In fact, unless the forest resource is viewed as a valuable asset, that can be used to fuel economic development, poverty alleviation and pursuit of other social objectives, destruction of the resource is assured. Bans on trade and blanket restrictions on certain management practices are based on the premise that natural forest utilization inevitably results in degradation. On the contrary, as discussed above, use including commercial utilization, within an integrated framework of resource planning and continuous assessment, is an essential element of a sustainable forestry sector. -31- The Bank, through involvement with other donors, the FAO, ITTO and other international groups, can play an important role in improving the climate for forestry investment. Its involvement in the design and implementation of sector-wide forestry development programs can ensure that the tradeoffs and consequences of alternative policies are considered, that full advantage is made of technological and marketing opportunities, and that environmentally well-conceived and executed programs are acknowledged and supported. The Bank can help mobilize commitment to forestry development by raising forestry issues at high levels with both donor and borrower governments and by ensuring that forestry issues are given prominence at assistance coordination meetings. As noted, with Bank support many countries in the region have already taken some of these steps. Nepal has committed itself to a program of converting vast areas of the government forest estate to community management. Indonesia is embarking on a trial policy of concession management involving privaete sector auditing of contract compliance. China has established a highly motivated plantation system to provide the infrastructure for technical assistance and financing, and to reward good performance. Additional steps for t:hese and other governments in the region include greater emphasis on pre- investment work and more serious consideration of forestry in macroeconomic and sectoral planning for agriculture. Project pipelines in forestry are weak in most countries and do not reflect full and creative examination of options and constraints. The quality of sector plans, including some of those prepared with donor assistance by international consultants, has also been weak. The Bank will encourage governments to be more demanding consumers of technical assistance and to require analysis that develops linkages with the related sectors of agriculture and energy and which involved broad local consultation. The Bank's primary emphasis should be on quality and intellectual leadership to support this kind of analysis and not on lending or implementation targets. Across the region, procedures for financing forestry are inadequate. Budgetary allocations for forestry are treated de facto as recurrent annual expenditures, not as investments. Investment oriented planning and budgeting procedures will be an indispensable step toward improving accountability. The Bank, through its country economic dialogue, will seek to encourage Ministries of Planning and Finance to play a stronger and more active role in monitoring and ev2Lluating national forestry development strategies. Terms and conditions of employment of foresters need to be revised. Salaries and allowances are inadequate to motivate staff to accept and perform well in postings in remote and difficult areas. In comparison to the value of the assets they manage, compensation of government foresters in Asia is woefully inadequate. Promotion criteria that tend to favor generalists can generate personnel equipped for managerial positions, but discourages the specia]Lization needed for research and staff positions. The Bank through its reviews of public sector expenditures will encourage revision of civil service codes to allow multiple career streams and realistic posting allowances for forestry staff. The central lesson learned from the Bank's efforts in forestry is that: investments need to evolve from comprehensive analysis of sectoral constriaints, opportunities and mechanisms for policy reform. Emphasis on discrete, area-specific investments, such as plantation establishment, will -32- not mobilize the sector nor solve the basic institutional and scientific problems or address