10/28/01 -- World Bank, IMF Chided on Indonesian Forests

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FOREST CONSERVATION NEWS TODAY

World Bank, IMF Chided on Indonesian Forests

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10/28/01

OVERVIEW & COMMENTARY by Forests.org

The World Bank and IMF are tragically failing to integrate forest

conservation within their economic work, and to advance environmental

protections, in Indonesia and throughout the World. They continue to

cause harm to the World's forests through their economic and forestry

reforms. Through first hand experience I conclude that this stems

from several failures. Environmental experts and concerns are still

marginalized from the Bank's core economists and country staff. They

do not have the capacity to properly assess the possible impacts of

their structural changes and other projects. Forest conservation

policy initiatives are remarkably inadequate, unambitious,

uncreative, cautious, and fail to address root causes of forest loss

and diminishment. In Indonesia economic reforms have lead to

increased deforestation. Emphasis in the forest sector is upon

cosmetic bureaucratic reforms that focus upon "enforcement",

"efficiency" and "governance" - ideas that have failed before

(remember TFAP?) and will again.

These multi-lateral financiers are unwilling to more fundamentally

question the ecological sustainability, economic benefits and social

desirability of continued subsidizing of commercial forestry in the

World's remaining forests. There is no escaping the fact that the

Indonesian timber industry must be downsized and subsidies for

damaging forest management practices slashed if forest resources are

to be conserved. I concur with the analysis below, "the overall

effect of IMF (and World Bank) intervention perpetuates conditions

responsible for rapid deforestation."

The World Bank continues to move forward with plans to become more

active in management of the World's forests. Their proposed new

Forestry Policy fails to embrace policies adequate to stem

deforestation, and expands subsidies for commercial forest management

activities that will intensify World deforestation. Given their

present focus and staff, this will be disastrous.

g.b.

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RELAYED TEXT STARTS HERE:

Title: World Bank, IMF chided on Indonesian forests

Service

Date: October 27, 2001

Byline: Danielle Knight

WASHINGTON - Economic reforms driven by the International Monetary

Fund (IMF) and World Bank in the aftermath of Indonesia's 1997-98

financial meltdown have spurred deforestation while undermining

macroeconomic stability, charge environmental groups.

Despite declarations of intent to protect Indonesia's biologically-

rich tropical forests, the institutions' policies encouraged

speculative investment in the forest sector and increased timber

harvesting by debt-ridden Indonesian pulp and paper companies, the

World Wildlife Fund and Indonesia-based Center for International

Forestry Research (CIFOR) say in a new report.

Bank and IMF officials acknowledge that some things could have been

done better but dispute the environmentalists' conclusions. Jim

Douglas, lead operations officer for the World Bank's Rural

Development Department, says the report lacks context and does not

"appear to be aware of the Bank's long-term approach in the forestry

sector". Structural adjustment measures, says Douglas, are "largely

transitional measures with the intention that you follow up".

In signing a US$43 billion IMF emergency financial package in 1998,

the Indonesian government committed itself to structural adjustment

terms put forth by the Fund and World Bank that included a number of

policy reforms aimed specifically at restructuring Indonesia's

forestry sector. These included "conditionalities" designed to reform

Indonesia's timber concession system and to raise efficiency levels

in Indonesia's timber and wood-processing industries.

Chris Barr, a forest policy scientist at CIFOR and author of the

report, argues that the reforms were largely based on faulty

assumptions. While the Bank argues that increased efficiency reduces

the flow of raw materials to the forestry sector, Barr says the

policy has actually increased the harvesting of young trees and a

broader variety of tree species. "The reforms pose new threats to the

nation's forests in that several of the policies encourage increased

rates of timber harvesting," says Barr. The World Bank, he adds,

largely overlooked expansion of Indonesia's pulp and paper industries

and timber plantation efforts.

"This lack of attention is paradoxical given that over $12 billion

has been invested in these industries since the late 1980s and

Indonesian pulp mills consumed over 100 million square meters of wood

from natural forests between 1998 and 1999," he maintains.

Major pulp and paper companies failed to bring adequate areas of

pulpwood plantations into production and are now facing raw material

shortages.

"Indonesian pulp and paper producers have made large-scale

investments in high-risk projects both because these enterprises have

been heavily subsidized and because financial institutions have

failed to adequately assess the risks involved," says Barr.

According to Agus Purnomo, executive director of WWF-Indonesia, 40

percent of the log inputs to these pulp and paper mills are from

domestic sources, and 75 percent of this timber has been illegally

cut.

"The scale of illegal logging is huge," says Purnomo, who estimates

the market to be between $4 billion and $6 billion per year.

Indonesia has the world's third largest tract of tropical forests,

considered by scientists as among the most biologically diverse

ecosystems on Earth. During president Suharto's 32 years in power,

when forest-based industries were heavily promoted, approximately 40

million hectares of natural forest were cleared.

Heike Mainhardt, senior forest program officer at WWF's

macroeconomics office, argues that IMF-supported financial and

corporate sector restructuring and trade liberalization measures

further encouraged timber extraction and accelerated conversion of

forestland by facilitating "unsound investments" in Indonesia's wood

and palm oil industries. "The overall effect of IMF intervention

perpetuates conditions responsible for rapid deforestation," she

says.

Besides environmental costs, adds Mainhardt, social conflicts over

land rights and land status surround oil palm development in

Indonesia. Since Suharto's resignation in May 1998, she says, "there

has been a marked increase in social unrest in and around oil palm

estates often involving fires, demonstrations, intimidation of local

people, injury, and death".

Michael Keen, head of the IMF's environment unit, says while the Fund

recognizes that macroeconomic policies can have environmental

impacts, the institution "does not pretend to be an expert on

forestry management issues". He points to what he calls successes,

such as efforts by the Fund to dismantle some of the corrupt linkages

within Indonesian conglomerates that are involved in both the

forestry and banking sectors. Since the end of 1998, Keen says, there

have been bank restrictions on how much lending can go to any one

corporate interest. "A bank can't lend more than 10 percent of its

capital to any related party," he says.

But civil society groups maintain that the Fund continues to cause

harm to forests through its forestry reforms because it does not have

the capacity to properly assess the possible impacts of the

structural changes.

"Far too many conditionalities went far beyond the expertise of the

IMF," says Carol Welch, deputy director of international programs at

Friends of the Earth. There has been little contact, she says,

between the IMF and civil society organizations that could have

assisted in evaluating the proposed forestry sector reforms. "The IMF

has been very resistant to include the environment when evaluating

its policies," says Welch.

Francis Seymour, program director for institutions and governance at

the World Resources Institute, argues that any significant positive

change in Indonesia's forestry sector is dependent not on the World

Bank and IMF but on building political coalitions within Indonesia

that favor reform. "Even if the World Bank gets the policy right,"

says Seymour, "at the end of the day it depends on the domestic

political arena."

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