The World Bank, Structural Adjustment, and Forest Policy Reform.

W O R L D R E S O U R C E S I N S T I T U T E

T H E R I G H T C O N D I T I O N S

T H E W O R L D B A N K , S T R U C T U R A L A D J U S T M E N T ,

A N D F O R E S T P O L I C Y R E F O R M

W I T H :

J A K E B R U N N E R

F R A N Ç O I S E K O K O

C O L I N F I L E R

H A R I A D I K A R T O D I H A R D J O

J O H N M U G A B E

F R A N C E S J . S E Y M O U R

N A V R O Z K . D U B A S H

T H E R I G H T C O N D I T I O N ST H E W O R L D B A N K , S T R U C T U R A L A D J U S T M E N T ,

A N D F O R E S T P O L I C Y R E F O R M

W O R L D R E S O U R C E S I N S T I T U T EW A S H I N G T O N , D C

W I T H :

J A K E B R U N N E RF R A N Ç O I S E K O K OC O L I N F I L E RH A R I A D I K A R T O D I H A R D J OJ O H N M U G A B E

F R A N C E S J . S E Y M O U RN A V R O Z K . D U B A S H

C A R O L L Y N E H U T T E RE D I T O R

H Y A C I N T H B I L L I N G SP R O D U C T I O N M A N A G E R

F R A N C E S J . S E Y M O U RC O V E R P H O T O

Each World Resources Institute report represents a timely, scholarly treat-ment of a subject of public concern. WRI takes responsibility for choosingthe study topics and guaranteeing its authors and researchers freedom of

inquiry. It also solicits and responds to the guidance of advisory panels andexpert reviewers. Unless otherwise stated, however, all the interpretation andfindings set forth in WRI publications are those of the authors.

Copyright © 2000 World Resources Institute. All rights reserved.

ISBN 1-56973-424-0

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WRI: THE RIGHT CONDITIONS

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Acknowledgments...................................VForeword...............................................VII

Executive Summary .................................I

1. Introduction........................................7World Bank Forest Policy.....................................11The Changing Face of Structural

Adjustment Lending .........................................17

2. Papua New Guinea...........................29 Navroz K. Dubash and Colin Filer

Background ..........................................................29Adjustment Lending ............................................38Implementation Experience................................44The Roles of Other Stakeholders .......................46The Bottom Line ...................................................51

3. Cameroon .........................................59Jake Brunner and François Ekoko

Background ..........................................................59Adjustment Lending and

Forest Policy Reform ........................................61Implementation Experience ...............................68The Roles of Other Stakeholders ........................73The Bottom Line ..................................................77

4. Indonesia ..........................................83Frances J. Seymour and Hariadi Kartodihardjo

Background...........................................................83Adjustment Lending and

Forest Policy Reform .......................................89Implementation Experience................................93The Roles of Other Stakeholders......................100The Bottom Line.................................................105

5. Kenya ...............................................113Frances J. Seymour and John Mugabe

Background..........................................................113The Proposed“Environmental Adjustment”

Loan ......................................................................117The Process Stalls ...............................................123The Roles of Other Stakeholders.......................125The Bottom Line.................................................127

6. Conclusion.......................................133Twisting Arms and Tipping Scales ...................134Building Coalitions for Change.........................139Implications for the World Bank.......................143The Bottom Line.................................................147

Appendix: Research Design .................151About the Authors................................155

C O N T E N T S


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BOXES

Box 1.1: Structural Adjustment Defined

Box 1.2: Suriname: International Support Buys Time for Forest Policy Reform

Box 1.3: Philippines: Borrower Ownership Through Forest Sector Lending

Box 1.4: World Bank Conventional Wisdom on Forest Policy

Box 1.5: The Environmental Impacts of Structural Adjustment

Box 2.1: Solomon Islands: Borrower Ownership Necessary to ‘Tip the Scales’

Box 2.2: Chronology of Adjustment and Forest Policy Reform in Papua New Guinea

Box 2.3: Sustainable Development Conditions in the ERP Policy Matrix

Box 3.1: Chronology of Adjustment and Forest Policy Reform in Cameroon

Box 3.2: Forest Conditionalities

Box 4.1: Chronology of Adjustment and Forest Policy Reform in Indonesia

Box 4.2: Commitments in the January 1998 Letter of Intent Related to Forestry and Environment

Box 4.3: The Right Conditions?

Box 4.4: Cambodia: Learning to Dance Smoothly with the World Bank

Box 5.1: Environment-related Commitments Contained in the 1996–1998 Policy Framework Paper

Box 5.2: Chronology of Events Related to Environmental Adjustment and Stakeholder Involvementin Kenya

TABLES

Table 1.1: World Bank Lending in Case Study Countries (In Total Commitments US $ Million), 1980–1998

Table 3.1: World Bank Lending to Cameroon (In Total Commitments US $ Million), 1980–1998

FIGURE

Figure1-1: Adjustment Lending as a Percent of Total Lending Commitments for the World Bank, 1980–1999


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T he creation of this report was a teameffort. We wish to thank our col-leagues who researched and wrote the

background case studies for this project andco-wrote the country case studies: JakeBrunner, François Ekoko, Colin Filer,Hariadi Kartodihardjo, and John Mugabe. Inaddition, we are grateful to Kilyali Kalit,George Krhoda, and Benson Mak’Ochiengfor providing considerable analytical assis-tance with the background papers.

Lily Donge managed the writing, produc-tion, and review process, while also providingresearch assistance. Her work has made thereport possible and we deeply appreciate allher efforts. We also wish to thank NathanBadenoch, Lily Donge, Tony La Viña, RichardPayne, and Nigel Sizer for their contribu-tions to the text boxes on Cambodia, thePhilippines, Solomon Islands, and Suriname.

This report is built on the collective reflec-tion and feedback of many people in bor-rower country governments, nongovernmen-tal organizations, industry, and the WorldBank. We wish to thank our sources whogenerously gave their time and insights innot-for-attribution interviews and correspon-dence. Special thanks to colleagues and part-ners who participated in a World Resources

Institute workshop in April 1999 to reviewour preliminary results.

This report has greatly benefited fromexperts who reviewed the entire manuscriptand we are grateful for their helpful com-ments: David Kaimowitz, Joan Nelson, DanRitchie, Michael Ross, and Angela Wood. Wealso appreciate detailed reviews of portions ofthe report by Mubariq Ahmad, Mark Baird,Jean-Marc Bouvard, David Brown, Jean-Christophe Carret, Lafacadio Cortesi, LaurentDebroux, Peter Dewees, Jim Douglas, JoannaElliott, Vicente Ferrer, Marianne Haug,Korinna Horta, Lisa Jordan, Alain Karsenty,Jean-Jacques Landrot, Nick Menzies,Boniface Essama Nssah, Eavan O’Halloran,Simon Rietenbergen, Wahidah Shah, HinrichStoll, Fred Swartzendruber, Meg Taylor, RodTaylor, Tom Walton, and Nurina Widagdo.

In addition, we wish to thank our WRI col-leagues who reviewed and helped with thisreport: Duncan Austin, Chip Barber, PaulFaeth, Debbie Farmer, Tony Janetos, Tony LaViña, Jesse Ribot, Nigel Sizer, and Peter Veit.We greatly appreciate the reviewers’ com-ments and suggestions, which have helpedstrengthen the report. The authors assumefull responsibility for any remaining errors offact and interpretation.

A C K N O W L E D G M E N T S


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Hyacinth Billings, Debbie Farmer, andCarollyne Hutter provided valuable supportin editing, production, and publication of thereport. We thank them and the rest of WRI’sCommunications staff for their assistance indistribution and outreach.

We are grateful for financial support fromthe Charles Stewart Mott Foundation, theNetherlands Ministry of Foreign Affairs, theSpencer T. and Ann W. Olin Foundation, andthe Wallace Global Fund.

F R A N C E S J . S E Y M O U RN A V R O Z K . D U B A S H

F O R E W O R D


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O ver the last 15 years, the World Bankhas come under a steady stream ofcriticism for the negative impacts of

its policy advice and lending operations onenvironmental sustainability, social equity,and good governance in borrower countries.An important question facing reformersinside and outside the World Bank iswhether the institution’s significant analyti-cal capacity and financial leverage can be har-nessed to promote those goals in collabora-tion with domestic constituencies for reform.

Two of the most contentious issues raisedby critics of the World Bank’s performancehave been the institution’s involvement inthe forest sector and its promotion of struc-tural adjustment. Both of these issues arehigh on the policy agenda in the year 2000,as the World Bank concludes a two-yearForest Policy Implementation Review andStrategy process, and considers the implica-tions of unprecedented levels of adjustmentlending in the wake of the financial crises ofthe late 1990s.

In The Right Conditions: The World Bank,Structural Adjustment, and Forest PolicyReform, Frances Seymour, Navroz Dubash,and their colleagues in Papua New Guinea,Cameroon, Indonesia, and Kenya address the

intersection of these two controversial arenasby asking the question: to what extent, andunder what conditions, can the World Bankbe an effective proponent of forest policyreform through adjustment lending?

A key finding of the report is that undercertain circumstances, the World Bank hasbeen effective in supporting domestic con-stituencies for reform against entrenchedvested interests in unsustainable logging.The World Bank’s engagement of stakeholdergroups and ability to sustain its commitmentto the reform agenda are identified as keyelements of effectiveness. However, whereinstitutional capacity is weak, the WorldBank has been much less successful in utiliz-ing adjustment lending to leverage imple-mentation of agreed policy changes. Thereport identifies changes in World Bank policy and practice that would improve theinstitution’s effectiveness, credibility, andlegitimacy as a proponent of forest policyreform.

The report challenges the conventionalWorld Bank wisdom in several respects.First, with respect to forest policy, the reportrecommends that the Bank move beyond effi-ciency-oriented reforms within an industrialforest management paradigm to embrace


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more fundamental reforms oriented towardequity and environmental sustainability.Second, with respect to the effectiveness ofconditionality in adjustment lending and bor-rower commitment to reform, the reportfinds that the process by which the WorldBank engages the borrower in the reformagenda is significant. A strict application ofthe principle of selectivity—in which theWorld Bank only lends to governmentsalready fully committed to reform—wouldresult in missed opportunities for the WorldBank to “tip the scales” toward embattledconstituencies for reform.

Finally, the report sheds light on the WorldBank’s new governance agenda, articulated inPresident Wolfensohn’s 1999 AnnualMeetings address. The report concludes thatin order to be an effective proponent ofreform in the forest sector, the World Bankmust address governance issues. Conversely,in countries where forests are important, forthe World Bank to be a credible proponent of

good governance, forest issues must beaddressed front and center.

WRI has addressed the changing interna-tional political economy of the forest sectorin several reports including: Logging Burma’sFrontier Forests: Resources and the Regime byJake Brunner and colleagues; Tree Trade:Liberalization of International Commerce inForest Products by Nigel Sizer and colleagues;and Trial by Fire: Forest Fires and ForestryPolicy in Indonesia’s Era of Crisis and Reformby Charles V. Barber and colleagues.

Support for this report, companion reportsand events in case study countries, and forWRI’s International Financial Flows and theEnvironment Project has been provided bythe C.S. Mott Foundation, the Wallace GlobalFund, the Spencer T. and Ann W. OlinFoundation, and the Netherlands Ministry of Foreign Affairs. I am pleased to expressour appreciation for their generosity andforesight.

J O N A T H A N L A S HP R E S I D E N T



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O ver the last 15 years, two of the mostcontentious issues faced by theWorld Bank have been its involve-

ment in the forest sector and its structuraladjustment lending. Concern about theWorld Bank’s role in contributing to forestdegradation in borrower countries led to aban on World Bank finance for logging inprimary tropical forests in 1991, but theimpact on forests of lending in other sectorsand structural adjustment remains controver-sial. Critiques of structural adjustment lend-ing have focused on the unintended negativeconsequences of macroeconomic reform andfiscal austerity for the poor and for the envi-ronment, as well as on the World Bank’sinfringement on national sovereignty anddemocratic process.

The late 1990s witnessed a spike in struc-tural adjustment lending in absolute termsand as a proportion of overall World Banklending, as well as a revival of debates aboutthe effectiveness of conditionality, spurred bythe World Bank report, Assessing Aid. And in1998, the World Bank initiated a two-yearForest Policy Implementation Review andStrategy process, designed to assess theWorld Bank’s experience in the forest sector,

as well as to develop a forward-looking strategy.

This report addresses the intersection ofthese two controversial arenas by asking thequestion: to what extent, and under whatconditions, can the World Bank be an effec-tive proponent of forest policy reformthrough adjustment lending? The reportfocuses on experience in a few exceptionalcases where the World Bank has explicitlyincluded forest policy reform conditions inadjustment lending operations: Papua NewGuinea, Cameroon, and Indonesia. In addi-tion, the report includes an analysis of whathappened in Kenya, where the World Bankproposed, but did not move forward on, anadjustment operation focused on environ-mental policy reform.

Previous World Bank forest policy reviewshave focused on the positive and negativeimpacts on forests of project-specific loans,while past reviews of adjustment lendinghave examined the unintended, usually nega-tive, social and environmental consequencesof macroeconomic policy change. By con-trast, this analysis concentrates on the fewexamples of the World Bank’s intentional useof structural adjustment as an instrument tobring about changes in forest policy.

E X E C U T I V E S U M M A R Y

PURPOSE AND APPROACH


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Our approach is to examine the process bywhich the World Bank has attempted to pro-mote policy change, which illuminates theroles of international and domestic actors informulating and implementing the reformagenda. Our objective is to identify the rightconditions, within the World Bank as well asin the borrower country, under which theWorld Bank can be an effective proponent offorest policy change through adjustmentlending.

FINDINGS

The cases in this report demonstrate thatunder the right conditions, the World Bankhas been able to catalyze key forest policychanges in the context of adjustment lend-ing, tipping the scales toward reformist ele-ments and away from vested interests. Underthe wrong conditions, the World Bank’sefforts have been met with frustration forboth it and the borrower, and have led to astalemate in the reform agenda.

In Papua New Guinea, progressive forcesin the government bureaucracy and theirallies in the World Bank were successful inusing adjustment lending to consolidate poli-cies that reined in rampant logging, and forseveral years prevented attempts by vestedinterests to roll back those reforms. InIndonesia, the World Bank and the Inter-national Monetary Fund took advantage ofthe 1997 financial crisis to shine a spotlighton governance issues in the forest sector,and force the dismantling of forest productmarketing monopolies.

These limited successes are counterbal-anced by significant failures and omissions.In Indonesia and Cameroon, the World Bankhas so far been unable to transform govern-

ment commitments into meaningful changein concession allocation and managementsystems. The cases provide little evidence ofthe World Bank effectively promotingreforms focused primarily on equity or envi-ronmental objectives. In Kenya, an attempt topromote a more broadly conceived environ-mental adjustment program never evenreached the point of an identification mis-sion, much less a lending operation.

Taken together, the case studies provideinsight into the conditions under which theintegration of forest policy reform objectivesinto adjustment lending can precipitate orconsolidate desired policy change. On thepart of the borrower, those conditionsinclude constituencies for reform within theborrower government or civil society andopportunities for meaningful policy changesthat do not require extensive institutionalreform to implement. On the part of theWorld Bank, those conditions include strongand consistent commitment to the reformagenda and engagement with key stakehold-ers to define and communicate the objectivesand strategy for reform.

The case studies challenge the emergingconventional wisdom that conditionality can-not be effective without full governmentcommitment to the reform agenda, or bor-rower ownership. This view assumes thatborrowers either do or do not have sufficientownership, that it is reasonable to expect theWorld Bank to accurately assess the degree ofthat ownership in advance, and that there islittle the World Bank can do to influenceownership. The experiences in Papua NewGuinea, Cameroon, Indonesia, and Kenyaillustrate the complexity and dynamics ofconstituencies for and against reform, insideand outside government, and how variables


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within the World Bank’s control can influ-ence the domestic politics of forest-relatedissues. While sustained policy reform andimplementation ultimately depend on domes-tic political forces, forest-related conditionsimposed by the World Bank have been effec-tive in raising the profile of forest issues onthe national agenda, prodding governmentsto commit themselves to new policies, andproviding support to domestic constituencies’efforts for reform.

However, the cases suggest that conditionsattached to adjustment lending are less effec-tive in addressing the long-term institutionalchallenges characteristic of the forest sectorthat often constrain the implementation ofagreed reforms. This is a significant finding,since in every case-study country, the WorldBank singled out the lack of institutionalcapacity as a principal impediment to long-term sustainable forest management.Because of its short time frame, adjustmentlending is poorly suited to supporting imple-mentation and institutional reform. In addi-tion, while the World Bank’s principal inter-locutors in adjustment lending, ministries offinance and planning, are often able and will-ing to effect changes in policies such as taxa-tion that affect forests, ministries of forestrytend to be much less amenable to reformingthemselves. There is not yet a record of expe-rience to judge whether follow-on sectoraland project lending can be effective vehiclesfor implementing policy changes agreed toduring adjustment operations.

The case studies also highlight the impor-tance of the World Bank’s ownership of thereform agenda, as evidenced by its willing-ness to be firm about forest-related condi-tionality. The World Bank was not an effec-tive proponent of policy change when its

commitment to reform was inconsistent upthe institution’s chain of command or overtime. When the World Bank wavered in itscommitment, it undermined the efforts ofconstituencies for reform in the borrowercountry.

In addition, the case studies indicate thatthe quality of the World Bank’s engagementwith stakeholders was also a significant fac-tor. When it failed to engage key constituen-cies, the World Bank rendered reform effortsvulnerable to misunderstandings and designflaws in structural adjustment conditions,and allowed opponents of reform to domi-nate public debate.

While confirming that forest policy reformultimately depends on domestic political vari-ables, the case studies indicate that there areopportunities for the World Bank to cultivatecoalitions for change. It can achieve this bybroadening the scope of the reform programobjectives beyond economic efficiency toinclude environmental, equity, and gover-nance concerns. The World Bank canincrease its effectiveness by reaching out to alarger group of stakeholders in the policy for-mulation and implementation process, andby insisting on conditions that open up forestpolicy decisionmaking to public scrutiny andparticipation.

RECOMMENDATIONS

The case study experience summarized inthis report has implications for the WorldBank at two levels, operational and strategic.

OPERATIONAL IMPLICATIONS

Safeguard policies: The World Bank’s lackof credibility as a proponent of environmen-


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tally positive policy change is highlightedwhen internal contradictions in a reformpackage undermine environmental objec-tives. Environmental assessment proceduresshould be applied to structural adjustmentloans to identify unintended negative envi-ronmental consequences.

Sustained sectoral engagement: Theprospects of successfully promoting forestsector reform are increased when the neces-sary analysis and contacts are in place priorto launching an adjustment operation. TheWorld Bank should conduct and disseminateanalysis that addresses the social equity andenvironmental implications of proposedchanges in the forest management regime,rather than limiting its analysis to efficiencyobjectives, in order to improve the effective-ness and legitimacy of adjustment operations.

Stakeholder engagement: World Bankshould invest more resources in communi-cating with key stakeholder groups about thenature and purpose of adjustment lending,and in understanding their priorities andconcerns. Equally important is that the WorldBank move beyond an outreach mode toestablish a dialogue with key stakeholders,and to incorporate their insights into thedesign and implementation of the proposedreform program.

Conditionality engineering: Adjustmentconditionality has been more successful inleveraging a small number of high-profilepolicy changes than in effecting a large num-ber of incremental steps necessary for theirimplementation. The World Bank shouldexplore the use of conditions that specify theoutcome to be achieved and characteristics ofthe decisionmaking process in order to

increase transparency and public participa-tion in policy design and implementation.

Staffing and incentives: If the World Bankis to broaden the adjustment agenda toinclude nontraditional issues and constituen-cies, it needs a different set of skills and atti-tudes: to conduct stakeholder analyses, moresocial scientists will be required; to movebeyond efficiency objectives, macroecono-mists will need to share responsibility for thereform agenda with others; to avoid alienat-ing potential members of coalitions forchange, perceived arrogance will need to bereplaced by collegiality.

STRATEGIC IMPLICATIONS

Selectivity: An influential World Bankresearch report, Assessing Aid, asserts thatdonors should selectively focus theirresources on countries with governmentsthat have already demonstrated a commit-ment to reform. This proposition ignores thepossibility that there are latent constituenciesfor reform even in countries where there islittle overt support for the reform process,and that conditionality can empower theseconstituencies. Conditionality can alter thepolitical dynamics of forest issues, if only byraising their profile on the national agenda,and can cause setbacks to those with vestedinterests in unsustainable logging.

The governance agenda: For the WorldBank to be effective in promoting reform inthe forest sector, it must centrally addressgovernance issues. The World Bank was ableto catalyze reforms where existing corruptpractices were challenged, as in Indonesiaand Papua New Guinea, while the reformswere relatively ineffective where these prac-tices were not firmly condemned, as in


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Cameroon. Conversely, in some countrieswhere forest issues are of material and sym-bolic significance nationally, it is incompletefor the World Bank to talk of good gover-nance without reference to forest sectorreform. This suggests that the environmentand natural resources arena is a particularlysuitable place to pursue a governance agenda.

Under the right conditions, in the borrowercountry and on the part of the World Bank,the World Bank can be an effective propo-nent of forest policy reform through adjust-ment lending. These findings suggest thatadjustment lending, the World Bank’s mostsignificant instrument, presents an impor-tant opportunity for mainstreaming social,environmental, and governance objectivesinto the World Bank’s work. The findingsalso offer a sobering challenge to the institu-tion to get the conditions right.


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I n 1998, a logjam that had blocked forestpolicy reform in Indonesia for decadeswas finally loosened when the World

Bank, acting with the International MonetaryFund (IMF), included forest policy reformsamong the conditions attached to a financialcrisis assistance package. While the need forchange had long been promoted in Indonesiaand abroad by the World Bank and others,the deep political entrenchment of logginginterests within Indonesia’s political econo-my always stymied action. Backed by thepolitical and economic weight of a structuraladjustment program, the World Bank seizedthis moment of political opportunity to cat-alyze change.

The Indonesia case is the most recent of asmall number of examples where the WorldBank, often acting with the IMF, has soughtto use structural adjustment lending to bringabout forest policy reform. (See Box 1.1 for adefinition of structural adjustment lending.) Inprinciple, one could construe inclusion offorest-related objectives in structural adjust-ment programs as evidence of progress inimplementing the World Bank’s long-stand-ing commitment to mainstream environmen-tal concerns into the full range of its activi-ties.1 Proponents of this approach argue thatadjustment lending provides a powerful tool

with which to dismantle entrenched forestinterests that block shifts to more environ-mentally and socially sound managementregimes. Those who are more skeptical pointto the limited credibility of the World Bankas an agent of progressive change based onits checkered history of engagement in theforest sector, and the controversial legacy ofpast structural adjustment.2

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I N T R O D U C T I O N

1

B O X 1 . 1

Structural adjustment loans (SALs)—also referredto as adjustment lending—support economy-widepolicy change and institutional reform, ratherthan a specific project. Sectoral adjustment loans(SECALs) support reforms that are limited to aspecific sector. The objectives of SALs are to

• provide balance-of-payments support,

• promote economic growth and poverty alleviation by stabilizing the macroeconomic environment,

• increase efficiency in the use of resources, and

• improve the scope for private sector develop-ment.

Sources: Jayarajah, 1995; World Bank, 1992

S T R U C T U R A LA D J U S T M E N T D E F I N E D


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In this report, we examine the empiricalrecord of the World Bank’s attempts to applystructural adjustment lending to forest policyreform in Papua New Guinea, Cameroon,Indonesia and Kenya, and ask the followingquestion:

To what extent, and under what conditions, can the World Bank be an effective proponent of forest policy reform through structural adjustment lending?

Our approach is to examine a limited set ofcases where the World Bank has intentionallyattempted to incorporate forest policy goalsinto adjustment lending, in order to under-stand the political economy behind the reformprocess. While most other reviews of adjust-ment lending have focused on a comparativeassessment of outcomes, our primary interestis in the process by which adjustment lendingis initiated, formulated, negotiated, and

implemented. This attention to the process ofreform allows us to assess how differentactors, international and domestic, affect theformulation of reforms and contribute to theprogress of a reform agenda.

This approach raises at least two method-ological issues.3 First, in this study werestrict ourselves to the analysis of forest policy reform, which is necessary, though notalways sufficient, to achieve environmentallysound forest outcomes. Moreover, in ouremphasis on the process of reform, we do notenter into the debates over the specific con-tent of those reforms. Second, we limit ourfocus to forest policy, while acknowledgingthat the fate of forests is often influenced asmuch or more by decisions taken outside theforest sector and by macroeconomic policydecisions. (See Table 1.1 for a comparison ofmacroeconomic lending and forest project lendingin the case study countries.) Our approach

Papua New Guinea 0 0 50 50 436 135

Cameroon 39 0 150 432 1,052 767

Indonesia 54 57 600 1,000 14,165 8,988

Kenya 57 61 186 171 1,889 1,146

T A B L E 1 . 1 WORLD BANK LENDING IN THE CASE STUDY COUNTRIES, 1980–1998( I N T O T A L C O M M I T M E N T S U S $ M I L L I O N )

Country Lending for Forest Projects * Macroeconomic Lending Total Lending ***

1980–1991 1992–1998 1980–1991 1992–1998 1980–1991 1992–1998

* Lending for Forest Projects includes direct lending for forest projects and indirect lending for forest development (projects with forests components).** During fiscal year 1998, the World Bank approved a US$1 billion adjustment loan to Indonesia which was not included in the data sources

referenced for this table.*** Total lending includes non-forest project lending which is not summarized here.

Source: World Bank, 1998b

**


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B O X 1 . 2

Background

In 1975, Suriname won independence from theDutch. By 1982, relations between the formercolony and the Netherlands had deteriorated fol-lowing a military coup and serious human rightsabuses. Dutch aid was partially suspended andSuriname entered a period of economic and politi-cal instability that has continued until today.Repeated failure to meet IMF and World Bank loanconditions led to withdrawal, over time, of theseinstitutions and of the Inter-American Develop-ment Bank (IDB). Foreign assistance was largelylimited to grant aid driven by the complexNetherlands-Suriname relationship.

In the mid-1990s, aid politics took a new twistin Suriname, one of the most heavily forestedcountries in the world and home to traditionalAmerindian tribal societies. In 1994–95, followinga visit by the President of Suriname to Asia, thegovernment embarked on negotiations with severalof Southeast Asia’s most rapidly expanding loggingenterprises. Local and international environmental,social developmental, and human rights groupswere alarmed about the proposed massive logginginvestments, which at one time totaled overUS$500 million. It was even revealed that somesenior elected officials had received substantialbribes to promote the investments and were linkedthrough family members to subsidiaries of theMalaysian and Indonesian firms.

International Intervention

Responding to pleas from overseas environmentalgroups, IDB’s President, Enrique Iglesias, took apersonal interest in the issue. He spoke withSuriname’s head of state, Ronald Ventiaan, andoffered to provide substantial financial supportthrough loans and grants for technical cooperation,if the government would consider suspending

logging expansion plans. News of the offer quicklyreached the democratically elected NationalAssembly of Suriname where an already loudminority opposition to the logging deals was grow-ing. The National Assembly, which had to formallyapprove the deals with a simple majority vote,became gridlocked between one group urgingrapid approval and the other demanding that theIDB proposal be properly aired and reviewed as aviable alternative. During this period, the WorldBank also sent letters expressing concern about thedeal, though these carried very little weight, as ithad no program in Suriname at the time. As thecountry began preparations for national elections,which an emerging opposition coalition wouldeventually win, any further debate of the loggingdeals was dismissed and no contracts were signed.

Results and Analysis

Since 1995, the IDB has continued to boost itsenvironmental program in Suriname and has sincehelped to create a national environmental protec-tion agency. In March 1998, the IDB approved aUS$1.38 million grant, with additional cofinancingby the European Union, to support Suriname in itsefforts to develop a national legal and institutionalframework for environmental policy and manage-ment. This was followed in November 1998 by a US$30 million policy-based sector loan toSuriname for agriculture and trade with a compo-nent that addressed the need for forest policyimplementation and reform. Under this compo-nent, Suriname had to ensure stakeholder partici-pation in a long-term forest policy, and developregulations to implement the Forest ManagementAct of 1992. These activities included efficiencypricing, actual collection of royalties and fees, andenforceable regulations for concessions.

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IDB’s intervention raised the political profile of thethreats to forests. It offered the possibility of meet-ing cash needs through donor support rather thanlogging expansion, which strengthened domesticopposition to the logging deals. The IDB was ableto play this role because, unlike other donors, ithad maintained a presence in Suriname. Thistimely and sustained intervention helped head offa round of rampant logging in Suriname.

Sources: Sources from the Inter-American DevelopmentBank, Environment and Natural Resources Division 3

Inter-American Development Bank. 1998. Agriculture andTrade Policy Reform Loan: Environmental and Social ImpactReport. Washington D.C.: Inter-American DevelopmentBank.

Nigel Sizer and Richard Rice. 1995. Backs to the Wall in Suriname: Forest Policy in a Country in Crisis.Washington D.C.: World Resources Institute.

B O X 1 . 2 ( C O N T I N U E D )

and methods are described further in theAppendix.

We have focused on a single institution,the World Bank, but many of the findingsapply equally to other aid institutions, suchas the intervention by the Inter-AmericanDevelopment Bank in Suriname described inBox 1.2. In some cases, notably Indonesiaand Cameroon, the IMF has also been animportant actor.4 In these situations, sincethe IMF has drawn heavily on the WorldBank for the content of forest reform condi-tions, as well as engagement with relevantstakeholders, we have maintained our focuson the World Bank.

The Right Conditions was shaped by twoimportant contextual factors. First, in 1998,the World Bank initiated a comprehensivereview of its engagement in the forest sector,the “Forest Policy Implementation Reviewand Strategy” (FPIRS), to assess its 1991 forest policy. This exercise will likely influ-ence future World Bank lending in the forestsector. This study is designed as an indepen-

dent effort to examine the intentional use ofadjustment lending to bring about forest policy reform, and is timed to make theresults available as an input to the FPIRS.

Second, the World Bank’s structuraladjustment lending has changed—qualita-tively and quantitatively—in recent years. Astated shift toward a poverty alleviation agen-da has led the World Bank to embrace goodgovernance, environmental protection, andhuman rights as legitimate concerns of bothproject lending and structural adjustmentlending. In the wake of the Asian financial

The poverty alleviation agenda has led the

World Bank to embrace good governance, envi-

ronmental protection, and human rights as

legitimate concerns of both project lending and

structural adjustment lending.


11

crisis of 1997, adjustment loans as a proportion of World Bank lending have morethan doubled from their historical levels (SeeFigure 1.1), an increase that suggests the needfor additional attention to how this instru-ment is used.

WORLD BANK FOREST POLICY

Forest policy has long been a politicallycharged issue for the World Bank. Whiledirect lending to the forest sector accountsfor less than two percent of the World Bank’sportfolio, it contributes, in the plaintivewords of a senior World Bank manager, “98 percent of the headache” (World Bank,

1998b, p. 5). This disproportionately highprofile of the forest sector arises primarilyfrom the attention the international environ-mental movement has brought not only toforest projects, but also to the World Bank’sbroader engagement in the sector. Examplesinclude large infrastructure projects, such asthe Polonoreste road-building project inBrazil, macroeconomic policy lending thatleads to unanticipated shifts in the incentivesfor patterns of forest use, and World Bankinvolvement in the controversial TropicalForestry Action Plan (TFAP)—a joint exerciseinitiated by the World Resources Institute,the United Nations Development Pro-gramme, and the World Bank.5

1981 1980

0%

10%

20%

30%

40%

50%

60%

1983 1985 1987 1989 1991 1993 1995 1997 1999

F I G U R E 1 . 1 A D J U S T M E N T L E N D I N G A S A P E R C E N T O F T O T A L L E N D I N GC O M M I T M E N T S F O R T H E W O R L D B A N K , 1 9 8 0 – 1 9 9 9*

Note: * This data includes both IBRD and IDA lending, in FY 1980–1999.

Source: World Bank


12

Evolution of World Bank Forest Policy

Initiated in 1985 to halt the loss of tropicalforests, the TFAP increased the volume andvisibility of the World Bank’s involvement inthe forest sector. The World Bank played animportant role in assisting with and fundingnational TFAP planning processes in severalcountries. Five years later, however, manyanalysts pronounced that TFAP had deliveredless than its promise. A review by the WorldResources Institute noted that while its origi-nators had conceived of TFAP as a means toaddress the root causes of deforestation, itbecame instead a vehicle to harmonize donorassistance (Winterbottom, 1990). As a result,the TFAP was used to justify increasedinvestment in the forest sector without fun-damentally challenging existing forest man-agement regimes. This perspective was toonarrow to effect long-term change.

In 1991, the World Bank undertook areview of its lending experience in the forestsector, and developed a new policy paper toguide its involvement. The review, accordingto the authors, was stimulated by a realiza-tion that development thinking had movedbeyond a preoccupation with mobilizing capi-tal for industrial development, and had cometo embrace the ecological value of forestresources, as well as their economic value tolocal communities (World Bank, 1991a;World Bank, 1991b). The review processsparked a debate over the appropriate role ofthe World Bank in supporting logging, andled to a policy that the World Bank wouldunder no circumstances fund commerciallogging in primary moist tropical forests(World Bank, 1991a). In addition to the banon World Bank finance for logging, therewere several other controversial issues at

stake, including institutional and sociologicalaspects of control over and access to forests.

The 1991 review process concluded thatthe World Bank should emphasize programrather than project lending in the forest sec-tor. The goal of sectoral program lending, itwas argued, should be to structure incentivesappropriately, develop an organizationalstructure, and establish the basis for partici-pation by various stakeholders (World Bank,1991b). The World Bank should only under-take projects that were embedded within aclear sectoral framework. Until this time, ithad not undertaken program lending in theforest sector, with the exception of an influ-ential sectoral adjustment loan (SECAL) tothe Philippines in 1991. (See Box 1.3.)

Implementation of the 1991 policy wasreviewed in 1994, but as the review docu-ment itself notes, the time span between for-malization of the policy and the review wastoo short to identify the impacts of the newpolicy (World Bank, 1994b). For our purpos-es, it is relevant to note that this interimreview did not address the impact of adjust-ment lending and macroeconomic policies inany systematic way, and relied instead on anexisting World Bank study (later published asCruz and Repetto, 1992) for conclusions onthis topic.

The Forest Policy Implementation Reviewand Strategy (FPIRS), initiated in 1998, is aresponse to a commitment made by theWorld Bank in 1994 to engage in a moresubstantive review of the impact of its workon the forest sector. The early days of theFPIRS were controversial. First, internal doc-uments were publicized that suggested thatsome World Bank staff sought to use the newreview to revisit and remove the prohibition


13

Background

In the early 1980s, massive commercial loggingand conversion of forests into agricultural landscaused severe deforestation in the Philippines.Over a 20 year-period, forest cover shrunk fromhalf of total land area to less than a quarter, anecological crisis that affected millions of Filipinos,including many of the seven to eight millionindigenous peoples. Despite the scale of the prob-lem, donors were reluctant to provide assistancefor Philippine forest activities because of rampantcorruption and the existence of politically powerfullogging cartels. In 1986, the political conditionschanged dramatically with the fall of PresidentMarcos. In 1987, Fulgencio Factoran, a humanrights lawyer, was appointed to head the Depart-ment of Environment and Natural Resources(DENR), and embarked on a campaign to reformthe forest sector.

Adjustment Experience

At the same time, the new government of CorazonAquino faced pressing macroeconomic problems,in particular a debt burden which by 1988 was con-suming 32 percent of the nation’s foreignexchange earnings. Her first order of business wasto address balance-of-payments problems.

During the 1970s the forest sector had been animportant source of foreign exchange earnings,accounting for 18 percent of exports in 1973. By1987, although this proportion had dropped to fivepercent, the sector became an essential indirectpart of the solution to the macroeconomic crisis byattracting donor dollars. By 1992, the DENR wasone of the country’s leading recipients of interna-tional aid. The World Bank, the Japanese govern-ment, and the Asian Development Bank (ADB)approved five forest-related loans totaling US$731million, and the U.S. Agency for International

Development (USAID) provided an additionalgrant of US$125 million.

Forty percent of these funds, half of which camefrom a World Bank sectoral adjustment loan, wereallocated to balance-of-payments support condi-tioned on a series of forest policy reforms. Thegovernment was required to increase logging fees,ban logging in primary forests, and enforce log-ging regulations. The logging companies wereagainst these conditions and put extreme pressureon several influential members of the Philippinecongress to oppose the reforms.

This opposition was overcome through cleverstrategic use of donor funds by the reformers.First, although most of the forest conditions weredrafted collaboratively by the DENR and the WorldBank, DENR staff presented the conditions asexternally imposed, thereby displacing the politicalunpopularity of the conditions onto the shouldersof the donors. Second, DENR officials made alliesof economic planners and the Central Bank of thePhilippines who desperately needed balance-of-pay-ments support. Third, the ADB loan allowed DENRstaff to allocate funds by congressional district tocompensate them for the loss of their patronageprivileges, winning them over to the pro-reformside. Finally, the DENR mobilized the support ofthe local NGO community, and won public supportthrough high-publicity raids on illegal loggers.

Outcomes

By tying forest reform to conditions mandated bymultilateral and bilateral donors, the pro-reformstakeholders were successful in executing andinstitutionalizing their reform agenda despitepolitical forces opposing the changes. The use ofenvironmental conditions had three major effects:the political power of the logging companies was

B O X 1 . 3 P H I L I P P I N E S : B O R R O W E R O W N E R S H I P T H R O U G H F O R E S T S E C T O R L E N D I N G


14

on direct support for logging in primarymoist tropical forests. In this context, someWorld Bank staff expressed the opinion thatthe policy has precluded strategic financingto promote sustainable forest managementpractices.6 Others were more concerned thatmany World Bank managers interpreted thepolicy in a manner that has allowed them todisengage from a controversial sector.Second, preparations for the forest reviewwere overshadowed by a controversial set of

meetings initiated in 1998 by the presidentof the World Bank with the leaders of largelogging companies. This rocky start illus-trates the charged atmosphere within whichdiscussions over the World Bank’s role inforest issues are conducted.