externalities. While a sector based approach is essential, it is equally important to focus on key issues in the context of an ongoing program of investment support and clialog-ue. The following examples illustrate the potential of this approach. Utilizinq Private Sector Capability. A common problem for governments attempting to manage commercial exploitation of tropical forests is the limited capability of the forestry agency to effectively monitor and oversee the activities of concessionaires and others utilizing the forest. The conventional response of donor agencies has been to attempt to expand the capability of the forest agency through the provision of training, equipment and civil works. In Indonesia, the Bank is now supporting an alternative strategy that attempts to utilize private sector expertise to improve monitoring on a contract basis. This is expected to increase government revenues from forest concessions, while at the same time ensuring better compliance with environmental guidelines and other conditions. This work has established the possibility of separating the administrative, managerial and regulatory functions of the state using private sector expertise to supplement the public sector. More intensive efforts to encourage private sector involvement, including NGOs, will increasingly be part of the Bank's forestry program. Additional mechanisms to be explored include utilizing lines of credit, underwriting private sector investments and developing joint ventures. Environmental Guidelines. In China's National Afforestation Project environmental guidelines for plantation management address species mix, soil conservation, pest and fire control and biodiversity. The special significance of these guidelines is that, although the Bank will directly finance only about 13% of the government's overall afforestation program, they will be applied to the entire 8 million ha, 10-year program. The possibility of playing such a catalytic role in other countries and in other aspects of the sector, such as conservation and land-use planning, is one of the more exciting opportunities for the Bank. Other practices that enhance biodiversity conservation within a framework of multiple use of natural forest areas, such as ones discussed above (para. 60), will also be promoted by the Bank. Intensive project preparation and supervision, and a willingness to enforce project conditionalities, will be essential if this potential is to be achieved. In addition, thorough analysis of technologies and policies as an ongoing part of the Bank's program will be needed to ensure continuous flow of new ideas and approaches to the Bank's borrowers. Improving Market Opportunities. Analysis of international markets for tropical timbers shows that market distortions, fragmentation in the marketing chain, and collusive practices, severely affect export revenues. Evidence from countries, such as Malaysia, Papua New Guinea, and the Philippines, suggest that these distortions are widespread and costly. These also negatively affect incentives for forest management and reduce the scope for applying low impact logging technologies and other sound maneoement practices. Following an internally funded study, the Bank with support from FINNIDA, is now conducting a detailed study of the feasibility and implications of structural changes in the forest products trade. More generally, this work will be part of a new focus on the demand side of forest production, including efforts to better relate forestry investments to -33- industri.al and energy policy. Wood saving technologies, such as improved wood burning stoves, manufacture of structural wood products from small-scale timber and reconstituted wood products could significantly reduce industrial demands on the forest resource base. Efforts in market reform will focus on tradEt liberalization and promotion of competitive environments for both production and consumption activities (see Binkley and Vincent, 1990). A critical message emerging from the social forestry experience in Indiat is the need for careful attention to market development. Although largely based on the need to supply wood for domestic fuel, experience under social forestry projects has shown that farmers are more responsive to opportunities to produce poles and small timbers. Projects