Asian Crisis Slows South Pacific Logging

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WORLDWIDE FOREST/BIODIVERSITY CAMPAIGN NEWS

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Forest Networking a Project of Ecological Enterprises

http://forests.org/

10/5/98

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Title: SOUTH PACIFIC: Asian Crisis Slows Logging, Swells Economic

Woes

Source: InterPress Service

Date: 9/28/98

Byline: Kalinga Seneviratne

SYDNEY, Sep 25 (IPS) - Logging saws are fast becoming idle in the

South Pacific islands, as recession-hit Asian logging companies slow

down operations in the region and once-rich customers scale back

purchases.

That has been a blessing in disguise for the environment especially in

places like Papua New Guinea and the Solomon Islands, where green

groups have long blasted Asian loggers for ruthless exploitation of

pristine rainforests.

But the green dividend from Asia's recession has a painful side

effect: it has meant slashed earnings from timber exports, weakening

already fragile economies.

Governments and forestry industry sources are predicting gloom and

doom for island economies whose major export income comes from timber.

''It (Asian crisis) has been quite beneficial for us because the

loggers have slowed down their rate of logging,'' Dr Brian Brunton,

the PNG-based Pacific forest specialist of the environmental group

Greenpeace told IPS.

According to the PNG Forest Industry Association (FIA), the volume of

logs exported from the country has fallen by more than half since

January 1997. This has dropped from 275,000 cubic metres to less than

108,000 cu m by June this year.

This amounts to a loss of foreign exchange earnings for PNG of about

4.7 million U.S. dollars a week, FIA. The slowdown in the timber

industry has cost more than 5,000 jobs, industry officials say.

The neighbouring Solomon Islands, which built up its economy on log

exports to Asia, is also reeling from the slowdown of overseas

operations by Asian firms.

Its forestry exports have declined by more than 60 percent this year

and industry income has dropped to below 25 million dollars this year,

from 67 million in 1997.

These are serious blows to the economy, because about half the the

Solomon Islands' export income and tax revenues come from the logging

industry.

The South Pacific's logging industry ran into trouble because many of

the Malaysian, Indonesian and South Korean logging firms which

dominated it have closed shop in recent months, after the depreciation

of their currencies hit operations back home.

But the biggest impact has been in the declining markets in East Asia

for timber products.

The main markets for PNG and Solomon Islands' timber have been the

Japanese and the Korean housing industries, which are a major casualty

of the recession. It did not take long for the Pacific's logging

industry to feel the pinch too.

Indeed, the average export price of logs has fallen from 100 dollars a

cubic metre at the end of 1997 to as little as 65 dollars a cu m

today.

The fall in prices and demand has jarred PNG, which exports 80 percent

of its logs to Japan and Korea. South Korea, which bought 59 million

dollars worth of logs from PNG last year, has almost stopped buying

logs. So has the Philippines, another PNG market.

PNG forestry industry officials say the downturn in the logging sector

could create severe and economic problems since about a quarter of a

million people depend on it for survival.

They claim that as timber companies stopped operations in rural areas

of PNG, industry-supported communication networks, transport health

facilities have been suspended as well.

Thus, FIA and the Association of Forest Resource Owners, who represent

the landowners, have called upon the PNG government to lower the

export duty on logs. Though Forestry Minister Dr Fabian Pok promised

to do so in July, the PNG government is coming up against fierce

opposition from the World Bank.

Under an agreement with the Bank, PNG fixed the log export tax rate at

30 percent. Pok has submitted a proposal to the Cabinet to lower the

tax and even bring it down to zero, to help logging companies to ride

the crisis.

But the Bank is sticking to its guns. This week, Bank officials told

PNG Prime Minister Bill Skate in Washington they are not prepared to

give any more financial assistance until economic management is

improved.

Among others, observers say, the Bank is unhappy with attempts to

reintroduce concessions for the logging industry which go against

policy goals of reducing dependence on it.

Dr Brunton argues that PNG is not as dependent on the logging industry

as the government makes it out to be. ''That's what they are saying,''

he said. ''But the main inputs to the economy at present are from oil,

gas and minerals.''

He also dismisses as ''logging company propaganda'' claims that rural

people are losing health and other services as logging firms close

shop in the countryside.

''If you compare the logging industry with the petroleum or mining

industry, as far as infrastructure is concerned, that put up by timber

companies are far inferior to those put up by other resource

companies,'' he argued. Unlike many logging firms, petroleum and

mining firms are there for the long haul, he added.

Whatever the pros and cons of the benefits from logging, petroleum or

mining operations, the reality is that the PNG government is almost

broke. A World Bank assessment team is going to PNG next month, before

any more funds are given to it.

For its part, the Solomon Islands government is struggling to cope

with an International Monetary Fund (IMF) structural adjustment

programme it undertook earlier this year to help it cope with the

effects of Asia's financial crisis.

The programme requires it to stimulate exports and restrain domestic

demand, while cutting log exports to sustainable levels in the long

term.

This is a tall order for an economy that in the four years until 1997

saw a resource boom and dramatic rises in market prices for their logs

-- after the closure of logging operations in Sabah and Sarawak in

Malaysia.

Amid that boom, the government rapidly increased public spending and

the economy headed for an unsustainable expansion of both public and

private consumption. But the Asian crisis put the brakes on this,

forcing the Solomon Islands government to go to the IMF for help.

Economic analysts say South Pacific countries will continue to take a

heavy hit from the Asian crisis, though not all their economic woes

can be blamed on it.

The Asian Development Bank (AsDB) says the adverse impact of Asia's

recession would range from 15 to 25 percent of GDP for the Solomon

Islands, and 2.6 to 4.8 percent of GDP for Papua New Guinea.

(END/IPS/ap-dv-en/sk/js/98)

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