World Bank Forest Policy: The Debates

As mentioned earlier, debates over the World

broken on the national and regional levels; the log-ging industry’s economic strength was under-mined by denying loggers access to the country’smost valuable timber in old-growth forests; and thecapacity and institutions needed to enforce thereforms and conditions were created.

On the negative side of the ledger, critics notedthat the need to repay large sums in foreignexchange to donors would be likely to place addi-tional pressure on exports of environmentally sen-sitive resources. In addition, the massive scale offorestry funds made available in a short time-spanoutstripped state capacity to use these funds effec-tively. The result has been conflicts among variousstakeholders, including local and internationalNGOs, private interests, and forestry communities.

Yet, some positive results are real and measur-able. From 1987 to mid-1994, the number of tim-ber licensees was drastically reduced from 154licensees, with a combined annual allowable cut of8.1 million cubic meters, to 31 licensees, with a cutof 878,000 cubic meters. The remaining licenseesare better monitored, taxed at a higher rate, andare required to post bonds. Furthermore, over thelast decade Philippine forest policy has shifted

from an emphasis on industrial forestry to the prioritization of community-based forest manage-ment as the best strategy toward sustainableforestry and social justice.

In the Philippines case, the essential conditionsto make such a reform agenda work were a strongreform constituency within the country and politi-cally sophisticated leadership, open public consul-tative processes and access to information toengage the NGO constituency, and pressure, bothinternationally and from individuals within theADB and the World Bank, to engage in environ-mental reform.

Sources: Michael Ross. 1996. “Conditionality and LoggingReform in the Tropics.” In Institutions for Environmental

Aid, edited by R. Keohane and M. Levy. Cambridge,Massachusetts: MIT Press.

Frances Korten. 1994. “Questioning the Call forEnvironmental Loans: A Critical Examination of ForestryLending in the Philippines,” World Development, Vol. 22,No. 7: 971–981.

Interviews with Antonio G.M. La Viña, formerUndersecretary of the Department of Environment andNatural Resources, on March 11, 1999 and May 11, 1999.

B O X 1 . 3 ( C O N T I N U E D )


15

Bank’s approach to forest issues have beencontentious in part because of a failure toaddress the impact of lending in nonforestsectors (Kaimowitz and Angelsen, n.d.), and

macroeconomic policies on forests (Cruz andRepetto, 1992).7 However, the policies thatare explicitly directed at forests have notbeen free of contention either. World Bankforesters have tended to focus their attentionon the promotion of an effective system forthe management of industrial forestry. Bycontrast, the World Bank’s critics have calledfor greater attention to the institutional,political, and sociological questions aroundwho controls forest access and use, how envi-ronmental issues are addressed, and how for-est resources are tied to the national politicaleconomy.

In 1989, the World Bank commissioned astudy of forest pricing and concession sys-tems with an emphasis on West and CentralAfrica. The results outline the issues, currentpractices, and recommendations for use bystaff preparing loans to countries in thisregion, and capture a conventional wisdom ofthe time in the World Bank on reform ofindustrial logging operations. (See Box 1.4.)This view informed the policy reformsdescribed in the chapters that follow andremains an important component of WorldBank thinking on the forest sector.

This conventional wisdom has been thesubject of an ongoing debate within and out-side the World Bank, a debate which hasraised questions as to whether the proposedpolicies are practical or will achieve thedesired outcomes.8 In addition, there areserious concerns as to whether a generalapproach such as this set of reforms can suf-ficiently address the diversity of forest issuesand experiences in different countries.9

Beyond the specifics of the debate over thepolicies, however, there are two points thatare relevant to this discussion. First, the con-ventional wisdom addresses equity issuesonly indirectly, by assuming that enhancedrent capture from the forest sector by thestate will allow for greater reinvestment forpoverty alleviation and equity-oriented pro-grams. By contrast, World Bank critics fromcivil society stress more direct approaches tothe objective of poverty alleviation and theexplicit incorporation of participatoryprocesses into decisions over forest use(Bank Information Center et al., 1999). Thistheme includes concerns over who has accessto and control over forest resources, industri-al loggers or community dwellers, and issuesover the rights of forest-dwelling and indige-nous communities.

Second, the conventional wisdom onlyaddresses environmental issues indirectly.Reformist logging policies are aimed atintensifying logging in a limited area, there-by freeing other forest areas from loggingpressures. In addition, the conventional wisdom assumes that increasing the value ofstanding timber provides incentives for lesswasteful logging practices and better protec-tion against encroachment. In rebuttal, conservationists argue that conservationinterests are better served more directly,

The World Bank’s critics have called for greater

attention to the institutional, political, and

sociological questions around who controls

forest access and use.


16

The Diagnosis

“(F)orest revenue and concessions systems in Westand Central Africa and probably in many otherdeveloping countries too, are characterized byunmanageable complexity, timber fees that areconsiderably below what the concessionaires arewilling to pay, very low tax collection rate, arbitraryallocation of concessions, failure to make use ofmarket mechanisms, forest destruction due to lackof forest management, enormous waste of wood,and financial irregularities.”

Recommendations

Use Auctions to Allocate Concessions

Administrative allocations of concessions based onmutual agreement between the government andthe company lead to concessions of short durationand with no forest management requirements.This approach has tended to greatly undervalue theresource, leading to inefficiency and generation oflow tax revenues. This system is also susceptible topolitical pressure. By contrast, auctions allow themarket to determine the highest value of theresource. Moreover, in theory, auctions are trans-parent (because any qualified company can bid andthe criteria for allocation are predetermined),objective (because the company, not the govern-ment, decides what price to pay for the conces-sion), and efficient (because it favors those compa-nies that can make the most money, and pay themost tax, from the concession). Concessionsshould be allocated for at least 30 years.

Replace Volume-based Taxes with Area Taxes

Area taxes are an instrument to increase revenuecollection (because they are easy to collect) and auseful regulatory tool (because they act as a disin-centive to companies that want to acquire hugeconcessions for speculative purposes). They are

particularly powerful when coupled with an auc-tion system because they force companies to revealhow much they consider the forest to be worth.This is important in those countries where thecompanies usually have much better data on thecommercial value of the forest than does the gov-ernment. Under these conditions, an area tax-based auction system serves as a disclosure mecha-nism.

Remove Export Bans and Reduce Export Taxes

Many countries have introduced log export bansand high log export taxes in an effort to promoteindustrialization. These measures depress theprice of logs on the domestic market, which hasseveral negative consequences: it encourageswasteful logging and wood processing, reducesincomes of logging companies and logging-depen-dent communities, implies revenue forgone fromlog exports, and reduces the implicit value of thestanding forest with consequent higher risks ofagricultural conversion.

Require Forest Management Plans

Whereas the use of auctions and higher area taxesare part of a sound forest policy, there is littleempirical evidence of their impact on harvestingpractices, which some fear will intensify.Allocation and taxation reforms should, therefore,be coupled with a requirement for forest manage-ment plans to mitigate the potential negativeimpacts caused by higher volume harvesting. Thisrequirement also responds to growing domesticand international support for the notion of sustain-able forest management. The private sector andNGOs should also be involved in monitoring andreporting on forest management practices and for-est conditions.

Source: Grut, Gray, and Egli, 1991

B O X 1 . 4 W O R L D B A N K C O N V E N T I O N A L W I S D O M O N F O R E S T P O L I C Y


17

through the establishment of protected areas(Bowles et al., 1998).10

While the World Bank has increased itsforest-related project lending aimed at equityand environmental concerns following the1991 forest sector policy (World Bank,1994b), the institution has lagged behind inexplicitly integrating these concerns into policy prescriptions. The center of the WorldBank’s agenda remains a reformist one:given the reality of industrial logging, thepolicy prescriptions are designed to amel-iorate both equity and environmental concerns by improving the efficiency ofindustrial logging.

THE CHANGING FACE OF STRUCTURALADJUSTMENT LENDING

Debates over Adjustment Lending

SALs and SECALs are the World Bank’s pri-mary means to induce policy reform in bor-rower countries. Three features of structuraladjustment loans distinguish them fromother types of aid instruments.11 First, sinceSALs relate to the economy as a whole andare usually large relative to the size of aneconomy, they are negotiated directly withministries of finance and top economic offi-cials, an audience that does not typicallymake the links between their economic briefsand forest issues. Second, inserting forestconditions into a SAL serves to structurallylink forest policy reforms to high-profilemacroeconomic adjustment issues. Forestissues could either be heightened by the link-age or overshadowed, depending on the par-ticular case. Third, SALs must be designedand disbursed quickly, calling into question

whether they can support long-term reformmeasures.

Between 1984 and 1992, about one quarterof World Bank funds were committed tostructural adjustment loans annually (Kapur,Lewis, and Webb, 1997). However, SALsabsorbed a “disproportionate amount of thetime and nervous energy” (Kapur, Lewis, andWebb, 1997, p. 517) of the World Bank’smanagement and Executive Board for tworeasons.

First, adjustment lending increased theaccountability of governments to donors andpotentially weakened the accountability ofgovernments to their domestic constituents.Many of the proposed policies introducedthrough adjustment lending were politicallyunpopular, with few short-term benefits andpolitical rewards; borrower governmentsresented being forced to implement policiesthat often undermined their political base ofsupport. While adjustment is a means ofholding borrower governments accountableto donors, the donors in turn are largelyaccountable only to wealthy industrializedcountries. As Kapur et al. put it in their his-tory of the World Bank: “ ‘accountability’ isnot a particularly symmetrical variable”(Kapur, Lewis, and Webb, 1997, p. 704).12

Moreover, greater accountability to donorsdoes not necessarily foster greater account-ability to domestic constituents and can evenundermine it. The potentially negative effectsof adjustment lending on accountability areparticularly problematic when adjustmentloans are perceived as propping up illegiti-mate regimes.13 As governance concerns havebeen given greater prominence in the WorldBank’s stated agenda, this concern could be explicitly addressed by structuring


18

adjustment loans to promote greater trans-parency in reform processes in borrowercountries. Whether the benefits from doingso will be greater than the potential costs ofsustaining illegitimate governments can onlybe determined on a case by case basis.

Second, the content of adjustment lendingprograms was controversial. Through the1980s and beyond, there was a steady streamof external criticism of the process, priorities,and outcomes of adjustment lending bothfrom other international institutions,14 acade-mics,15 and from civil society organizations.16

A primary reason for discontent over adjust-ment lending is that the instrument has typi-cally been used to promote a limited menu ofmacroeconomic reforms with little attentionto social and environmental implications.These criticisms raise an important question:can adjustment lending overcome its percep-tion as a harbinger of short-term societalharm?

For the purposes of this study, a particu-larly salient criticism is that neither negativenor positive environmental impacts are sys-tematically addressed in structural adjust-ment loans. (See Box 1.5.) Yet, previousanalyses have concluded that responsibleadjustment lending must not only assess andmitigate potential negative consequences ofmacroeconomic reforms, but should alsoinclude measures designed to maximizesocial and environmental benefits (Cruz andRepetto, 1992; Munasinghe and Cruz, 1995;Reed, 1996). The World Bank’s OperationalDirective on adjustment lending does indeedinstruct staff to “consider the implicationsfor the environment” and “take into account”findings about linkages between the reformprogram and the environment (World Bank,1992, p. 3). However, a recent internal World

Bank study reported that less than 20 per-cent of loans approved in FY98 and FY99had any substantial mention of potentialenvironmental impacts arising from theloans (World Bank, 1999). By contrast, sec-toral adjustment loans are currently subjectto the stronger requirement of an environ-mental assessment under the World Bank’sEnvironmental Assessment Policy (WorldBank, 1999).

These two concerns, regarding accountabil-ity and content, are central to current debateswithin civil society groups on adjustmentlending.

On the one hand there are those who rec-ognize the need for ownership and sover-eignty but regard some governments asunresponsive to the wider needs of theirpopulations and therefore support someform of “poverty focused” or “social” con-ditionality, which if done right couldstrengthen civil society; on the other, thereare those who regard all conditionalityimposed from outside as undermining thedemocratic system and abusing the sover-eignty of the borrower country (Wood andLockwood, 1999, p. 3).

In this study, we examine the empiricalrecord to ask if the content of adjustmentlending can be changed to address social andenvironmental problems, and undertaken in

Neither negative nor positive environmental

impacts are systematically addressed in

structural adjustment loans.


19

a manner that encourages governancereforms.

Beyond Macroeconomics: Adjustment Lending Extended

Although the definition of adjustment lend-ing emphasizes only growth rates and bal-ance-of-payments as legitimate goals, theexperience of adjustment lending, dominatedby unsuccessful efforts in Sub-Saharan

Africa in the 1980s, forced the World Bankto reconsider. An important review of theAfrican experience concluded that Africangovernments must “go beyond the issues ofpublic finance, monetary policy, prices andmarkets to address fundamental questionsrelating to human capacities, institutions,governance, the environment, populationgrowth and distribution and technology . . .ordinary people should participate more indesigning and implementing development

The environmental impacts of structural adjust-ment operate through a variety of pathways. First,in extractive economies, incentives to trade on theworld market intensify extraction of naturalresources without a corresponding set of safe-guards to mitigate environmental costs (Reed,1996). Second, macroeconomic policies changeincentives across sectors, which lead to depletingunpriced or underpriced natural resources andenvironmental services in favor of accumulatingrelatively unproductive industrial capital (Cruz andRepetto, 1992).

Third, in the agricultural sector, while commer-cial farmers are able to respond to new price sig-nals to intensify and increase the efficiency of pro-duction with some environmental gains, subsis-tence farmers and agricultural workers respond byextensifying production, placing additional stresson natural resources, or are forced into the ranksof the urban informal sector (Reed, 1996). In thePhilippines, for example, Cruz and Repetto reportthat macroeconomic policies depressed agriculturalincomes, which caused farmers to migrate to eco-logically sensitive areas and put pressure on thenatural resources of those regions (Cruz and

Repetto, 1992). Finally, the weakening of stateinstitutions and fiscal reductions often accompanyadjustment lending, which circumscribes the abili-ty of the state to manage natural resources andenforce environmental laws (Reed, 1996).

Several studies conclude that some macroeco-nomic policies can also be environmentally benefi-cial, and can be made more so if they are inten-tionally designed with environmental objectives inmind (Cruz and Repetto, 1992; Munasinghe andCruz, 1995; Reed, 1996). Examples of environmen-tally positive measures include removal of pricedistortions that result in perverse incentives fornatural resource use, awareness of and compensa-tion for market failures where environmental ser-vices are under-priced, measures to strengthenenvironmental monitoring and enforcement unitsat national and sub-national levels, and legal provi-sions to appropriately delegate authority for natur-al resource management, such as communityforestry measures (Cruz and Repetto, 1992;Munasinghe and Cruz, 1995; Reed, 1996). Pricing,monitoring and enforcement, and the delegation ofmanagement authority are all reform measures ofcentral importance to the forest sector.

B O X 1 . 5 T H E E N V I R O N M E N T A L I M P A C T S O F S T R U C T U R A L A D J U S T M E N T


20

programs” (World Bank 1989, p. 1).17

Moreover, as Nelson and Eglinton (1992)point out, this shift in thinking was wide-spread across the aid community and wastriggered in no small part by geo-politicalevents such as the collapse of the Soviet bloc.

Despite the officially apolitical mandate ofthe World Bank, the triumph of liberaldemocracy opened the door to a variety ofobjectives—good governance, environmentalprotection, human rights—seen as necessarypreconditions to economic well-being andalso as positive outcomes in their ownright.18 The extent to which the World Bankcould expand its mandate to achieve thesebroader objectives became the object of studynot only within the World Bank, but also byoutside academics and NGOs (Bosshard etal., 1996; Nelson and Eglinton, 1993).Because achieving these new objectives ofadjustment lending is facilitated by anddependent on good governance (Nelson andEglinton, 1993), defining the role of the statewas, then, an important part of articulatingthis new vision. The World Bank’s 1997World Development Report articulates thisvision as the need to match the state’s role to its capability, and reinvigorate public institutions so as to boost their capability(World Bank, 1997). As discussed earlier,reforms required in the forest sector rely onstate capability and fall squarely within the category of reforms that depend on good governance.

The Adjustment Paradox

From the inception of adjustment lending,the viability of tying policy reform to loanshas been questioned. If borrower govern-ments are not committed to reform, then willan adjustment loan convince them to re-eval-

uate policies? And if they are already com-mitted to change, then why do they need anadjustment loan to implement reform(Mosley, Harrigan, and Toye, 1995)?19 Formuch of the history of adjustment lending,the two sides—the World Bank and borrowergovernments—have refused to recognize thisparadox that potentially undermines the via-bility of adjustment lending.

The World Bank has publicly characterizedits approach to the formulation of adjust-ment loans as apolitical, consensual, andnoninterventionist. As Kahler (1989, p. 140)sums up the official line: “Programs aredesigned by governments to meet their ownneeds; if they also meet the IMF and WorldBank criteria, then they will be supportedfinancially.” But in such cases, what is themoney for, and what purpose does the condi-tionality serve? By contrast, from a borrowercountry’s perspective, formulating an adjust-ment loan is a bargaining process—howmuch money is being exchanged for whatmeasure of policy reform. Implicit in the bar-gaining perspective is that borrower govern-ments have little or no ownership over thereform process, and have an incentive toside-step politically difficult reforms wher-ever possible.20

In reality, the adjustment paradox rests onan assumption of unitary political actors onboth sides of the bargaining table (Kahler,1989). Yet, as the case studies in this reportillustrate, within both the World Bank andthe borrower government are different actorswith sometimes conflicting motivations andincentives. Acknowledging multiple actorsand interests shifts the debate beyond thedichotomy of borrower versus World Bankcontrol, to an exploration of the political tensions involved in adjustment lending


21

processes. The middle ground of negotiation,political struggle, and dialogue between theextreme models of World Bank and borrowerownership is the terrain that most adjustment

programs must in reality negotiate. This isparticularly true in the forest sector, which isoften riven by overlapping and contentioustenure regimes, competing uses of industrialand community forestry, and weak enforce-ment of existing laws and regulations.

Conditionality Engineering

The World Bank’s ability to induce and cajolegovernments, and to strengthen differentconstituencies within borrower countriesrests, in part, on its application of condition-ality to projects, policies, or as a screen todetermine aid eligibility (Nelson andEglinton, 1993). Conditionality for policyreform can have three main objectives.21

First, the World Bank can use conditionalityto induce reform where a borrower does notwant to undertake reform. Second, condi-tioned aid can serve to keep borrowers com-mitted to reforms already undertaken bythreatening to withdraw aid. Third, agree-ment with conditions can be a signal to otherdonors and investors that a credible policyprogram is in place.

To achieve any of these goals, both sidesmust believe that the underlying contractbetween the World Bank and the borrowergovernment will be enforced. However, it isextremely difficult to maintain the credibilityof this contract (Wood and Lockwood, 1999).First, policy conditions are often hard tomonitor, open to interpretation, and theextent of compliance with them may requiresubjective assessment. Second, donors suchas the World Bank often have incentives tokeep lending money, which lead them toavoid declaring a borrower out of compliance.Moreover, since stopping funding could pro-duce a macroeconomic crisis and result inthe borrower defaulting on repayment, thelender has an incentive to avoid imposing apenalty and instead to provide additionalloans to stem crises irrespective of policy performance (Collier et al., 1997). Third, it isdifficult to prevent reform processes fromstalling once conditionality has lapsed andfunds have been disbursed, if there is nodomestic commitment to the policy reform.These difficulties are amplified in gover-nance-rich arenas, such as forestry, that arerelatively less amenable to irreversiblereforms implemented by a stroke of the pen.

Given this situation, both the World Bankand independent studies report low degreesof conditionality effectiveness. In a study ofthe effectiveness of tranche conditions, therelease of tranches was delayed in three-quar-ters of World Bank adjustment loans between1980 and 1988 because of noncompliance(cited in Collier et al., 1997, p. 1401).22 In thiscontext, one line of thinking emphasizes theneed for dialogue to bring the objectives ofthe borrower and the donor more in line witheach other, and specifically for the borrowerto develop ownership over the reform program.23

The middle ground of negotiation, political

struggle, and dialogue between the extreme

models of World Bank and borrower ownership

is the terrain that most adjustment programs

must in reality negotiate.


22

Borrower Ownership

While borrower ownership is widely andapprovingly invoked in studies of adjustmentlending, there have been few attempts todefine the concept. One exception, a WorldBank discussion paper by Johnson and Wasty(1993), identifies four components by whichborrower ownership may be measured: locusof initiative (borrower or World Bank); levelof intellectual conviction among key borrow-er policymakers; expression of political willat the top; and effort toward consensus build-ing among various stakeholders.

This definition suggests that the role ofWorld Bank task managers should be tobuild intellectual conviction within govern-ment, encourage expression of this convic-tion through political expression, and engagenongovernmental constituencies in formula-tion of reform efforts. A goal of this report isto assess the extent to which World Bankstaff attempted to and were able to pursuethis approach, and to comment on the resultsof such an approach where it was attempted.24

New Thinking in DevelopmentAssistance

A recent influential study by the World Bank,Assessing Aid, finds that using conditionalityto twist the arms of governments does notwork, and that the borrower’s ownership ofa reform program is critical to its success. The primary conclusion, in an echo of earlierdebates over allocative conditionality, is thatdonors should be more selective, and aid dollars should be sent to countries withsound economic management.25 In positiveenvironments, reformist governments canuse policy-conditioned lending to protectreforms from special interests and to signal

their seriousness of intent to the outsideworld (World Bank, 1998a).

Based on a regression analysis, the studyconcludes that whether adjustment lendingsucceeds depends on existing political andeconomic variables, and minimally on vari-ables under the World Bank’s control such assize of the loan, number of conditions,resources used to prepare the loan, andresources used for analytical work in the fouryears prior to the loan (World Bank, 1998a).Thus, the study adamantly counters the sug-gestion that “if the World Bank works harderor puts more resources into an adjustmentloan, a failed reformer can somehow beturned into a successful one” (World Bank,1998a, p. 59).

The variables used in Assessing Aid to rep-resent World Bank effort fail to measure itssophistication in negotiating the political ter-rain in borrower countries. However, to buildborrower ownership the World Bank mustengage political actors by finding and sup-porting reformers within governments, sup-porting knowledge creation, and engagingcivil society. Although they find no place inthe regression analysis, these are preciselythe measures recommended in the report forcountries with poor policy environments, arecommendation that runs counter to the pri-mary conclusion that the World Bank cannotturn a failed reformer into a successful one.Hence, the report contradicts itself. Insteadof the dichotomous view of borrowers aseither likely successes ripe for Bank interven-tion or likely failures, it is more fruitful toconsider a spectrum of ownership over policyreform across borrower countries, and toexplore the alternatives available to the WorldBank for intervention across this spectrum.

* * * *


23

The next three chapters summarize the find-ings of case studies of the World Bank’sexperience with forest policy reform andadjustment lending in Papua New Guinea,Cameroon, and Indonesia. Chapter Fivedescribes the case of Kenya, where an entireadjustment operation related to environmen-tal policy reform was proposed, but never

realized. The concluding chapter synthesizesthe findings, lays out the conditions underwhich the World Bank can be an effectiveproponent of forest policy reform throughadjustment lending, and suggests the implications of those findings for the WorldBank’s policies, practices, and strategies.


24

Bank Information Center, Consumer’s ChoiceCouncil, Environmental Defense Fund, ForestPeoples’ Programme-UK, Urgewald-Germany,World Rainforest Movement. 1999. “NGOComments on the OED Design Paper.” Mimeo.

Boscolo, Marco, and Jeffrey R. Vincent. 1998. “Promoting Better Logging Practices in TropicalForests.” Washington D.C.: The World Bank.

Bosshard, Peter, Carlos Heredia, David Hunter, and Frances Seymour. 1996. Lending Credibility:New Mandates and Partnerships for the World Bank.Washington D.C.: World Wildlife Fund.

Bowles, Ian A., R.E. Rice, R.A. Mittermeier, andG.A.B. da Fonseca. 1998. “Logging and TropicalForest Conservation.” Science 280 (19 June):1899–1900.

Collier, Paul, Patrick Guillaumont, SylvianeGuillaumont, and Jan Willem Gunning. 1997.“Redesigning Conditionality.” World Development25 (9):1399–1407.

Cornia, Andrea, Richard Jolly, and Frances Stewart.1987. Adjustment with a Human Face. Oxford:Oxford University Press.

Cruz, Wilfrido, and Robert Repetto. 1992. TheEnvironmental Effects of Stabilization and StructuralAdjustment Programs: The Philippines Case.Washington D.C.: World Resources Institute.

Development GAP. 1995. Structural Adjustment andthe Spreading Crisis in Latin America. WashingtonD.C.: The Development GAP.

Grut, Michael, John A. Gray, and Nicolas Egli. 1991.Forest Pricing and Concession Policies. WashingtonD.C.: The World Bank.

Grynberg, Roman. (no date.) “Not Even the Hewersof Wood: Export Taxes, Downstream-Processingand the Bretton Woods Consensus.” Mimeo.

Horta, Korinna. 1999. “Governance Issues: TheAchilles Heel of International FinancialInstitutions.” Paper read at World ResourcesInstitute’s Workshop on EnvironmentalGovernance in Central Africa, at Washington DC.

Johnson, John H., and Sulaiman Wasty. 1993.“Borrower Ownership of Adjustment Programsand the Political Economy of Reform.”Washington D.C.: Operations Evaluation Division,The World Bank.

Kahler, Miles. 1989. “International FinancialInstitutions and the Politics of Adjustment.” InFragile Coalitions: The Politics of EconomicAdjustment, edited by J. M. Nelson. NewBrunswick, NJ: Transaction Books.

Kaimowitz, David, and Arild Angelsen. (no date.)“The World Bank and Non-Forest Sector Policiesthat Affect Forests.” Bogor, Indonesia: CIFOR.

Kapur, Devesh, John P. Lewis, and Richard Webb.1997. The World Bank: Its First Half Century. 2 vols. Vol. I. Washington D.C.: BrookingsInstitution Press.

Karsenty, Alain. 1998. “Environmental Taxation andEconomic Instruments for Forest Management inthe Congo Basin.” London: International Institutefor Environment and Development.

Killick, Tony. 1997. “Failings of Conditionality.”Journal of International Development 9 (4):483–495.

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Mosley, Paul. 1987. “Conditionality as Bargaining Process: Structural-Adjustment Lending,1980–86.” Princeton, NJ: Princeton University,International Finance Section.

Mosley, Paul, Jane Harrigan, and John Toye. 1995.Aid and Power: The World Bank and Policy-BasedLending. New York: Routledge.

Munasinghe, Mohan, and Wilfrido Cruz. 1995.Economywide Policies and the Environment: Lessonsfrom Experience. Washington, D.C.: The WorldBank.

Nelson, Joan M., and Stephanie J. Eglinton. 1992.Encouraging Democracy: What Role for ConditionedAid. Washington D.C.: Overseas DevelopmentCouncil.

—1993. Global Goals, Contentious Means: Issues ofMultiple Aid Conditionality. Washington, D.C.:Overseas Development Council.

Reed, David, ed. 1996. Structural Adjustment, theEnvironment, and Sustainable Development:Earthscan Publications.

Rich, Bruce. 1994. Mortgaging the Earth: The WorldBank, Environmental Impoverishment and the Crisisof Development. Boston: Beacon Press.

Seymour, Frances. 1996. “The World Bank andEnvironmental Sustainability.” In LendingCredibility: New Mandates and Partnerships for theWorld Bank, edited by P. Bosshard, C. Heredia, D.Hunter and F. Seymour. Washington D.C.: WorldWildlife Fund.

Stern, Ernest. 1991. “Evolution and Lessons ofAdjustment Lending.” In Restructuring Economiesin Distress: Policy Reform and the World Bank, edited by V. Thomas, A. Chibber, M. Dailami andJ. d. Melo. Oxford: Oxford University Press.

Wade, Robert. 1997. “Greening the Bank: TheStruggle over the Environment, 1970–1995.” InThe World Bank: Its First Half Century, edited by D. Kapur, J. P. Lewis, and R. Webb. Washington D.C.: Brookings Institution Press.

Walker, R.T., and T.E. Smith. 1993. “TropicalDeforestation and Forest Management under the System of Concession Logging: A Decision Theoretic Analysis.” Journal of Regional Science33:387–419.

White, Howard, and Oliver Morrissey. 1997.“Conditionality when Donor and RecipientPreferences Vary.” Journal of InternationalDevelopment 9:497–505.

Winterbottom, Robert. 1990. Taking Stock: TheTropical Forestry Action Plan after Five Years.Washington D.C.: World Resources Institute.

Wood, Angela, and Matthew Lockwood. 1999. “The‘Perestroika of Aid’? New Perspectives onConditionality.” Bretton Woods Project andChristian Aid.

World Bank, The. 1989. Sub-Saharan Africa: FromCrisis to Sustainable Growth. Washington D.C.:The World Bank.

—1991a. “The Forest Sector.” Washington D.C.: TheWorld Bank.

—1991b. “Forestry: The World Bank’s Experience.”Washington D.C.: Operations Evaluation Division,The World Bank.

—1992. “Operational Directive: Adjustment LendingPolicy.” Washington D.C.: The World Bank.

—1994a. Adjustment in Africa: Reforms, Results andthe Road Ahead. Oxford: Oxford University Press.

—1994b. “Review of Implementation of the ForestSector Policy.” Washington D.C.: The WorldBank.

—1995. “Mainstreaming the Environment: TheWorld Bank Group and the Environment sincethe Rio Earth Summit.” Washington D.C.: The World Bank.

—1997. World Development Report. Oxford: OxfordUniversity Press.

—1998a. Assessing Aid: What Works, What Doesn’t,and Why. Washington, D.C.: The World Bank.

—1998b. “Forests and the World Bank: An OEDReview of the 1991 Forest Policy and itsImplementation.” Washington D.C.: The World Bank.

—1999. “Social and Environmental Aspects: A Desk Review of SECALs and SALs Approvedduring FY98 and FY99.” Washington D.C.:Environmentally and Socially SustainableDevelopment, The World Bank.


26

1. A World Bank report entitled, “Mainstreamingthe Environment,” notes that in addition tospecific environmental programs, the challengefor the institution is to ensure that “environ-mental concerns are incorporated into theentire portfolio of the World Bank’s activities”(emphasis in original) (World Bank, 1995). SeeSeymour (1996) and Wade (1997) for a discus-sion of such efforts to integrate environmentalconcerns into the World Bank’s policies andprojects.

2. For a sweeping critique of the World Bank’senvironmental policies, see Rich (1994).

3. We are grateful to David Kaimowitz (CIFOR)for raising these issues.

4. The IMF has also been involved in Cambodia(see Box 4.4).

5. A second precursor was the Food andAgriculture Organization’s (FAO) TropicalForest Action Plan, and FAO later became thecoordinator of the TFAP (Winterbottom, 1990).

6. Based on comments made at World Bank meet-ings attended by one of the authors.

7. These themes also emerge from NGO commen-taries on World Bank policy and letters toWorld Bank staff, most recently summarized ina letter from a group of NGOs commenting onthe OED Design Paper for the 1998–99 FPIRS(1999).

8. For example, Walker and Smith (1993) showthat a long duration of concession is neither a

necessary nor sufficient condition for good for-est management. What matters to logging com-panies is not the official concession duration,but rather their expectations about how longthey will be allowed to log in an area. In anoth-er example, Boscolo and Vincent (1998) chal-lenge the conventional wisdom on longer con-cessions, by arguing that because of discount-ing, longer concessions in reality provide littleincentive to adopt reduced-impact logging or tocomply with minimum limits on the diameterof trees cut. Karsenty (1998) argues that manyof the proposed reforms, such as forest taxa-tion, require a level of technical capacity andpublic accountability that is lacking.

9. Grynberg (n.d.) argues this position from theperspective of the Solomon Islands. For detailsof this case, see Box 2.1.

10. See the exchange between Bowles et al. (1998)and others in the September 4 issue of Science.

11. The authors are grateful to Joan Nelson for thissuccinct characterization of the features ofSALs.

12. This point is developed further in Horta (1999).

13. Horta (1999), in a paper that makes referenceto both Cameroon and Indonesia as problemat-ic cases, asks, “Could it be that by supportingnational governments which often have littlelegitimacy in the eyes of their own populationsand which are not accountable to their own citi-zens, the World Bank and other donor agenciesare actually undermining the possibilities fordemocratic change, i.e., governance reform?”

N O T E S


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14. Particularly influential was the report byUNICEF, Adjustment with a Human Face, whichfocused on the social costs of adjustment asmeasured by adverse changes in social indica-tors (Cornia, Jolly, and Stewart, 1987).

15. The most comprehensive of the academic stud-ies is Mosley et al. (1995).

16. See, for example, Development GAP (1995).

17. Interestingly, this trend toward a more expan-sive definition of the goals of adjustment lend-ing was reversed in a subsequent report onAfrica which reinforced the importance ofinvestment in human capital, institution build-ing, and governance, but reinstated macroeco-nomic conditions as the primary objective byadding: “The objective of structural adjustmentprograms thus is to establish a market-friendlyset of incentives that can encourage the accumu-lation of capital and more efficient allocation ofresources” (World Bank, 1994a, p. 2).

18. As the history of the World Bank notes, “envi-ronmental protection has joined poverty allevia-tion and social-sector improvement as a majoramendment to the macroeconomic goals of policy-based lending” (Kapur, Lewis, and Webb,1997, p. 534).

19. This paradox troubled the World Bank’s Boardin the early days of adjustment lending. Oneoften heard response is that an adjustment loanenables proper sequencing of reform, and servesas an insurance policy in the event that reformsfail to work. Mosley et al. (1995) note that nei-ther of these considerations was given muchweight when the idea of adjustment lending wasformally discussed by the World Bank’s Board.For Ernest Stern, who, along with RobertMcNamara, was the originator and main propo-nent of adjustment lending in the early years(Kapur, Lewis, and Webb, 1997), the rationalefor adjustment lending was, and remains, clear:structural adjustment lending is quick disburs-ing and “ought to be anchored in balance-of-pay-ments problems.” As such, Stern argued thereshould be a clear distinction between adjust-ment lending and the need for policy reform(Stern, 1991). This restrictive definition wouldcertainly clarify the rationale for adjustmentlending. Unfortunately, it would also place the

World Bank in the position of poaching on IMFterritory; the second reason for the Board’s earlyskepticism of adjustment lending (Mosley, 1987).

20. One, albeit incomplete, indicator of the relativeineffectiveness of adjustment lending, is thatthe World Bank’s independent Operations andEvaluation Department reports that 36 percentof reform programs evaluated between 1980 and1995 were deemed not to have met their reformobjectives (World Bank, 1998a). Moreover, thehistory of the World Bank notes dryly that inter-nal assessments of the impact of adjustmentlending on growth have “not been euphoric”(Kapur, Lewis, and Webb, 1997, p. 543). On thislast indicator, it is fair to note, however, thatthere is no clear counterfactual—what wouldhave happened in the absence of adjustmentlending—against which to measure success orfailure.

21. This list is drawn selectively from Collier et al.(1997) and White and Morrissey (1997).

22. One donor reaction has been to tighten the con-tractual framework by tying release of funds to apre-specified sequence of policy reforms—short-leash lending—and even to tie release of specif-ic amounts of program aid to specific reforms(Collier et al., 1997). Another reaction has beento sidestep the explicit condition negotiationprocess altogether and provide aid as a rewardfor successful policy reform. Collier et al. (1997)take this logic one step further to suggest thatadjustment lending be conditioned on theachievement of outcomes rather than on theimplementation of policies. However, devisingmutually agreeable, nonbiased, and measurableindicators of success is far harder for outcomeconditions than policy conditions, a challengethat is even greater for poverty, environment, orgovernance conditionality than for macroeco-nomic conditionality.

23. Thus, Kahler (1989) argues for persuasion, dia-logue, and joint problem solving. Killick (1997)calls for selectivity, ownership, support and dia-logue. White and Morrissey (1997) concludethat the only constructive roles for conditionalityare monitoring and support.

24. It is important to note that Johnson and Wastydo not find the nature of government interac-


28

tion with the World Bank to be a significantdeterminant of borrower ownership. However,interaction was measured by the frequency andamount of World Bank engagement on the basisof review of secondary documents, not by quali-ty of engagement. Moreover, their study did notexamine the role of engagement with non-statestakeholders. This study will seek to rectifythese omissions through detailed case studies.Other factors that were found to be of limited,or no, significance to borrower ownershipinclude the nature of the political regime, the

intensity of external shocks, and the initial con-dition of the economy (Johnson and Wasty,1993).

25. In an interesting alternative formulation ofselectivity, Montes (cited in Wood andLockwood, 1999) suggests the application ofselectivity among governments based on goodgovernance and a commitment to poverty reduc-tion rather than on macroeconomic manage-ment.


29

I n 1995 and 1996, disputes over landand forests became the determining fac-tor in Papua New Guinea’s (PNG)

macroeconomic health. Always simmeringjust below the surface, fights over forest poli-cy became the epicenter of a macroeconomiccrisis in PNG, as the World Bank held updisbursement of desperately needed foreignassistance pending resolution of disputedforest legislation. Some elements of civilsociety and the PNG bureaucracy supportedthe move, while PNG politicians uniformlydecried the World Bank’s attack on their sovereignty. At the heart of the dispute wasthe World Bank’s new-found determinationto enforce environmental policy reformthrough adjustment lending, combined, inthe case of PNG, with an explicit strategy toreach out to civil society organizations. Whatgenerated this determination, how did thedifferent sectors in PNG view it, and howsuccessful was this tactic in reformingnational forest policy?1

BACKGROUND

Papua New Guinea, a densely forested coun-try, has a unique system of land tenure.Natural and highly diverse forests coverabout two thirds of PNG. Exports of raw logsfrom these forests provide considerable

economic value. At their peak in 1994,PNG’s raw log exports totaled three millioncubic meters and accounted for 18 percent ofexport earnings (Filer and Kalit, 1999). Thecollection of export taxes on these logs con-tributed about 10 percent of non-grant rev-enues to the PNG government coffers.Forests in PNG contribute significantly tothe nation’s economy.