promoting widespread tree planting appear to have destabilized local timber markets in some areas, leading farmers to uproot plantings and abandon investments. Skil:Ls in assessing and forecasting markets for wood products are rare and experience in the forestry sector is difficult to locate. Bank analytic work on forestry will more seriously consider marketing prospects and more realistically assess farmer motivations for forestry investment. Community-Based Management. While experience with social and community forestry products has been mixed, a clear finding is the viability of community-based management and the ability of rural people to respond privately and collectively to opportunity and incentives. Without governments in a dominant and, usually distorting, role in tree planting and forest management, communities can effectively coalesce around forestry activities. Open access is a well known and very real contributor to forest degradation. Less widely recognized is the possibility of mobilizing community participation and self governance over forest resources. The key externaLl input to this process is community organization and not seeds, seedlings or even technical assistance. Methods of converting financial resources into investments by local communities will be increasingly refined through Bank work. In Nepal, for example, continuation of support to user- group forestry is now being tied to performance and to gradually increasing cost recovery and local contribution. Bank support for tree planting by smallholder agriculturalists and forestry activities by rural communities is increasingly becoming a normal part oE rural development and agriculture lending. Bank work on rural credit will. wherever possible, attempt to minimize exclusion of forestry activities from eligibility. Nonetheless, it needs to be acknowledged that smallholder tree planting is most likely to be viable only in areas suffering from wood defiLcits and accordingly will be a weak defense against large scale deforestation due to shifting agriculture and commercial mismanagement. Monitoring and Evaluation and Project-Financed Research. Regional lending operations, especially for social forestry, have included provisions for monitoring and evaluation. Unfortunately, these efforts have not been sufficient to generate a reliable understanding of conditions that lead to project success or failure. Despite a decade of experience, the factors that lead farmers to adopt tree planting practices or encroach on forest areas are still poorly understood. Similarly, the value of incremental wood supplies as firewood and building materials or other forest products to beneficiaries are not clearly known. Emphasis on high quality socioeconomic research work is needed in the forestry sector. Adequately funded, long-term studies, with -34- input from local and, international researchers and consultants, are required and can be funded directly through Bank operations. Long-term ecological and environmental studies, forest management and silvicultural research and monitoring work also merit much higher priority. Adequate design of these studies during project preparation is costly and requires specialized expertise. Implementation of studies will often require international technical assistance and the development of local expertise. Use of private sector consultants and revised personnel standards to develop adequate skills within government agencies will be needed. Management planning and policy analysis, linked operationally to investment, will also be promoted by the Bank. Policies and Investment Outside the Forestry Sector. Recent analyses of deforestation and other forestry problems show the crucial impact of external factors on the forestry sector. Unfortunately, this recognition exceeds our ability to prescribe and introduce reforms. The fundamental problems of underdevelopment--overpopulation, poverty, and inequity--are not unique to the forestry sector, and a continuing challenge will be striking an appropriate balance between efforts to achieve progress on these broad issues and in the forestry sector. Forestry issues should take higher priority in Bank economic and sector work, with the goal of identifying forestry-related policy reforms that can be promoted through structural