World Bank Plants Seeds of Reform

By Capdevila, Ines | The Washington Times (Washington, DC), April 10, 2000 | Go to article overview

World Bank Plants Seeds of Reform


Capdevila, Ines, The Washington Times (Washington, DC)


For almost a decade now, the World Bank has been trying to see the forest and not just the trees when gauging the effects of its lending policies.

According to a report by the World Resources Institute (WRI), the future of the forest may depend on the World Bank flexing its financial muscle in developing countries.

Frequently criticized for the environmental impact of its aid packages, the bank can use its financial leverage to press developing countries to halt deforestation and to promote effective forest management, said the report last month by the WRI, an environmental think tank that provides research for the World Bank.

The report is titled "The Right Conditions. The World Bank, structural adjustment and forest policy reform."

"Under the right conditions, the World Bank's inclusion of forestry issues in structural-adjustment loans can tip the scales toward reformers and deal setbacks to vested interests in unsustainable logging," said Frances Seymour, one of the authors of the report.

According to the report, the right conditions are still rare, both in the World Bank and in developing countries.

BANK'S COMMITMENT NOTED

At the bank, the positive factors include an internal commitment to promote forest-related provisions in its assistance packages and to involve policy-makers, officials, nongovernmental organizations (NGOs) and citizens in the reform agenda of the borrower country.

With loans of $3.5 billion between 1992 and 1999, the bank is the largest international donor to the forest sector for projects such as planting new forests and reforestation, biodiversity conservation and zoning.

In 1991, it stopped lending to the logging industry, a primary cause of deforestation, after it was criticized for contributing to the shrinking of tropical forests. But criticism continued because of unintended negative consequences on natural resources of its macroeconomic (national-impact) lending policies.

As one of the two largest financial donors in the world, the World Bank steps in to rescue developing countries when their economies collapse, opening its coffers but attaching conditions.

Quickly designed and disbursed, assistance packages in the form of structural adjustment loans target economywide policy change and institutional reform, rather than a specific project.

"Only a small proportion of its structural-adjustment loans have directly addressed forest-related or other environmental concerns, even though such loans constituted more than half of the institution's lending last year," the report notes.

FORCED REFORM CAN WORK

After analyzing recent World Bank financial aid to Indonesia, Cameroon, Papua New Guinea and Kenya, the WRI report concluded that in some cases the bank can be successful in forcing forest-management reforms as a condition for structural loans.

Taking advantage of the 1997 financial crisis, the World Bank and the International Monetary Fund (IMF) included conditions to dismantle forest-product monopolies controlled by supporters of then-president Suharto in their Indonesia assistance package.

This approach was successful only in Indonesia and neighboring Papua New Guinea, but the authors of the report believe it set a precedent to promote new ways of joint management between policy-makers and NGOs.

Structural loans are designed to promote economic growth and alleviate poverty by stabilizing the macroeconomic environment. Including conditions to protect forests would add better management of shrinking forests to an already strong environmental awareness.

"Corrupt officials and their friends in the logging industry often manage to undermine efforts for forest policy reform," said Navroz Dubash, co-author of the report.

"Our report shows that tying structural adjustment loans to forest-related conditions can raise the national profile of forest issues and catalyze improvements in governance that are essential for improved forest policy. …

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