To access these resources, however, log-ging companies must negotiate a complex,variable, and often undocumented landtenure system, which governs more than 99percent of forest lands (Filer and Kalit,1999). The political and cultural significanceof customary tenure arrangements cannot beoverstated. Customary tenure does not onlygovern access to forest and land resources,but is also tied to forms of social organiza-tion and cultural property (Filer, 1998).Consequently, formal state institutionsintended to govern forest resources have tobe shaped around, and are constrained by,these customary tenure arrangements. Asimilar situation exists in the neighboringSolomon Islands, where the World Bank andInternational Monetary Fund also attemptedto reform the forest sector through adjust-ment lending. This experience is described in Box 2.1.

P A P U A N E W G U I N E A

2

Navroz K. Dubash Colin Filer


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Background

The forest sector in Solomon Islands over the pastdecade shares many similarities to that in PNG. Asin PNG, most of the country’s land and forests areheld under customary ownership, unsustainableharvesting by foreign timber companies has beenrampant, state capacity to monitor logging opera-tions has been inadequate, and there have beencharges of corruption against government officials.Unlike PNG, logging completely dominates theSolomon Islands’ economy. In 1996–97, timbersales accounted for 50 percent of goods exportearnings and 20–30 percent of the total budget,making the Solomon Islands the most log export-dependent country in the world. However, custom-ary landowners have reaped few benefits fromindustrial, export-oriented forestry. A combinationof preferential export tax exemptions and transferpricing has limited the rents that accrue to the government, exacerbating the debt crisis, while atthe same time encouraging unsustainable loggingpractices. World Bank attempts to reform this situation have advanced, or receded, based on theposition of the government in power. As in PNG,the political situation in the Solomon Islands hasbeen highly fluid, with few governments complet-ing their elected terms.


In 1993, the government of Prime MinisterSolomon Mamaloni lost the parliamentary elec-tions and the National Coalition Partnership (NCP)government of Francis Billy Hilly came to power.Responding to the past administration’s destruc-tive forest policy, the NCP government made forestreform a top priority, introducing a number ofpolicies to reduce pressure on the country’sforests. Many of the recommended reforms weremade by a joint World Bank and IMF mission that

went to the Solomon Islands at the request of theNCP government. At that time, the IMF and theWorld Bank attempted to develop a structuraladjustment package for Solomon Islands, whichincluded sustainable forest management. However,the loan process was not completed, in partbecause the World Bank believed that there wasinadequate government commitment to the forestpolicy reform process. The proposed reformsproved to be politically unpopular because of short-term economic costs, and ultimately contributed toa vote of no confidence in the NCP government in 1994.

With the demise of the NCP, Mamalonireturned to power as head of the Solomon IslandsNational Unity, Reconciliation, and ProgressiveParty (SINURP). During Mamaloni’s tenure, logexports rose to three times sustainable yields, andlicenses were issued to raise logging rates evenhigher. Moreover, increased logging did not trans-late into greater government revenues. Althoughbudget projections increased, the combination oftransfer pricing and export tax remissions to log-gers, particularly those associated with senior gov-ernment officials, led to a decrease in revenuesrealized. In addition, the new government alsomoved to dismantle the proposed NCP reforms bydecreasing log export taxes, decreasing surveillanceof foreign logging firms, and pushing back a pro-posed log export ban. The resulting tensionbetween the government and donor agencies wasexacerbated by the ballooning fiscal deficit, whicheventually led the government to suspend debt pay-ments. Matters came to a head in 1995 when SIN-URP ejected international donor organizationsfrom the country, in the process destroying theAustralian Agency for International Development(AusAID) funded unit in charge of monitoring log exports.

B O X 2 . 1 S O L O M O N I S L A N D S : B O R R O W E R O W N E R S H I P N E C E S S A R Y T O ‘ T I P T H E S C A L E S ’


31

The primary actors, then, in the forest arenain PNG are local peoples, or so-called“resource-owners.” Local communities arespatially, politically, and socially fragmented.Any other actors who wish to access forestresources must, at some point, deal with the

demands and desires of resource-owners.Resource-owners are represented by politicians whose loyalties are primarily tonarrow local constituencies and highly personalized political factions, rather thanto political parties or to any specific policies,

A new coalition government, the Solomon IslandsAlliance for Change (SIAC), came into power in1997, and immediately faced a downturn in logprices from the East Asian crisis. In the forest sec-tor, the SIAC government has reversed the exporttax exemptions of the Mamaloni government, instituted a moratorium on new licenses, and re-established the Timber Control Unit with the assis-tance of AusAID. The government has thusdemonstrated substantial commitment to reformand has also re-established relations with interna-tional agencies.

In mid-1999 the World Bank approved aStructural Adjustment Credit with substantial for-est reform content that echoes the reforms promot-ed in PNG: institution of a logging Code ofPractice; enactment of new forestry legislation;reactivation of the Forest Management Unit; andimplementation of forest taxation reforms. Thelong-term goal of the credit is to bridge the transi-tion to a diversified economy that reduces depen-dence on log exports.


The current government is attempting to pay offmassive debt arrears, even while trying to reducelogging—its primary foreign exchange earner—and transfer to a more sustainable pattern of nat-ural resource use. As log exports are the onlyshort-term source of revenue, this leaves a very

limited set of options for the government, andmakes it heavily dependent on donor capital todecrease dependence on log exports. Yet, the cur-rent situation represents a considerable improve-ment over the policies of the Mamaloni govern-ment.

In the absence of government support for andownership over the reform process, the WorldBank and other donor agencies were unable toeffectively promote forest policy reform in theSolomon Islands. During the Mamaloni govern-ment, donors were unable to exercise any leverageover forest policy despite growing indicators ofmacroeconomic crisis. It was not until a new, andmore committed, national government came topower that reform of forest policies became viable.

Sources: Ian Fraser. 1997. “The struggle for control ofSolomon Islands forests.” The Contemporary Pacific 9(1):39–72.

Roman Grynberg. (no date.) “The IMF and the SolomonIslands: Structural Adjustment Under BindingEnvironmental Constraints.” Pacific Studies.

Phillip Montgomery. 1995. “Forestry in Solomon Islands.”Pacific Economic Bulletin 10 (2):74–76.

Hilda Kari, Minister of Forests for Solomon Islands, state-ment to Parliament, October 1998.

World Bank sources.

B O X 2 . 1 ( C O N T I N U E D )


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B O X 2 . 2 C H R O N O L O G Y O F A D J U S T M E N T A N D F O R E S T P O L I C Y R E F O R MI N P A P U A N E W G U I N E A

NAMALIU GOVERNMENT ( JULY 1988 – JULY 1992)

1987 Barnett Commission of Inquiry initiated.

1988 PNG requests TFAP review.

July 1989 Final Report of Barnett Inquiry released.

January 1990 National Alliance of NGOs (NANGO) established.

February 1990 Final TFAP report.

April 1990 TFAP donor roundtable.

November 1990 Draft Forest Policy prepared;TFAP renamed National Forestry Action Plan (NFAP).

July 1991 Parliament enacts Forestry Bill.NFAP renamed National Forestry and Conservation Action Plan (NFCAP).

April 1992 World Bank expresses concern over delay in gazettal of Forestry Act.

June 1992 Forestry Act gazetted.

WINGTI GOVERNMENT (AUGUST 1992 – AUGUST 1994)

August 1993 Bill to amend the Forestry Act in favor of loggers introduced in parliament.

March 1994 Amendments to Forestry Act defeated.Finance minister introduces mini-budget to address growing fiscal crisis.

CHAN GOVERNMENT (SEPTEMBER 1994 – JULY 1997)

February 1995 PNG reaches agreement with World Bank and IMF on an Economic Recovery Program (ERP).

July 1995 World Bank mission arrives to finalize ERP conditions.NGOs and students protest ERP’s land reform conditions.

August 1995 World Bank approves ERP and releases first tranche.

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which results in highly unstable coalitiongovernments.

Another set of actors are bureaucrats whoserve the politicians, but in reality play sever-al additional roles. Among bureaucrats it ispossible to identify some reformist elementswho serve as policy brokers within thebureaucracy. These policy brokers often havethe insider knowledge of political andbureaucratic processes necessary to advancea reformist agenda, and put this to good use

in their role as mediators between politiciansand other stakeholders. It is also useful todistinguish between national bureaucrats andexpatriate bureaucrats, each of whom bringwith them different connections and incen-tives; reformers may come from either strata.

Next come logging interests, whichMalaysian companies dominate in PNG andthe Forest Industries Association representsin domestic politics.2 Of growing importance,are NGOs which may be divided into national

B O X 2 . 2 ( C O N T I N U E D )

February 1996 Forest Minister proposes amendments to Forestry Act to weaken Forest Board; World Bank mission departs prematurely after failure to implement first tranche conditions.

April 1996 World Bank serves 90-day notice of default on ERP;Prime Minister announces opposition to new forest revenue system, which is included in ERP conditions.

July 1996 Parliament approves Forest Minister’s amendments to Forestry Act.

August 1996 World Bank applies pressure for government to rescind amendments.

October 1996 Parliament withdraws amendments to the Forestry Act; World Bank extends loan agreement.

January 1997 Second and final tranche of ERP released.

SKATE GOVERNMENT (AUGUST 1997 – JULY 1999)

September 1997 World Bank mission to design Forestry and Conservation Project.

May 1998 Dr. Pirouz Hamidian-Rad, former World Bank economist, appointed as Chief Economic Adviser to the Prime Minister.

July 1999 Skate government falls.

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and international categories, and are involvedin policy advocacy and specific conservationprojects with groups of resource-owners.3

Finally, there are the international donororganizations. Among these, the Australianaid agency (AusAID) and the World Bankplay the most significant roles.4 In its effortsto shape forest policy reform, the WorldBank has had to engage all the actorsdescribed above. The process, and outcomesof that engagement (listed chronologically inBox 2.2), forms the substance of this chapter.

The Early Days of National Forest PolicyReform: Borrower Ownership?

Commercial forestry in Papua New Guineareceived its first major boost from thedemand for timber generated by post-WorldWar II reconstruction efforts. In subsequentyears, this production steadily increased,encouraged by, among others, the WorldBank who called for “an aggressive policy ofcommercial development” of PNG forests(quoted in Filer, 1998, p. 88).

Independence from Australian rule in 1975provided PNG the opportunity to rethink themodel of industrial forestry, in ways suggest-ed by the Fourth Goal of the constitution:“For Papua New Guinea’s natural resourcesand environment to be conserved and usedfor the collective benefit of us all, and to bereplenished for the benefit of future genera-tions.” During this period, parliament passedthe Forestry (Private Dealings) Act, whichallowed resource owners to cut deals directlywith logging companies—a significantchange from the colonial model.

The discussions over the broader vision offorest use in PNG during the post-indepen-

dence years foreshadowed much of the cur-rent debate over forest policy and use inPNG: industrial logging versus small-scalevillage forestry; round log export versusdomestic processing; and customary tenureas an obstacle versus customary tenure as aguard against rampant logging (Filer, 1998).While a small community of PNG intelli-gentsia participated in these discussions,many of the influential voices were those ofcolonial administrators and Australian envi-ronmentalists. These debates did not resultin the development of institutional mecha-nisms and died down in the decade afterindependence. In the interim, log export vol-umes increased three-fold, facilitated bypoliticians with ever-closer ties to the loggingcompanies.

It was the increasing evidence of these tiesthat led to a Commission of Inquiry in 1987into improprieties in the logging sector.5

The Barnett Commission, led by an Aus-tralian member of the PNG judiciary, waszealous in its two-year investigation, andrevealed many illustrations of what Barnettlater pungently described as the “heavy odourof corruption, fraud and scandal arising fromthe timber industry” (quoted in Filer, 1998,p. 93). The report recommended names forprosecution for criminal and leadershipoffences and suggested measures to clampdown on corruption. Specifically, Barnettcalled for a national forest policy, revisedforestry legislation, and a unified nationalforestry service. He also urged the involve-ment of landowners in permit allocationprocesses, a review of existing permits, mea-sures to reduce transfer pricing, an emphasison domestic processing of timber, and anincrease in benefits for landowners.Seriously implicated in the report was thethen Forests Minister which suggests that


35

the rot uncovered in PNG’s forest sectorspread right to the top.6

There are two important conclusions to bedrawn from the lengthy, detailed, and hard-hitting Barnett inquiry. First, there was sub-stantial domestic impetus for forest reformin PNG before the World Bank becameengaged in the sector. This momentumspread beyond actors in national politics tothe general public, who were drawn into theprocess through the publication of Barnett’soften sensational findings. Second, thatBarnett, an Australian who had played animportant role in formulating the constitu-tional agenda in PNG, was once again play-ing a central role almost 15 years after inde-pendence, speaks to the continued impor-tance of expatriates in PNG policy circles.

Early Days of World Bank Involvement:The Tropical Forestry Action Plan

Barnett’s preliminary findings created a con-siderable impetus for reform. In reaction, thegovernment announced steps to create a newForest Policy and Forestry Act, and alsosought international assistance under theTropical Forestry Action Plan (TFAP). TheTFAP was the entry point for the World Bankinto the forest sector in PNG. Before theBarnett Commission report had beenreleased, the World Bank undertook its ownstudy under TFAP auspices, and released its

draft report a few months later, also in 1989.From then on, the World Bank assumed acentral coordinating role in policy dialogueand forest project preparation.

Both reports pointed in the same directionbut with a notable difference. Barnett hadsuggested subsidizing timber processorswhile penalizing log exporters, a set of poli-cies aimed at transforming the export-orient-ed nature of the timber industry into onemore rooted in adding value domestically.7

This view has retained much currency withNGOs in PNG. By contrast, the people at theWorld Bank saw no logic in granting a sub-sidy to domestic processing (Filer and Kalit,1999). The result, they felt, would be an inef-ficient domestic processing industry thatwould require perpetual subsidies to competeon the international market. This differenceof opinion between many NGOs and theWorld Bank drove a wedge between the two.Some NGOs argued that the World Bank’sreluctance to countenance incentives fordomestic processing illustrates the limits ofits reformism.8 From this perspective, theBank’s involvement is aimed at an efficientlog export industry, rather than at the NGO vision of small-scale domestic timberprocessing.

Nonetheless, given the desperate situationin 1989, the interests of the World Bank,reformist bureaucrats, and the few domesticenvironmentalists of the time were suffi-ciently aligned to work together on reining inrampant logging. The Barnett inquiry andthe TFAP process came together in two inter-connected sets of activities: preparation andenactment of a new Forestry Act, and theestablishment of a set of forest projectsunder the umbrella of the National ForestryAction Plan (NFAP).

There was substantial domestic impetus for

forest reform in PNG before the World Bank

became engaged in the sector.


36

A task force consisting of staff of theDepartment of Forests, other bureaucrats,and select outside experts drafted theNational Forest Policy. The content of thepolicy was dictated most directly by Barnett’srecommendations, but these did not contra-dict those articulated in the World Bank-ledTFAP.9 The World Bank’s contribution wastwo-fold. First, it provided detailed commentson drafts of the Forestry Act that emergedfrom the Policy, most of which were aimed atensuring the independence of the proposedForest Authority from political interference.This emphasis anticipated many of the sub-sequent battles between the World Bank andnational politicians, including the one thatled to the imbroglio over the structuraladjustment loan in 1996. Second, when theForest Minister dragged his feet on gazettalof the Act in response to logging industrypressure,10 the World Bank’s CountryDirector for PNG wrote a letter to the ForestMinister pointing out that the donor commu-nity would unfavorably view this delay.11

The Act considerably complicated theprocess of industrial logging.12 The highlycomplex institutional processes put in placeby this legislation tied up the logging indus-try in red tape.13 Indeed, this could be inter-preted as a deliberate exercise led by thenational bureaucrats, who, with their detailedknowledge of local politics and institutions,selectively mobilized the World Bank forpolitical support.14

However, the World Bank, with the sup-port of AusAID, was the lead coordinator inthe second set of activities spurred by theBarnett Commission and the TFAP—theNational Forestry Action Plan (NFAP). TheWorld Bank initiated this process by conven-ing a roundtable in April 1990. This meeting

sought to orchestrate negotiations betweengovernment agencies—primarily the Department of Environment and Conservationand the Department of Forests—and donororganizations interested in funding specificprojects.

The World Bank’s lead role ensured that itwas continuously engaged in the forestreform process, but also made it the light-ning rod for criticism related to the process.First, environmentalists and reformistbureaucrats were concerned about theabsence of a conservation focus in the origi-nal NFAP. In response, national bureaucratsintroduced two major conservation projectsthat the World Bank had left out of its initiallist proposed to the 1990 roundtable ofdonors (Filer and Kalit, 1999). At about thistime, however, the World Bank was undergo-ing internal changes aimed at raising theinstitution’s profile on environmental issues.In 1990, it established the Global Environ-ment Facility in collaboration with otheragencies. In addition, the World Bank’s owninternal Forest Policy had been rewritten in1991 to give more weight to conservation.These factors combined to rename the NFAPthe National Forestry and ConservationAction Plan (NFCAP) in mid-1991.

Second, the role of NGOs in the NFCAPwas proving contentious, and the World

The World Bank’s lead role ensured that it was

continuously engaged in the forest reform

process, but also made it the lightning rod for

criticism related to the process.


37

Bank, as the lead coordinator of the process,was implicated in failing to solve this prob-lem. Specifically, the NGOs were envisionedas playing a critical role in promotinglandowner participation in the NFCAP, yetdespite funds earmarked for this purpose,this component did not get going until mid-1993 (Filer and Kalit, 1999). Moreover, anindependent review of the NFCAP interpret-ed the World Bank’s promotion of the newlyformed National Alliance of Non-Govern-mental Organizations (NANGO) as a keystakeholder in the national NFCAP processas distracting NGOs from the task of engag-ing landowning communities (Taylor et al.,1994). While the review likely did have apoint, it is also true that this outcome has asmuch to do with the small number of NGOsin PNG stretched too thin, and with internaldivisions about goals and methods within thenational NGO community, as with any mis-management on the part of the World Bank.

By 1994, it became clear that the battleover a legislative and regulatory structure togovern forest access and use had not beenwon. From 1992–94, the forest industry wasengaged in all-out warfare with the newForests Minister, Tim Neville, a businessmanwhose wealth was independent of forestinterests. Neville made it clear that his goalwas to phase out raw log exports in favor of domestic processing within five years. The loggers responded by stage-managing abill in Parliament that would have repealedkey provisions of the Forestry Act.15 A coali-tion of national NGOs and other national policy brokers who rallied behind the ForestMinister stymied the move, but this episodepointed to the fragility of the reforms. Whilethe reformers emerged victorious from several skirmishes, the war had by no meansbeen won.

What lessons can we draw from these earlydays of forest policy reform in PNG? First,there is a vibrant community of domesticreformers drawn from national bureaucrats,NGOs, and national politicians who crystal-lized around the Barnett Commission. Whileall these segments do not always agree, theyhave been active in defining the substance ofthe reforms and negotiating the political ter-rain to implement these reforms. Second, theWorld Bank has played a leading role in coor-dinating the projects that were meant to pro-vide substance to the NFCAP. Third, theWorld Bank, until 1994, also played a sup-porting role in the process of national policyreform by commenting on the substance ofthe reforms, and by breaking political log-jams by cajoling and occasionally by invokingits power as the coordinator of the interna-tional donor community. The World Banksupported national bureaucrats and NGOsbecause they shared the same immediategoal. In 1994, when the logging companiesnearly managed to roll back the reforms, theneed was for additional political muscle in

defense of the reforms. The World Bank, asan actor deeply engaged in the reformprocess, and with deep reserves of financialand institutional power, was well placed toplay that role. The opportunity to place thefinal seal on the forest reform process camein 1995, and the World Bank was ready totake advantage of it.

There is a vibrant community of domestic

reformers drawn from national bureaucrats,

NGOs, and national politicians in PNG.


38

ADJUSTMENT LENDING

By the end of 1994, PNG faced a macroeco-nomic crisis. External balance-of-paymentshad deteriorated, external debt was high,domestic public debt had tripled from 1989,and foreign exchange reserves were depleted,undermined by an abatement in the oil boom(World Bank, 1995). The government deval-ued and then allowed the kina (the local cur-rency) to float, cut expenditures, and intro-duced measures to shrink the deficit.Nonetheless, outside help was required toease the cash flow crisis that had paralyzedstate functioning, and PNG approached theWorld Bank and IMF for help with anEconomic Recovery Program (ERP).

The ERP and Forest Conditionality

Following the ominous macroeconomic por-tents that became clear during 1994, theWorld Bank and PNG entered into negotia-tions over a loan in early 1995. The ERP loandocument that emerged in August 1995promised PNG US$50 million in two equaltranches, but also bound the country to about50 conditions, arranged in five main groups.One of these groups, Promoting SustainableDevelopment, laid out five conditions (seeBox 2.3) which were to “promote long-termsustainable private sector-led growth inincome and employment” (World Bank,1995). These conditions had three aims, allof which were consistent with a vision ofreforming industrial forestry: to stop inter-ference with the Forestry Act or the NationalForest Board; to limit the physical damageinflicted by selective logging practicesallowed under timber permits; and to maxi-mize the share of the resource rent accruingto the government and local landowners.

Why were sustainable development condi-tions incorporated into the ERP?16 As sug-gested above, the continued commitment bythe politicians in power to forest policyreform was certainly suspect, as evidenced bythe attempt in 1994 to rollback the reforms.Moreover, the Forest Minister, appointed in1994, was elected to parliament from a con-stituency that accounted for nearly half of thecountry’s log exports. As such he could beexpected to be sympathetic to logging inter-ests, and made statements confirming these

B O X 2 . 3

1. Refrain from introducing amendments to theForestry Act of 1991, which will in any wayreduce or qualify the present allocation ofpowers and responsibilities to the Board, orthe Authority, for the approval, issue or sus-pension, or modification, of timber licenses,permits or authorities.

2. Ensure that areas of natural forests that areused for log production are managed on asustainable basis.

3. Introduce a logging revenue system.

4. Provide the Forest Authority with an operat-ing budget equal in real terms to that allocat-ed in 1995, in timely disbursements. Provideseparate and adequate funding for the surveil-lance of log exports.

5. Ensure that the Forest Authority formallyadopts a forestry and operational code of con-duct for implementation in the field.

Source: Government of PNG. 1995. “World BankEconomic Recovery Loans.”

S U S T A I N A B L ED E V E L O P M E N TC O N D I T I O N S I N T H E E R P P O L I C YM A T R I X


39

tendencies soon after his appointment, andbefore the ERP was finalized (Filer and Kalit,1999). The ERP provided the opportunity to draw a line in the sand in the face of a potential rollback, and did so by raising thecosts to the government of retrograde forest policies.

National bureaucrats in PNG point out thatthey took the lead in formulating the sustain-able development conditions in the ERP, sug-gesting ownership by at least one nationalconstituency over the direction of reform.17

During this period, many (although certainlynot all) of the reformist bureaucrats weresenior expatriate contract officers.18 Theseexpatriates often have the same professionaltraining and background as donor agencystaff and consultants, and approach problemsin a similar manner. Moreover, expatriates inPNG receive a higher salary than nationalsdo, and although many have been in PNG forseveral years, they nonetheless occupy a grayarea between insider and outsider. By con-trast, bureaucrats from a national back-ground juggle their identity as technocratswith that as landowners in PNG, and can alsoenter formal politics. This is not to suggestthat expatriates are necessarily more likely tobe reformers, but that they face differentincentives than do national bureaucrats.Hence, borrower ownership is complex, andis based on support for an adjustment pro-gram driven in large part by expatriatebureaucrats.

Two elements of this defensive strategy areworth noting. First, at this stage, the ERPwas the only instrument the World Bank hadwith which to defend the reforms. Althoughthe World Bank had offered the governmenta separate project loan to strengthen thecapacity of the Forest Authority, the govern-

ment was not interested in loans for this pur-pose, even at concessional rates, becauseother donors were pouring grant money intothe country (Filer and Kalit, 1999). But theWorld Bank had no competitors for anadjustment loan, and so could dictate theterms of the ERP. Second, none of the condi-tions themselves introduced new ideas, butwere merely intended to defend, with newand more potent weaponry, key features ofthe institutional terrain that had been a bat-tleground for many years.

Land Reform: A Public RelationsDebacle for the World Bank

The reformers in the bureaucracy, and per-haps also many of the national NGOs, sup-ported the sustainable development condi-tions. Yet the ERP was hugely unpopular inPNG. Part of the explanation rests in a broad-ly negative perception of the adjustmentprocess in general, with the African experi-ence—which was perceived to have resultedin large social costs—a particularly vividexample. This section, which deals with acontroversial land reform condition, de-scribes another reason for the unpopularityof the loan.

One condition in an early draft of the ERPcalled for completion of legislation to enablecustomary land registration. According tosources in the World Bank, the condition wasan attempt to mop up a Land MobilizationProgram that had been dragging on in oneform or another since 1985, but was not amajor component of the loan.19 The roots ofthe issue lay in domestic debates dating backto 1973 over how land registration couldserve as a way of mobilizing land as a sourceof collateral for credit, while maintainingintact customary land tenure (Filer and Kalit,


40

1999). Land registration was, and remains, acontroversial subject for a large cross-sectionof PNG society. On receiving the draft of theERP, the national bureaucracy immediatelyflagged it as politically controversial, where-upon it was dropped from the list of condi-tions, but not before a draft containing thiscondition was leaked.

The land reform condition served as potentammunition for populist opponents of theERP. Students upset at being asked to bearsome of the costs of their higher education,unions upset at abolition of the minimumwage, and public servants upset at theprospect of job retrenchment seized on landregistration as a way to mobilize the ruralmasses and relate the ERP to their concerns.A sample of one letter to the press illustratesthe depth of anger directed at the WorldBank: “the assumption that a country’s age-old traditional system can be wiped out at thewhim of a financial institution shows thecontempt of outsiders for this growingnation” (quoted in Filer and Kalit, 1999).20

Wild stories circulated around the country,including one that had the Government ofPNG offering the peoples’ land to the WorldBank as security for the ERP loan.21 The populists were successful, and the WorldBank undertook an outreach campaign toease the fears of a hostile population.

Three lessons emerge from this episode.First, the land reform conditions, whichWorld Bank staff characterize as a minorcomponent of the early draft ERP, were intro-duced without an adequate understanding ofthe major political sensitivities involved.

Second, the potential benefits of the sus-tainable development conditions to rural pop-ulations were not sufficient to outweigh the

mistrust generated by the land reform condi-tion. Although the conditions were not unilaterally imposed by the World Bank, butjointly shaped by the World Bank and nation-al bureaucrats, the ownership of those condi-tions was limited to policy brokers within thebureaucracy and not shared by the public.Thus, even though resource owners poten-tially stood to gain a larger share of revenuesby implementing the sustainable develop-ment conditions in the ERP, this was not thepublic perception of the conditions, suggest-ing a failure in communication.

Third, even if the World Bank had beenable to communicate the extent to which thesustainable development conditions promot-ed rural interests, structural adjustment lend-ing inevitably imposes costs on certain seg-ments of the population, who usually expresstheir opposition through political dissent. AsFiler (1998, p. 138) notes: “ (T)he pain ofstructural adjustment will be felt by severalgroups of national stakeholders (politicians,public servants, other wage-earners) whoseinterest in forest policy bears no comparisonto their interest in ‘bread-and-butter’ issues.”Yet, for rural populations, forest policy is abread-and-butter issue, and the World Banknot only missed the opportunity to illustratehow rural populations stood to gain from thesustainable development conditions, but

Even though resource owners potentially stood

to gain a larger share of revenues by implement-

ing sustainable development conditions, this

was not the public perception of the conditions,

suggesting a failure in communication.


41

handed the populists the means by which tomobilize that population against the ERP.

A Stand-off over the Second Tranche of the ERP

The fact that the country was in an uproarover the land reform condition made it easi-er, in 1996, for Prime Minister Julius Chanand his cabinet to publicly defy the WorldBank in 1996 over the sustainable develop-ment conditions. At stake were two issues: a new forest revenue system, which had thelogging industry up in arms; and another setof proposed amendments to weaken theForestry Act.

The conditions on a forest revenue systemincluded in the ERP bound the governmentto institute a marginal tax rate on log exports,along with payment of royalties to landown-ers, both based on the export price of thelogs. The government’s resolve to contestthis system was stiffened by the visit of theMalaysian Primary Industries Minister toPNG, and Prime Minister Chan’s visit toMalaysia, from where he returned deter-mined to defy the World Bank. It took anotice of default by the World Bank and fur-ther implementation missions before thegovernment gave in to these conditions (Filerand Kalit, 1999).

The amendments to the Forestry Act werecarried even further. The new ForestMinister fired the Managing Director of theForest Authority who had refused to speedup the allocation of timber permits. He thenissued amendments to the Act that wouldhave stacked the Forest Board in theMinister’s favor and granted him powersover allocation of concessions that the Actwas explicitly structured to avoid. For a while

the Prime Minister and the cabinet stoodtough, invoking the sovereign right of inde-pendent PNG to control its own policy. Byfollowing this position, the government stoodto lose not only the second tranche of US$25million, but also several other donor loansthat were tied to the ERP, and to suffer a lossin reputation. By late 1996, the governmentcould hold out no longer. It introducedamended legislation to reverse the earlierchanges, and the second tranche was finallyreleased in early 1997 (Filer and Kalit, 1999).

The ERP and its history is notable for tworeasons. First, it is one of the earliestinstances where the World Bank includedenvironmental conditions in a structuraladjustment loan. Second, the World Bank,which does not always strictly enforce itsconditions, was willing to hold up the entireadjustment loan, thereby threatening much-needed budgetary support and creating ill-feeling within PNG while defending sustain-able development conditions. As the WorldBank’s Implementation Completion Reportstates regarding the sustainable developmentobjectives of the loan: “Certainly this was themain reason for the almost year long delay inrelease of the second tranche” (World Bank,1997, p. 6).22 What were the politics behindthese events within the World Bank? Howwas the decision to break with precedent and

Neither the decision to include sustainable

development conditions in the Economic

Recovery Program nor the decision to stand

firm on these conditions were uncontroversial

at the World Bank.


42

impose environmental conditions made, and,once made, how was the decision made toback them up forcefully?

Debates within the World Bank23

Neither the decision to include sustainabledevelopment conditions in the ERP nor thedecision to stand firm on these conditionswere uncontroversial at the World Bank.Adjustment lending has traditionally beenthe preserve of the macroeconomists at theWorld Bank, and loans have typically beentied to such macroeconomic policy levers asmonetary policy, fiscal reform, and reductionof export barriers. This macroeconomic focus has led to an emphasis on fairlystraightforward loans that can be preparedrapidly. In this context, inclusion of forestconditions requires more time than otheradjustment loans since, in the words of aWorld Bank macroeconomist, “Sociologicalaspects are more important when it comes toforest conditions.”24 This is a problem in theWorld Bank, where there have been, and stillare, considerable incentives to rapidly dis-burse loans.

In the PNG case, these obstacles were over-come by a combination of factors. First, for-est sector staff had a history of engaging indebates over forest policy reform in PNG,and were in a position to recognize theopportunity the ERP provided to cementreforms.25 Second, the PNG country directorwas willing to embrace this bold step andplayed a mediating role between sector staffwith forest experience and macroeconomistswith experience in structural adjustmentloans.26 Third, reformist bureaucrats in PNGwere aware of the additional leverage thatforest conditionality would bring to their

cause, and worked with the World Bank staffto shape the appropriate conditions.27

Fourth, while the World Bank’s macro-economists were skeptical at first, theybecame increasingly converted to the needfor these conditions.28 The reasons for theirinitial skepticism are worth noting. Forestconditions introduced factors that werebeyond their expertise. Moreover, this partic-ular set of structural reforms directly affectedone large constituency in PNG—forest com-munities—while with macroeconomic policyadjustment, the economists had hithertobeen able to claim a technocratic and objec-tive distance.29 Finally, during this period,the World Bank as an institution was seekingto incorporate the lessons of the adjustmentexperience in Africa, which pointed togreater attention to social and environmentalfactors during the adjustment process.

The inclusion of the sustainable develop-ment conditions was controversial, but theforceful enforcement of them was even moreso. As World Bank staff describe internalincentives, there is a culture of not enforcingconditions placed on borrower govern-ments.30 Externally, this can lead to a deterio-ration in relations with the borrower and aseries of protracted negotiations. Internally,it slows down the loan disbursement pipelineand can also slow down project lending inthe country, which exposes the staff craftingthe loan to the ire of their colleagues.

When it became clear that PNG would notmeet the conditions of the ERP, opinionwithin the World Bank was polarized. Thecountry staff who put together the loan werefirm on withholding funds until the condi-tions were met. Opposed were some ele-ments within senior management who


43

argued that a delay in disbursement of fundswould seriously harm the relationship withthe borrower government, and that the issueof forest policy reform should not hold upthe adjustment loan. Then, the Australiangovernment pleaded PNG’s case directly tothe World Bank’s president, which height-ened internal pressure at the World Bank toaccede.31

From the perspective of the Government ofPNG, the World Bank’s position on the loanconditions was as unexpected as it wasunwelcome. Sources within the World Bankconcede that the government may indeedhave received contradictory signals fromwithin the World Bank.32 At an early stage inthe ERP negotiation process, senior WorldBank management had met with senior PNGpoliticians to deliver the unequivocal mes-sage that this loan would be rigorously moni-tored. On the other hand, at least one influ-ential member of senior management withresponsibility for the region had repeatedlyindicated that the social and environmentalconditions attached to the loan were of nogreat concern. The government’s contribu-tion to the final report of the ERP shows thatthey were receiving mixed messages. Underthe category “lessons learnt” they note:“greater caution should be exercised regard-ing commitments undertaken in the policymatrix and the letter of development policy.It eventuated that statements of very generalintent in the letter were subsequently treatedas legally binding by the World Bank’slawyers” (World Bank, 1997, p. 33).

Given the internal pressures for the WorldBank to submit and the signals sent bysenior management that the sustainabilityconditions would not be taken too seriously,why did the PNG country staff hold the line?

Part of the answer lies in the World Bankstaff at the helm of the ERP. In place was therare combination of a team who had followedthe twists and turns of forest policy over theyears, who were aware of the blatant badfaith of the government, and a country direc-tor willing to back them up on their decision.In addition, however, the PNG case was ahigh visibility case within the World Bankbecause of the sustainable development con-ditions—conditions the World Bank hadwidely publicized within PNG. There wascertainly some anxiety that for the WorldBank to take the bold step of incorporatingsustainability objectives explicitly in its loanconditions, only to back down under pressurewould draw the unwelcome attention of envi-ronmental NGOs and other critics of theWorld Bank.33 Moreover, if the World Bankcould claim to have acted boldly in defense ofsustainable development, then it would havelegitimately won the right to seek praise fromthese same critics.

Indeed, the World Bank disbursed the sec-ond tranche after the sustainability condi-tions had been met, even though anotherthree of the nine loan covenants were not ful-filled. Two of these were relatively minor,while the third had to do with macroeconom-ic details of budgetary allocations and aninvestment program that would be “accept-able to the World Bank” (World Bank, 1997,p. 19–20). What this suggests is that it isharder for the World Bank to ignore a breachof conditionality on such issues as forestry,than a similar breach in the more esotericworld of macroeconomics, particularly whenit is backed by public statements of commit-ment to interested parties such as NGOs.

Failure to stand firm on the sustainabledevelopment conditions would likely have


44

empowered corrupt politicians and their pay-masters in PNG, disheartened bureaucraticreformers and NGOs, and rolled back a half-decade of gradual reform in PNG’s forestpolicy. However, the World Bank’s persis-tence in seeing these conditions throughcame at a cost. World Bank staff spent morethan three times the planned amount of timeon supervision of the ERP and five times theplanned amount, if the time required forpreparation, appraisal, negotiation, andsupervision of the loan are included (WorldBank, 1997, p. 25). Although the loan wassuccessful at enforcing policy reform, from astrict accounting perspective it was a loanwith very low financial returns to staff time.The World Bank will only be encouraged togo down this path again if the internal metricof success for adjustment loans gives greaterweight to the former rather than the latter.

IMPLEMENTATIONEXPERIENCE

The ERP put a halt to the slide back to pre-Barnett inquiry days in PNG’s logging sector.But internal and external observers of theforest sector in PNG doubted if the newinstitutional structures were self-sustaining.The World Bank appears to have sharedthese doubts and initiated a number of fol-low-up activities. Before these could be com-pleted, the World Bank’s lead economist for

PNG and the architect of the ERP, PirouzHamidian-Rad, left the World Bank tobecome the Chief Economic Adviser to thePrime Minister of PNG. Since Hamidian-Rad’s move was in contravention of theWorld Bank’s own internal regulations, thischange halted further application of adjust-ment lending in PNG.

Before the ink was quite dry on the ERP,the World Bank and the government negoti-ated a follow-up adjustment loan, the Socialand Economic Development Program (SEDP)loan, which also included forest conditionali-ty, and a project loan targeted at forestry, aspart of a Forestry and Conservation Project(FCP). Both were aimed at deepening andstrengthening the governance framework forindustrial logging; the FCP added a conserva-tion dimension.

Early versions of the SEDP policy matrix,drafted by Hamidian-Rad before he left theWorld Bank, contained a numbing 171 condi-tions, of which 26 were tied to forestry andconservation outcomes (World Bank, 1998a).Many of these conditions were structured toreinforce the gains made during the ERP.The number of conditions suggests that inthe opinion of the World Bank, or morespecifically Hamidian-Rad, very little couldbe left to the discretion of the government.On the other hand, encasing a government ina web of conditions to restrict its discre-tionary power implies a fairly minimal levelof borrower ownership. The World Bankacknowledged that a major risk to the pro-gram could be the degree of governmentcommitment to the SEDP.34 Yet, the Govern-ment of PNG was not a homogeneous entity,and the Forest Authority and the Departmentof Environment and Conservation, both ofwhich derived support from the World

Although the loan was successful at enforcing

policy reform, from a strict accounting perspec-

tive it was a loan with very low financial

returns to staff time.