adjustment operations or in association with nonforestry sectoral adjustment projects. Steps to further the overall processes of agricultural intensification are essential to the forestry sector. Identifying the need and scope for policy reform and integrated projects, especially in the areas of agricultural productivity and expansion of employment opportunities, is increasingly a central theme of sector work in the Asia region. Sector work on the Philippines, for example, emphasized the linkages among forestry, fisheries and agricultural resource management; a joint Asia Technical Department and Environment Department review of watershed development further developed linkages between intensifying marginal agriculture and environmental remediation. The focus of regional work on soil and moisture conservation and fertility management is aimed precisely at stabilizing the marginal agriculture that directly threatens the remaining natural tropical forest. Global Transfers for International Environmental Protection. Until recently there was no mechanisms for the international transfer of resources on concessional terms in support of environmental protection. Starting with small debt for nature swaps, first involving threatened forest areas in Bolivia and later in other countries, including the Philippines, a variety of innovative financing experiments have been suggested and tried. Recognition of transboundary pollution from acid rain and carbon emissions and the worldwide significance of biodiversity has resulted in the establishment, under the auspices of the World Bank, UNDP and UNEP, of the Global Environment Fund. Somewhat earlier, the Japanese Environmental Grant Program enabled the Bank to accelerate preparation of environmentally oriented projects and components. Concessional finance for environmental preservation activities remains an experimental and controversial area. The extent to which governments are willing to recognize international concerns over the -35- management of domestic resources, and to enter into financial arrangements which can be interpreted as restricting their sovereign rights, has yet to be fully determined. In this area the World Bank can play an important role in keeping governments aware of the availability of concessional resources and opportunities to employ these resources in support of national environmental and development priorities. On behalf of donors, the Bank has a similar responsibility to seek to maximize the use of environmental fund as additions to conservation efforts that recipients would be expected to make in response to dcomestic self-interest. Investment Recuirements and Priorities Without prejudging the results of the required sector analysis and project planing, it is clear that massive investments are needed to augment the region's existing forest resource. These include efforts in plantations and farm forestry, improved natural forest management, including increased emphasis on nonwood forest products and low-impact harvesting, and the expansion and improvement of the region's protected areas. Because of the magnitude of these needs, recent Bank experience has shown that it is possible to move ahead rapidly with simultaneous development of both an agenda for policy reform and targeted high priority investments. With respect to the need for incremental establishment of new plantations, and the equivalent area in smallholder tree farming, calculations summatrized in Table 6 illustrate the magnitude of the investment requirement. On the basis of recent rates of deforestation and plantation establishment, it is estimated that by the year 2000, the total natural closed forest area of the region will stand at about 370 million ha, a decrease of about 50 million ha (10%) from 1980, while some 50 million ha of plantations (nearly 45 million in Clhina) will have been added. Even with optimistic assumptions about the sustiainable yield of natural forests, and plantation growth rates, a shortfall in wood production equivalent to 12 million ha per year of high-yielding plantations will result. Assuming a low estimate of the cost of plantation estalblishment, US$600/ha, the total investment requirement amounts to more than US$3.7 billion. Nearly two thirds of this investment requirement will be needed in the