[stop-imf] World Bank, IMF Chided on Indonesian Forests (fwd)

[Robert Weissman]

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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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Title:  World Bank, IMF chided on Indonesian forests
Source:  Copyright 2001 Asia Times, atimes.com, and Inter Press
   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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