45

Bank’s conditions, substantially endorsed theconditions.

The Forestry and Conservation Project(FCP) was explicitly structured to supportforest sector reforms achieved under the ERPand planned under the SEDP (World Bank,1998b). It is important to note two importantpoints about the FCP. First, it containedmeasures designed to limit further irregulari-ties in commercial logging operations, butalso introduced significant new conservationmechanisms. The centerpiece of the latterwas the proposed establishment of aConservation Trust Fund, which would pro-vide communities with the means to realizethe economic value of their forest resourceswithout resort to logging. International envi-ronmental NGOs and their PNG affiliateswere to help establish this component.Second, the FCP was structured as anAdaptable Program Lending instrument,under which funds are disbursed subject toperformance. This mechanism importsdimensions of adjustment lending into pro-ject lending. Moreover, five conditions onforestry were included in both the FCP andthe SEDP, which served to make the twoloans conditional on each other.

This careful process of building on theERP stopped when Hamidian-Rad left theWorld Bank to take on his new role as ChiefEconomic Adviser in PNG, just months afterhe had been central to negotiation of theSEDP. Because his new position violated the World Bank’s internal rules about poten-tial conflicts of interest, the World Bankrefused to proceed with the SEDP, despitethe government’s urgent need for budgetary support, until the controversy overHamidian-Rad’s role in governing PNG was settled.35

Since the early days of the ERP, Hamidian-Rad had been a forceful presence in PNG.He had faced down a horde of angry studentsduring the land reform unrest of 1995, andhad developed a reputation for hard-headed-ness both among his World Bank colleaguesand those on the other side of the table inPNG.36 In a country where personality poli-tics dominates, Hamidian-Rad became thepersonality that defined the World Bank’spolitics. When he switched sides in 1998, thesame quality he had brought to his dealingswith the government over the ERP wasfocused on the World Bank. This shift hadtwo important implications for the develop-ment of forest policy in PNG.

First, in an effort to secure approval of theSEDP, the government refused to allow theFCP to go forward without the SEDP.37

Sources within the World Bank suggest thatHamidian-Rad was behind this move, whichdemonstrates insider knowledge of the pres-sure the World Bank would face from inter-national NGOs if the most important conser-vation program in PNG were to be stopped inits tracks.38 As a result, negotiation of boththe conservation-focused FCP loan and theSEDP loan were suspended for over a year.

Second, Hamidian-Rad led a policy of radi-cal restructuring along with an increase indevelopment expenditures controlled bymembers of parliament that caused a short-term financial crisis.39 To boost export rev-enues, Hamidian-Rad was complicit in aseries of measures taken to increase logexports: tax relief to the industry; cancella-tion of independent log surveillance proce-dures that limited transfer pricing by logexporters; fast-track approval of logging concessions; and restructuring of the ForestService to side-line reformist elements


46

(Filer and Kalit, 1999). These measures rep-resented a complete turn-around from thepolicies supported by Hamidian-Rad while atthe World Bank.

In July 1999, the impasse between theGovernment of PNG and the World Bankwas overcome only by the resignation ofPrime Minister Skate, and the removal ofHamidian-Rad from his position as ChiefEconomic Advisor.40 This change at thenational political level helped resume the dia-logue and negotiation between the WorldBank and PNG.

The injection of the personalized politicsaround Hamidian-Rad considerably compli-cates an assessment of the success of theERP and the subsequent implementationefforts. Moreover, the FCP, which wasdesigned to cement and implement the leg-islative and institutional gains achievedthrough the ERP, is yet to be implemented,which renders any assessment premature.However, even putting aside Hamidian-Rad’srole, it is clear that the gains achieved in theERP required constant defense through con-tinued conditionality and cross-conditionalityacross the SEDP and FCP.

THE ROLES OF OTHERSTAKEHOLDERS

By the mid-1990s, the World Bank hadannounced that attention to stakeholderinterests and insights would form an impor-tant component of how the World Bank nowdid business in borrower countries. In itsown assessment of the ERP, the World Bankcredits its initiative in “deepening the dialogue with the various stakeholders andpolicy makers to overcome the adverse influ-ence of vested interest groups in seeing

several important conditions through”(World Bank, 1997, p. iv).

Nongovernmental Organizations:Domestic and International

In PNG, the World Bank made an explicitcommitment to civil society engagement. Inthe midst of the crisis over disbursement ofthe second tranche of the ERP, a letter wascirculated from an NGO in PNG statingstrong support for the World Bank in holdingthe line on the second tranche. A simplereading of this engagement is that the WorldBank’s efforts paid off in the form of civilsociety support for the World Bank’s role infacing down a wayward and corrupt govern-ment in defense of institutional reform inthe forest sector. This is the story line theWorld Bank sketches in its ImplementationCompletion Report. While this version haselements of truth, the story is actually farmore complex, as the World Bank founditself embroiled in the politics of Melanesiansociety.

In PNG, one can draw a distinctionbetween groups who explicitly focus on envi-ronmental outcomes, and other groups orga-nized around religion, social concerns, andservice delivery. Of the latter, churches areby far the strongest element of civil society,but have not hitherto been heavily engagedin environmental debates. Among environ-mentalists, there is a broad distinctionbetween advocacy groups who tend to have asomewhat radical bent (expressed in the for-est sector as an opposition to export-orientedforestry), and groups engaged primarily incommunity-oriented conservation projectsand only secondarily in policy reform.41 Asimilar distinction may be made between theinternational environmental groups that have


47

a presence in PNG. While Greenpeace worksclosely with the more radical groups on poli-cy reform issues, The Nature Conservancy,Conservation International, and the WorldWide Fund for Nature all maintain localoffices that are engaged in conservation workat the project level.

In 1995, World Bank PresidentWolfensohn had a heated meeting withNGOs in Australia, during which the topic ofthe World Bank’s engagement in PNG washeavily featured. Wolfensohn reportedlypledged to make PNG a test case for how theWorld Bank did business with NGOs, butalso made it clear that in the case of PNG, heand his staff would deal with domestic NGOsin PNG, rather than with Australian NGOs.42

This was a turning point for the WorldBank’s civil society engagement in PNG.Until this point the World Bank had simplykept lines of communication open withNGOs and supported the representation ofthe National Alliance of Non-GovernmentalOrganizations (NANGO) on the NationalForest Board. After Wolfensohn’s statement,the frequency and intensity of NGO-relatedactivities went up dramatically, and theWorld Bank appointed a staff person to buildand manage relations with NGOs. In themidst of the controversy surrounding theland reform condition, the World Bank hadpromised to hold regular meetings with anumbrella group of civil society organizations,the National Council for Socio-EconomicJustice (NCSEJ), which was formed to contestthe whole program of structural adjustment.One of these was a three-day meeting, whichfocused specifically on the forest conditionsof the ERP.

In mid-1996 when the government aggres-sively pursued actions in violation of the

forest conditions, there was a strong reactionfrom some elements of civil society in PNGin support of these conditions. The GeneralSecretary of the PNG National ForestResource Owners Association (FROA) sentout a letter to international environmentalNGOs in his capacity as “a representative ofcivil society in PNG.” In strong language, hebacked the position of the World Bank andother donors in withholding the secondtranche until the sustainable developmentcommitments had been met and placed theblame for the impasse squarely at the govern-ment’s door (Ariku, 1996). This was an extra-ordinary letter in that it explicitly dismissedconcerns over national sovereignty and baldlystated that the World Bank, through the ERP,was doing far more to support the interestsof the citizens of PNG than were the electedrepresentatives in the PNG government. Thiswas followed up with a celebratory letter inthe local press when the government eventu-ally caved in to the conditions, which stated:“World Bank’s adamant stand on forestryreforms is in the best interest of the nation”(quoted in Filer, 1998, p. 161). For the WorldBank, it appeared to be a vindication of itsattempts at engaging with civil society.Within PNG, however, the author of theseletters was a controversial figure, whose legit-imacy as spokesperson for a broad con-stituency was suspect.43 Soon thereafter, hiscredibility with other sections of civil societywas further damaged when the World Bankappointed him as its NGO Liaison Officer.

There were other, albeit more equivocal,voices of support for the sustainable develop-ment conditions. A letter from Greenpeace to other international NGOs, drawing on documentation from the Individual andCommunity Rights Advocacy Forum (ICRAF)in PNG, noted that while there was


48

widespread opposition to the SAP, and partic-ularly to the land reform conditions, the con-ditions covering the forest sector were con-sistent with the positions taken by some sec-tions of civil society in PNG and were thusdeserving of support (Cortesi, 1995). Thissupport was not shared by all internationalNGOs; a 1996 report by an Australian NGO,AID/WATCH, argues that the failure to con-sider the consequences of industrial loggingdemonstrates the hollowness of the WorldBank’s claim to play the “good environmentalcop” in PNG (AID/WATCH 1996).

That this support for the sustainable devel-opment conditions was relatively muted andconditional was due to the level of popularopposition to non-forest components of theERP, the closed and non-transparent processof negotiation of the loan, and the content ofthe World Bank’s forestry agenda in PNG.Many environmentalists within PNG believedthat the World Bank’s intervention was limit-ed to promoting more efficient and sustain-able industrial, export-oriented forestry. Bycontrast, written materials and interviewssuggest considerable agreement amongNGOs in PNG that the country should ques-tion the paradigm of industrial logging andturn toward an expansion of investment insmall-scale logging and domestic processingof timber (ICRAF, 1997).

The point here was not whether a shiftaway from exports and toward domestic processing made economic sense (which theWorld Bank denied), or whether it might bedesirable for reasons of good governancealone (as the NGOs claimed), but that theNGOs believed the ideological dogmatism ofthe World Bank had prevented this discus-sion from taking place. While none of theNGOs interviewed for this report denied that

the sustainable development conditions wereuseful in placing checks on a governmentthat was poised to hand over PNG’s forests toMalaysian loggers, many also expressed dis-appointment at the perceived lack of open-ness exhibited by the World Bank to modelsother than industrial forestry.

There are recent signs that this stalematehas been broken. Since 1997, several NGOsin PNG who had been calling for an outrightban on log exports were signaling their will-ingness to settle for a moratorium on newconcessions. Meanwhile, international NGOswith offices in PNG were calling for theWorld Bank to include a moratorium on newconcessions as one of the conditions attachedto the FCP or to a new adjustment loan(Cortesi, 1999)—a recommendation whichwas also one of the outcomes of a workshopheld in PNG in May 1999 jointly sponsoredby the World Bank and the World Wide Fundfor Nature (WWF, 1999). The moratoriumwas ultimately included in the draft policymatrix proposed for the next structuraladjustment program, and was endorsed bythe new PNG government in November 1999(Independent, 1999; National, 1999).

In addition to undertaking consultationswith civil society groups, the World Bank wasalso responsible for inserting a condition inthe ERP that committed the government to

Many environmentalists believed that the

World Bank’s intervention was limited to

promoting more efficient and sustainable

industrial, export-oriented forestry.


49

establish an alternative civil society basedmechanism for delivery of social, agricultur-al, and infrastructure services to rural popu-lations.44 While the World Bank did notdirectly fund this mechanism, it did fundmeetings aimed at mobilizing and organizingcivil society to take on this role. The WorldBank particularly engaged the NCSEJ, whichprominently included the leaders of the anti-land reform protest and its successor,the PNG Watch Council. The Watch Councilreceived funds from the government andsome logistical support from the World Bank.

However, the group’s claims to representthe public interest were considerably shakenwhen it became known that funds disbursedby the government to the Watch Council forsocial programs were used to oil the wheelsof an election campaign mounted by theWatch Council’s leaders. The campaign wasultimately successful and resulted in some ofthese erstwhile members of civil societyoccupying parliamentary seats. For theseaspiring politicians, there were few votes tobe won from a sympathetic portrayal of theWorld Bank; rather more to be gained from representing the World Bank and thegovernment as “a single Janus-faced oppres-sor” (Filer and Kalit, 1999, p. 39). In hind-sight, the World Bank’s actions could be

interpreted as an attempt to undertake dam-age control following the land reform inci-dent, and suggests a lack of understanding ofPNG politics. The World Bank most proac-tively engaged those elements of civil societythat had been most vocal around the landreform issue, while comparatively less atten-tion was paid to church groups with a muchbroader popular base, or to environmentalgroups, with their more specific focus onsustainable development.

What do we make of these variousattempts at engagement with civil society?First, international pressures partially drovethe World Bank to be more open, pressuresthat were made very real by PresidentWolfensohn’s promise to make PNG a testcase for how the new World Bank does busi-ness. Second, the misrepresentation, deliber-ate or otherwise, of the land reform condi-tion by populist elements in PNG certainlypunctuated the need for the World Bank todo a better job of engaging civil society anddisseminating information about the implica-tions of adjustment-led reforms. This out-reach was subsequently undertaken, withmixed results. Third, while the World Bankdid receive some civil society support for theforest conditions of the ERP, the unpopulari-ty of the broader set of adjustment condi-tions and the perceived ideological rigidity ofthe World Bank on the future of forestry inPNG led an important constituency forreform to be lukewarm in its support for theWorld Bank.

Despite assertions in the World Bank’sImplementation Completion Report concern-ing the importance of civil society engage-ment, this engagement was only partiallysuccessful. The World Bank received vocalsupport from one individual who did

International pressures partially drove the

World Bank to be more open, pressures that

were made very real by President Wolfensohn’s

promise to make PNG a test case for how the

new World Bank does business.


50

represent a segment of civil society for aperiod, but whose claim to representationgrew weaker over time. The environmentalNGOs, the World Bank’s most likely support-ers, did not loudly voice their approvalbecause they believed that the World Bankwas not truly open to the ideas of civil societyactors and had already decided on promotingan orderly log export system. And in attempt-ing to engage the populists who raised theland reform alarm, the World Bank founditself manipulated by a small leadership seg-ment with political designs; in keeping withPNG’s political culture, the goal of servicedelivery was turned into a political donation.In sum, engaging civil society, while a neces-sary first step, is no guarantor of success.Whom the World Bank engages, and howthey are engaged, are crucial to the final out-come.

Private Sector

The forest industry, as represented by theForest Industries Association, tended to per-ceive the World Bank as firmly aligned withenvironmental interests. It complained of alack of consultation over the design of theForestry and Conservation Project (Filer andKalit, 1999). Moreover, the industry followeda political strategy of portraying itself asallied with the interests of landowners whosought to derive economic benefits fromtheir land, and contrasted this with a conser-vationist perspective that would call onlandowners to forego logging income.

World Bank missions made a point of con-sulting both NGOs and industry representa-tives, but the degree of outreach to NGOsexceeded that to industry. From the perspec-tive of the World Bank, this is justifiedbecause the industry’s views are easier to

glean than are those of the more disparateNGO community.45 It is important to recallthat the Barnett report, which stressed theneed to control the industry, set the stage forthis engagement. Moreover, the timbertycoons’ behind-the-scenes manipulation ofsuccessive forest ministers to undermineWorld Bank conditions did not predisposethe World Bank to accommodate the loggers.Finally, the government actively discouragedthe World Bank from meeting the forestindustry, perhaps because they were con-cerned that direct communication betweenthe two would upset the patronage relation-ship between industry and some politi-cians.46 In this climate, the World Bank keptthe lines of communication to industryopen—as when it conceded the need foradjusting the forest revenue system in 1998to accommodate a downturn in the world logmarket—but for much of the perioddescribed above, the World Bank and thereformers shared a goal of bringing the log-ging industry under control.

Other International Aid Donors

Australia continues to play an importantpolitical and economic role in PNG. As such,the Australian government’s support for anyWorld Bank program in PNG is a precondi-tion for success. In the early 1990s, relationsbetween the two were strained over twoissues. From the World Bank’s perspective,Australia retained far too strong a colonialrelationship with PNG.47 Specifically, PNGprovided special tax incentives for Australiancompanies, and AusAID’s program was heav-ily tied to the use of Australian firms andconsultants. As a result, the World Bank sawthe Australians as unwilling to undertakebold measures in PNG, such as reforming


51

the tax code, preferring instead to provideproject assistance.

From the Australian perspective, the stabil-ity of PNG society, separated from Australiaby only a narrow channel, was and remains akey imperative. In addition, with respect tothe ongoing aid program, there was somefriction over the World Bank’s managementof AusAID funds committed to the NFCAPprocess. As a result, in the mid-1990s,Australia decided to directly fund some pro-jects that were originally intended to bechanneled through the World Bank. Thecomplications were a source of some frictionin the early 1990s.48 Since 1994, however,the sides are more in agreement. Althoughwe have not been able to find any furtherdetails of engagement, it is clear that theERP would not have proceeded without atleast tacit Australian support for broaderstructural reform.

THE BOTTOM LINE

A surface reading of the World Bank’sengagement with forest policy reform inPNG might hold that the World Bank faceddown a wayward and corrupt government tosuccessfully protect important institutionalreforms in the forest sector backed by strongcivil society support. While elements of thisstory hold true, a more detailed reading suggests a more complex story.

First, the World Bank, reformers in thebureaucracy, and environmental NGOs didshare an interest in passing legislation andinstituting regulation to place checks on thelogging industry and distribute rents fromlogging in a more equitable manner. The his-tory of the adjustment experience suggeststhat the application of conditionality to envi-

ronmental outcomes in the context of a struc-tural adjustment loan was essential to achiev-ing this outcome. This result illustrates theability of the adjustment lending instrumentto achieve defined objectives through a strokeof the pen. Moreover, it shows the ability ofadjustment lending to raise forest issues tothe top of the national agenda, bringing themto the attention of powerful ministries. Theresult, in this case, was that negative out-comes in the forest sector were reversedbecause the costs of inaction would have hadripple effects at the macroeconomic level ifthe ERP had been cancelled.

Second, the proposition that this achieve-ment was built on solid borrower ownershipof the adjustment loan is partially supportedby the material presented here, but withcaveats. The PNG case illustrates the difficul-ties in evaluating ownership in binary terms.The Barnett inquiry and subsequent effortsby reformist bureaucrats provide substantialevidence of ownership of a reform agenda byactors from within PNG. Yet, national politi-cians were driven by a completely differentagenda. They were almost always opposed toa process of institutionalization that de-personalized control over forest assets andremoved them as sources of patronage withinthe political system. Moreover, many of thereformist bureaucrats who formulated theforest conditions were senior expatriate con-tract officers whose training and background

The Australian government’s support for

any World Bank program in PNG is a

precondition for success.


52

match that of donor agency staff. The impor-tant role of these expatriates confuses theissue of borrower ownership.

Third, the World Bank’s engagement withcivil society proved contradictory. A centralfeature of the ERP was the World Bank’sefforts to engage civil society and build ameasure of support for the ERP within thissector. Here, the World Bank did win somesupport from elements of civil society,although this was confused both by the con-troversial reputation of one of the key sup-porters, as well as by the simultaneous reser-vations expressed by other supporters of theforest conditions in the ERP. Moreover, theWorld Bank directly engaged populists whosimply used the World Bank to leveragefinancial support from the government withwhich to contest elections.

Perhaps most significant, dialogue with theWorld Bank’s most obvious constituents—environmental NGOs—foundered on sub-stantive issues. The World Bank’s agenda ini-tially focused on distributing the resourcerents from export-oriented logging in an effi-cient and equitable manner, and over timeexpanded to apply institutional brakes to therampant logging of PNG’s forests. Worth-while as these goals are, the World Bank didnot, until recently, appear willing to chal-lenge the neo-liberal prescription of export-led growth as applied to the forest sector, anunwillingness that set limits to engagementwith NGOs whose vision of the future restedon community forestry and domestic log processing.

Fourth, the World Bank’s success in hold-ing the line on the forest conditions depended on several factors internal to theWorld Bank. The first necessary condition

was contacts within PNG and the detailedinformation on the forest sector necessary toformulate the appropriate loan conditions.This in turn was facilitated by the WorldBank’s continued and sustained participationin forest debates through the NFCAP process

and donor coordination efforts throughoutthe early 1990s. This involvement allowedthe World Bank to anticipate not only techni-cal problems but also, to some extent, politi-cal obstacles to forest policy reform. The second condition was firm support at themanagerial level within the World Bank,which only resulted after an internal strug-gle. This episode suggests that future effortsshould examine internal incentives to staff.Additionally, firm support from senior WorldBank management is essential if conditional-ity of this nature is to be credible with gov-ernments.

Finally, subsequent events have shownhow fragile forest policy reforms are inPNG—fragility that is evident in anotherround of tough conditionality in the lateststructural adjustment program. The PNGcase suggests then, that structural adjust-ment lending can play an important support-ive role in giving political power to reformersthrough the indirect channel of World Bankconditions, but that ultimately that sustain-able policy reform requires commitment tobecome entrenched within the national

The World Bank’s efforts to engage civil society

and build a measure of support was a central

feature of the Economic Recovery Program.


53

political system. If the reform process needsto be supported by a series of structuraladjustment loans with similar content, thenit can hardly be characterized as successful.The next few years will tell if forest policyreform in PNG is self-sustaining or not. To

be supportive, the World Bank has to be genuinely open to civil society prescriptionsand visions. Only then can it play an impor-tant role in supporting relationships and newpolitical forces that are strong enough to rep-resent conservation interests effectively.


54

AID/WATCH. 1996. “Pawa na Pipel! People andPower in Papua New Guinea.” Woollahra,Australia: AID/WATCH.

Ariku, Noah Javen Ariku. 1996. “Release of TrancheTwo of World Bank ERP/SAP Loan to Papua NewGuinea.” Mimeo.

Cortesi, Lafcadio. 1995. “Letter to several NGOs.”Greenpeace.

—1999. “Untitled email to World Bank staff.” 29 July.

Filer, Colin, and Kilyali Kalit. 1999. “EnvironmentalAdjustment: Opportunity for Policy Reform in theForestry Sector? Papua New Guinea Case Study.”Port Moresby, PNG. Mimeo.

Filer, Colin with Nikhil Sekhran. 1998. Loggers,Donors and Resource Owners. Policy That Works forForests and People. Edited by J. Mayers. London:International Institute for Environment andDevelopment.

ICRAF. 1997. “Justice and Freedom.” Port Moresby,PNG: Individual and Community Rights AdvocacyForum.

Independent. 1999. “Greenpeace Praises ForestsMoratorium.” Independent, December 21.

National. 1999. “WWF Lauds Moves for StricterForestry Laws.” National, December 17.

Taylor, Meg, Philip Siaguru, John Millet, and LanceHill. 1994. “Review of the National Forest andConservation Action Programme.” Port Moresby,PNG: United Nations Development Programme.

World Bank, The. 1995. “Report and Recommendation of the President of the IBRD tothe Executive Directors on a Proposed Loan ofUS$50 million to the Independent State of PapuaNew Guinea for an Economic Recovery Program.”Washington D.C.: The World Bank.

—1997. “Implementation Completion Report:Independent State of Papua New GuineaEconomic Recovery Program Loan.” WashingtonD.C.: The World Bank.

—1998a. “Papua New Guinea: Social and EconomicDevelopment Program Loan.” Washington D.C.:The World Bank.

—1998b. “Project Appraisal Document on aProposed Loan to Papua New Guinea for aForestry and Conservation Project.” WashingtonD.C.: The World Bank.

World Wildlife Fund. 1999. “Strategies forSustainable Forestry: Summary of Discussionsand Recommendations from the WWF-WorldBank Sustainable Forestry Workshop, Madang,Papua New Guinea, 26–28 May 1999.”Unpublished report.

R E F E R E N C E S


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1. This chapter draws on “Environmental Adjustment: Opportunities for ProgressiveReform in the Forest Sector? Papua New GuineaCase Study,” by Colin Filer and Kilyali Kalit(1999), which is available athttp://www.wri.org/wri/governance/iffeforest.html as well as on interviews conducted by theauthors in Papua New Guinea and Washington,D.C., on a not-for-attribution basis.

2. One Malaysian company, Rimbunan Hijau, con-trols half the log export volume and has diversi-fied into wood processing and even into owner-ship of a national newspaper.

3. Churches are the most active and widespreadform of civil society organization in PNG, buthave not, thus far, played an active role in forestprocesses (Filer, 1998).

4. Over the past decade, grant aid has accountedfor about 10 percent of GNP in PNG. Threequarters of this have come from the Australiangovernment, which over time has been shiftingits aid contribution from general budgetary sup-port to specific projects implemented usually byAustralian contractors (Filer and Kalit, 1999).

5. The then Prime Minister who initiated thereview was relatively insulated from charges ofimpropriety since his own political base lay in acoffee-growing region, which may explain hiswillingness to initiate the inquiry.

6. However, it was only in 1991, two years later,that this particular politician was found guilty ofeighty charges of misconduct by a Leadershiptribunal and forced to give up his parliamentaryseat (Filer, 1998).

7. There was also a second point of difference: theWorld Bank was skeptical of Barnett’s assump-tion that resource owners are innocent victimsof loggers, and therefore potential allies ofreformers (Filer and Kalit, 1999).

8. Not-for-attribution interview with several NGOsin PNG, December 1998.

9. The task force also included representatives ofthe Forest Industries Association which, at thetime, was not dominated by Malaysian logginginterests. These representatives argued for a setof rules that would allow for long-term secureconcessions and a regulatory structure thatwould not require them to compete for conces-sions with bribes. (Personal communicationfrom a member of the National Forest Policytask force, December 1999.)

10. This was accomplished, in part, by logging com-panies mobilizing landowner company directorsfrom six provinces. These landowners formedthe Forest Resource Owners Association (FROA)and effectively represented the interests of log-ging companies (Filer and Kalit, 1999.)

11. In addition, there was a second letter from the Prime Minister to the Forest Minister com-municating the same message (Filer and Kalit,1999).

12. The key provisions of the act that followed fromthe policy were establishment of the following: aNational Forest Board with representation fromgovernment departments, provincial govern-ment, the Forest Industry Association, andNGOs; provincial forest management commit-tees; a National Forest Service; a process of

N O T E S


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resource acquisition which required the ForestAuthority to enter into Forest ManagementAgreements with customary owners; a processof a multi-stage resource allocation, whichincluded a development options study; condi-tions of development that included a loggingplan, and payment of a performance bond. It also specified that logging should only takeplace in accordance with a National Forest Planwhich was then unwritten (Filer and Kalit,1999).

13. The act successfully achieved this outcome, butnot before the Forest Minister had allocated 17new timber permits the day before the act wasgazetted (Filer and Kalit, 1999).

14. This is certainly the opinion of national bureau-crats, and is supported by information that thereformist elements within the bureaucracyprompted the World Bank’s letter to the ForestMinister, as well as the letter written by thePrime Minister. (Not-for-attribution interviewwith PNG government official, December 1999.)

15. Specifically, it would repeal the resource acqui-sitions and resource allocation provisions thathad slowed down the process of industrial log-ging, which would give the Forest Board a freehand in allocating permits. At the same time,they proposed to reform the Board to stack itwith industry representatives and members ofthe industry-friendly Forest Resource OwnersAssociation, while dropping the sole NGO repre-sentative (Filer and Kalit, 1999).

16. World Bank staff point out that the loan wasinnovative with respect to social sectors as well.Thus, instead of leading to budgetary cuts inthese sectors as past adjustment loans had done,spending on health and education wasincreased. (Not-for-attribution interview withWorld Bank staff, July 1999.)

17. Not-for-attribution interviews with governmentofficials in PNG, December 1998.

18. Expatriates played an important role in the gov-ernment, and in NGOs and the private sector.

19. Not-for-attribution interview with World Bankstaff, April 1999.

20. At one point the World Bank country economist,Pirouz Hamidian-Rad, was taken captive by ahostage crowd.

21. This rumor seems to have begun with theoption, in the legislation, for landowners tolease land to a third party who could use theland as security for a bank loan. Based on this,speculation arose that “big men” could use thisoption to gain control over the land of others ina customary land group. Next was the possibilitythat politicians would lease land to Asian com-panies for development of palm oil estates.From there, it was but a short step to the beliefthat the government would offer the WorldBank land as collateral for the ERP (Filer andKalit, 1999).

22. The other reasons were the lack of progress onallocating funds for service delivery at local lev-els, and attempts to reverse the process of tariffrationalization (World Bank, 1997).

23. Details in this section are drawn from inter-views conducted with World Bank staff andinterviewees in PNG that were conducted on anot-for-attribution basis.

24. Not-for-attribution interview with former WorldBank staff, December 1998.


26. Not-for-attribution interview with World Bankstaff, January and July 1999, and with an NGOrepresentative in PNG, December 1998.

27. Not-for-attribution interview with PNG govern-ment officials, December 1998.

28. Not-for-attribution interview with World Bankstaff, February 1999, and January 1999, andwith PNG government officials, December1998.

29. However, the macroeconomists remained morecomfortable with the economic dimensions ofthese conditions, such as the revenue arrange-ment, than with the institutional issues.

30. Not-for-attribution interview with World Bankstaff, January 1999.

31. Not-for-attribution interview with World Bankstaff, January 1999.

32. Not-for-attribution interview with World Bankstaff, January, February, and July 1999.



57

34. An additional risk identified is the government’scapacity to implement the program (WorldBank, 1998a).

35. Not-for-attribution interview with World Bankstaff, November 1998.

36. Not-for-attribution interview with World Bankstaff, November 1998 and with an NGO repre-sentative in PNG, December 1998.


38. Not-for-attribution interview with World Bankstaff, December 1998.

39. Specifically, economic restructuring was intro-duced to cut recurrent expenditures, reduceimport controls, and accelerate the privatizationof government assets, all of which might becharacterized as “structural adjustment withoutthe loans” (Filer and Kalit, 1999, p. 61). Inanticipation of these savings, developmentexpenditures were increased, much of whichwas placed at the discretion of members of par-liament. Since the total saved through cutsproved to be less than the amount alreadyparceled out, the country faced a financial crisis.Moreover, foreign exchange reserves decreasedas export revenues declined; all of which deval-ued PNG’s currency, the kina.

40. The immediate cause for his resignation was apolitical crisis resulting from his attempts toraise money from Taiwan by offering diplomaticrecognition.

41. An example of the former is Individual andCommunity Rights Advocacy Forum (ICRAF),and the latter is the Foundation for Peoples andCommunity Development (FPCD).

42. Not-for-attribution interview with World Bank staff, February 1999, and April 1999.

43. Both the organization and the individual havecomplicated histories, illustrating the complexi-ty of NGO politics in PNG. The FROA, as amember of the NCSEJ, had aroused some con-troversy over its pro-logging industry stance. Inprotest, the Secretary of the NCSEJ, Noah Ariku,formed a competing Forest Resource OwnersAssociation, which went by the same name butthe opposite politics on forest issues. Both bod-ies, claiming to be the real FROA, ran newspa-per advertisements—one parroting the ForestIndustries Association view, the other that ofthe World Bank—each accusing the other ofbeing a puppet of the originators of their respec-tive views. Soon thereafter, these two competingFROAs struck a compromise and Ariku, the leaddissident, was named the Secretary of themerged FROA. The letters to international envi-ronmental NGOs were addressed from Ariku,both as General Secretary of the FROA andExecutive Director of Mission Innovator, Inc.,an organization that no one in PNG had anyprior knowledge of.

44. Not-for-attribution interview with World Bankstaff, February 1999.

45. Personal communication with World Bank staff,November 1999.

46. Not-for-attribution interview with World Bankstaff, July 1999.

47. Not-for-attribution interview with World Bankstaff, July 1999.

48. Personal communication with researcher inPNG, June 1999.


59

I n 1989, the World Bank initiated amajor attempt to improve forest man-agement in Cameroon by tying forest

policy reforms to structural adjustment lend-ing. The first round of negotiations betweenthe World Bank and the Government ofCameroon culminated in the 1994 ForestLaw, which introduced far reaching changesin the way that forest concessions were allo-cated, taxed, and managed. The law alsoincluded provisions that, for the first time inCentral Africa, granted local communitiesthe right to benefit financially from wood cutin their customary forests. Yet, despite theWorld Bank’s substantial efforts, the govern-ment repeatedly reneged on its commit-ments, throwing the implementation of thereforms into disarray.

The policy reform process in Cameroon isof national and regional significance.Understanding the process, however, is com-plex. Stakeholders in the reform process—the various branches of government, the pri-vate sector, the World Bank, other interna-tional donors, domestic and internationalNGOs, and local communities—tend to holddivergent views about the reforms’ success.Arriving at a balanced assessment of theWorld Bank’s approach means calibratingamong a range of conflicting opinions.1

BACKGROUND

From independence in 1960, AhmadouAhidjo ruled Cameroon under a highly cen-tralized, one-party system. Following his resignation on health grounds in 1982, hewas replaced by Paul Biya, who continuedone-party rule until 1990, when he was ledby popular protest and external pressure toaccede to a multi-party system. The parlia-mentary elections in 1992 left the president’sparty in power, but only as part of a coalition.The presidential election in the same year,which returned Biya to power, is generallyconsidered to have been grossly manipulated,as was the second presidential election in1997 (Burnham and Sharpe, 1997). Accordingto Berlin-based Transparency International’sCorruption Perceptions Index, Cameroonwas the world’s most corrupt country in 1998 and 1999 (Transparency International,1999).

During the 1960s and 1970s, Cameroonenjoyed a reputation as one of the more successful economies in Africa (Burnhamand Sharpe, 1997). Growth over this periodaveraged five percent a year, driven largely by high prices for its principal exports,including cocoa, coffee, cotton, aluminum,and from the late 1970s, petroleum. But

C A M E R O O N

3

Jake Brunner François Ekoko


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imprudent use of its oil revenues, a 65-per-cent decline in the terms of trade for its chiefexport crops, and a marked expansion in gov-ernment employment led to a balance of payments crisis in the early 1980s; the inau-guration of an IMF structural adjustmentprogram in 1988; and a 50-percent currencydevaluation in 1994. Gross domestic product(GDP) declined by six percent per annum onaverage between 1986 and 1993, producing a50-percent fall in per capita incomes.Economic decline was accompanied byincreased poverty, as poor farmers sufferedthe brunt of the fall in producer prices andthe government cut basic health and educa-tion services (World Bank, 1996). Public debtincreased from US$5.9 billion in 1989 toUS$9.1 billion in 1999, of which 80 percentwas external debt. The ratio of external debtto GDP rose from 33 percent in 1989 to anall-time high of 109 percent in 1994, beforefalling back to 80 percent in 1999. Forty-fourpercent of the budget goes for debt service.

The World Bank has been closely associ-ated with Cameroon’s development effortssince 1967. As Table 3.1 shows, there has

been a significant shift away from projectlending—which fell from US$902 million in1980–1991 to US$154 million in 1992–1998—toward structural and sectoral adjustmentlending, which increased from US$150 mil-lion to US$612 million over the same period.Project lending has thus declined in both rel-ative and absolute terms. The earlier genera-tion of projects was plagued with problems,and following a portfolio review in late 1993,eight were closed and three restructured(World Bank, 1996). A US$273 million cocoarehabilitation project had had no result what-soever according to the World Bank’s ownOperations Evaluation Department.

The World Bank would like to do morework in Cameroon, but it has not disbursedproject funds because of the poor manage-ment and problems linked to a lack of trans-parency and good governance in that country(Reuters, 1999). By the end of 1999, theWorld Bank had only six projects inCameroon worth US$330 million, comparedto 34 projects in Ghana worth US$1.2 billion,and 23 in Ivory Coast worth US$578 million.

Structural adjustment lending Projects: 1 Loan: 150 Projects: 7 Loan: 432

Sectoral adjustment lending Projects: 0 Loan: 0 Projects: 2 Loan: 180

Project lending Projects: 25 Loan: 902 Projects: 6 Loan: 154

Forest projects Projects: 1 Loan: 17 Projects: 0 Loan: 0

Nonforest projects with forest components Projects: 1 Loan: 22 Projects: 0 Loan: 0

T A B L E 3 . 1 W O R L D B A N K L E N D I N G T O C A M E R O O N ( I N T O T A L C O M M I T M E N T S U S $ M I L L I O N ) , 1 9 8 0 – 1 9 9 8

1980–1991 1992–1998

Source: World Bank, 1998


61

B O X 3 . 1 C H R O N O L O G Y O F A D J U S T M E N T A N D F O R E S T P O L I C Y R E F O R MI N C A M E R O O N

1986 Onset of the economic crisis.

1988 TFAP completed and SAC I approved.

1992 Paul Biya wins the presidential elections.

November 1993 National Assembly debates the draft Forest Law.

January 1994 Devaluation of the CFA franc and approval of the ERC.

August 1995 Promulgation of the Implementation Decree.

February 1996 SAC II approved.

August 1997 First concession auction.

October 1997 Paul Biya wins the presidential elections.

June 1998 SAC III approved.

June 1999 Government approves new concession auction rules.

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The World Bank has been involved in threeStructural Adjustment Credits (SACs) in1988, 1996, and 1998, and an EmergencyRecovery Credit (ERC) following the currencydevaluation in 1994. Only SAC III includeddetailed forest conditionalities, although SACI and the ERC were used to ensure that thegovernment passed the major legal texts necessary for forest sector reform. Boxes 3.1and 3.2 summarize, respectively, the chronol-ogy of the reform process and the main forest conditionalities.

ADJUSTMENT LENDING ANDFOREST POLICY REFORM

The forest sector contributes significantly toCameroon’s economy. Timber production

increased rapidly after 1992 as a result of the economic crisis, the currency devalua-tion, and a surge in demand for logs fromAsia. In 1998, the sector contributed ten percent of non-oil GDP, nine percent of alltax revenues (if transport and related activi-ties are included), and 28 percent of allexports by value. Sixty-six sawmills wereactive in 1999, producing a total of 2.7 mil-lion m3 of wood and directly employing10,400 people (MINEF, 1999).