wood-deficit countries of South Asia and hence primarily in afforestation (see BOx 3). This will largely take the form of private farm and community forestry aimed at the provision of wood and tree fodder and other forest products directly to rural participants. Targeted industrial plantation development, largely to supply existing industries, will also be supported in the context of suitable policy frameworks. Roughly one quarter of the proposed investment program will be in the countries that currently have a surplus of wood or are nearly in balance (see Box 4). These investments will support both large- and small-scale plantation development in anticipation of a transition from depletion of old growth forests to sustained yield forestry. Private sector involvement, by providing additional incentives for the adoption of high-productivity techLnology, is essential for the success of these efforts. A parallel objetctive of this work is to facilitate conservation of existing natural foretsts by making available adequate supplies from intensively managed areas. AccordLngly, appropriate investments in conservation area development and protection will be necessary. up 0* 0 -et etp ft - n p E 0  CC - * - - 33. PC PC OtoWtJCtt p 0 - p 00 to - ft - 40 P - p. PC - tO 0 0 '  eeC - - to ft o p L 0 Ot - L.a LAC.JLCA 0 p.a-000 p .4…o-JW..JC.a 0 OPp tt ft 40 . . 0 V - 1 On L.a MOLCPa ACLC'O p O 0 0 0 0 Q 4WtoWmSfJ'A 4 3. PC1 P 0 WOO 0 to 0 0CC 000 0 CA  -. * autta L.te.LWOL 0 atoO-4 0.4 O 000 PC to U 0 CA A 0 CO 000$ - CA CA OCt00 to CA - o o 0 to - * OnOP CA - - V cOO. -4 -- N - PP CA p 0 ft C..0 0 CA . t0 -L - 0 APCft C CO CAP p - *C4CAAJOAL$. O.400W.JO $ 1 p 00 Ct - P ft 4 V -. 00 CA 0 0 0 C ftC 0 - PC On N 3 * ff0 - 0 0 00 0. OtO g O PC 3 0 3. p . . . p p p 'A ' *Oto* to - Op 0 0 0 OtOfLtt 0 OCL PoLapto p - 0 0 0 0 CAWO' .4*0 f p n 0 A A "'I 0 a 0 - 0 00PCC.L.  0 WCOCA*w a CA CAa'A.Oto0tOCCt OC.O.b.40 AALC0.JttW*fO 3. CA 4 OtotoP 0totto0 OCA 3.  t4 V o ...V n * o ft to A Net CA 0. P tO - CA N 000 3 C.ato0,LOPCOAC. 3. pPC0  tOW *COtoCOO C' 0 3. 0 OCLCOCANOOC 000 A-4OAOL.LL.L P 8 0 '00  0 Pa tt ft 4  3. 4  N 0p tO*A *to,JtLOtO 0000 *fOP a 0 - 0 3 (ft 0 PC 0 0 P 0 0000CL000t.C'CAOOOCACAPOCA C *" 3.V CA 3. ft 0 ta Ototo...toAC-.W CO OcaatOtOt.a 0 0 0000 -4tOOcaOaPaCCaa.J 0 p - p. 0 ft 0 0 0 A U 0 0 0 1;C.00 PC 0 tOaA-WtOtOtL0CO 8-  ;.ftg, 0 to...COCW0tOJW0to0tOt' *04 o 0..PC - AC.ato00W0to t.4C..Oto 0Lf A 04$ Otot.C 0 0 0 0 O 0 0OCAOO0000000000000 p. 0 * 0 00 J Ct -  N0 0  W0 n a.-...Oto..a...t.C.'AO 8- N P'o 4 to0.o003 p a CO 'Aa0atoCAto0CAO00.4$to0to ft n ..  A ALPOAW S CA 0 CA P '0 '0 0 C 0 0 - LW 3.  p tOOIL.JW *toOCO* ... N *ft p  a a * . . 0.3 en  - U CA  fj 0 N -a a CA 3.  CO to - pa - - a - 3. N PCp CO 0 W 0 00 0 - o--  LW a n 4 0L0tOt00040000004CA0J -37- It is more difficult to estimate investment requirements in other parts of the forestry sector in Asia, but some of these may be quite large. The introduction of low-impact harvesting technology, if it proves economic and is accepted on a wide scale, could involve considerable capital replacement: given the scale of logging operations in countries such as Indonesiar and Malaysia, it is reasonable to project a need for of $500 million for these countries alone. The contracting of private sector capacity to take on certain management roles will also require significant initial financing. Application of the system throughout Indonesia might, for example, involve outlays iLn the first five or ten years of up to $200 million. In addition, making privatization work effectively would still require considerable improvement in the capacity of the state forestry agencies to work with the contractors on preparation of management plans. Investment in national marketing efforts, to improve the position of resource owners in the international markets may, if it proves feasible at all, require considerable underwriting support, as well as technical inputs. More generally, if countries with significant resources are to make the necessary commitments to sustainable development, structural and sectoral adjustment lending may need to rise. Given these possibilities, it is feasible to project investment in natural forest development on the order of US$1 billion in the medium term. Any set of actions that the governments of the region