Starting in 1989, the government, withstrong World Bank support, targeted policyreform as the cornerstone of improved forestmanagement. Cameroon’s forests weredeclining in both size and quality. Clearingfor agriculture was identified as the major


62

cause of deforestation, but logging, and thecommercial poaching that goes with it, wasconsidered to be the main cause of forestdegradation (O’Halloran and Ferrer, 1997).The World Bank believed that if it changedthe way that logging concessions were allo-cated, taxed, and managed, the governmentcould prevent the worst environmental dam-age and increase its share of revenue to helpdeal with its most pressing economic andsocial concerns. The World Bank intended follow-up these reforms with a forest loan

that would allow it to monitor policy imple-mentation.

The regime had used the allocation of log-ging concessions to maintain political sup-port, as shown by the jump in the number ofregistered logging companies prior to thepresidential elections in 1992 and 1997.Strong vested interests were opposed tochanges that would have limited the use ofCameroon’s forests for political purposes.The World Bank tried to overcome theseinterests by tying reforms to structuraladjustment lending, a powerful incentive.

The 1994 Forest Law

A detailed review of Cameroon’s 1981 ForestLaw had been undertaken by the 1988Tropical Forestry Action Plan (TFAP).Between 1989 and 1993, the World Bankundertook a series of missions to Cameroonto discuss a forest and environment projectthat would help implement the TFAP recom-mendations. Gradually, however, the discus-sion shifted away from project activities andtoward Cameroon’s forest policies and theneed to update the previous law. Althoughthe Food and Agriculture Organization andthe United Nations Development Programmeled the TFAP preparation, it was the WorldBank that pressed the government for policyreform since these agencies and the bilateraldonors had neither the political will norfinancial leverage to do so. While the WorldBank’s forest and environment project teamnegotiated with the government, a secondteam, based in Washington, started work ona new forest law. In 1993, the World Bankstated its opinion that significant reformswere needed before further project supportcould be justified (Ekoko, 1997).

1988 SAC I: preparation of the Forest Law.

1994 ERC: promulgation of the Implementation Decree.

1998 SAC III: definition of detailed concession auction criteria and appointment of an independentobserver to report on the auction proceedings; preparation of a strategy for the allocation oflogging concessions; preference given to community forests over ventes de coupe in the non-per-manent forest zone; and implementation of an effective tax recovery program.

B O X 3 . 2 F O R E S T C O N D I T I O N A L I T I E S


63

One of the main weaknesses of the 1981Forest Law was the lack of a legal frameworkfor planning land use and integrating forestprotection and production activities(O’Halloran and Ferrer, 1997). Under theprevious system, the Prime Minister had solediscretion over the allocation of logging con-cessions, while the Minister of Agriculture,and later the Minister of Environment andForests,2 was responsible for granting small-er (2,500 ha) cutting rights (ventes de coupe).Larger concessions (licenses) were given for aperiod of five years (but were renewable) onthe basis of requests submitted by loggingcompanies. The ventes de coupe and licenses,which had no management requirements,were allocated based on mutual agreementbetween the companies and governmentauthorities. Companies had no incentive tomanage the forests efficiently because theywere unlikely to derive any benefit from goodmanagement. The law did not allow thetransfer of concessions, and did not guaran-tee long-term access so that companies couldbenefit from previous practice during a sec-ond felling cycle. Since export taxes were notlinked to the market price of wood, and areataxes were very low, loggers were encouragedto cut only the best trees and the governmentreceived less revenue. Companies construct-ed roads deep into the forest to exploit therarest and most valuable timber species,opening up these areas to agricultural set-tlers and bushmeat hunters.

The lack of a clearly defined forest policyhindered the drafting of the new law. TheMinistry of Agriculture commissioned a setof studies of forest concessions and taxation.These studies, which were proposed by theWorld Bank and largely funded by Canadiandevelopment assistance, were completed in1992.3 In November 1993, the World Bank

and the Ministry of Environment and Forests(MINEF) agreed on the draft text of theForest Law, which was submitted to theNational Assembly.

The draft law introduced four basicreforms (O’Halloran and Ferrer, 1997). First,concessions were to be allocated by auctionson the grounds that they are less susceptibleto political pressure and more economicallyefficient than the previous discretionary prac-tices. Second, the law introduced changes inpricing and taxation to allow for an increasein fiscal revenue and the use of market-basedincentives to improve forest management(Karsenty, 1999a). A key reform was a signif-icantly higher area tax indexed to inflation.4

The World Bank argued that by increasingthe cost of the raw material, a higher area taxencourages greater efficiency in its use, andthat a company with large margins toimprove efficiency is more likely to invest inreducing waste than in acquiring larger con-cessions. In 1997, the World Bank also suc-ceeded in having market prices introduced asthe basis of export tax rates, which the gov-ernment had rendered meaningless bymanipulating the reference prices throughobscure administrative decisions. Theseprices underestimated the value of logs by30–40 percent and of processed wood by 90percent, and represented a significant loss ingovernment revenue.

Third, the draft law introduced forest man-agement plans.5 Whereas auctions and high-er area taxes were believed to constitutesound forest policy (Grut et al., 1991), therewas little empirical evidence of their impacton harvesting practices, which some fearedwould intensify. Forest management planswere intended to mitigate the potential nega-tive effects of more intensive logging. They


64

also responded to growing domestic andinternational support for sustainable forestmanagement. Finally, the draft law includedprovisions for local communities to acquirethe exclusive right to manage and exploit upto 5,000 ha of their customary forest. Localcommunities could earn revenue by loggingtheir forests themselves or contracting with alogging company. They were also to receive10 percent of the area tax, with 40 percentgoing to the communes, the lowest level ofgovernment administration, and 50 percentto MINEF.

Lack of Borrower Ownership

The process by which the 1994 Forest Lawwas drafted reflects the central role played bythe World Bank and the passivity of theGovernment of Cameroon. Letters from theWorld Bank to the government between 1990and 1992 show that the World Bank wasinstrumental in shaping the reform agenda(Ekoko, 1997) and maintaining the momen-tum of the policy dialogue. Because of poorinterministerial coordination and MINEF’sinternal weaknesses, the government notonly failed to lead the reform process, butalso to participate in it effectively.

Authority over the negotiations was widelydispersed. By 1992, nine different govern-mental agencies had some input into, ordegree of oversight over, forest policy.6

MINEF’s authority relative to the other agen-cies was undermined by the lack of politicalclout of the then Minister, who belonged tothe smallest party in the governing coalition.Moreover, the establishment of MINEF in1992 was not followed, as is normal practice,by the creation of a complementary desk inthe Presidency to coordinate the activities ofthe Ministry with other government agencies.

Although officially responsible for coordinat-ing the policy dialogue, the President’s advi-sors never met with MINEF staff to discussthe proposed law, nor did they consult withthe President’s party to assess the politicalimplications of the new law (Ekoko, 1997).

The lack of presidential leadership wascompounded by MINEF’s own weaknesses.In 1986, the President staked his prestige onhis rejection of the tough austerity measuresrequested by the IMF, insisting thatCameroon would undertake economicreforms of its own. Budget cuts and the firstof several hiring freezes were announced, butwere never implemented. The crisis wors-ened with expenditure overruns in 1987 of11.5 percent of GNP, and the government wasforced to agree to IMF conditions that includ-ed severe reductions in administrative expen-ditures. Staff salaries were cut by 40 percent(and were often paid several months inarrears), virtually all perquisites (such ashousing and vehicle allowance) were abol-ished, and the operating budgets of mostministries were slashed. In 1992, only fivepercent of MINEF’s total budget was allocat-ed to non-staff expenditures, and the lasttime the Ministry received new vehicles wasin 1984. Maintenance, never adequately bud-geted for, all but disappeared.

The process by which the 1994 Forest Law was

drafted reflects the central role played by the

World Bank and the passivity of the

Government of Cameroon.


65

The IMF-led budget cuts were not compen-sated by effective donor support. A review ofdonor projects shows a strong orientationtoward protected areas management andresearch (CIRAD, 1997). These tended to beof high symbolic value, but of limited practi-cal use in strengthening the Ministry’s ana-lytical and coordination skills. Significantly,there had been little donor support for plan-tations, which require long-term investmentand high quality management. The effect wasto disperse the Ministry’s resources onnumerous small projects of limited potential.As one Ministry staff person put it: “OnMonday we do biodiversity, on Tuesday forest taxation, on Wednesday protectedareas . . .”7

Declining salaries, poor working condi-tions, and the offer of very large sums ofmoney provided a strong incentive for cor-ruption. The average MINEF official earned60,000 CFA francs per month and had nomeans of transport or communication, butcould gain millions of CFA by not reportinglogging in areas for which a company had noright. According to World Bank staff, whenthe Ministry’s computerized tax assessmentsystem broke down in 1991, forcing the gov-ernment to rely on logging company declara-tions, tax revenues went up, implying thatthe Ministry’s tax reporting was even lessreliable than the industry’s.8

The collapse in MINEF’s operational capac-ity, and the fact that many senior ministryofficials benefited from the discretionarypractices that the World Bank sought to end,undermined its interest in seriously engag-ing in the forest policy dialogue. Some min-istry officials have also expressed personalhostility toward certain World Bank staff whothey claimed imposed unreasonable dead-

lines backed up with the threat of loan sus-pension (Ekoko, 1997).

Modifications to the Law: the Role of theNational Assembly and France

Since the late 1960s, Cameroon’s NationalAssembly had confined itself to rubber-stamping the President’s legislation. Butwith the return of multi-party politics and theweak performance of the President’s party inthe 1992 parliamentary elections, theAssembly started to play a more independentrole. Fear of jeopardizing World Bank sup-port led the Presidency to get the forest lawpassed by pressuring parliamentarians toabide by party discipline, and by leaving aslittle time as possible for debate (Ekoko, 1997).

Despite these tactics, the Assembly modi-fied the text of the law and effectivelychanged key provisions. The most importantchange rejected the use of auctions to allo-cate logging concessions in favor of a clausethat read: “a forest concession shall be grant-ed upon recommendation by a competentcommission.” Parliamentarians who opposedthe government on this issue argued thatnationals would be unable to compete withforeign logging companies in an auction, and that the forest would be sold out to foreigners.

According to the World Bank, this fear wasunjustified as the draft law included a con-cession size category of up to 50,000 ha thatwas open only to Cameroonian nationals.Thus, despite the patriotic rhetoric, partisanpolitical gains and financial self-interestappear to have motivated the opposition(Ekoko, 1997). Many parliamentarians wereinvolved in logging, either directly, or indi-rectly as shareholders in logging companies


66

or as owners of licenses leased to foreigncompanies. They also benefited from the dis-cretionary allocation of ventes de coupe, whichallowed them to participate in the lucrativebusiness with limited capital. These forestswere typically subcontracted to foreign com-panies (a practice known derogatorily as fermage). Auctions implied an increase in thecost of access to the forest, and thus a threatto parliamentarians’ financial interests. Theywould also have eliminated an importantsource of patronage.

Parliamentarians also sought to capitalizeon the law’s unpopularity to boost their for-tunes in the municipal elections scheduledfor June 1994 (Ekoko, 1997). The new lawwas very controversial and many opposed it,because they felt it legalized the plunderingof Cameroon’s forests. Parliamentariansfrom forest regions were particularly activeduring the discussions and, despite repre-senting rival political parties, were united intheir opposition. Prior to the debate, manyrural youth considered their representativesas traitors for allowing their forest resourcesto be exploited without any financial compen-sation. Opposition to the law allowed parlia-mentarians to regain support from this constituency.

In addition to challenging the auction pro-vision, parliamentarians also proposed ban-ning log exports as a way of promoting localprocessing, limiting the maximum size ofconcessions from 500,000 ha to 200,000 ha,and reducing the maximum duration of con-cessions to 15 years (renewable for another15). These decisions contradicted the adviceof both the French government, whichargued that larger and longer concessionswere needed for sustainable forest manage-ment (Carret, 1998), and the World Bank,

which argued that log export bans encour-aged the rapid establishment of inefficientprocessing industries by depressing the localprice of wood.

The proposed log export ban threatenedFrench logging interests and allegedly trig-gered the intervention of the French govern-ment (Pearce, 1994). In November 1993,when the new forest law was being debated,the French Minister for Cooperation andOverseas Development, who happened to bein Cameroon at the time, met the Presidentand Speaker of the National Assembly to dis-cuss economic cooperation issues. There areindications, however, that the visit was alsoto lobby against a log export ban, whichwould have hurt the largest French compa-nies, which accounted for over half ofCameroon’s log exports. This visit could beinterpreted as a reminder of the political andfinancial support that France has provided tothe regime at crucial moments, and thatFrance expected to receive similar supportwhen its own interests were threatened.Significantly, the French Minister refused tomeet with the main opposition leader, amove the President greatly appreciated.

This interpretation squares with the factthat the only time the Presidency intervenedin the National Assembly was on the matterof the log export ban (Ekoko, 1997).Members of the President’s party and othercoalition members were ordered to voteagainst the ban. The approved version of thelaw states: “70 percent of logs shall beprocessed domestically.” Immediately afterthe law was passed, the Presidency agreedthat a ban would come into effect, but notuntil January 1999, five years later. Even the70 percent rule was watered down by the pro-vision that companies exporting more than


67

30 percent of their production as logs coulddo so if they paid a progressive surtax on thedifference. This tax proved to be difficult toadminister because of problems calculatinglogged and processed wood volumes.

According to the World Bank, its residentmission launched a publicity campaign toexplain the economic benefits of the new law.In 1993, the World Bank hired the advisor tothe Minister of Environment and Forests asits agriculture and natural resource officer.She brought an excellent knowledge of theforest sector and an extensive network ofcontacts inside and outside of government.The World Bank’s resident representativealso regularly appeared on television andradio to argue that the greater transparencythe new law would bring was in the interestsof the country. Nevertheless, the World Bankwas powerless against the Assembly’s opposi-tion. Even the World Bank’s special briefingsproved counterproductive as parliamentari-ans accused it of meddling in Cameroon’sinternal affairs. The World Bank admits thatits publicity campaign was ineffective, butwhen a staff member was asked what more itcould have done, the reply was “Nothingshort of overthrowing the government.”9

Around the Parliamentary Roadblock:The Implementation Decree

The National Assembly’s amendments to thedraft law were inconsistent with what theWorld Bank considered to be a sound forestpolicy. At the same time, the governmentwas negotiating an ERC following the CFAfranc devaluation. The World Bank told thegovernment that it would not accept therevised law. In response, the governmentsent a letter to the World Bank indicatingthat it would submit revisions to the law to

the parliamentary session of November 1994.But during a visit to Cameroon, World Bankstaff realized that the President would notdare challenge the Assembly on the new law.

Two reasons explained the President’sreluctance. First, the President’s party waspart of a fragile coalition that was strugglingin the face of growing political opposition.This opposition had culminated in the villesmortes campaign that closed down manycities between 1990 and 1992 and threatenedthe very survival of the regime. Then, in1992, Biya’s victory in the presidential elec-tions was seriously questioned, both domesti-cally and abroad. The Presidency did notwant to further provoke the opposition byreintroducing such controversial legislation.Second, the Presidency may have beenpleased with the changes, because theyallowed the continuation of the discretionarypractices that served the interests of somepowerful individuals, government officials,and many parliamentarians.

The World Bank realized that any effort topersuade the government to challenge theAssembly and reverse the most seriouschanges in the law would be futile. It there-fore asked MINEF to draft an ImplementationDecree that would interpret the law in line

The World Bank admits that its publicity

campaign was ineffective, but when a staff

member was asked what more it could have

done, the reply was “Nothing short of over-

throwing the government.”


68

with the draft that the World Bank had origi-nally agreed to. The Ministry submitted adraft version of the decree to the World Bankin July 1994. The World Bank rejected thisversion and several staff spent over a yearrevising the decree line by line. A final ver-sion, acceptable to the World Bank, wasissued in August 1995. Changes in pricingand taxation were to be addressed in subse-quent finance laws.


Implementation of the 1994 Forest Law hasbeen problematic. On the face of it, the forestand finance laws have succeeded in boostingtax revenues. After accounting for the effectof the 1994 devaluation, revenues went from10 billion CFA francs in 1990, to 14 billionin 1994, to 24 billion in 1997 (Carret, 1998).Over the same period, wood production rosefrom about two to three million m3. The gov-ernment therefore increased its share of thevalue of the wood from 6,000 CFA/m3 to10,000 CFA/m3. This increase was partlyfrom higher area taxes and the use of marketprices to determine export tax rates. But itmainly resulted from the Ministry ofEconomy and Finance (MINEFI) deciding toinvite the Swiss company SGS in 1995 tocontrol log exports, which accounted for 80percent of forest taxes. This was donebecause of MINEF’s poor tax recovery record.Implementation of other aspects of the newlaw has proved equally difficult, notably inthe case of the concession auctions.

Concession Auctions

Allocating concessions by public auction wascritical to maintaining the government’s

commitment to the reforms (O’Halloran andFerrer, 1997). The World Bank was thereforeconcerned in May 1996 when the govern-ment granted concessions without auction totwo French logging companies. The WorldBank sent a letter to the President recom-mending that the two concessions berevoked. The World Bank never received areply and the concessions were not canceled.In fact, a third concession was handed outcovertly, this time in an area zoned for con-servation. When the World Bank protested,the concession was canceled—a decisionprompted by an upcoming donor meeting todiscuss projects identified in the NationalEnvironmental Action Plan (Ekoko, 1997).

In May 1996, 112 ventes de coupe were putup for auction for which the applicants pre-sented bids with an annual area tax of1,000–3,000 CFA/ha. This demonstratedthat a concession auction could work inCameroon and that logging companies werewilling to pay an area tax much higher thanthe 300 CFA in effect at the time of the law.The willingness of companies to bid so muchfor the ventes de coupe was one of the mainreasons why the World Bank recommendedraising the minimum area tax for the largeconcessions from 300 to 2,000 CFA/ha.However, the government did not amend the1996–97 Finance Law and drew up conces-sion application documents using an area taxof 300 CFA/ha. After subsequent negotia-tions with the World Bank, the governmentincreased the tax to 2,000 CFA/ha throughadministrative procedures. But the industryargued that such a method was illegal andboycotted the auction, which was held inFebruary 1997. The government receivedonly five bids for the 42 concessions and theauction was aborted.


69

In August 1997, the government rebid 26concessions with a minimum area tax of1,500 CFA/ha, for which 190 companies sub-mitted bids. The results showed that appli-cants were prepared to pay three or fourtimes more than the minimum area tax. But16 of the 26 concessions were not awarded tothe highest bidder. In most cases, the inter-ministerial committee (made up of represen-tatives of five ministries, the national indus-try syndicate, and the National Assembly)recommended that concessions be allocatedto the company ranked first according to thetechnical criteria, even if the financial bidwas much lower. Then, after the recommen-dations were submitted to the PrimeMinister for approval, six concessions wereawarded to individuals who did not evenappear on the list reviewed by the commis-sion, but are known to have been key sup-porters of the regime. Strictly speaking, thelaw was respected because it reserves for thePrime Minister the right to overrule the com-mittee’s recommendations in cases where thenational interest is threatened, but the gov-ernment’s decision emphatically broke thespirit of the law.

Illegal Logging

The failure of the August 1997 auction hadserious environmental implications. Manyindividuals awarded concessions did not havethe technical or financial means to start log-ging, let alone prepare management plans.The result was a severe shortage of wood anda boom in illegal logging.

Pressure on the forest had been buildingsince 1993, when the World Bank asked thegovernment to stop any further attribution oflicenses until the new law was implemented.According to the French regional policy advi-

sor at the time, this was a mistake, given theinevitable delays in implementation, becauseit penalized companies that needed wood fortheir sawmills, and encouraged them toengage in “anarchic and illegal logging prac-tices that once in place are difficult to stop.”10

Working in collusion with provincial gover-nors, companies exploited loopholes thatallowed them to circumvent the law. Threepermits, certificat de main levée, permis derécupération, and permis d’exploitation, werewidely used to this end.11 A World Bank mis-sion to the East Province in August 1999concluded that these permits have resulted inthe cutting of an almost limitless amount ofwood (World Bank, 1999).

Paradoxically, the increase in illegal log-ging is related to two measures included inthe 1994 Forest Law: higher area taxes andthe legal recognition of community forests.Higher area taxes have had two effects. First,they have made large concessions moreexpensive to log than ventes de coupe. Theminimum area tax payable on ventes de coupeis more than on concessions, but the formerrequire no management plans and can be cutin a year, whereas the latter require manage-ment plans and the area tax is payable on thewhole concession for 30 years. As a result,the area tax burden on wood cut from con-cessions is three times that on wood cut fromventes de coupe on a per volume basis. Notsurprisingly, loggers prefer cutting in ventesde coupe.

Second, higher area taxes and inadequategovernment control mean that illegal loggingis both easy and profitable.12 This “push”factor is now matched by a strong “pull” factor. In 1996, MINEF granted villagers theright to receive 1,000 CFA per cubic meter of


70

wood cut. Villagers have often resorted toviolence to defend their customary forestsagainst loggers, but now they encourage log-gers to cut illegally in exchange for 1,000CFA per cubic meter. Loggers are happy topay this tax, because villagers protect themfrom government interference.13 Accordingto one observer, for every vente de coupe thatis logged legally, four are logged illegally.14

The 1,000 CFA tax has also aggravatedsocial divisions. Villagers resent the fact thatcommunes often keep the 10 percent of thearea tax that villagers are entitled to. This taxshould be used to pay for schools, wells, andother public infrastructure requested by thevillage management committees. Instead, afalse invoice is often prepared, no investmentis made, and the communes spend themoney on beer or political campaigns. The1,000 CFA tax, on the other hand, goesstraight to the villagers, and represents thefirst direct financial benefit that they havereceived from logging. This has led to theformation of an alliance between the villagersand loggers against the communes, whichthreatens to undermine the government’sdecentralization program.

Community Forests

Some observers believe that MINEF autho-rized the 1,000 CFA tax to weaken the vil-lagers’ interest in acquiring communityforests. At the World Bank’s insistence, the1994 Forest Law included provisions granti-ng villages the right to establish communityforests. These provisions, unique in CentralAfrica, represented an important equityobjective; but as they appear in the law, theyare unclear, contradictory, and open to abuse.Community forests are located in the samezone as the ventes de coupe, and some govern-

ment officials have submitted fraudulentrequests to secure community forests with-out the informed consent of the local popula-tion. Large sums are at stake. In one case,local MINEF officials working in collabora-tion with a Lebanese logging company triedto acquire five community forests for a payment of one million CFA and the con-struction of a community shelter, a total offerof about US$2,500.15 The timber cut fromthis area would have been worth over US$10million.

The World Bank has been criticized for nottaking into account Cameroon’s land reformproject in the mid-1970s, which was hijackedby well-positioned government officials whosought title to land over which they had noright.16 The World Bank’s strategy was todelegate responsibility to the British-fundedCommunity Forest Development Project(CFDP), which would establish the legalframework and administrative capacity with-in MINEF to implement the provisions. Theproject, which started in 1995, received ahostile reception from some officials becauseit threatened their ability to subvert the allo-cation process for personal gain. InNovember 1998, after a six-month delay, theMinister finally approved a manual outliningthe procedures and standards governing the

At the World Bank’s insistence, the 1994

Forest Law included provisions granting villages

the right to establish community forests. These

provisions, unique in Central Africa, repre-

sented an important equity objective.


71

allocation and management of communityforests (MINEF, 1998).

While implementation has been problem-atic, the community forest provisions havemade local communities more aware of theirrights with respect to the government andlogging companies. This has resulted in vil-lagers demarcating their customary forests inorder to benefit financially from logging andto protect their land against the claims ofadjacent communities. Increased awarenessof the law has also led to the almost instanta-neous diffusion of information about the taxbenefits to which communities are entitled(Karsenty, 1999b).

World Bank Reaction

The World Bank reacted strongly to the out-come of the August 1997 auction, sending aletter to the Prime Minister and following upwith a mission in January 1998. However, atan initial meeting, the World Bank told theMinister of Economy and Finance that itunderstood if, for political reasons, the gov-ernment was obliged to break the law. Thisattitude was passed on to the Prime Ministerwho, when asked at a subsequent meeting byWorld Bank officials what he planned to doabout the auction irregularities, refused torespond, knowing that the issue was not adeal-breaker.

According to the team leader at the time,the World Bank “was at the peak of itspower.”17 Although no SAC was in place,even the threat of suspending the SAC IIInegotiations would have forced the govern-ment to review the auction results. The gov-ernment had its back to the wall becausefinancial assistance was also denied frombilateral donors, including France, whose

support was conditional on Cameroon reach-ing agreement with the World Bank. A num-ber of options were open to the World Bank,short of implicitly condoning the govern-ment’s behavior. It could have accepted theresults of the auction, but requested that theconcessionaires pay an area tax equal to thehighest bidder, and then followed up toensure that the area taxes were paid. Or itcould have warned the government that anyirregularities in the next auction would leadto canceling the SAC.18

Yet, the World Bank chose not to pursuesuch face-saving options. Some World Bankstaff interviewed for this report suggest thatthe decision not to hold the governmentaccountable was motivated by the WorldBank’s sensitivity toward France’s strategicconcerns.19 According to this argument, for-est policy reform was so politically sensitivethat if the World Bank forced the govern-ment to keep its promises, it would defaulton its debt, possibly leading to economic col-lapse and civil unrest. Approval of SAC IIIwould have permitted the conversion of highinterest, no-grace-period IBRD loans to lowinterest, 40-year grace period IDA loans, andhelped Cameroon to repay its debt to theWorld Bank.

World Bank staff closely involved in theSAC negotiations strongly deny this interpre-tation.20 In fact, the SAC included strictfinancial conditionalities, which the govern-ment was able to meet because of an unex-pected increase in the price of oil. Accordingto these sources, the World Bank’s decisionnot to force the government to back down onforest issues was based on what it believed tobe in the best interests of the country. Byearly 1998, the World Bank had only justestablished a substantive dialogue with the


72

government over privatization, and restruc-turing of the banking, energy, and transportsectors. Breaking off relations over the con-cession auction would have sacrificed thisbroader policy dialogue, setting backprogress in sectors that many staff consid-ered to be critical to Cameroon’s develop-ment. Given the problems implementing for-est policy reform and the delicate nature ofits relations with the government, someWorld Bank staff argued against includingany forest conditionalities in SAC III.21

Regaining the Initiative

In early 1998, the World Bank officialresponsible for leading the negotiations since1993 left the team, and more than sixmonths passed before a new team leader wasappointed. The new team leader visitedCameroon in October 1998, two months afterSAC III was approved. After lengthy internaldiscussions, the World Bank decided toinclude forest conditionalities in the SAC.Thus armed, the mission insisted that thegovernment take two steps: first, clarify therules governing the bidding process to avoidany possible future misunderstanding, andsecond, appoint an independent observerwho would report publicly on the biddingprocess. The government agreed to the first,but the Prime Minister, who wanted to preserve his room for maneuver, wasopposed to the second.

However, in the face of World Bank threatsto cancel the SAC, the Prime Minister issuedtwo decisions (arrêtés) that met these condi-tionalities. The new auction rules includedthree changes intended to increase trans-parency and reduce the scope for fraud. First,bids would be assessed based on a list of yesand no questions. Second, criteria other than

the actual bid price would represent less than20 percent of the total score. Finally, bidderswere required to deposit a down-payment oftwo percent of the area tax for the whole con-cession, which could amount to hundreds ofthousands of dollars.

The World Bank continued to maintainpressure on the government. In March 1999,it demanded that many senior MINEF offi-cials be replaced because of poor perform-ance related to the management of the WorldBank-supported Campo-Ma’an protected areain southwest Cameroon. This time the WorldBank’s request was backed up with threats tosuspend negotiations over the Chad-Cameroon pipeline, which would terminateat the nearby port of Kribi. With a new man-agement team in place, MINEF published areport showing the extent of illegal loggingand providing performance goals againstwhich it could be held accountable (MINEF,1999). The Ministry also declared that itwould cancel the six concessions awarded tosupporters of the regime because of theirfailure to pay the area tax or prepare a forestmanagement plan.

By the end of 1999, the World Bank hadregained the initiative that it appeared tohave lost after it backed down over theAugust 1997 auction. Sources outside theWorld Bank consider the appointment of an

The World Bank’s decision not to force the

government to back down on forest issues was

based on what it believed to be in the best

interests of the country.


73

independent observer to be an importantprecedent. The observer’s report on the ventede coupe auction in September 1999 showedthat in many cases the interministerial com-mittee responsible for reviewing the bidsignored the new auction rules (Behle &Associés, 1999), demonstrating once againthe government’s resilience in the face ofexternally imposed reforms. Nevertheless,the independent observer was allowed tocarry out his functions without interference,and his report was made public, suggestingthat there is scope for similar processreforms that increase transparency andaccountability in the forest sector.


The main protagonists involved in forest pol-icy reform were MINEF, the Presidency, theNational Assembly, and the World Bank. Theprivate sector and the French governmentplayed secondary roles, and NGOs had mini-mal input into the discussions.

Private Sector

The logging industry in Cameroon is largeand diverse. By 1999, there were over 600registered logging companies, up from 200in 1992, of which only 60 had ongoing log-ging or wood processing operations (Carret,1998). With the exception of the Lebanesecompany Hazim, the largest of these are inEuropean hands, with French companiescomprising a majority with significantinvolvement of Italian, Belgian, and Dutchinterests (Burnham and Sharpe, 1997).Beneath this first rank of foreign companies,many of which have large sawmills, lies asecond rank of companies, which have smallsawmills to process a minor portion of their

logs. These two tiers constitute the industry’sformal sector. Below them is a third tier ofyet smaller companies run by Lebanese,Greek, or Cameroonian nationals. Thesecompanies, which constitute the informalsector, typically have very limited capitaliza-tion, do not have their own sawmills, anddepend on fermage.

The largest companies were not active dur-ing the drafting stage of the 1994 ForestLaw, despite their formidable lobbyingpower—a position that reflected theirambivalent attitude toward reform. On theone hand, they favored a simpler and moretransparent tax system. On the other,reforms implied higher costs and more liabil-ities. Once the law was passed, however,industry representatives met regularly withWorld Bank staff.

Companies stood to gain from the newlaw. First, the World Bank promised that,while the minimum area tax would beincreased, it would be largely offset by lowertaxes on log exports. Cameroon already hadthe highest tax rates in Central Africa, andthe World Bank did not want to increase theoverall tax burden, beyond the additional areatax offered by the companies when the con-cessions were auctioned (Carret, 1998).Second, the reforms would grant them largerand longer concessions. Third, they support-ed the World Bank’s opposition to a logexport ban. Finally, they backed its recom-mendation that the Office National deDéveloppement des Forêts (ONADEF), whichheld a de facto monopoly on the provision offorest inventory, mapping, and other techni-cal services, be liquidated.

However, the industry disagreed with theWorld Bank on two basic points (Carret,


74

1998). First, the industry was opposed to asignificantly higher area tax because, while itrepresented less than 20 percent of the taxburden, it was a fixed tax and payable up-front and on the whole concession, not justthe area logged annually. Second, the WorldBank wanted to reduce the protection fordomestic sawmills, which it believed encour-aged inefficient processing, by raising taxeson processed wood exports, which had previ-ously been untaxed. The industry, on theother hand, argued that inefficient process-ing was due to the lack of skilled labor andthe poor quality of the logs, and called forcontinued protection for Cameroon’s devel-oping industry.

In June 1997, in order to meet the IMF’stax revenue targets, the government intro-duced two major changes in the FinanceLaw: export taxes on processed wood werealmost doubled, and the reference valuesused for tax purposes were set at the highestmarket prices (Carret, 1998). The WorldBank opposed these tax increases. In 1995,the Minister for Economy and Finance hadreached an informal understanding with theindustry that 27-30 billion CFA was a reason-able level of direct taxation. Exports hadincreased by 20 percent, which would havejustified a slightly higher tax burden, but nota doubling. The World Bank was concernedthat such increases would reduce the prof-itability of the logging industry and its inter-national competitiveness. More importantly,it feared that the proposed tax increaseswould overtax the “good” companies that dopay taxes and reward the “bad” ones, whowould find ways not to pay. It argued thatmore emphasis should be put on improvingtax recovery, rather than raising taxes.During the June 1997 mission, the WorldBank discovered that the government should

have collected 19 billion CFA in log exporttaxes between July 1996 and May 1997, compared to the 14 billion CFA that wasactually collected. One billion CFA of thisshortfall was explained by delays in tax pay-ment, but five billion CFA was never col-lected (Ferrer, 1997).

As the World Bank predicted, the industryhotly contested the proposed tax changes andwent on strike in September 1997. The gov-ernment quickly backed down and canceledthe changes. The World Bank criticized thisdecision, favoring a compromise solutionwhereby the export taxes on processed woodwould be raised to a more realistic level andthe market prices discounted by 15–25 per-cent. The industry’s angry reaction reflectedits growing mistrust of MINEF. The Ministryenacted 15 changes in taxation between 1995and 1998, many of which the industry con-sidered to be arbitrary and unfair.22 As oneindustry official put it: “If we obeyed the law,we’d go bankrupt.”23

The larger companies resented that the for-mal sector was being asked to shoulder agrowing share of the tax burden, since manysmall companies were able to avoid payingany taxes (Burnham and Sharpe, 1997).Inprinciple, once felled, all logs are individuallyrecorded and taxed at various stages in theirmovement from the forest to the sawmill orport, but given the lack of control exercisedby MINEF staff in the forest, these compa-nies paid little or no tax. When their taxarrears reached major proportions, theyshould have been legally sanctioned by beingstripped of their forest concessions andbarred from logging until their back taxeswere cleared. However, less scrupulous oper-ators often declared bankruptcy, then recon-stituted themselves under a new corporate


75

name, and cleared their tax arrears by payinga small portion of the sum outstanding as abribe to officials to secure their compliance.The industry was angry at MINEF’s apparentcomplicity in these practices, and its reluc-tance to enforce any part of the law otherthan new taxes imposed on the formal sector.Symptomatic of what the industry consideredto be the Ministry’s lack of seriousness isthat it exerted no pressure on companies toprepare forest management plans and failedto respond to those companies that submit-ted them.

Given the failure of many established com-panies to win concessions, a shortage ofwood to feed the sawmills, constant changesin taxation, the government’s reluctance tocrack down on tax fraud, and a growing set ofcostly obligations to local communities, theindustry felt under attack from all sides. Inresponse, 15 large European companies oper-ating in Central Africa established theInterafrican Forest Industries Association(IFIA) to give the industry a single voice inforest policy negotiations in Cameroon andelsewhere in Africa.24

IFIA was highly critical of the World Bank,which it accused of hiring experts withoutthe necessary experience; constant shifts inpolicy; presenting faits accomplis with noopportunity for discussion; and failing torespond adequately to its written proposals.25

Contrary to these assertions, the World Bankclaims that industry representatives were reg-ularly invited to discuss the content of thenew law.26 Although civil, the discussionsapparently went nowhere because of theindustry’s refusal to agree to concession auc-tions and higher area taxes—key ingredientsof the reform package. Interviews with com-pany officials suggest that they were not

opposed to the reforms proposed by theWorld Bank per se, but the fact that thereforms failed to take into account the highlevel of policy instability in Cameroon. Thisinstability substantially increased the cost ofdoing business and put a premium on secu-rity, which translated into a desire on thepart of industry for very large concessions,minimal area taxes, and no auctions.27 TheWorld Bank’s reform agenda threatenedthese objectives. The real target of the indus-try’s anger was not the World Bank, but theGovernment of Cameroon. For obvious rea-sons, industry preferred not to blame thegovernment publicly for its problems.

France

France played an ambivalent role during thereform process—an attitude that reflected itsrapprochement with the IMF over the needfor macroeconomic adjustment in Cameroon,and its desire to protect its economic andgeopolitical interests. Cameroon is the sec-ond largest economy and France’s secondlargest trading partner in francophoneAfrica. France had viewed Cameroon as abulwark against the tide of anglophone influ-ence from Nigeria, its giant neighbor. Onseveral occasions, France had bailed out theGovernment of Cameroon when confrontedwith the need to make painful reforms thatmight have led to political instability. For

France played an ambivalent role during the

reform process—an attitude that reflected its

rapprochement with the IMF and its desire to

protect its economic interests.


76

example, while negotiating with the IMF in1988, the government convinced France toextend 400 million French francs to rehabili-tate several government-owned corporationsthat had been slated for elimination.

In October 1993, however, the French gov-ernment pronounced the “Abidjan doctrine,”whereby it refused further budgetary supportto countries without an IMF agreement inplace. This marked a watershed in relationsbetween France and the IMF, and in January1994 the CFA was devalued by 50 percentagainst the French franc, an act long advocat-ed by the IMF. France, therefore, did notovertly oppose the World Bank during theforest policy negotiations, since the govern-ment’s failure to reach agreement on keyreforms could have led to canceling of vitalmacroeconomic support. Neither did it pro-vide the high-level political support thatwould have strengthened the government’scommitment to policy implementation.

France was opposed to specific policy mea-sures, notably a log export ban and conces-sion auctions, which threatened the interestsof politically influential French logging com-panies.28 The World Bank proposed that thefirst round of auctions be limited to compa-nies with existing sawmills, which effectivelygave large French companies the right offirst refusal on concessions located near theirsawmills. France was also against higher areataxes, but in this case its opposition was tem-pered by the fact that French companies weredivided on the issue. The second tier ofFrench companies supported the tax reforms,because they could neither negotiate taxbreaks nor easily evade taxes. Large compa-nies, on the other hand, had benefited fromhigh levels of government discretion; evenafter 1994, some were able to negotiate spe-

cial deals. In 1995, according to well-placedsources, Thanry, the largest French loggingcompany in Cameroon, was exempted frompaying export taxes for three years on ayous,one of the most important commercial treespecies, in exchange for building a sawmill.Since that species represented half ofThanry’s production and the company ac-counted for one third of Cameroon’s woodexports, the financial loss to the governmentwas in the millions of dollars.29

France’s support to the reform process wasconfined to providing technical input to draftsof the Forest Law and the ImplementationDecree. This included recommendationsbased on the results of the AménagementPilote Intégré (API) project in Dimako in theEast Province about minimum concessionsize, sustainable yield calculations, forestinventory methods, and improved loggingpractices (CIRAD, 1998). France also offeredfinancing to qualified logging companies(not just French ones) to prepare forest man-agement plans.