and development assistance agencies attempt will inevitably fail to satisfy all interested actors. The Bank's sectoral support, and its analysis of sectoral and related issues, should proceed from the premise that unless all the constraints described in this paper are seriously addressed, a.1l of the goods and services provided by the forestry sector are threatened. Work also needs to proceed from recognition of the fact that the forestry sector is continuously undergoing changes and development on the basis of its internal dynamics as well as impacts from other sectors and external factors. Because of this, it is impossible to identify and resolve all the issues constraining forest dlevelopment immediately. An ongoing, iterative process of dialogue, analysis and investment with committed governments is the only path to sustainable forestry. 4*CC.~- ,~.. 1 ..".. I 9I.-L>..~II".I.. .I. . . - I-'- -'- .L 66 1 0.- 1.I. - ,~,.. ,4-0 0.1.0) 14 . C. I..'' -- 4 4...04-"4-I.'.4- I(04-61 .. '. - I..-. . ~ I ---- . ~ ~ ~ ~ 6 ~ 4(4 6'-U -D ~ 044~~-1 6161 06161 4. I4 0- ... --'4*C.. C1 - -.'.'.. IUOCt C 0I J1 .11II I. 614-' . - C O W 61.. - .. -'4-'610 61'.-....~..... --61 (U L'!1'~:::: '0 .. 90 4- ) U )0 ) I4-' -40) 4-4-- >C4 -61CC X C - .: -11*6 1 - 4- - .0)61C6161M4) L ~ 'QQ-.. 4-'. ..0 '0 .. 1...1 ~ .......4. 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I,,--".''.I+I.. .... .....- I- - )C0-.C 0. -'61iC4'C 6 0)-U 661 C 614-'> C0_,1 _1 -.-0) UC> 0' 4*6160 4-'..-. -1 -61 0- -4II1.'>.--= ,;. 0)4?'-, C.- 04.0C 6c 10--' 4 '00014*-.:o-m0WC4*, 0.6161 1I---- .. X : : - -I ..-'. J4*>0)'I 1 _ -011 410611 ...14 ' *46.61-,0- . -O . C C .-1)W . - I.9-_ '.' 4 4*04* 0>4*C.,"4* C_1_4- .-.0-.-o61 - C CX~ (01; -~... ... . .~ - .. . ..I : I ) 'to61 t. ... ,1 0 14*CU 3 - . > "U..*61 61--'1 - (U, - U 0 4-4- 42 >.0 4I04- II72 C.'.'61C01. . 06 ..' 1. .4*0)0I. I4-O' I ,_:~60) L ) . 4-*0-C"6I. 0).'4* 04 6 4 4 0 -,) -0 3 1 1> 0 4 6 Q1. I - .1. C0.-O.-.1461:~ 4- -09-"1':I:.- -- ,I C] 61.1.. UI. 42.. 613.'. ...--I. 1........- 61....-I-..- 2 610-161-.II610 '4 1.-.-. 61-.-. I4- _ -' .- 06 .0 16 C '---61 . I..I: 1 ,, ..~~I. '. 44-9.lo r 4-'C . '4 . 0)4* '0-' +'O 44*~,. I 1-.614'.- :,161.614 4*1-:7: ::Ip::-,-' I. . -I- ~- . I ~ U W =1 --0) 0 061-' .O'lu 4I-'.. V 4* 1 S 94- 0 .:)410 ~.. ~ _- I I~III~] . .~ . I. ~ 616I.. 64- ..- ... C 6103 I'.-61)C-- 0-4-'6 0 '4*.,...0 - . ~ W,.- I~ ~, ~ ~ ~ ~~: ~ 0) C Cf- - W - 0-4 L).-L U 1"- 4->C 0C- 4- I.1 :~~: icL 41- 0(DZ 4-40 C.9-Xl1_~..1~ :E.: C 61 CCC 4*4 U)6'4CC4 I(. -4*4-0 CXI..-I.... .,..,, 001.-I4, C '- Uco 045 ' : I.'- 4- 66'- 6 0.- 0 10 .- 1. I 100161 ( 41: :W : : . I---6--1--,I 1 . I. .. . I._. -39- -Box: 4 ..vestnent Priorities :in Forest Surpl us Qr'ou Seven countries--Fiji, Indonesia, Malaysia,' Myanmar,-L'a P'R, Papua New Guinea nd the- Solomiiionslands have significant.areas of primary tropical rainforests:remaining and are capable:of exporting iood. in significant'quantities. anik :involvement in these countries will'focus.on miaximi zig the area retained as functioning .forest cover and on preserving adequate areas 'for biddiversity, habitat, catchment and traditional populations.- Countries with large-forest tracts will.,continue to use large areas of tropical moist forest for roduction. The Bank will assist.replacing wasteful and destructive practices with'more i-sut,iXble. and environnientally sound ones.:- This.' wil be:done in the context. of the Bank Forest -.'- 'Policy guideline::which precludes the Bank from any directAinvestment in togging in primary.troical '.moist.forest.' However,: it wilt involve participation in the design and management of...: .: environmentally sound harvesting systems in, areas Which arejto be managed:on sustained yield pr i nciples. All.countries.in this group_share:some ba'sic management probelims::': (a) poor:copliance with togging concession terms and conditions, due to tax control, if :any, . over.logging operations: in areas designated for producton;r. (b) inappropriate incentive, pricing and institutional poticies that imee forestr'y agencies from planning and managing the.resource sustainabLy; (c). inadequate commitment and capacity to define and manage protection and.conservation- areas; ('- :d).,unresolved problems of tand-use classification and jurisdiction and (e. :weak coordination of::forest .industry a id'trade olici.es. In some cases, these problems are exacerbate 'b a tack of effeceive mechanisms to ::.invvolve locaL communities--tribat: owners,.shifting cultivators or encroaching,.'gricutlturalists--in:.... : managing :their resources, The most recent Bank-assisted project in Indonesia bridges a detailed sector stud anda targer-scate.investment. It assists with a plantation development. ptan,-defi:ni't.ion and establishment -of conservation areas,- specific inrputs:and research and. management planning. :Unlike' the, conventional alternative of.expanding government forestry agencies to handte these tasks, if ':.succesful, it coutd demonstrate.the.use and.effects of. privatization. :.Major features expected of Bank investment-in countries with tropical moist forest :are:. (a)., P rice and Revenue Policy Reform. :Signi.ficant changes -rejrequired in the Methods of.. wood pricing, marketing.and sale-to ensure futl revenue and:rent recovery as means to ..., :,' :encourage environmentalty sound use of the:resource-.This-requiresthe -redesignof- revenue-sharing formulae to ensure.that.governments.and forest: communities develop-. interest in sustainable management.. ...... (b)., inventories and Planning Management. Even when' arket-'sign ls and icentives ':encourage. sustainabi.tity,,..constraints on 'implementation remain and wi l be addressed: inventory work resource data.analysis.and management: planning and monitoring capacity .will b featured in Bank tending. (C) conservation and Preservation. Developing processes for identifying areas 'for conservation or preservation, and .in resolving the 'inherent political conf licts has ::been slow.; The Bank should continue to assist directty.during project preparation, through coordination of: grant furding. for area def:inition,-an in lening for :conservation. Resolving confticts. and achieving consensus -on policy can be' hel dy, - rincl di'ng policy conditi:fties in' Iending. - .-(d) Involvement:of Local Conmunities.- .Defores,tatio1n in:t.hetropical moist forest wiltl- not abate unless communitieS with,interest are involved effectively in sust a inable. management. .Irnd:honesia and: Malaysia,:specif'ic coamunities have disrupted forestry activities. '. .(e): '.Research.- The Bank.will assist, through national and.,international efforts,. in... expanding: the scientif-ic basi's .for. management: of mixed tropicaL 'hardwoodsad for :'.'high yielding-plantation establishment-.a manageent. :::~~~~~~~~~~~~~~~~~~~~~~~~~~~~... ...... -40- REFERENCES Bergsten, David N., Gregersen, Hans M., Lundgren, Allen L., and Lawrence S. Hamilton. 1988. Forest Research Capacity in the Asia-Pacific Region. Occasional Paper No. 6. East-West Environmental Policy Institute. Daly, Herman, Cobb, John B., and Clifford W. Cobb. 1989. For the Common Good: Reducing the Economy Towards Community. the Environment and a Sustainable Future. Boston: Beacon Press. Chambers, Robert, Saxena, N.C. and T. Shah. 1989. To the Hands of the Poor: Water and Trees. New Delhi: Oxford Publishing House. Davis, Kenneth P. 1966. Forest Management: Regulation and Evaluation. New York: Magraw Hill. Food and Agriculture Organization of the United States (FAO). 1981. Forest Resources Assessment. Rome: FAO. . 1988. An Interim Report on the State of Forest Resources in the Developing Countries. Rome: FAO. Faustmann, Martin. 1849. M. Gang (Ed.), In Martin Faustmann and the Evolution of Discounted Cash Flow. Oxford: Commonwealth Forestry Institute Paper No. 42. 1968. Hodgson, Gregor and John A. Dixon. 1988. Logging versus Fisheries and Tourism in Paliwan. Occasional Paper No. 7. East-West Environmental Policy Institute. Hyde, William F. and David H. Newman. 1991. Forest Economics in Brief: with Summary Observations for Policy Analysis. under preparation for publication as a World Bank Technical Paper. Lamprecht, Hans. 1989. Silviculture in the Tropics Eschborn: Technical Corporation, Federal Republic of Germany (GTZ). Pearce, David W., Barbier, Edward and Anil Markandya. 1988. Sustainable Development and Cost Benefit Analysis. Canadian Environmental Research Council Workshop on Integrating Economic and Environmental Assessment. Vancouver, Canada, November 17-18. Pezey, John. 1989. Economic Analysis of Sustainable Growth and Sustainable Development. World Bank Environment Department Working Paper No. 15. Washington, D.C.: World Bank. Pinchot, G. 1947. Breaking New Ground. New York: Harcount Brace Jovanovich. Poore, Duncan. 