French sources suggest that the WorldBank tried to go it alone without adequateconsultation. World Bank staff deny thisaccusation and claim that the French govern-ment was consulted every step of the way,and that every mission included a briefingfor donors, including France. They say thatthe allegation that France was marginalizedmisrepresents the World Bank’s openapproach during the reform process.30

NGOs

International conservation NGOs stronglysupported the community forest provisionsin the 1994 Forest Law, and carried out cam-paigns to inform local communities of their


77

new rights, much to the annoyance of thelogging companies. The World Wide Fundfor Nature’s office in Cameroon played a keyrole in raising the profile of forest issues,both domestically and internationally. Thisheightened sensitivity contributed toPresident Biya’s decision to host a summitmeeting in March 1999, which broughttogether the leaders of Gabon, CentralAfrican Republic, Congo-Brazzaville, andEquatorial Guinea, as well as high-level par-ticipants from around the world, to jointlyannounce plans for a new cross-border pro-tected area. According to the World Bank,this summit may represent a watershed interms of securing high-level political commit-ment for the reform process.31

Domestic NGOs were only legalized in1990 and were weak at the start of thereform process. But they have since devel-oped rapidly, as shown by their advocacyrelated to two recent World Bank projects:the 1995 transport sector loan and the proposed Chad-Cameroon pipeline. In bothcases, domestic NGOs drew internationalattention to the potential negative environ-mental impacts of these projects, and the need to prepare publicly available environmental impact assessment and mitigation plans.

The controversy surrounding the passageand implementation of the 1994 Forest Lawraised awareness among domestic NGOs ofthe inherently political nature of forest policyreform. Some expressed strong support fortying reforms to structural adjustment lend-ing. Others argued that lasting improve-ments in forest management require that theconcession allocation and tax systems beinsulated from political pressure, and havecalled for an overhaul of the legal system to

allow private citizens to sue the governmentand logging companies in the name of publicinterest. They recognized that tackling forestpolicy effectively might require linkingadjustment lending to institutional reformsoutside the forest sector.32

THE BOTTOM LINE

The World Bank devoted a huge amount ofeffort to reforming Cameroon’s forest poli-cies, but the results have proved disappoint-ing. Indeed, the flawed first round of conces-sion auctions, the subversion of the commu-nity forest allocation process, and pervasiveillegal logging, have led some observers tosuggest that the situation is worse thanbefore. But others argue that while thereforms have been poorly implemented, theyhave not been derailed and that the WorldBank’s intervention has been, on balance, agood thing.

The long and convoluted history of thereform process yields a number of insights.First, forest conditionalities were essentialfor ensuring the passage of key laws anddecrees, but proved ineffective at enforcingthe institutional changes needed to imple-ment them. MINEF failed to participateeffectively in the reform process because ofits internal weaknesses, conflict of interest,and the lack of high-level political support.

Forest conditionalities were essential for ensur-

ing the passage of key laws and decrees, but

proved ineffective at enforcing the institutional

changes needed to implement them.


78

During the negotiations, the World Bank putdemands on the Ministry for policy papersand studies that it had neither the ability norauthority to carry out. The result was a grow-ing gap between what the World Bankdemanded and what the Ministry was able(or willing) to deliver. The World Bankintended to follow up the policy reforms witha forest project to strengthen the Ministry’sanalytical capacity. It may have been moreeffective to combine the policy dialogue withtargeted World Bank support to increase thestaff’s sense of ownership of, and commit-ment to, the reforms.

Second, the World Bank was unable toovercome strong vested interests within theprivate sector and French government. Manylogging companies had benefited from theprevious discretionary practices and wereopposed to change. Their opposition explainswhy the views of many industry officials dif-fer markedly from those of the World Bankregarding its willingness to seriously engagethem. Although the World Bank often con-sulted the industry, irrevocable differences ofopinion over what constituted sound forestpolicy may have blocked any meaningful dia-logue. While France contributed technicalinput to the reform process, it withheld polit-ical support for fear of destabilizing theregime and upsetting the major French log-ging companies.

Finally, the World Bank was caught in adilemma following the failure of the August1997 auction. On the one hand, the WorldBank’s credibility required that it hold the

government accountable for the auctionirregularities; on the other, it did not want tojeopardize its dialogue over key economicreforms. By wavering at a critical point in thenegotiations, it avoided provoking a possiblepolitical crisis. But, according to World Banktechnical staff, it missed a golden opportuni-ty to reinvigorate the forest policy reforms.This decision may have inflicted broader

damage. According to outside observers,there are younger foresters in Cameroon whoseem concerned about greater efficiency andtransparency, but if they are not supportedand encouraged by outside pressure, theycould well be subverted by the corruptinginfluence of their seniors (Burnham andSharpe, 1997). Every time the government isallowed to get away with breaking the law,the prospects for real change diminish, andthe hopes of this group of professionals fall.This example suggests that the long-termcommitment by the World Bank that isrequired to promote accountability and therule of law in the forest sector is vulnerableto the needs of short-term political expediency.

By wavering at a critical point in the negotia-

tions, the World Bank avoided provoking a

possible political crisis. But, according to

technical staff, it missed a golden opportunity

to reinvigorate the forest policy reforms.


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Behle & Associés. 1999. Mimeo.

Burnham, Philip and Barrie Sharpe. 1997. Political,Institutional, Social, and Economic Dimensions ofCameroon’s Forestry and Conservation Sectors.London: University College.

Carret, Jean-Christophe. 1998. La Reforme de laFiscalité Forestière au Cameroun: Contexte, Bilan, etQuestions Ouvertes. Paris: CERNA.

CIRAD-Forêt. 1997. “Forest Aid: the CameroonRush.” Paper presented at the meeting ofFunding Organizations on the Forest Sector andDiversity in the Congo Basin, November 20,1997, Florence.

—1998. “Le Projet d’Aménagement Pilote Intégréde Dimako, Cameroun, 1992–96.” Série Forafri,Document 7.

Ekoko, François. 1997. The Political Economy of the1994 Cameroon Forest Law. Working Paper No.3.Yaoundé: CIFOR.

Ferrer, Vicente. 1997. “Cameroon Forest Policy andTaxation: Back to Office Report.” June 1997.Washington, D.C.: The World Bank.

Global Forest Watch-Cameroon. 2000. Situation deL’Exploitation Forestière au Cameroon. Washington,D.C.: World Resources Institute.

Grut, Mikael, John A. Gray, and Nicolas Egli. 1991.Forest Pricing and Concession Policies: Managing theHigh Forests of West and Central Africa. WorldBank Technical Paper 143. Africa TechnicalDepartment Series. Washington, D.C.: The World Bank.

Interafrican Forest Industries Association. 1999.“European Foundation for the Preservation of

African Forest Resources, Communiqué.” October1999. Paris: IFIA.

Karsenty, Alain. 1999a. “La Fiscialité Forestière etses Dimensions Environnementales: l’Exemplede l’Afrique Centrale.” Bois et Forêts Tropiques,260 (2).

—1999b. “Vers la Fin de l’Etat Forestier:Appropriation des Espaces et Partage de la RenteForestière au Cameroun.” Politique Africaine, No.75, October 1995. Paris: Karthala.

Marchés Tropicaux et Méditerranéens. 1998.“Numéro Hors Série: Cameroun.” March 1998.

Ministry of Environment and Forests (MINEF).1995. “Decree No. 95/531/PM to Determine theConditions of Implementation of ForestRegulations.” Yaoundé, Cameroon: MINEF.

—1998. “Manual of Procedures for the Attributionand Norms for the Management of CommunityForests.” Yaoundé, Cameroon: MINEF.

—1999. “Planification de l’Attribution des Titresd’Exploitation Forestière.” Yaoundé, Cameroon:MINEF.

Ministry of Economy and Finance (MINEFI). 1998.“Contribution du Secteur Forestier à l’EconomieNationale, 1993-98.” Yaoundé, Cameroon:MINEFI.

O’Halloran, Eavan and Vicente Ferrer. 1997. The Evolution of Cameroon’s New Forest Legal,Regulatory, and Taxation System. Washington,D.C.: The World Bank.

Pearce, F. 1994. “France Swaps Debt for Rights toTropical Timber.” The New Scientist, January 29,1994.

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Reuters. 1999. “Cameroon in Trouble with the IMFAgain.” Reuters, December 16, 1999.

Transparency International. 1999. Available fromhttp://www.transparency.de/documents/cpi/cpi-bpi_press-release.html

World Bank, The. 1996. “Country AssistanceStrategy of the World Bank Group to the Republicof Cameroon.” Washington, D.C.: The WorldBank.

—1998. “Forests and the World Bank: An OEDReview of the 1991 Forest Policy and itsImplementation.” Washington D.C.: The WorldBank.

—1999. “Rapport de la Mission ConjointeMINEF/Banque Mondiale, Province de l’Est.”Washington D.C.: The World Bank.


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1. This chapter draws on “EnvironmentalAdjustment in Cameroon: Challenges andOpportunities for Policy Reform in the ForestSector” by François Ekoko (1999), which isavailable at http://www.wri.org/iffeforest.html,as well as interviews conducted by the authorsin Cameroon and Washington, D.C. on a not-for-attribution basis. This paper was preparedwith financial support from WRI and incorpo-rates material from Ekoko (1997), which wasprepared with financial support from the Centerfor International Forestry Research (CIFOR).

2. The Ministry of Environment and Forests wascreated in 1992 by separating the forest portfo-lio from the Ministry of Agriculture.

3. Canada also supported the preparation of a pro-visional 1:500,000-scale land use map and areconnaissance-level forest inventory that divid-ed the southern part of Cameroon into perma-nent forest and non-permanent forest. Futureconcessions, each consisting of one or more for-est management units (unités forestières d’amé-nagement), were to be located in the permanentforest zone, and ventes de coupe in the non-per-manent forest zone.

4. The previous level, unchanged since indepen-dence, was 98 CFA/ha per year.

5. Concessions were to be awarded for a 3-yearinterim period, during which the companywould have to complete an approved forest man-agement plan. During this period, the companycould log no more than 2,500 ha per year tohelp pay for the plan.

6. In addition to MINEF, these included ONADEF,the National Assembly, the Presidency, and theMinistries of Industrial Development and Trade,Tourism, Urbanization, and Housing.

7. Not-for-attribution interview with FrenchCooperation staff, Yaoundé, October 1998.

8. Not-for-attribution interview with World Bankstaff, Washington, D.C., April 1999.

9. Not-for-attribution interview with World Bankstaff, Washington, D.C., November 1999.

10. Not-for-attribution interview with regional poli-cy advisor, Yaoundé, September 1999.

11. In the first case, the governor claims that a certain volume of wood has been felled illegallyand issues a permit to a company for itsremoval. In the second case, a company claimsthat it needs to clear forest to build a road orestablish a plantation. In theory, this requires aforest inventory to calculate the stumpage tax.In practice, a false inventory is carried out, a lump sum fee paid to the governor, and thecompany cuts all the wood it wants. A permisd’exploitation entitles cutting up to 500 m3

in already logged forest, but loggers often cut50,000 m3 (World Bank, 1999).

12. In the East Province, source of over half ofCameroon’s log production, 109 MINEF staff,equipped with four telephones, two pickups,and two motorbikes were responsible for man-aging an area the size of Rwanda. By 1992,there was not a single working vehicle. Ministrystaff were forced to rely on logging companies

N O T E S


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for transport, a situation that did not encourageindependent reporting of logging activities.

13. The inability of MINEF staff to sanction illegalpractices is reflected by the sharp drop in thenumber of violations issued against loggers inthe Center Province since 1989, and a similardrop in the proportion of violations that wereprocessed. The situation in remoter areas iseven worse: between 1989 and 1997, 800 viola-tions were issued in the Center Province, butonly 35 in the East Province (Global ForestWatch-Cameroon, 2000).

14. Not-for-attribution interview with social forester,Yaoundé, December 1999.

15. Not-for-attribution interview with SGS staff,Douala, October 1998.

16. Not-for-attribution interview with World WideFund for Nature staff, Yaoundé, October 1999.


18. Not-for-attribution interview with World Bankstaff, Washington, D.C., December 1999.


20. Not-for-attribution interview with World Bankstaff, Yaoundé, December 1999.

21. Not-for-attribution interview with World Bankstaff, Yaoundé, April 1999.

22. CERNA, a Paris-based industrial research centerhired by IFIA, the logging industry association,to carry out a review of forest taxation in

Cameroon, argued that the lack of a reliable sta-tistical database on timber production greatlyincreased the scope for misunderstanding(Carret, 1998).

23. Not-for-attribution interview with logging com-pany staff, Yaounde, November 1997.

24. Since its creation in 1996, IFIA has committeditself to developing guidelines for “practical”forest management plans, drafted a professionalcode of conduct, and offered technical assis-tance to a pan-African forest certification system(IFIA, 1999). It has also sought to establishworking relationships with a number of conser-vation NGOs.

25. Written comments from IFIA on draft report,Paris, September 1999.


27. Not-for-attribution interview with IFIA repre-sentative, Washington, D.C., November 1999.

28. Not-for-attribution interview with World Bankstaff, Washington, D.C., October 1999.

29. Not-for-attribution interview with SGS staff,Douala, October 1998.


31. Not-for-attribution interview with World Bankstaff, Yaoundé, November 1999.

32. Not-for-attribution interview with domesticNGO staff, Yaoundé, December 1999.


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I n 1997, two conflagrations sweptthrough Indonesia. Forest fires burnedout of control across the archipelago,

destroying millions of hectares of forest,causing billions of dollars worth of economiclosses, and blanketing the region in a chok-ing haze (Barber and Schweithelm, 2000).Even as the literal fires burned, theIndonesian currency figuratively went up inflames—losing 80 percent of its value overfour months in late 1997—consuming thesavings, purchasing power, and employmentprospects of millions of Indonesians. Whileeach of these crises has been attributed toproximate causes—drought and land clearingin the case of the forest fires, financial conta-gion in the case of the rupiah’s collapse—both had deep and intertwined structuralroots in Indonesia’s political economy aswell. This chapter will examine how theWorld Bank, in collaboration with the IMF,attempted to address some of the structural

issues in the forest sector through adjust-ment lending mobilized in the wake of thefinancial crisis.1

BACKGROUND

The World Bank and IndonesianDevelopment

The Government of Indonesia under theSuharto regime enjoyed a special relationshipwith the World Bank. To address the chal-lenges and opportunities of Indonesiandevelopment, in the late 1960s World BankPresident Robert McNamara established aresident staff in Indonesia that reporteddirectly to his office. For the next threedecades, “World Bank involvement in thecountry’s development efforts was pervasive,and the achievements were many” (WorldBank, 1999a, p. ii). These achievementsincluded almost 30 years of uninterruptedgrowth, which by the early 1990s had vaultedIndonesia into the ranks of the emergingmarket economies. Thanks in part to WorldBank-supported investment in agriculture,infrastructure, health, and education, declin-ing poverty and improving social indicatorsaccompanied the rapid growth. According toa recent history of the World Bank,“Indonesia was the presidentially designated

I N D O N E S I A

4

Frances J. Seymour Hariadi Kartodihardjo

The Government of Indonesia under the

Suharto regime enjoyed a special relationship

with the World Bank.


84

jewel in the Bank’s operational crown”(Kapur, Lewis, and Webb, 1997, p. 493).

A group of U.S.-trained technocrats in gov-ernment service, the so-called BerkeleyMafia, steered the Indonesian economythrough periodic macroeconomic adjust-ments in the 1970s and 1980s, and manageda gradual liberalization of trade and invest-ment rules in the 1990s. The World Banksupported those adjustments through policy-based lending, but these loans were usuallymade in return for government actionsalready taken, rather than conditioned onfuture actions. Thus, Indonesia was neversubjected to a harsh structural adjustmentprogram, such as those imposed by theWorld Bank in other countries.

However, not everyone shared the WorldBank’s enthusiasm for the Indonesian devel-opment model. Human rights groups con-demned Indonesia’s brutal invasion of EastTimor in 1975, and its repression of civil andpolitical liberties throughout the archipelago.Under the Suharto regime, being labeled an“obstacle to development” (penghambat pem-bangunan) was tantamount to a subversioncharge. In the early 1980s, internationalattention was focused on the destruction vis-ited on tropical forests and indigenous peo-ples by Indonesia’s transmigration program,financed in part by the World Bank, whichsponsored migrants from the densely-popu-lated islands of Java and Bali to the outerislands of Sumatra, Kalimantan, and IrianJaya. A subsequent international advocacycampaign targeted the World Bank-supportedKedung Ombo Dam in Central Java, wherethe involuntary resettlement of villagers inthe inundation area had led to systematichuman rights violations. The World Bank’slack of responsiveness to early reports of

abuse uncovered by Indonesian nongovern-mental organizations caused many to ques-tion World Bank support for the Suhartoregime’s version of development.2

Over time, the World Bank’s program inIndonesia increased its attention to environ-mental and social issues, both in the imple-mentation of so-called safeguard policies—such as those requiring special attention toresettlement—and through greater social andenvironment sector lending. This increasedattention was likely fueled by Indonesia-spe-cific factors, such as a desire not to repeatthe Kedung Ombo debacle, as well as broaderforces operating in the World Bank overall.In 1993, the World Bank’s office in Jakartaestablished a special unit to address environ-mental and social issues. It was headed by asenior official with extensive experience inIndonesia, and staffed to provide environ-mental expertise, social analysis, and out-reach to the NGO community.

By the late 1990s, external critics ofIndonesia’s World Bank-supported develop-ment strategy had begun to focus on corrup-tion. Following World Bank President JamesWolfensohn’s speech at the 1996 AnnualMeetings of the World Bank and the IMF,which tied fighting corruption to the WorldBank’s anti-poverty agenda, the corruptionissue could no longer be considered off-lim-its.3 In mid-1997, the World Bank deniedallegations of large-scale leakage of WorldBank project funds in Indonesia, although an

Not everyone shared the World Bank’s enthusi-

asm for the Indonesian development model.


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internal investigation later confirmed theallegations (Simpson and Phillips, 1998).When the financial crisis hit, many criticspointed to the structural weaknesses inIndonesia’s economy, particularly the perva-sive corruption and cronyism, to explain thecountry’s initial vulnerability to financialcontagion and the depth of the ensuing crisis. In February 1999, the World Bank’sinternal evaluation department reported thatthe World Bank’s inattention to poor gover-nance and other structural issues had under-mined the effectiveness of its assistance toIndonesia over the previous decade, whichthe report rated as only marginally satisfac-tory (World Bank, 1999a).

Until the events of mid-1997, the WorldBank considered Indonesia to be a modelamong borrower governments, and Indo-nesian government officials had a collegialrelationship with their World Bank counter-parts. Criticism by nongovernmental organi-zations (NGOs) of the environmental damageand human rights abuses associated withWorld Bank-supported projects had led toincreased attention to these issues, but not to a fundamental change in the relationship.The perception that the World Bank hadbeen complicit in maintaining a regime characterized by pervasive corruption andpoor governance compromised the institu-tion’s credibility in responding to the 1997crisis (Simpson and Phillips, 1998; Brauchli, 1998).

The Forest Sector

The forest sector is vital to the political econ-omy of Indonesia.4 Land designated as stateforest covers some 112 million hectares,although the proportion of that area that isactually forested has been declining because

of logging, fire, and conversion to other uses.Since the late 1960s, a large proportion ofIndonesia’s forest land has been managedthrough logging concessions granted to pri-vate and government-owned corporations.Over the last ten years, logging and relatedindustries have contributed an average of 20percent of Indonesia’s total foreign exchangerevenues (Kartodihardjo, 1999), and havegenerated personal and corporate wealth forthose involved in forest industries (Schwarz,1994). In the 1990s, the Ministry ofForestry’s Reforestation Fund provided aconvenient source of finance for pet projectsof Suharto cronies and family members.

By the late 1990s, there was abundant evi-dence that the rate of forest exploitation wasunsustainable. Already, the raw materialsneeded annually by Indonesia sawmills, ply-wood factories, and pulp and paper plantsexceeded sustainable supply by almost two toone (Kartodihardjo, 1999). This so-calledstructural timber deficit, the result of adecade of policies to promote domestic pro-cessing industries, created incentives forindiscriminate logging, both legal and illegal(Barr, 1999). The historically unprecedentedforest fires in 1997, while no doubt exacer-bated by El Niño-induced drought, have alsobeen shown to be a direct result of state poli-cies and corporate irresponsibility. Plantationdevelopment policies have provided incen-tives for large-scale land clearing by conces-sionaires, who found burning to be an inex-pensive method of land preparation (Barberand Schweithelm, 2000).

At the local level, the Indonesian timberindustry has often been associated with theimpoverishment of vulnerable populations,and social conflict. In Java, there is a longhistory of conflict between forest-edge


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communities and the paramilitary forceguarding state-managed teak plantations(Peluso, 1992). In the outer islands, loggingoperations have destroyed indigenous peo-ples’ forest gardens, and logging-related pol-lution and siltation have fouled waterways.Although timber interests tried to blame tra-ditional swidden agriculturalists for the 1997forest fires, forest-dwelling communitieswere more victims than perpetrators (Barberand Schweithelm, 2000).5 Resentment overthe inequitable sharing of benefits from for-est exploitation—both between central andprovincial governments, and between com-mercial interests, government coffers, andaffected communities—was suppressed dur-ing the Suharto regime, and now poses apolitical challenge to his successors.

In 1989, the World Bank initiated lendingin the forest sector in Indonesia with a pro-ject focused on sector analysis in cooperationwith the Ministry of Forestry. Undertaken incollaboration with the U.N. Food and Agri-culture Organization (FAO), the project pro-duced 17 volumes of studies. Although someNGOs were invited to a national-level work-shop to discuss the results, the affectedstakeholders were not truly consulted, norwere the full studies made public.

A second project followed in 1990, withcomponents designed to provide policyadvice; improve timber concession manage-ment; and develop master plans for research,plantation development, and selected conser-vation areas. According to the World Bank,the conditions associated with this loan, inconjunction with ongoing policy dialogue,were responsible for almost tripling the feecollected from concessionaires per cubicmeter of timber extracted (World Bank,1996, p. 3). Stakeholder involvement in the

project was again limited. Ironically, thepolitical conditions for the World Bank’s suc-cess in increasing stumpage fees wereenhanced by the extensive media coveragegiven to an NGO study on the excess profitsbeing enjoyed by timber concessionaires(Ramli and Ahmad, 1993).

In 1994, the Ministry of Forestry signaledto the World Bank that a third forestry pro-ject in preparation should not go forward,and the following year the Ministry requestedthat the second loan be canceled with lessthan half of the funds disbursed. Implemen-tation of improved concession managementsystems, including mechanisms for inspec-tion and audit and royalty collection, wereamong the components canceled, earning theproject an “unsatisfactory” rating by theWorld Bank’s final supervision mission(World Bank, 1996, p. 2).

The official reason for terminating WorldBank lending to the Ministry of Forestry wasthat because of the large influx of funds fromother donors in the early 1990s following aTropical Forestry Action Plan roundtable in1991, loan funds from the World Bank wereno longer needed to complete project activi-ties (World Bank, 1996, p. 3). According tonumerous individuals interviewed for thisstudy, the real reason was that the WorldBank and the Ministry had reached animpasse on policy reforms being promotedby the World Bank, particularly those thatwould harm the interests of politically power-ful concession holders.6 Canceling the loangave both parties a face-saving exit. In partic-ular, Mohammed “Bob” Hasan, Indonesia’smost prominent timber tycoon and a closeassociate of President Suharto, is said to haveblocked reform of the concession manage-ment system.7 An internal World Bank


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project evaluation delicately concluded that

. . . major policy constraints—some ofwhich are beyond the mandate of theMinistry of Forestry—need to be removed,to allow technical improvements currentlybeing generated to bear fruit: incorrectpricing and allocation mechanisms for for-est resources; and inappropriate incentivestructures for interest groups to pursuesustainability, are two major areas of con-cern (World Bank, 1996, p. v).

There is other evidence that the WorldBank was reluctant to exert its leverage overthe government in the context of projectlending related to forests. In addition to thetwo forestry loans mentioned above, in theearly 1990s the World Bank also initiatedpreparation of several biodiversity conserva-tion projects to be cofinanced with fundsfrom the Global Environment Facility (GEF).In the context of an integrated conservationand development project focused on KerinciSeblat National Park in Sumatra, the WorldBank backed down when the governmentrefused to cancel logging concessions in low-land forest areas surrounding the park—eventhough studies had shown those areas to bethe most significant habitat for the wildlifespecies, such as the Sumatran tiger, that thepark was established to protect.

As something of a parting gesture, theWorld Bank forestry specialist who had beenresident in Jakarta from 1992 to 1994 pre-pared a review of the Indonesian forest sec-tor (World Bank, 1995). The review predictedthat a continuation of nonsustainable forestmanagement practices would drive the sec-tor’s contributions to output growth andexport revenue into decline early in the newmillennium. It recommended an extensive

program of policy reforms, including a shiftfrom log export taxes to increased royalties,an end to the plywood marketing boardmonopoly, longer and transferable conces-sions, concession performance bonds, and athird-party monitoring and enforcementmechanism. The review also recommendedpolicy changes “to facilitate the titling of for-est dwelling and adjacent communities inforest land, and also to facilitate the award ofconcession or stewardship contracts over for-est areas, to such groups” (World Bank,1995, p. 21). Referring to the overall packageof recommended reforms, the review noteddryly that “resistance from vested interestscan be expected to be strong” (World Bank,1995, p. 21).

Following the amicable mutual disengage-ment of the World Bank and the Ministry ofForestry, and the task manager’s relocationto World Bank headquarters in Washington,the forest policy reform agenda was allowedto lapse. The World Bank did not invest in asignificant consultation process based on thereview’s findings and recommendations, andmost domestic constituencies for reformwere probably not even aware of its exis-tence, much less its progressive contentrelated to community forest management.

Thus, at the time of the 1997 crisis, theWorld Bank had been absent from theIndonesian forest sector for more than threeyears. The forest management regime waseconomically, environmentally, and sociallyunsustainable, with demand for forest prod-ucts outpacing supply, and a gross imbalancein the distribution of costs and benefitsbetween forest-dwelling peoples and a hand-ful of concessionaires. A five-year experimentin using project lending to leverage neededreforms had ended in 1994 when vested


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B O X 4 . 1 C H R O N O L O G Y O F A D J U S T M E N T A N D F O R E S T P O L I C Y R E F O R MI N I N D O N E S I A

July 1997 Rupiah begins to depreciate following devaluation of Thai baht.Haze from uncontrolled forest burning reaches Malaysia and Singapore.

October 6 Government of Indonesia seeks aid from the IMF.

October 31 IMF bail-out package announced; no forest policy reform content.

Nov–Jan, 1998 International confidence in the Indonesian economy declines.

January 15 Second IMF package announced. Letter of Intent contains significant forest policy reform content.

January 21 Ministerial decrees abolish forest product monopolies.

February 3–5 World Bank President Wolfensohn visits Jakarta.

March 10 Suharto reelected.

March 15 New cabinet announced; includes timber tycoon Bob Hasan.

April 10 Government announces Supplementary Memorandum of Economic and Financial Policies for World Bank structural adjustment loan (PRSL 1).

April 20–22 Various decrees replace log export taxes with resource rent taxes.

May 4 Announcement of fuel and electricity subsidy removals triggers riotsand demonstrations.

May 12–20 Unrest and violence deepen; students occupy parliament building.

May 18 World Bank postpones consideration of structural adjustment loan.

May 21 Suharto resigns; Habibie sworn in as new President.

June 29 Ministerial decree establishes Forestry and Estate Crops Reformation Committee.

July 2 World Bank approves US$1 billion Policy Reform Support Loan. World Bank staff, ministry officials, and bilateral donors discuss forestry SECAL.

August 27 Consultative Group on Indonesian Forestry (CGIF) hosts Forum on Draft Government Regulation on Production Forest Management.

September 16 CGIF hosts meeting on reform process; proposed SECAL floated.

November 2 CGIF hosts forum on draft Basic Forestry Act.

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interests in the status quo had proven moreinfluential than World Bank conditionality.

ADJUSTMENT LENDING ANDFOREST POLICY REFORM

The devaluation of the Thai baht in early July1997, and subsequent events in Indonesiacaught the public and private internationalfinancial community by surprise. On July 19,1997, when a new Country AssistanceStrategy for Indonesia was being presentedto the World Bank’s Board of ExecutiveDirectors, staff argued that the country wasin a strong position to avoid followingThailand into financial crisis (World Bank,1999b, p. 1). Later that same month, thejudgment of World Bank staff and many others was proven wrong as the Indonesianrupiah began to depreciate. Box 4.1 providesa chronology of events.

By early October, Indonesia had beenforced to seek aid from the IMF, and on

October 31, a first assistance package wasagreed upon. The Letter of Intent (LOI)focused on government commitments tobanking sector reform, but did not includeany reference to environmental objectives orconcerns despite having been negotiated lit-erally in the haze of the forest fires, which bythen was visible in Jakarta (IMF, 1997). Atthe request of the IMF, World Bank staff hadprepared language on forest policy reform for this LOI, but the forest-related conditionsproposed by the World Bank were not included.8 In a mid-November meeting with

B O X 4 . 1 ( C O N T I N U E D )

December 21 World Bank suspends US$400 million loan tranche because of lack of progress in forest policy reform.

January 27, 1999 Government announces Regulation on Production Forest Management.

February 9 World Bank approves release of US$400 million.

May 20 World Bank approves PRSL II.

July 27–28 Consultative Group on Indonesia highlights forest sector reform agenda.

September 30 Parliament passes new Basic Forest Law despite World Bank objections.

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A five-year experiment in using project lending

to leverage needed reforms had ended in 1994

when vested interests in the status quo had

proven more influential than World Bank con-

ditionality.


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Indonesian and U.S.-based environmentalactivists, members of the IMF team indicatedthat while there might have been some policyreform omissions in the agreement, it wouldhave been politically impossible and adminis-tratively infeasible to do everything at once.9

By early January 1998, the Indonesian gov-ernment’s failure to show evidence of imple-menting the reforms of the first LOI led

domestic and international financiers to votewith their positions, plunging the economydeeper into crisis.10 On January 15, a secondLetter of Intent negotiated with the IMFannounced an acceleration and broadening ofthe earlier commitments to reform. A strik-ing addition to the first package was a seriesof forest-related and other environmentalreform measures. (See Box 4.2.) Theseincluded commitments to dismantle forest

Commitments Related to the Forest Sector

Point 10 Increase in the taxation of plantationsand forestry property.

Point 12 Incorporate the Reforestation Fund intothe central government budget, and ensure thatfunds are used exclusively for financing reforesta-tion.

Point 37 Reduce export taxes on logs, sawn tim-ber, rattan, and minerals, and impose appropriateresource rent taxes.

Point 39 Remove restrictions on foreign invest-ment in palm oil plantations on February 1, 1998(which could accelerate conversion of naturalforests to plantations).

Point 40 Dissolve all existing formal and infor-mal restrictive marketing arrangements, includingthose for cement, paper, and plywood.

Point 50 Review and raise stumpage fees; auc-tion concessions; lengthen the concession periodand allow transferability by June 1998; implement

performance bonds; and reduce land conversiontargets to environmentally sustainable levels by theend of 1998.

Other Commitments Related to the Environment

Point 9 Gradually eliminate subsidies on fueland electricity.

Point 13 Cancel 12 major infrastructure projects,including a major power plant (but conspicuouslynot including a million-hectare project inKalimantan to convert swamp forest to rice cultiva-tion).

Point 37 Acknowledgment that “export taxes can-not simply be eliminated since they serve as animportant means of discouraging overexploitationof Indonesia’s natural environment.”

Point 50 Draft and establish implementationrules for the new environment law, and acceleratea program for conversion to cleaner fuels, includ-ing unleaded gasoline, to improve air quality.

Source: Government of Indonesia, 1998a

B O X 4 . 2 C O M M I T M E N T S I N T H E J A N U A R Y 1 9 9 8 L E T T E R O F I N T E N TR E L A T E D T O F O R E S T R Y A N D E N V I R O N M E N T


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product marketing monopolies controlled byBob Hasan and to implement many of theconcession management system reforms thathad led to the rupture in the World Bank’srelationship with the Ministry of Forestry in 1994.

Ownership by the World Bankand the IMF

According to participants interviewed for thisstudy, the IMF team invited World Bank staffto contribute structural reform conditions tothe January LOI on extremely short notice,precluding the possibility of conducting anynew analysis or consultation with concernedstakeholders. Indeed, when asked why stop-ping a notorious million-hectare rice projectthat threatened swamp forests in Kalimantanwas not included among the conditions, aWorld Bank official confessed, “I didn’t havea file on it that day.”11 Forest sector elementsadded to the package were selected fromamong those already on the shelf from thesector review completed by World Bank staffin 1995.

Why were reforms considered of second-order importance in October suddenly on theIMF’s agenda in January? According to par-ticipants interviewed for this study, the sym-bolic significance of the forest sector as anexample of poor economic governance and

cronyism was an important motivatingfactor.12 What better way for the Suhartoregime to signal seriousness about reformthan to sacrifice the economic interests ofcronies and family members? (Schwarz,1999) In addition to abolishing Hasan’s ply-wood cartel, the LOI also targeted a clovemarketing monopoly and national car manu-facturing project, each controlled by one ofthe President’s sons.

In addition to the political symbolism ofincluding forest policy conditions, WorldBank and IMF staff saw these conditions asserving economic efficiency objectives aswell.13 Environmental objectives—such asthose that would be served by the imposedmoratorium on forest conversion—were per-haps tertiary considerations after politicaland economic concerns.14 Significantly, thepackage of forest policy reforms did notinclude the recommendations from the 1995sector review related to community rightsand roles in forest management.

In April, the World Bank reinforced andrefined the forest-related conditionality con-tained in the IMF package through the firstof two structural adjustment or PolicyReform Support Loans, which would beknown as PRSL I (US$1 billion) and PRSL II(US$500 million).15 The government’sStatement of Development Policy committedto two sets of structural policy reforms,which gave greater prominence to environ-mental and social equity objectives than hadthe January Letter of Intent (Government ofIndonesia, 1998b, p. 50–53). Under a sectionentitled, “Trade and Investment PolicyChanges to Increase Productivity,” the gov-ernment reiterated its promise to replaceexport taxes on forest products with resourceroyalties (“which would protect the environ-

What better way for the Suharto regime to

signal seriousness about reform than to sacrifice

the economic interests of cronies and family

members?


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ment”), and stated that the plywood cartelhad been dissolved. Under a section entitled,“Policy Changes to Promote the Environ-mental Sustainability of Development,” thegovernment agreed to a June 30, 1998, dead-line for changing regulations related to theaward of logging concessions. The govern-ment further promised a sweeping programof reform of concession system managementby the end of the year, including “provisionsto encourage participation by local communi-ties, and protection of indigenous forestdwellers.” Until this system was implement-ed, the government agreed to a moratoriumon forest land conversion.

By late 1998, many of these conditionsremained unfulfilled, including implementa-tion of a concession auctioning system, aperformance bond system, and a reduction inthe rate of conversion of natural forests(Government of Indonesia, 1998b). TheWorld Bank this cited lack of progress ascontributing to its decision to suspendrelease of the second tranche of PRSL I inDecember 1998 (Milverton, 1998). A WorldBank staffer reported being astonished thatsenior management was giving such highpriority to complying with the forest-relatedconditions. According to World Bank staff,the government’s failure to compliance withkey forest-related conditions in PRSL I alsoproved the final constraint to setting a datefor presenting PRSL II to the World Bank’sBoard in May 1999.16

Ownership by the Government ofIndonesia

Was the Indonesian government committedto the forest policy conditions contained in

the January Letter of Intent? According toparticipants in relevant discussions, the tech-nocrats in the government economic min-istries who had chafed for years under theeconomic excesses of the Suharto regimestrongly supported the structural reformsmandated by the January LOI—particularlythose reforms that targeted politically potentsymbols of cronyism such as the clove andplywood monopolies.17 There was also sup-port within the bureaucracy for environment-related reforms; officials of Bapedal, theIndonesian environmental agency, were saidto have been pleased by the inclusion of con-ditions related to air quality and new envi-ronmental legislation.18

According to one government official, bor-rower ownership outside the Ministry ofForestry was captured by the attitude in theMinistry of Development Planning: “(envi-ronmental policy reforms) are things we haveto do whether or not there is a crisis, so weshould take the opportunity.”19 In late March,the Ministry of Development Planning orga-nized an interagency meeting to discuss anenvironmental agenda in the context ofpreparation of PRSL I. Lower-level Ministryof Forestry officials and the World Bankstaffer covering forestry issues attended themeeting. However, the discussion focusedmore attention on other environmentalissues, such as shifting from leaded tounleaded gas, and coral reef conservation,because the forestry agenda had already beenadvanced in the January IMF conditions.20

Although the specific forest policy reformscontained in the January LOI were discussedin early January with the Ministries ofDevelopment Planning, Finance, and


93

Industry and Trade, Ministry of Forestry offi-cials were not consulted prior to theannouncement of the reform package, andwere taken completely by surprise.Nevertheless, at least at the beginning,Ministry of Forestry officials reportedly tooktheir responsibility to undertake the reformsquite seriously, feeling that the economydepended on their ability to deliver thereforms that had been agreed to by PresidentSuharto himself.21 The government’s actualcompliance with the forestry conditions con-tained in the January Letter of Intent andPRSL I and II, and shifts occasioned by the1998 change of national leadership, aredescribed below.