1988. Natural Forest Management for Sustainable Timber Production. Pre-Project Report to the International Tropical Timber Organization, Vol. 1, Landon: IIED. -41- Poore, Duncan; Burgess, Peter; Palmer, John; Rietbergen, Simon and Timothy Synnot. 1990. No Timber Without Trees. London: Earthscan Publications Ltd. Repetto, Robert and Malcolm Gillis. 1988. Public Policies and the Misuse of Forest Resources. New York: Cambridge University Press. World Commission on Environment and Development (WCED). 1987. Our Common Future. : Oxford University Press. ("The Brundtland Rleport") . World Resources Institute (WRI). 1990. A Guide to the Global Environment. New York: Oxford University Press. Distributors of World Bank Publications ARGENTINA EL SALVADOR JAPAN SOUTH AFRICA, BOTSWANA CarlosHirsch, SRL Fusades Eastern Book Service For single titls: Galeria Guernes Alamn Dr. Manuel Enrique Araujo #3530 Hongo 3-Chome, Bunkyo-ku 113 Oxford University Press Florida 165, 4th Floor-Ofc. 453/465 Edifirio SISA, ler. 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H: Case Studies and Conclusions for Sub-Saharan Africa No. 158 Hay and Paul, Regulation and Taxation of Commercial Banks during the International Debt Crisis No. 159 Liese, Sachdeva, and Cochrane, Organizing and Managing Tropical Disease Control Programs: Lessons of Success No. 160 Boner and Krueger, The Basics of Antitrust Policy: A Review of Ten Nations and the European Communities No. 161 Riverson and Carapetis, Intermediate Means of Transport in Sub-Saharan Africa: Its Potential for Improving Rural Travel and Transport No. 162 Replogle, Non-Motorized Vehicles in Asian Cities No. 163 Shilling, editor, Beyond Syndicated Loans: Sources of Credit for Developing Countries No. 164 Schwartz and Kampen, Agricultural Extension in East Africa No. 165 Kellaghan and Greaney, Using Examinations to Improve Education: A Study in Fourteen African Countries No. 166 Ahmad and Kutcher, Irrigation Planning with Environmental Considerations: A Case Study of Pakistan's Indus Basin No. 167 Liese, Sachdeva, and Cochrane, Organizing and Managing Tropical Disease Control Programs: Case Studies No. 168 Industry and Energy Department, An Introduction and Update on the Technology, Performance, Costs and Economics No. 169 Westoff, Age at Marriage, Age at First Birth, and Fertility in Africa No. 170 Sung and Troia, Developments in Debt Conversion Programs and Conversion Activities No. 171 Brown and Nooter, Successful Small-Scale Irrigation in the Sahel No. 172 Thomas and Shaw, Issues in the Development of Multigrade Schools No. 173 Byrnes, Water Users Association in World Bank-Assisted Irrigation Projects in Pakistan No. 174 Constant and Sheldrick, World Nitrogen Survey No. 175 Le Moigne and others, editors, Country Experiences with Water Resources Management: Economic, Institutional, Technological and Environmental Issues No. 176 The World Bank/FAO/UNIDO/lndustry Fertilizer Working Group, World and Regional Supply and Demand Balances for Nitrogen, Phosphate, and Potash, 1990/91-1996/97 No. 177 Adams, The World Bank's Treatment of Employment and Labor Market Issues No. 178 Le Moigne, Barghouti, and Garbus, editors, Developing and Improving Irrigation and Drainage Systems: Selected Papers from Word Bank Seminars No. :179 Speirs and Olsen, Indigenous Integrated Farming Systems in the Sahel No. 180 Barghouti, Garbus, and Umali, editors, Trends in Agricultural Diversification: Regional Perspectives No. 181 Mining Unit, Industry and Energy Division, Strategy for African Mining The World Bank Headquarters European Office Tokyo Office 1818 H Street, N.W. 66, avenue d'Iena Kokusai Building - Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-1 Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan Telephone: (202) 477-1234 Telephone: (1) 40.69.30.00 Facsimile: (202) 477-6391 Facsimile: (1) 40.69.30.66 Telephone: (3) 3214-5001 Telex: wuI 64145 WORLDBANK Telex: 640651 Facsimile: (3) 3214-3657 RCA 248423 WORLDBK Telex: 26838 Cable Address: INTBAFRAD WASHlNGTONDC Cr t Cover design by Walton Rosenquist ISBN 0-8213-2205-2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~