January to May 1998

A flurry of activity followed the announce-ment of the forestry conditions contained inthe January Letter of Intent. On January 21,1998, the Ministry of Industry and Tradepromulgated nine decrees canceling existingregulations, export quotas, and tradinggroups related to plywood and rattan. Tocomply with the tight deadlines included inthe IMF conditions, Ministry of Forestry officials began drafting new regulations related to stumpage fees, concession auc-tions, performance bonds, and use of theReforestation Fund.

Early on, there were signs that reformwould be more apparent than real, as limita-tions on the government’s political will andcapacity to meet the IMF conditionsemerged.22 Despite having been formallyabolished in January, the plywood cartel con-tinued to operate through February and

March, extracting new fees from plywoodexporters (Barr, 1998; Thoenes, 1998). Newregulations drafted by the Ministry ofForestry appeared to focus on fulfilling theletter of the IMF agreement rather than thespirit of the objectives they were meant toaddress. By the end of April, one expatriateobserver concluded, “there is still nothingtangible to show in the way of results. Themain effect so far has been to force the government to do some serious rethinkingand to encourage a much wider debate of the issues and possible solutions”(Fraser,1998b, p. 5).

By this time, however, the initial high pro-file of the forest policy reform agenda hadbeen eclipsed by other political and economicdevelopments in early 1998. Similar foot-dragging had taken place in other sectors, asthe clove monopoly and the national car project—both linked to the President’s chil-dren—proved impervious to announced re-forms. President Suharto alarmed the inter-national community by naming B. J. Habibieas his choice for Vice President, a Suhartoprotégé known for his delusions of techno-logical grandeur in the Indonesian aviationand nuclear industries rather than good eco-nomic sense. Suharto prompted further con-sternation, and telephone calls from otherworld leaders, by announcing that he wasconsidering turning away from IMF advice in

Early on, there were signs that reform would

be more apparent than real, as limitations

on the government’s political will and capacity

emerged.


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favor of a currency board. When he unveiledhis new cabinet in March, larded withcronies, economic nationalists, and even hisdaughter, most observers interpreted this as asignal of defiance of the international com-munity’s wishes. In particular, the appoint-ment of Bob Hasan as Minister of Industryand Trade could only be seen as a repudia-tion of commitments to forest sector reform.

Even to the extent that there was politicalwill for reform scattered among governmentagencies and officials, reformers facednumerous barriers to implementing theagreed policy changes to meet the IMF dead-lines. Many of the fundamental preconditionsfor the market-based reforms were simply notin place, and could not be established in amatter of months. For example, how could aconcession auctioning system be implement-ed, when there was no baseline data on thecondition or value of blocks of forest to beput up for bidding? One Indonesian govern-ment official remarked that auctioning con-cessions without data would be “like selling acat in a bag.”23 How could a performancebond system be implemented, when theMinistry of Forestry had no outcome-basedindicators on which to judge a concession-aire’s performance? A summary of criticismsof the reform package is presented in Box 4.3.

Many observers, including reform-orientedministry staff and expatriate advisors associ-ated with bilateral aid projects, feared that aquick implementation of agreed reformswithout those preconditions in place couldactually make the forest management situa-tion worse.24 One of the first areas addressedby the Ministry was timber royalty issues,resulting in a new regulation on resource renttaxes in April. While some observers weredistressed by the speed with which the

B O X 4 . 3

The conditions included in the January 1998IMF reform package, and later in the WorldBank’s follow-on adjustment loans, were consis-tent with the World Bank’s conventional wisdomon forest policy. (See Box 1.4.) They focused onpromoting efficiency in timber concession allo-cation and trade in forest products. While manydomestic and international constituencies wel-comed the package of reforms, they also criti-cized it for the following reasons:

• consistency—Although the IMF condition-ality called for a moratorium on forest conver-sion, it also mandated liberalization in thepalm oil sector, which was likely to acceleratepressures on forest conversion.

• completeness—The reforms focused onimproving efficiency within the existing forestmanagement paradigm, which was based onlarge-scale corporate concessions, and did notaddress property rights issues.

• feasibility—The reforms did not address thenecessary preconditions for many of the effi-ciency-oriented reforms, such as the need forreliable data on forest quality and monitoringsystems (Kartodihardjo, 1999).

• effectiveness—Because the reforms did notdirectly address the demand side ofIndonesia’s structural timber deficit, asdescribed in this chapter, some argued thatefficiency-oriented reforms would onlyincrease incentives for illegal logging (Barr, 1999).

T H E R I G H TC O N D I T I O N S ?


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Ministry was promulgating new policy,World Bank staff believed that the symbolicvalue of making early progress on reformmore than compensated for weaknesses inthe resulting policy.25

In addition, some officials in the Ministryfelt that the World Bank and the IMF haderred in defining the conditionality in termsof specific measures to be taken, rather thanclarifying the objectives to be reached andleaving the means by which to meet themmore flexible.26 For example, the LOI speci-fied that the Ministry’s Reforestation Fundbe brought “on budget.” While the intent ofthis condition was to end the misuse of thosefunds for various pet projects of the Suhartoregime unrelated to forestry, integrating thefunds into the national budget could alsoresult in a reduction in the amount ear-marked for reforestation.27

The intricacies of Indonesian governmentpolicymaking constrained progress on meet-ing other conditions; World Bank staff weresometimes confounded by the multiple levelsof authority required for each policy change.The fact that World Bank staff, rather thangovernment officials, were shepherdingpaperwork through the bureaucracy to com-ply with conditionality indicates the govern-ment’s limited commitment to the reforms.28

As it became clear that many of the agreedreforms could not be effectively implementedin the agreed time frame, or needed to beadjusted to reach intended objectives, WorldBank staff encouraged Ministry of Forestryofficials to pursue the reforms as an overallpackage rather than as a checklist.29 Accord-ing to one World Bank official, “The [IMF]letter felt very binding [to government offi-cials] in a way I didn’t imagine it would,” and

he encouraged them to take the time neces-sary to develop good policy.30 However, thisflexibility may have inadvertently signaled tothe Ministry that conditionality was beingrelaxed. At minimum, it was difficult forobservers to distinguish between the WorldBank’s encouragement of conscientiousnessand its tolerance of footdragging.

A New Regime; New Constituencies

In May 1998, President Suharto resigned fol-lowing several weeks of increasingly violentdemonstrations and rioting. With the smoothtransition to an interim Habibie regime andcalls for reformasi total (total reformation),the political context for forest sector reformappeared to have changed. The Ministry ofForestry was renamed the Ministry of For-estry and Estate Crops (MOFEC), reflectingthe addition of a Directorate General previ-ously under the Ministry of Agriculture—anda new Minister, Muslimin Nasution, wasappointed. The new Minister had previouslyserved in the Ministry of Cooperatives, andimmediately prior to his new post, hadserved as Vice Chair of the Ministry ofDevelopment Planning, where he had helpedprepare PRSL I. He quickly signaled that hewas a proponent of reform by welcoming anunprecedented student demonstration in theMinistry of Forestry building in Jakarta.

The fact that World Bank staff, rather than

government officials, were shepherding paper-

work through the bureaucracy to comply with

conditionality indicates the government’s

limited commitment to the reforms.


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The spirit of total reformation sweepingIndonesia infected forest policy debates aswell, generating, in the words of one expatri-ate advisor, “a hurricane of ideas anddemands.”31 While the World Bank-IMFreform agenda had focused almost exclusive-ly on market-oriented reforms designed toimprove the efficiency and environmentalsustainability of the current, concession-oriented timber production system, theincreased political space allowed two addi-tional constituencies to flourish.

The first, led by NGOs and academics, pro-moted a new paradigm of forest managementthat recognized the rights and roles of forestcommunities and the importance of nontim-ber forest goods and services. The Commu-nity Forestry Communication Forum(FKKM), a network convened by GadjahMada University and supported by the FordFoundation, emerged as a focal point of thisconstituency. By mid-1998, FKKM had pub-lished a forest management vision based onprinciples of social justice, public participa-tion, and accountability, and had articulated a short-term program of proposed reforms(Forum Komunikasi Kehutanan Masyarakat,1998).

The second forest policy reform con-stituency that emerged following the fall ofSuharto was led by government officials affil-iated with Muslim political movements,including Habibie and the new Minister ofForestry and Estate Crops. Similar to FKKM,this constituency expressed concern aboutsocial justice; however, this group focused onredistributing forest resource assets throughimposition of maximum limits on concessionsize, and reallocating of concessions to coop-eratives. In the Indonesian political context,this position was interpreted as a resurgence

of a perennial effort to redistribute wealthfrom conglomerates controlled by ethnicChinese businessmen to cooperatives con-trolled by the government (Solomon, 1998).This constituency complicated the WorldBank reform agenda by driving a parallelseries of forest policy changes that were notwelcomed by the international donor com-munity, nor by Indonesian researchers, NGOactivists, or industry representatives(Sunderlin, 1999).

Interestingly, an additional constituencythat did not take a high profile in the forestpolicy reform debates was the conservationinterest group. Despite significant donor sup-port for biodiversity conservation projectsand for environmental NGOs throughout thearchipelago in the years leading up to the cri-sis, environmental concerns did not figureprominently in post-crisis debates, much tothe consternation of some donor agencystaff. According to the Jakarta-based repre-sentatives of one international conservationorganization, it was seen as unseemly toadvocate purely environmental issues, whenthe social justice aspects of the economic cri-sis, and the political imperatives of thedemocratization process needed to be givenpriority.32

Reformation Without any Changes

On June 29, 1998, a ministerial decree estab-lished the Forestry and Estate CropsDevelopment Reformation Committee com-posed of representatives from the Ministryitself, NGOs, universities, and business. Itsmandate was to make recommendations tothe Minister regarding changes in theMinistry’s vision, mission, and organization,as well as with regard to key legislative andregulatory frameworks. The young MOFEC


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officials who agreed to staff the Committeewere seen by more cautious colleagues asrisking their careers.33 The group quickly pro-duced a set of recommendations, but soonran up against the intransigence of thebureaucracy below the Ministerial level.

In August, the Committee met with seniorMinistry officials to discuss a draft revisionof the government regulation regarding man-agement of production forests. The Commit-tee recommended that the regulation berecast in terms of integrated forest manage-ment rather than narrow timber productionobjectives, and that it address the issues ofcommunity rights to forest resources andparticipation in forest management, and thedecentralization of forest administration.However, the decree promulgated by theMinistry for Presidential approval did notreflect any of these recommendations. WorldBank staff pressured the Ministry to under-take further consultations, and to incorporatethe results of those consultations into theregulations. Ultimately, World Bank staffintervened and took over the drafting processthemselves, in part to remove undesirabletext related to the granting of concessions tocooperatives. Later in the year, problems withthis regulation delayed release of the secondtranche of PRSL I.34

Similarly, in October and November 1998,the Committee held consultations on a draftBasic Forestry Law with national and provin-cial stakeholders, including a national confer-ence in Jakarta (Consultative Group onIndonesian Forestry, 1998). Participants con-sistently identified key weaknesses in thedraft as being the failure to recognize tradi-tional rights over forest land (hutan adat),and an overly centralized approach to forestmanagement. However, the version of the

law that emerged from the Ministry ofForestry and Estate Crops for parliamentaryconsideration did not reflect this stakeholderinput. Apparently, bureaucratic resistance torecognition of community rights over forestshad again proven successful.35

Many observers singled out the lack oftransparency in the reform process as a keyobstacle to real reform.36 The recommenda-tions of the Reformation Committee weresomehow removed from the regulations anddraft legislation that emerged from theMinistry’s internal decisionmaking process.Some observers characterized that process asa “black box” that precluded effective partici-pation by interested constituencies (Tjatur,Agus, and Yulia, 1999).

By early 1999, a full year after forest-related conditions were included in the sec-ond IMF Letter of Intent, there had been atleast some progress in implementing forestsector reforms. The government had abol-ished Bob Hasan’s forest product marketingmonopolies. Having held up release of thesecond tranche of PRSL I, a new concessionmanagement regulation was promulgated inJanuary that would increase the govern-ment’s rent capture by charging higher royal-ties, remove the required linking of conces-sions to processing facilities, and establish aperformance bonding system with indepen-dent inspection teams to monitor compliance(World Bank, 1999c, Annex 1).

By this time, however, proponents ofreform had become sufficiently frustrated bylack of progress on more fundamentalreforms, and by the characteristics of thereform process itself, that one member of theReformation Committee had resigned, andseveral others had lost enthusiasm. One


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observer characterized the situation as “refor-mation without any changes” (Tjatur, Agus,and Yulia, 1999).

The implementation stalled over the courseof 1999. In September, a policy advisor to aU.K.-supported forestry project prepared a“Report Card on Selected Forest PolicyReforms in Indonesia,” awarding mostlygrades of “D” and “F” based on the failure ofthe Ministry of Forestry and Estate Crops toimplement commitments made to the WorldBank and the IMF (Brown, 1999a). In manyinstances, compliance with the letter of thecommitments was undermined by deviationsfrom the spirit of the commitment. Forexample, decreases in log and sawn timberexport taxes were replaced by nontariff barri-ers in a form that required exporters toobtain letters of permission. Similarly, whilenominal stumpage fees were raised, actualrent capture declined when the Ministryallowed payment in rupiah at highly favor-able exchange rates. An advisor to a bilateralforestry project remarked that it was hard forthe World Bank not to “check off” the gov-ernment’s compliance with conditions whenthe World Bank had not specified the objec-tives to be served.37

Evolution of the Reform Agenda

Given the short notice on which World Bankstaff were asked to provide forest sector con-ditions for the January 1998 Letter of Intent,it is not surprising that they were subse-quently able to improve both the substanceand the process of the World Bank’s forestpolicy reform agenda in Indonesia. As notedabove, the April 1998 Statement of Devel-opment Policy prepared in conjunction withPRSL I contained more explicit references to

the environmental and equity dimensions offorest policy reform.

More significantly, following the upheavalsof May and June 1998, the World Bank initi-ated a dialogue with a broader group ofstakeholders on a more comprehensivereform agenda for the forest sector. In July, akey World Bank forestry specialist met inEurope with government and bilateral agencyrepresentatives to discuss the outlines of asupplemental forest policy reform package tobe included in a sectoral adjustment loan(SECAL) (Dieterle, 1998). By this time, theWorld Bank had concluded that a consensuson a forest policy reform agenda among rele-vant stakeholders, including the government,donor groups, and significant elements ofthe private sector and civil society, was notonly possible, but necessary to reduce therisk that reform achievements would beswept away in subsequent political develop-ments (Douglas, 1998a).

The World Bank circulated an issues paperthat was used as the basis for a series ofstakeholder consultations on the proposedSECAL (Douglas, 1998b). The paper wasremarkable in two respects. First, its priori-ties were establishing the preconditionsignored by the earlier reform effort,

Others in the forest industry were delighted by

the prospect of being freed from Hasan’s cartels.

One World Bank staff member reported being

personally thanked for the reforms by an

affected Indonesian businessman.


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including filling gaps in data and develop-ment of performance criteria. Second, itresponded to the social justice concernsraised by emergent constituencies in thereformation era, by explicitly calling for com-munity-based conservation and concessionmanagement. The paper went so far as toquote extensively from FKKM proposals.

The World Bank’s official letter to theGovernment of Indonesia regarding the pro-posed SECAL was somewhat more circum-spect, referring only to “open[ing] forestareas for use and operation by a wider groupof stakeholders” (Fox 1998, p. 8). However,the policy matrix attached to PRSL II in May1999, specified that draft forest legislationshould accommodate “rights and responsibil-ities for adat areas which include forestareas,” and required the drafting of a “com-munity forest participation regulation” toensure community participation in forestmanagement and benefits (World Bank,1999c, p. 37).

The World Bank was also responsive tostakeholder concerns regarding the lack oftransparency and public consultation in theearly stages of the reform process. The policymatrix attached to PRSL II included provi-sions requiring the government to make newmaps of forest areas publicly available andinitiate “a multi-stakeholder consultativeprocess by which all proposed regulationsand legislation will be publicly reviewed anddiscussed up to the final drafting stage”(World Bank, 1999c, p. 37).

However, the World Bank’s success in pro-moting compliance with these commitmentswas mixed. After long delays, the Ministryfinally posted forest cover maps for Sumatraand Kalimantan on the MOFEC Website in

late 1999, but continued to refuse to releasethe raw data. In June 1999, the World Bank’sJakarta-based country director wrote a letterto the Minister of Forestry and Estate Cropsexpressing concern about the speed withwhich the new Basic Forest Law was movingforward, and suggested that further consulta-tion and revisions were necessary before hav-ing the relevant parliamentary committeeconsider the law (Baird, 1999a). However,while providing questionable assurances tothe World Bank that the necessary consulta-tions had taken place, the Ministry rushedwhat many stakeholders considered to be a flawed bill through approval in September1999.38

By the latter half of 1999, the World Bankhad begun to characterize its attention toreform in the forest sector explicitly in termsof good governance, and to look outside theMOFEC for leadership of the reform effort.At the July meeting in Paris of the Consul-tative Group on Indonesia (CGI), the formaldonor consortium that coordinates develop-ment assistance with the Government ofIndonesia, the World Bank secured a com-mitment from the Ministry of DevelopmentPlanning to convene a high-level, interagencysummit on forest policy reform—a commit-ment that was honored by the new govern-ment that came into power in late 1999.

In sum, the World Bank’s approach to theforest policy reform agenda evolved from theinitial focus on market-oriented efficiencymeasures contained in the January 1998agreement with the IMF to encompass abroader range of issues and constituencies.Conditions attached to PRSL II includedstrong provisions related to community participation in forest management, as wellas provisions related to transparency and


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participation in the reform process itself.Ultimately, the World Bank acknowledgedthe connection between forest sector reformand improved governance more generally.


Private Sector

Among the key stakeholders said to havebeen taken by surprise by the January 1998Letter of Intent was Presidential crony andtimber tycoon Bob Hasan. Ironically, at thetime the package was being negotiated inJakarta, Hasan was in Washington, D.C., par-ticipating in a meeting of the world’s timberindustry leaders convened by World BankPresident James Wolfensohn.39 Hasan’s continuing ability to influence events there-after was evidenced by early evasion of thedecree abolishing his forest product monopo-lies, and his appointment to Suharto’s cabi-net in March 1998, as Minister of Industryand Trade.

Others in the forest industry were de-lighted by the prospect of being freed fromHasan’s cartels. One World Bank staff mem-ber in Jakarta reported being personallythanked for the reforms by an affectedIndonesian businessman.40 As long as thereforms focused on increasing efficiency inthe business arena, the private sector wassupportive. In this way, private sector inter-ests were fully aligned with the reformsbeing promoted by the World Bank and theIMF. However, businessmen were also con-cerned about other possible changes thatcould affect the size and profitability of theiroperations. In particular, private business-men (as well as World Bank and IMF offi-cials) were alarmed when populist elements

in the new government began to promote theidea of distributing forest resource assets bylimiting concession areas and grantingshares to cooperatives (Solomon, 1998)

Bilateral Donors

At the time of the crisis, the bilateral donorcommunity had a large stake in the Indo-nesian forest sector. By 1995, total donorcommitments in the sector had risen toabout US$400 million, including largeinvestments in forest management and con-servation projects funded by the UnitedStates, the European Union, and Germanand British aid agencies (World Bank, 1996).According to one World Bank official, theseagencies had been unwilling to join theWorld Bank in pressing the Indonesian gov-ernment for policy reform in the mid-1990s,for fear of jeopardizing smooth relationshipswith their counterparts.41

Expatriate staff of bilateral donor-fundedforestry projects were surprised by the inclu-sion of forest conditions in the Januaryreform package. While initially miffed by thelack of prior consultation, and concerned thatthe World Bank might displace them bymonopolizing policy dialogue with the Min-istry, most members of this community weresupportive of the proposed reforms.42

Although they noted the World Bank’s four-year absence from the forest sector, they

Ultimately, the World Bank acknowledged the

connection between forest sector reform and

improved governance more generally.


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Background

Exploitation of forest resources has played a signif-icant role in the recent political conflict and eco-nomic crisis in Cambodia. Approximately 10.5 mil-lion hectares of forest remain in Cambodia,accounting for 58 percent of total land area.Between 1973 and 1993, the rate of deforestationwas an estimated 70,000 hectares per year. From1993 to 1997, the rate of deforestation has acceler-ated alarmingly to more than 180,000 hectaresannually as a result of greater pressure from log-gers and local communities. Logging is of enor-mous commercial importance for Cambodia, andaccounted for 43 percent of foreign trade in 1997.Much of this logging is illegal, depriving the cen-tral government coffers of as much as US$80 mil-lion in foregone tax revenues annually.

Cambodia’s military and political structure hasbeen closely involved in much of the illegal loggingactivity. According to Global Witness, an NGOindependently monitoring the Cambodian forestsector, illegal logging revenues fed the electionchests of both co-Prime Ministers Rannaridh andHun Sen. Because high political figures inCambodia depended on illegal logging profits,reformers in line ministries were limited in theamount of change they could generate in the forestsector.

Cambodia reclaimed membership in the WorldBank Group in 1992, after 22 years of domesticconflict. Foreign aid has swelled to 50 percent ofthe national budget in recent years, a proportionwhich should provide the aid community consider-able leverage for policy reform.


While the World Bank, as the chair of the Con-sultative Group of donors on Cambodia, has ledefforts to assess the forest sector in Cambodia,

the IMF has also been key in imposing the WorldBank’s recommendations through its EnhancedStructural Adjustment Facility (ESAF) loans, initi-ated in 1994. Bowing to World Bank and IMF con-ditionality, the Cambodian government instituted alog export ban and created a Forestry ReformSteering Committee within the government. Thesepolicy changes were not, however, mirrored in thesituation on the ground as illegal logging contin-ued. In late 1996, the IMF acted on its threats towithdraw funding and canceled the fourth trancheof its loan.

With forest issues now firmly on the agenda,the IMF announced in 1997 that any further finan-cial support would be contingent on the govern-ment’s performance in monitoring log exports andensuring a transparent flow of forest revenues tothe national treasury. Shortly thereafter, however,aid was suspended due to internal political tur-moil, as Hun Sen wrested complete power fromRannaridh in a coup d’etat. More recently, as thepolitical situation has stabilized, the donor com-munity put together a US$470 million aid packageat the 1999 meeting of the Consultative Group.The aid was explicitly conditioned on forest sectorreform. Prime Minister Hun Sen committed toestablishing an independent log processing andexport monitoring unit, and canceling 12 conces-sions. Later that year, it was announced that GlobalWitness had been appointed as the official inde-pendent monitor of Cambodia’s forest sector.


Cambodia represents an extreme case of the deeppolitical entrenchment of logging interests, butalso of considerable potential for donor leverage.This leverage, however, has cut both ways. WithCambodia so heavily dependent on aid, donorshave hesitated to withdraw funds because of

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humanitarian concerns, which has undermined thecredibility of conditionality. Until recently, theCambodian government has managed to keep theaid stream flowing without conceding muchreform in the forest sector.

Yet, appointing an independent agency to moni-tor Cambodia’s forests suggests that coordinateddonor pressure for reform can yield importantresults, even in a situation of limited governmentownership of the reform agenda. The pace ofreform may be slow in Cambodia, because forestissues are bound up with the broader problems ofpost-conflict reconstruction in the country. In themid-1990s, concerned Cambodian officials werefearful that there was no future for the forest sec-tor in their country. But by mid-1999, internation-al pressure for reform had encouraged and empow-ered many reform-minded individuals within thegovernment. By raising the profile of forest issues,the international community had succeeded in get-ting forest sector reform on the agenda of the government, and had helped to free pro-reformindividuals and agencies from their political handcuffs.

In 1999, government officials claimed to bemoving forward on implementing the reform agen-da, while at the same time expressing some frus-tration with the overly rigid timing and inappropri-ate sequencing of World Bank-mandated reforms.Said one, “We need to learn to dance smoothlywith the World Bank.”

Sources: Global Witness. 1996. “RGC Forest Policy &Practice & the Case for Positive Conditionality: A BriefingDocument for the 1996 Meeting of the ConsultativeGroup.” London: Global Witness. www.oneworld.org/globalwitness.

—1997. “Consultative Group Meeting on Cambodia, Paris,1–2 July 1997: Analysis of the Forestry Issue,Compilation of Attendee Statements and Recommended

Next Steps.” London: Global Witness.www.oneworld.org/globalwitness.

—1997. “Just Deserts for Cambodia?” London: GlobalWitness. www.oneworld.org/globalwitness.

—1999. “RGC Puts Reputation on the Line on ForestryReform.” London: Global Witness.www.oneworld.org/globalwitness.

—1999. “Global Witness Appointed Independent Monitorof Forestry Sector.” London: Global Witness. http://carryon.oneworld.org/globalwitness/press/pr_991202b.html

Hun Sen, Samdech. 1999. “Opening Speech of SamdechHun Sen, Prime Minister of the Royal Government ofCambodia to 1999 CG Meeting.”www.worldbank.org/extdr/offrep/eap/khcg99/opspeech-pm.htm.

Okonjo-Iweala, Ngozi. 1999. “Consultative Group forCambodia: Chairman’s Opening Remarks.” WashingtonD.C.: The World Bank.www.worldbank.org/html/extdr/offrep/eap/khcg99/opre-marks.htm—1999. “Cambodia’s Reconstruction Depends on

Sustained Commitment of Coalition Government andInternational Donors.” Washington D.C.: The WorldBank.www.worldbank.org/html/extdr/offrep/eap/khcg99/oped.htm.

Royal Government of Cambodia. 1998. “CambodiaNational Environmental Action Plan 1998–2002.”Kingdom of Cambodia: Royal Government of Cambodia.

The Economist. “The Fight Against Illegal Loggers,” April 3,1999, p. 34.

World Bank, The. 1999. “Cambodia: A Vision for ForestrySector Development.” Washington D.C.: The World Bank.—1999. “Cambodia Wins Solid Support from Donors.”

News Release 99/2107/EAP, February 26, 1999,www.worldbank.org/html/extdr/extme/2107.htm.

—“The World Bank and Cambodia: Country Brief.”Washington D.C.: The World Bank.http://wbln0018.worldbank.org/eap/eap.nsf

World Bank, The, UNDP, and FAO. 1996. “Sector Reportfor Cambodia-Forest Policy Assessment.” WashingtonD.C.: The World Bank.

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rallied to assist World Bank colleagues andMinistry of Forestry officials to move forwardwith the reform agenda.

At the request of the World Bank, theConsultative Group on Indonesian Forestry(CGIF)—which was supported by a German-funded project—stepped forward to play acoordinating role in convening donors, gov-ernment officials, and eventually NGOs todiscuss how to implement the reforms.Others, including the staff of projects fundedby the United States, the European Union,and the United Kingdom, provided expertsand analysis to guide design of new policies.While conceding the validity of some criti-cisms leveled at the substance and process ofreforms promoted by the World Bank and theIMF, a report generated by one bilateral pro-ject concluded that “the reforms themselvesare exactly what the Indonesian forest indus-try needs” (1999b).43

In July 1999, the new World Bank countrydirector mentioned forestry issues in hisopening remarks to the Paris meeting of theCGI (Baird, 1999b). Representatives of otherdonor agencies reportedly spoke forcefully ofthe need to address forest policy reform, elevating forestry issues to the top tier of theCGI agenda, along with the situation in EastTimor, and attracting attention from govern-ment agencies other than the Ministry ofForestry and Estate Crops.44 Box 4.4describes recent experience in Cambodia,where the World Bank, the IMF, and thebroader donor community collaborated toleverage forest policy reform in the context ofadjustment lending.

Domestic and International NGOs

The World Bank entered the Indonesian crisis with many domestic and internationalNGOs questioning the World Bank’s credibil-ity. Participants in a civil society forum inJakarta with World Bank President JamesWolfensohn in February 1998, said they had“warned the World Bank years ago that eco-nomic growth hinged on an overhaul ofIndonesia’s rigid political system” (Torchia,1998, p. 1).45 Evidencing some ambivalenceabout international intervention early in thecrisis, an international NGO network calledon the World Bank, the IMF, and the AsianDevelopment Bank to ensure that theiractions would not result in worsening socialor environmental conditions, but also urgedthem to “use their leverage not only to seethat the Indonesian government implementseconomic reforms, but also impress upon theGovernment of Indonesia that economicreform without political reform will be insuf-ficient to stem the loss of international confi-dence in Indonesia” (INFID, 1998a). Justprior to Suharto’s fall from power, the samenetwork called on the World Bank and theIMF “to condition further economic assis-tance to Indonesia on fundamental politicalreform” and “to improve their own trans-parency and accountability in order toincrease the legitimacy of their exercise ofthis conditionality” (INFID, 1998b).

With a few exceptions, the community ofNGOs within Indonesia concerned about for-est issues was not well-informed about theworkings of the international financial insti-tutions, and was not sure how to react to theJanuary 1998 reform package. On the onehand, like their international counterparts,they were pleased to see the IMF challenging


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such potent symbols of the excesses of theSuharto regime as Bob Hasan’s plywoodmonopoly. On the other hand, they were alsoskeptical about the motives of the WorldBank and the IMF, particularly with respectto the institutions’ support of economic liber-alization and privatization, which were seenas serving the interests of internationalinvestors.46

In addition, the opinions of many domesticNGOs were influenced by those of interna-tional research and funding organizationsactive in the Indonesian forest sector, suchas the International Council for Research onAgroforestry (ICRAF) and the Ford Found-ation, whose staff privately criticized variousaspects of the reforms.47 In particular, thesegroups were critical of the failure of thereforms to promote a more fundamentalreorientation of forest management policyfrom a social justice perspective. During theflourishing of the spirit of reformasi in mid-1998, international organizations and domes-tic groups coordinated through the FKKMplayed an active role in promoting commu-nity participation and recognition of indige-nous peoples’ resource rights in discussionsof new forestry legislation and regulations.

NGO distrust of the World Bank’s motivesand lack of understanding of the mechanicsof adjustment lending constrained the WorldBank’s ability to develop a constituency forreform within the Indonesian NGO commu-nity. In September 1998, at a meeting con-vened by the Ford Foundation at the requestof the World Bank, NGO activists refused todiscuss the specifics of a proposed sectoraladjustment operation focused on the forestsector, because of their misperception thatWorld Bank funds would be channeled to theMinistry of Forestry.48 Similarly, the World

Bank’s interest in collaborating with NGOsto monitor implementation of reform in thefield was compromised by the latter’s unwill-ingness to accept funds from the WorldBank. One group placed the World Bank andthe IMF on a blacklist of funding sourcesalong with transnational timber corporations(Plume, 1999).

International advocacy groups wereambivalent about the forestry-related condi-tions contained in the January reform pack-age. On the one hand, they could not helpbut celebrate the setbacks dealt to vestedinterests in unsustainable logging practices,and called on the World Bank and the IMF touse disbanding of the plywood and other car-tels as a litmus test for further support to thegovernment (Fried and Rich, 1998). On theother hand, they wondered why equally egre-gious threats to forests, such as the ill-conceived million-hectare rice productionscheme in the swamps of Kalimantan, werenot targeted by the World Bank and the IMF.A “Joint-NGO Request to the IMF forImmediate Intervention” to halt the projectwas forwarded to IMF Managing DirectorMichel Camdessus, implicitly acknowledgingthe legitimacy of such intervention (Barclayet al., 1998). In 1999, in a report exposingthe flourishing of illegal logging, domesticand international NGOs recommended thatthe World Bank, the IMF, and other donors“be held responsible for upholding actions tostop illegal logging and reform forestry law”(Environmental Investigation Agency andTelapak, 1999, p. 40).

International NGOs also criticized the spe-cific forest policy reform content. They notedremarkable inconsistencies in the package,including a call for a moratorium on forestconversion while at the same time liberaliz-


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ing investment in the oil palm plantation sec-tor, a major driver of such conversion (Friedand Rich, 1998). They observed that thereforms seemed to be oriented toward in-creasing the efficiency of the existing, corpo-rate-oriented concession system, and did notdeal with more fundamental issues of prop-erty rights and community roles in forestmanagement.

THE BOTTOM LINE

Are the prospects for improved forest man-agement in Indonesia better or worse off as aresult of the World Bank and the IMF includ-ing forest policy reforms in adjustment lend-ing? And to what extent can the actions ofthe Bank and the IMF be separated from theeffects of the larger historic events in May of1998? Although Indonesia’s transition to apost-Suharto era is still underway, it is possi-ble to draw some preliminary conclusions.

Some progress in reform of the forest sec-tor has been achieved. The breakup of theforest product marketing monopolies, whiledelayed, was important as a political symboland in terms of economic efficiency. In addi-tion, the existence of a reform process hasserved to open up the dialogue on forest policy reform, and has created a forum for

NGOs, bilateral donors, and other constitu-encies to debate and advance their views. Tothe extent that this process can maintainmomentum with the new government thatassumed power in late 1999, the significanceof the World Bank and the IMF’s “getting theMinistry of Forestry’s attention for the firsttime in centuries”—in the words of oneWorld Bank staffer—should not be underesti-mated.49

However, the slow and uneven pace ofreform can be traced to many factors, someof which were under the control of the WorldBank and the IMF. First, the initial packageof reforms was inconsistent and incomplete.While these weaknesses are easily attribut-able to the unreasonable deadline given bythe IMF to the World Bank for coming upwith structural conditions in the second LOI,it is also true that the World Bank had notbeen substantively engaged in the forest sec-tor for the four years prior to the crisis. As a result, World Bank staff did not have thebenefit of updated analysis or stakeholderconsultation to support the design of thoseconditions. More consistent engagement inthe sector following terminations of existingand planned loans to the Ministry of Forestryin 1995 might also have tempered the mixedreception afforded the World Bank’s abruptre-entry onto the forest policy stage.

Second, the original forest policy condi-tions contained in the January LOI werearticulated in terms of specific measuresrather than desired outcomes, were associ-ated with unrealistic deadlines, and in somecases reflected a lack of understanding of theIndonesian policymaking process. The subse-quent need for the World Bank to adjust theconditions and the deadlines sent mixed sig-nals to the government, and made it difficult

Experience in Indonesia shows that the World

Bank’s attention to governance issues in the

reform process itself, particularly transparency

and stakeholder consultation, is essential to

empower domestic constituencies for reform.


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for outsiders to know whether noncompli-ance was the result of lack of political will orlack of feasibility. In addition, the articula-tion of conditions in terms of specific mea-sures allowed the Ministry of Forestry tocomply with the letter of the conditions whileundermining their spirit.

Third, the initial focus of the World Bankand the IMF on efficiency-oriented reform,without explicit attention to the social justiceaspects of alternative forestry managementregimes, compromised the initial ownershipof the reform program among key constit-uencies, including domestic and interna-tional NGOs. While World Bank staff mayhave judged correctly that a structural adjust-ment loan was not the right vehicle for pro-moting such institutional change, they couldhave done a better job of signaling the broad-er scope of the long-term reform agenda.

Fourth, experience in Indonesia shows thatthe World Bank’s attention to governance

issues in the reform process itself, particu-larly transparency and stakeholder consulta-tion, is essential to empower domestic constituencies for reform. Over time, theWorld Bank has shown itself to be increas-ingly willing to exert pressure on the govern-ment to disclose information about thereform process and to engage stakeholders inmore meaningful participation.

Finally, the Indonesia case demonstratesthe limitations of the adjustment instrumentto promote change in the forest sector. In1995, the World Bank’s own assessment ofits experience with project lending in the for-est sector in Indonesia concluded that “theneed to deal comprehensively with institu-tional constraints is a major lesson whicharises from experience with this project”(World Bank, 1996, p. iv). Four years later, itis clear that institutional constraints continueto be the major obstacle to reform, despitethe significant political and economicchanges that have occurred in the interim.


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Agence France Presse. 1997. “Indonesian TimberBaron Denies Big Companies Are to Blame forFires.” Agence France Presse.

Baird, Mark. 1999a. “Letter No. M-051/ENV/VI/99to Dr. Ir. Mulimin Nasution, Minister for Forestryand Plantation.” The World Bank. June 18, 1999.http://www.worldbank.org/html/extdr/offrep/eap/cgi99/bairdstatement.htm

—1999b. “Indonesia: From Crisis to Opportunity.”Presentation at Consultative Group for Indonesia,Paris, July 27, 1999.

Barber, Charles Victor. 1998. “Forest ResourceScarcity & Social Conflict in Indonesia.”Environment Vol. 40, No. 4 (May 1998).

Barber, Charles Victor, and James Schweithelm.2000. Trial by Fire: Forest Fires and Forestry Policyin Indonesia’s Era of Crisis and Reform.Washington D.C.: World Resources Institute.

Barclay et al. 1998. “Joint-NGO Request to the IMFfor Immediate Intervention.” Jakarta, February26, 1998.

Barr, Christopher M. 1998. “Bob Hasan, the Rise ofApkindo, and the Shifting Dynamics of Control inIndonesia’s Timber Sector.” Indonesia No.65(April 1998). Cornell University Southeast AsiaProgram.

—1999. “Banking on Sustainability: A CriticalAssessment of the World Bank’s StructuralAdjustment Reforms in Indonesia’s TimberSector.” Draft manuscript prepared for WorldWildlife Fund and CIFOR, September 1999.

Brauchli, Marcus W. 1998. “World Bank Is Hurt by

its Failure to Anticipate the Indonesia Crisis.”Wall Street Journal, July 14, 1998.

Bresnan, John. 1999. “The United States and theIndonesian Financial Crisis.” Edited by A.Schwartz and J. Paris, The Politics of Post-SuhartoIndonesia. New York: Council of Foreign Relations.

Brown, David W. 1999a. “Report Card on SelectedPolicy Reforms in Indonesia.” Jakarta:Indonesia-UK Tropical Forestry ManagementProgramme. Unpublished.

—1999b. Addicted to Rent: Corporate and SpatialDistribution of Forest Resources in Indonesia,Implications for Policy in the Reformasi Era. Jakarta:Indonesia-UK Tropical Forest ManagementProgramme.

Consultative Group on Indonesian Forestry, andMinistry of Forestry and Estate Crops. 1998.Report of CGIF Meeting 15th Round: Draft BasicForestry Law. Jakarta: Consultative Group onIndonesian Forestry and Ministry of Forestry andEstate Crops.

Dieterle, Gerhard. 1998. “Summary Report on anInformal Meeting on Structural Reform inIndonesian Forestry.” Jakarta: Consultative Groupon Indonesian Forestry.

Douglas, Jim. 1998a. “Sector Adjustment for Forestsin Indonesia: Issues.” Paper read at ConsultativeGroup on Indonesian Forestry/Forum KonsultasiKehutanan, October 30, 1998, at Indonesia.

—1998b. “World Bank Involvement in SectorAdjustment for Forests in Indonesia: The Issues:World Bank.” Paper distributed at PertemuanInformal Grup Knoservasi, October 30, 1998.

R E F E R E N C E S


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Environmental Investigation Agency and TelapakIndonesia. 1999. The Final Cut: Illegal Logging in Indonesia’s Orangutan Parks. Washington, D.C.:EIA US.

Forum Komunikasi Kehutanan Masyarakat. 1998.Zaman Baru Kehutanan Indonesia. Yogyarkarta:Forum Komunikasi Kehutanan Masyarakat.

Fox, Geoffrey. 1998. “Attachment 2 of Letter toIndonesian Minister of Public Works andMinister of Forestry & Plantation on WaterResources and Forestry Sector Policy Reform:World Bank.” Washington D.C: The World Bank.September 8, 1998.

Fraser, Alastair I. 1998a. “Indonesia Forestry Sector:Impact of the Economic Crisis and IMF ProposedMeasures.” Status Report: 16th March, Jakarta:Department for International Development.

—1998b. “Indonesia Forestry Sector: Impact of theEconomic Crisis and IMF Proposed Measures.”Status Report: 30th April, Jakarta: Department forInternational Development.

—1998c. “Indonesia Forestry Sector: Impact of theEconomic Crisis and IMF Proposed Measures.”Status Report: 31st May, Jakarta: Department forInternational Development.

Fried, Stephanie, and Bruce Rich. 1998. “Letterfrom 55 NGOs from 19 Countries to IMFManaging Director and World Bank President.”April 16, 1998.

Government of Indonesia. 1998a. “Indonesia –Memorandum of Economic and FinancialPolicies.” In Second Letter of Intent. Jakarta:Government of Indonesia.

—1998b. “Statement of Development Policy.”Jakarta: Government of Indonesia.

International Campaign for Ecological Justice inIndonesia. 1998. “Debt, Poverty and the IMF.”Down to Earth No.38 (August 1998): 5.

International Monetary Fund. 1997. IMF ApprovesStand-By Credit for Indonesia (Press Release No.97/50, November 11, 1997, http://www.imf.org/external/np\sec\pr\1997\PR9750.HTM.

International NGO Forum on IndonesianDevelopment (INFID). 1998a. “INFID Statementon the Economic and Political Crisis inIndonesia.” Jakarta and The Hague: INFID.

—1998b. “11th INFID Conference Statement onEconomic Reform and Corruption.” Bonn: INFID.

Kapur, Devesh, John P. Lewis, and Richard Webb.1997. The World Bank: Its First Half Century. 2 vols. Vol. I. Washington D.C.: BrookingsInstitution Press.

Kartodihardjo, Hariadi. 1999. Belenggu IMF & WorldBank: Hambatan Struktural PembarharuanKebijakan Pembangunan Kenhutanan di Indonesia.Jakarta: Lembaga Alam Tropika Indonesia(LATIN).

Milverton, Damian. 1998. “World Bank SuspendsTwo Loans to Indonesia.” Dow Jones News,December 21, 1998.

Peluso, Nancy Lee. 1992. Rich Forests, Poor People:Resource Control and Resistance in Java. Berkeley:University of California Press.

Plume, Catherine. 1999. “Trip Report to ForestWatch Indonesia.” Washington D.C.: WorldResources Institute. Mimeo.

Ramli, Rizal, and Mubariq Ahmad. 1993. RenteEkonomi Pengusahan Hutan Indonesia. Jakarta,Indonesia: Wahana Lingkungan Hidup Indonesia(WALHI).

Schwartz, Adam. 1994. A Nation in Waiting:Indonesia in the 1990s. St. Leonards: Allen &Unwin Pty Ltd.

Schwartz, A. and Paris, J., eds. 1999. The Politics ofPost-Suharto Indonesia. New York: Council ofForeign Relations.

Simpson, Glenn R., and Michael M. Phillips. 1998.“World Bank Sounds Alarm on Corruption inIndonesia.” Wall Street Journal.

Solomon, Jay. 1998. “Habibie’s Plan for Asset SalesWorries IMF.” Asian Wall Street Journal, October27, 1998, 1 and 14.

Sunderlin, William D. 1999. “The Effects ofEconomic Crisis and Political Change onIndonesia’s Forest Sector, 1997–99.” Bogor:Center for International Forestry Research(CIFOR).

Thoenes, Sander. 1998. “Indonesian Wood CartelResists IMF Reforms.”Financial Times, February13, 1998.


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Tjatur, Agus, and Yulia. 1999. “Reformasi SetengahHati.” Indikator, No. 12. Tahun 1, January 28 –February 3, 1999.

Torchia, Christopher. 1998. “World Bank PresidentDraws Criticism at Forum of CommunityLeaders.” Associated Press. February 4, 1998.

Wolfensohn, James D. 1998. “Letter to ZoemrotinK. Soesilo and Asmara Nababan of theInternational NGO Forum on IndonesianDevelopment.” Washington D.C.: The WorldBank. February 24, 1998.

World Bank, The. 1995. “Draft Forestry Report: TheEconomics of Long Term Management ofIndonesia’s Natural Forests.” Washington D.C.:The World Bank.

—1996. “Implementation Completion Report:Indonesia - Second Forestry Institutions andConservation Project.” Report No. 15294,Washington D.C.: The World Bank.

—1999a. “Indonesia: Country Assistance Note.”Washington D.C.: The World Bank.

—1999b. “Indonesia: Country Assistance Strategy -Progress Report.” Report No. 18963, WashingtonD.C.: The World Bank.

—1999c. “Draft Report and Recommendation of thePresident of the International Bank forReconstruction and Development to the ExecutiveDirectors on a Proposed Policy Reform SupportLoan II in the Amount of US$500 Million to theRepublic of Indonesia.” Washington D.C.: TheWorld Bank.


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1. This chapter draws on “Toward anEnvironmental Adjustment: Structural Barriersto Forestry Development in Indonesia” byHariadi Kartodihardjo, which is available athttp://www.wri.org/wri/governance/iffeforest.html or published in Indonesia as Belenggu IMF &World Bank: Hambatan Struktural PembaharauanKebijakan Pembangunan Kehutanan di Indonesia(Kartodihardjo 1999), as well as interviews con-ducted by the authors in Jakarta andWashington, D.C., on a not-for-attribution basis.

Both authors were participants in some of theevents described in this chapter. FrancesSeymour serves on the Non-Indonesian SteeringCommittee of the International NGO Forum onIndonesian Development, and helped facilitatemeetings in Washington between Indonesianactivists and officials of the World Bank and theIMF. Hariadi Kartodihardjo was appointed tothe Forestry and Estate Crops DevelopmentReformation Committee in June 1998 andserved until mid-1999.

2. In 1986, advocacy groups from Indonesia anddonor countries formed a network parallel to theofficial donor consortium to promote an alterna-tive vision for Indonesian development. Theorganization is now known as the InternationalNGO Forum on Indonesian Development(INFID).

3. While senior Bank officials had periodicallyraised the corruption issue with PresidentSuharto (Kapur, Lewis, and Webb, 1997), publicacknowledgment of the issue had remainedtaboo.

4. For a good summary of the political economy offorests in Indonesia, see Barber (1998).

5. In September 1997, timber magnateMohammad “Bob” Hasan was quoted as sayingnot only that the fires were caused by smallfarmers, but that activists who said otherwisewere associated with Communists (AgenceFrance Presse, 1997).

6. Personal communication with World Bank official, April 1999.

7. For an excellent summary of Bob Hasan’s back-ground, political ties, and commercial empire,see Barr (1998).

8. According to participants, an initial solicitationof two pages of text on environmental issueswas followed by requests for condensation to apage, a paragraph, and finally a single point.(Not-for-attribution interviews with World Bankofficials, November 1998.)

9. Personal communication, November 1999.

10. For an excellent, play-by-play analysis of theevents in Indonesia from October 1997 toMarch 1998, and the response of the interna-tional community, see Bresnan (1999).

11. Not-for-attribution interview with World Bankofficial, November 1998.

12. Not-for-attribution interview with World Bankofficial, November 1998. This judgment waslater captured in a footnote to the Bank’s presentation to the board regarding a second

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adjustment loan to Indonesia: “Forestry is notonly strategically important to the economy dueto the enormous value of natural resourcesinvolved, but forest management has been char-acterized by nepotism and private appropriationof resource rents. Hence, reforming forest policy not only improves efficiency but demon-strates a commitment to improved governance”(The World Bank, 1999c).


14. Nevertheless, the inclusion of other, nonforestconditions in the reform package—related toimplementation of a new environmental law andattention to air quality issues—is evidence thatstaff worked to include environmental elementson their own terms.

15. The PRSL II was also supplemented by a paral-lel Social Safety Net Adjustment Loan in mid-1999.

16. Not-for-attribution interview with World Bankofficial, June 1999.

17. Not-for-attribution interview with bilateral project advisor, November 1998.

18. Various not-for-attribution interviews withWorld Bank officials and Indonesian govern-ment officials, November 1998.

19. Not-for-attribution interview with Indonesiangovernment official, October 1998.


21. Not-for-attribution interviews with Indonesiangovernment officials and bilateral project advi-sors, November 1998.

22. A series of status reports on “Indonesia ForestrySector: Impact of the Economic Crisis and IMFProposed Measures” produced by the leader of aU.K.-funded project provides a useful chronol-ogy and analysis (Fraser, 1998a,b,c).


24. The DFID status report dated May 31 states, “Amajor cause of concern over these matters isthat decisions will be rushed, without properthought and analysis, which may result in a lessthan optimal outcome” (Fraser 1998c).

25. Not-for-attribution interviews with World Bankofficial and Indonesian government officials,October 1998.

26. Not-for-attribution interview with Indonesiangovernment official, November 1998.

27. Legislation on decentralization passed inSeptember 1999, stipulates that 40 percent ofReforestation Fund proceeds will be returned tothe regions as a special budget allocation notspecifically tied to reforestation (MubariqAhmad, personal communication).


29. Not-for-attribution interviews with bilateral pro-ject advisor, November 1998.


31. Not-for-attribution interview with bilateral pro-ject advisor November 1999.

32. Not-for-attribution interview with NGO staff,November 1998.

33. Not-for-attribution interview with Indonesiangovernment officials, October 1998.


35. By June 1999, the inadequacy of the draft lawhad become the target of protests by students,NGOs, professional associations, and the formerministers of environment and forestry.

36. Not-for-attribution interview with bilateral pro-ject advisor, November 1998.

37. Not-for-attribution interview with bilateral pro-ject advisor, November 1998.

38. Not-for-attribution interview with World Bankofficial, September 1999.


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39. In addition to other timber industry leaders,participants in the meeting included senior offi-cials from World Resources Institute, WorldWide Fund for Nature, ConservationInternational, and International Union forConservation of Nature and Natural Resources.


41. Not-for-attribution interview with World Bankofficial, January 1999.

42. Not-for-attribution interview with bilateral project advisors, November 1999.

43. The report goes on to caution that “[o]bserversshould think twice before throwing stones at theBank, at least where its forestry agenda inIndonesia is concerned” (Brown, 1999b, p. 74).

44. Not-for-attribution interview with World Bankofficial, September 1999.

45. In subsequent correspondence, Wolfensohnstated that “the political reforms of theIndonesian system that your letter mentions

must be the responsibility of the Indonesianpeople. International agencies such as theWorld Bank cannot do that” (Wolfensohn, 1998).

46. For example, a newsletter reported that, “Therehas been mounting criticism too of the econom-ic conditions set by the IMF because they servethe interests of the international financial com-munity rather than the needs of Indonesiaitself.” And, “The current IMF programme ispaving the way for greatly expanded foreigndomination of Indonesia’s economies”(International Campaign for Ecological Justicein Indonesia, 1998).

47. Not-for-attribution interview with staff ofIndonesian NGOs and international organiza-tions, October-November 1998.

48. Not-for-attribution interview with staff ofIndonesian NGOs and international organiza-tions, October-November 1998.



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B y the mid-1990s, the World Bank hadbeen providing assistance to Kenyafor improved natural resources man-

agement for more than two decades. Despitean impressive array of political pronounce-ments, environmental policies, and govern-ment agencies charged with environmentalstewardship, the Government of Kenya had

an equally impressive record of failing toimplement policies necessary to reverse envi-ronmental degradation. In early 1996, ahandful of World Bank officials began float-ing the idea of a structural adjustment opera-tion focused exclusively on environmentalpolicy reform. This chapter will examine theWorld Bank’s experience in promoting theidea of “environmental adjustment,” and willattempt to identify the reasons that an envi-ronmental adjustment operation never mate-rialized.1 The Kenya case illustrates how gov-

ernance issues arise in the context of envi-ronmental policy reform. It also provides aninteresting example of how adjustment lend-ing is related to project lending in the forestsector, and to another key World Bankinstrument, the Country Assistance Strategy.

BACKGROUND

Environmental Policy andImplementation in Kenya

In recent years, Kenya has experienced irre-versible environmental degradation thatundermines prospects for long-term eco-nomic growth and socio-political stability.Soil and water degradation threatens the sus-tainability of Kenya’s agriculture sector,which in the late 1990s has generated abouta third of the country’s Gross DomesticProduct (GDP), and employed more than 70percent of the population. Wildlife tourismprovides an important source of foreignexchange. While savannas are home to themore familiar wildlife species that attracttourists, forest ecosystems provide habitat fora large proportion of the country’s biologicaldiversity. Forests also furnish essentialwatershed functions for the entire nation, aswell as providing timber and fuelwood.Although constituting only a small percent-

K E N Y A

5

Frances J. Seymour John Mugabe

In recent years, Kenya has experienced irre-

versible environmental degradation that under-

mines prospects for long-term economic growth

and socio-political stability.


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age of Kenya’s land area, forests have beendepleted or lost at a rate of thousands ofhectares per year (Mugabe and Krhoda,1999).

While Kenya’s rapid rate of populationgrowth has contributed to environmentaldegradation, economic policies and politicalfactors have also played a significant part(Kahl, 1998). Government policies have oftenfailed to reflect the full economic value ofnatural resource exploitation. For example,World Bank staff estimate that Kenya hascaptured less than 10 percent of the value ofroundwood on-the-stump and collected lessthan 35 percent of the royalties due from log-ging of plantation-grown pine and cypress.2

Property rights regimes have also presentedperverse incentives. For example, by takingownership and user rights over wildlife awayfrom private landowners, the Wildlife Con-servation and Management Act removedincentives to conserve wildlife outside of pro-tected areas (Marekia, 1991).

For several decades, the Government ofKenya has recognized the need to institutemeasures to arrest environmental degrada-tion. For example, a policy paper publishedin 1965 made clear statements on naturalresources management and noted the impor-tance of integrating environmental concernsinto development planning (Republic ofKenya, 1965). The 1974–1978 DevelopmentPlan articulated the need to manage the envi-ronment for ecological, sociocultural and eco-nomic benefits, and recognized that the lackof appropriate institutional arrangementsand policies was limiting environmentalmanagement. The 1994–96 DevelopmentPlan stressed that “success in achievingsocial sustainability will largely depend onconserving and protecting the natural

resource base on which future developmentdepends” and explicitly called for integratingenvironmental considerations into the policy-making process (quoted in Mugabe andKrhoda, 1999, p. 5).

Kenya has numerous policies, laws, andagencies to address environmental problems.More than 70 different laws either directly orindirectly apply to natural resources manage-ment, and Kenya has signed and ratifiedmost of the major international environmen-tal agreements. The country has more than20 institutions and departments dealing withenvironmental matters: the Ministry ofEnvironmental Conservation, the Ministry ofNatural Resources, the National EnvironmentSecretariat, the Forest Department, theKenya Wildlife Service, the Kenya ForestResearch Institute, and the NationalMuseums of Kenya, among others. In addi-tion, Kenya is notable in the region for thenumerous NGOs engaged in environmentalactivities.

Despite this institutional infrastructure,Kenya has continued to experience naturalresource degradation and increasing environ-mental destruction. Generally, the Govern-ment of Kenya has not shown deliberateefforts to institute and implement new andadequate policies and legislation, partlybecause of the absence of a strong and con-sistent civil service constituency to push forreforms (Juma, Torori, and Mwangi, 1995).The inadequacy of government efforts hasalso stemmed from the lack of institutionalcapacity to implement and monitor environ-mental policies, laws and programs. Imple-menting agencies have lacked institutionallinkages, adequate infrastructure, humancapital, and sufficient legal authority andpolitical autonomy. The political will neces-


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sary to overcome short-term vested interests,which favor natural resource exploitation, inorder to promote long-term sustainabledevelopment has not been realized.

A particularly salient manifestation of thepolitical factors underlying natural resourcemanagement problems in Kenya has beenthe increasingly common phenomenon ofland grabbing, defined as “the irregular allo-cation of public lands to well-connected indi-viduals and companies” (Klopp, 1998). Muchrecent forest loss has resulted from govern-ment-approved, politically motivated, anddubiously legal excisions of forest land fromprotected areas and reserves and plantations.According to one analysis, land grabbing isthe result of an increased use of land forpolitical patronage in a context of increasedelectoral competition (Klopp, 1998). AKenyan government official remarked, “If an election were held every year, there wouldbe no forest left.”3

The World Bank andAdjustment Lending

Since independence, the World Bank hasplayed a significant role in Kenya’s develop-ment, through project lending, and morerecently, through structural adjustment.Kenya was the first country in Sub-SaharanAfrica to receive a structural adjustment loanfrom the World Bank in 1980 (O’Brien andRyan, 1999). The government adopted stabi-lization and structural adjustment programsfinanced by the World Bank and the IMFlargely to enable the country to respond toeconomic instability resulting from such fac-tors as the oil shock of 1973–74 (which gener-ated trade imbalances) and the government’sfiscal indiscipline. The structural reformsfocused on reducing deficit spending,

limiting public borrowing from the banking sector, rationalizing public expenditure,removing price controls, and improving theperformance of state corporations. Since1986, Kenya has received additional structur-al and sectoral adjustment loans that havetargeted the agriculture sector (liberalizationof marketing systems and removal of importbarriers), civil service reform or restructuring(with emphasis on rationalizing the opera-tions of several ministries), privatization ofselected public enterprises, and reform of the education and health sectors (withemphasis on the creation of cost-sharingarrangements).

The success of structural adjustment lend-ing to Kenya has been mixed. In a number ofsectors (e.g., privatization of public enterpris-es) some achievements have been madewhile in most areas reforms have not beenfully instituted. A study by Gurushri Swamy(1994) assessing the success of the firstadjustment program concludes that it wascharacterized by “a total lack of compliance,partly because of design and timing prob-lems, but also because the commitment tothe stated policy changes was limited to asmall coterie of top civil servants. Tradereforms were not carried out, and grain marketing was not liberalized.” Stabilization programs negotiated with the IMF were

Recent forest loss has resulted from government-

approved, politically motivated, and dubiously

legal excisions of forest land from protected

areas and reserves and plantations.


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successful in removing exchange rate restric-tions, and instituting tight fiscal policies inthe mid-1980s (O’Brien and Ryan, 1999).However, fiscal indiscipline continued, re-sulting in high domestic borrowing, highinterest rates, and inflation.

As described in a recent World Bankresearch report, Kenya’s 18-year engagementwith the international financial institutionsthrough adjustment lending has been charac-terized by a “stop-go pattern” that repeatsevery few years (O’Brien and Ryan, 1999).During a “go” phase, the donor communityprovides support for government commit-ments to reform. After a few years, whendonors have become dissatisfied with thegovernment’s failure to meet agreed condi-tions, a “stop” phase begins, resulting indelays in disbursements and a decline in newcommitments. A particularly notable “stop”phase occurred in 1991, when at a meeting ofKenya’s Consultative Group, the donorsdecided to suspend all adjustment lendingpending progress on corruption and gover-nance issues (O’Brien and Ryan, 1999).

The World Bank, Forestry, and Environment

While environment-specific considerationswere not part of the World Bank’s adjust-ment operations, attempts were made toaddress forestry and wildlife concerns in theagricultural sector reforms. However, lend-ing to such environmental domains aswildlife and forestry has largely been on aproject basis, some of which have beendesigned to stimulate certain policy reformsand strengthen natural resources manage-ment institutions. For example, World Bankintervention resulted in the transformationof the former Wildlife Conservation and

Management Department, a public body, intothe Kenya Wildlife Service, a government-owned corporation.

The World Bank has been involved in theKenyan forest sector through almost 30 yearsof project lending. The forest policy reformsemphasized by the World Bank have largelyfocused on promoting efficiency in industrialforestry, for example, through enlargingindustrial plantations and strengthening thecapacity of forestry institutions. The WorldBank has tended to promote institutionalreforms that would relocate the managementof industrial plantations from the ForestDepartment to the private domain. Its con-cern has been that the Forest Departmentlacks the ability to ensure efficient opera-tional and financial management of the plan-tations (World Bank, 1990). According toForest Department officials, the WorldBank’s approach to the forest sector wasinfluenced by the structural adjustment pro-grams underway at the time, and thusfocused on privatization of public enterprisesand reduced government expenditure(Mugabe and Krhoda, 1999). An additionalobjective of reform was to review and up-grade forest policies and legislation.

These concerns were integrated into thefourth Forestry Development Project, whichthe World Bank approved in 1991. Althoughthe original project documentation and nego-tiations included a variety of conditions relat-ed to institutional and policy reforms, thefailure of other donors to come through withpromised cofinancing for other project com-ponents led to a more narrow focus on plan-tation development and maintenance.According to World Bank assessments, pro-ject objectives were compromised by theneed for institutional and regulatory reforms


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for plantation management (in particular toallow the private sector and communitygroups a larger role), the need for enforce-ment of a clear policy on excisions of planta-tion lands, and the persistence of extremelylow royalty rates charged for plantation tim-ber (World Bank, 1998; Ganguly, 1998).

In addition to project-specific lending, theWorld Bank had also provided support fordeveloping a broader environmental policyframework for Kenya. In 1994, the Govern-ment of Kenya formally adopted the NationalEnvironmental Action Plan (NEAP), whichhad been prepared with World Bank support(Republic of Kenya, 1993). The NEAP pro-posed a number of recommendations to inte-grate environmental concerns into overall

economic development planning, including anew institutional structure and the formula-tion of national environmental legislation. Italso stressed the importance of improvingforest protection and management—objec-tives which the Forest Department furtherelaborated in a Forestry Master Plan in 1994.

By late 1995, frustrated by the Governmentof Kenya’s failure to follow through on envi-ronmental policy commitments, the WorldBank decided to elevate the environmentalpolicy dialogue above the sectoral level.4

In February 1996, the Government of Kenyaproduced a Policy Framework Paper (PFP)—the result of negotiations with the WorldBank and the IMF—which described a pro-gram of agreed economic reforms for1996–1998 (Government of Kenya, 1996). At the suggestion of the World Bank, theGovernment of Kenya published and madepublic the PFP, which until then was a confi-dential document. The PFP asserted the gov-ernment’s concern for the state of indige-nous forests and their biodiversity, and stated a commitment to implement theNEAP through a series of policy, institution-al, and legislative reforms. According to par-ticipants in the negotiations, World Bankstaff were responsible for the environmentalcontent of the PFP, which was incorporatedon a “no objection” basis by IMF officials.5

Box 5.1 provides a summary of the PFP’senvironment-related content.

THE PROPOSED“ENVIRONMENTALADJUSTMENT” LOAN

At the same time that the 1996–1998 PFPwas being formulated, the then RegionalDirector for East Africa and otherWashington-based World Bank staff began

B O X 5 . 1

• Present to parliament an environmental billfor enactment into law by September 1996;

• Present to parliament a Forestry Policy Paperby March 1996;

• Enact new forestry legislation by September1996;

• Begin implementation of the recommenda-tions of a Kenya Wildlife Service study on landuse policy by June 1996;

• Establish a national Land Use Commission byDecember 1997; and

• Present to parliament a revised wildlife bill forenactment into legislation by December 1996.

E N V I R O N M E N T - R E L A T E DC O M M I T M E N T SC O N T A I N E D I N T H E1 9 9 6 – 1 9 9 8 P O L I C YF R A M E W O R K P A P E R


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floating the idea of an environmental adjust-ment loan within the World Bank, withKenyan government officials, and with select-ed members of the international and KenyanNGO communities. The World Bank present-ed the adjustment loan, the first and so faronly one of its kind, as an instrument toleverage implementation of the environmen-tal policy reform commitments articulated inthe NEAP and the PFP. The adjustment operation would target reforms in such keysectors as forestry, wildlife, and land man-agement, and would address various fiscaland economic policies that generate incen-tives for environmental destruction.

In early 1996, coincident with the publica-tion of the PFP, World Bank officials metwith Kenya’s Ministry of Finance officials todiscuss the environmental adjustment idea.In that discussion, World Bank staff empha-sized the economic costs that Kenya wasincurring by not instituting reforms in theforest sector specifically and the environmen-tal area more generally.6 It was anticipatedthat the credit would generate proceeds toreduce fiscal constraints, reduce reliance ondomestic borrowing, and enable low-cost,long-term financing of identified governmentprojects. An estimated US$90 million wouldbe made available through this operation andwould contribute to the government’s effortsto address a budget deficit.

While the World Bank and the Ministry ofFinance did not identify specific reforms tobe targeted in the proposed operation in theirinitial discussions, they agreed upon a pro-cess to explore the feasibility and focus of anenvironmental adjustment program. Box 5.2provides a chronology of related events andstakeholder involvement.

The Taskforce

In November 1996, following several monthsof negotiations with the World Bank, theGovernment of Kenya established an envi-ronmental adjustment taskforce under theleadership of the Ministry of Environmentand Natural Resources (MENR) that includedrepresentatives of various ministries, NGOs,and the private sector. In light of the govern-ment’s usual reluctance to involve stakehold-ers in the development of policy options(O’Brien and Ryan, 1999, p.32), the WorldBank’s success in encouraging broader mem-bership on the taskforce is significant. Thetaskforce was mandated to accomplish thefollowing: (a) review the extent to which vari-ous policies, laws, and institutional reformsrecommended by the NEAP and the PFP hadbeen or were being implemented; (b) identifyand discuss specific environmental reformsthat would be included in PFP 1999–2001;and (c) identify, discuss, and develop specificenvironmental reforms that could be ad-dressed in the context of an environmentaladjustment credit.

The taskforce held six meetings and orga-nized one national workshop. World Bankstaff members attended taskforce meetingsas resource persons, while IMF staff did notparticipate in any of the deliberations of thetaskforce. A large part of these meetings wasspent on discussing general environmentalissues and identifying gaps in the implemen-tation of environmental reforms contained inthe PFP rather than on the specific reformopportunities presented by inclusion of envi-ronment-related conditionalities in a struc-tural adjustment operation. According to par-ticipating government officials, the work ofthe taskforce suffered from a lack of intellec-tual leadership from the MENR, as well as a


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B O X 5 . 2 C H R O N O L O G Y O F E V E N T S R E L A T E D T O E N V I R O N M E N T A LA D J U S T M E N T A N D S T A K E H O L D E R I N V O L V E M E N T I N K E N Y A

EVENTS AND STAKEHOLDER INVOLVEMENT

1993–1994 Preparation and adoption of NEAP, consultative process involving NGOsand the private sector. First funding from World Bank for a comprehensiveenvironmental process/program in Kenya.

1994–1995 Preparation of draft environmental policy and legislation, initiation of policy and legal reform in wildlife and forest sectors. World Bank,Government of Kenya, and wide NGO consultations on the reforms.

1995 Preparation of PFP by the Government of Kenya, World Bank, and IMF with no NGO or private sector involvement, but in early 1996 PFP became a public document.

Feb 1996 World Bank officials meet with Ministry of Finance to discuss an environ-mental adjustment (EA) operation.

Ministry officials receptive and agree on the need for a national task force on EA within the Ministry of Environment and Natural Resources (MENR).

May–Dec 1996 World Bank and MENR in discussions on EA taskforce modalities.

Nov 1996 ACTS and WWF host workshop on EA emphasizing the role of the NGOcommunity in the EA development and implementation.

Dec 1996 EA Taskforce established and first meeting held.

Feb 1997 EA workshop for Government of Kenya, World Bank, NGOs, and the private sector.

April–July 97 Two meetings of EA taskforce held; draft Terms of Reference for EA Credit Identification. Mission planned for August-September 1997 discussed.

July 1997 Government of Kenya - IMF negotiations collapse.

August 1997 EA Identification Mission cancelled; consultations on Country AssistanceStrategy (CAS) underway.

January 1998 World Bank terminates Fourth Forestry Development Project.

September 1998 CAS focused on governance presented to World Bank’s board.

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lack of clear and consistent guidance fromthe World Bank (Mugabe and Krhoda, 1999).

However, the Washington-based WorldBank task manager did prepare a draft con-cept paper on environmental adjustment thatwas discussed by the taskforce at its June1997 meeting. According to the document,an adjustment credit would support theefforts of the government to stabilize Kenya’slong-term growth prospects by implementingfiscal, institutional, policy, and legal reformswhich would ensure the sustainable use of itsnatural resources and to put in place regula-tory mechanisms which would limit futureenvironmental costs”(World Bank, n.d.).Specific reforms to be targeted by the adjust-ment operation, which would be measurableor easily identifiable, had been discussed bysome members of the taskforce and WorldBank officials. These included the following:

• Institutional and legal reforms—particu-larly those aimed at strengtheningnational institutions to enforce environ-mental standards, carry out environmen-tal impact assessment, and enforce environmental legislation. In addition,the adjustment operation would provideleverage for restructuring of the MENR,rationalize the operations of the ForestDepartment, and establish a more

effective institutional structure to man-age Kenya’s indigenous forests.

• Land reforms—particularly the establish-ment of an independent Land Com-mission to formulate new policy andprepare a national lands bill. SeveralWorld Bank officials were keen to useEA to leverage land reforms through thecommission process. The beginningpoint would have been PFP 1996–98 inwhich the Government of Kenya com-mitted itself to establishing the commis-sion.

• Economic and fiscal reforms to increaseincentives for environmentally soundland use practices, and to increase theuse of clean technologies by industry.

Thus, in addition to more traditional effi-ciency-oriented reforms typical of adjustmentprograms, the proposed environmentaladjustment package was envisioned toencompass a significant institutional reformcomponent, as well as engagement of theland issue, one of the most politically sensi-tive in Kenyan politics.7 Proponents of thereform agenda inside and outside the WorldBank were concerned about how the adjust-ment instrument could be adapted to lever-age meaningful progress toward such long-term, institutionally complex goals. At thetime of the June taskforce meeting, it wasexpected that a World Bank IdentificationMission scheduled for August 25 toSeptember 12, 1997, would explore thoseissues in more detail.

Government Ownership

World Bank staff report that Ministry ofFinance officials were quite receptive to the

The proposed environmental adjustment pack-

age was envisioned to encompass a significant

institutional reform component, as well as

engagement of the land issue, one of the most

politically sensitive in Kenyan politics.


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idea of an environmental adjustment opera-tion when it was first mooted in early 1996.8

Indeed, Ministry of Finance officials report-edly themselves suggested to World Bankstaff that such a vehicle could be used toaddress the difficult issues of land and waterrights. Despite this well-placed constituencyfor environmental reforms in the ministryusually responsible for dealing with theWorld Bank on adjustment issues, govern-ment officials decided that an environment-oriented initiative must be led by the respon-sible line agency, and assigned leadership ofthe EA task force to the Ministry of Envi-ronment and Natural Resources.

At first, World Bank staff thought thatMENR leadership could be workable, believ-ing that there was a sufficiently broad-basedgovernment commitment to implementingthe PFP reforms.9 However, having a task-force charged with designing an adjustmentoperation chaired by a line agency provedconfusing and contentious. Although theMENR would have the responsibility fordefining environmental adjustment, budgetcontrol and funds would remain in the handsof the Ministry of Finance. Some line agencyofficials suspected that the Ministry ofFinance was using the MENR to mobilizenon-environmental funds. This became aparticularly sensitive point as it became clearover the course of 1997 that the World Bankwas not willing to move forward with addi-tional phases of project lending to supportthe forest sector and NEAP activities in theabsence of significant institutional reforms.From interviews conducted for this study, itis clear that government officials did notunderstand the linkage between the WorldBank’s dissatisfaction with the pace ofreform in the forest sector and its promotionof an environmental adjustment loan.10

The uncertainty of the MENR with respectto its EA mandate was evidenced at the firsttaskforce meeting, at which the PermanentSecretary had difficulty in interpreting thetaskforce Terms of Reference. The Ministrywas also resistant to efforts at assessing theextent to which the Government of Kenyawas implementing environmental reforms inthe PFP.11 The taskforce prepared an assess-ment, which demonstrated that most of thereforms in PFP had not been implemented,meaning that the Government of Kenya haddefaulted on many of the commitments ithad made to the World Bank, the IMF, andthe Kenyan people.

In addition to the MENR, several othergovernment departments and ministries wereinvolved in the taskforce discussions: theMinistry of Lands and Settlement, the Officeof the President, the Ministry of Planningand National Development, the ForestDepartment, the Kenya Wildlife Service(KWS), the National Museums of Kenya, theMinistry of Water Resources, the NationalEnvironment Secretariat (NES), and theSecretariat of the NEAP, among others. Manyof these agencies were largely interested inenvironmental adjustment as a vehicle forfinancing environment-related projects, anddid not understand the distinction betweenproject-specific and structural adjustmentloans.12 Many representatives of the min-istries and departments did not fully under-stand that the purpose of an environmentaladjustment operation was to leverage struc-tural reforms. As a result, progressive ele-ments within the bureaucracy that mighthave supported the proposed reforms werenot mobilized as a constituency. Some Forest Department officials, who wanted toprevent forest excisions approved by othergovernment agencies, did not understand


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that the proposed reforms would havestrengthened the department’s legal autono-my and authority, and their ability to blocksuch forest conversions.

To the extent that they did understand theadjustment operation’s potential to leveragepolicy reform, it was evident that most lineministries did not want the adjustment tocover those reforms that would underminetheir own influence and tenure. Within theForest Department, a significant constituencywas opposed to reform, because it wouldhave removed rent-seeking opportunities.Similarly, officials from the Ministry ofLands and Settlement were opposed to pre-paring and adopting a new land policy andlegislation, which would likely relocate cer-tain authorities and responsibilities awayfrom the Ministry and its Commissioner of Lands.

Internal bureaucratic battles among envi-ronmental agencies also undermined govern-ment leadership of the environmental adjust-ment process. Some MENR officials wantedEA activities to be administered by NES,which served as the policy department of theMENR. Higher level officials, including thePermanent Secretary and his Deputy, wereassigning administrative functions associatedwith the EA taskforce to the NEAP Secre-tariat, which had better infrastructure andpolitical connections. At one taskforce meet-ing, the Deputy Permanent Secretary statedthat the MENR saw EnvironmentalAdjustment (EA) as a process that wouldenable the government to provide funds forthe NEAP’s implementation. Though theNEAP process was quickly losing credibilitywithin the World Bank’s circles, it stillenjoyed the government’s trust.

World Bank Ownership

Within the World Bank, the initial proponentof an environmental adjustment loan forKenya was the Washington-based RegionalDirector. Several members of the Kenyacountry team, including environment special-ists based in Washington and Nairobi, aswell as several officials in the World Bank’scentral Environment Department, were alsosupportive of the idea. Soon after discussionshad been initiated with the Government ofKenya, however, an internal reorganization atthe World Bank resulted in a country directorbeing assigned to Kenya (replacing the roleof the previous regional director), and thecountry director position was moved toNairobi. Other staffing changes included therelocation of one of the environment special-ists from Nairobi to Washington, turnover inthe Country Economist position, and theappointment of a new NGO liaison in theNairobi office.13

In February 1997, several Kenyan NGOrepresentatives met with the new WorldBank country director in Nairobi in anattempt to gain his support for the environ-mental adjustment process. According to par-ticipants in the meeting, the new directorexpressed skepticism about the proposedenvironmental adjustment operation. Heindicated that he did not believe that therewas adequate data and analysis to demon-strate to politicians the economic costs ofenvironmental degradation and the benefitsof reform, and challenged the NGOs to pro-vide such analysis. He did not see environ-mental issues as a priority for the Govern-ment of Kenya; the World Bank’s priorityagenda with the government was economicgovernance issues, especially corruption(Mugabe and Krhoda, 1999).


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Other World Bank staff members based inNairobi were similarly disinclined to investin supporting the environmental adjustmentprocess. Many were new and not in a posi-tion to effectively sell the idea. By mid-1997,Nairobi-based World Bank staff, in particularthe new NGO liaison, were investing heavilyin a participatory process to develop a newCountry Assistance Strategy, which was notintegrated with the ongoing environmentaladjustment discussions.14 Thus, only whenthe Washington-based task manager was inNairobi did the World Bank take a high profile in environmental adjustment-related discussions.

THE PROCESS STALLS

In July 1997, negotiations between theGovernment of Kenya and the IMF collapsed,resulting in the suspension of the EnhancedStructural Adjustment Facility (ESAF), whichhad provided the framework for the WorldBank’s environmental adjustment discus-sions. Without such a framework in place,there was no scope for World Bank adjust-ment lending of any kind. As a consequence,the environmental adjustment IdentificationMission scheduled to begin in late Augustwas canceled, never to be rescheduled.

The suspension of ESAF ended the envi-ronmental adjustment discussions, althoughthe process might not have moved forwardeven without such a disruption. By mid-1997,the taskforce had failed to generate a criticalmass of support for the idea. At the sametime, the prospects for government leader-ship emerging had diminished with theapproach of an election later that year.Taskforce participants remarked that seniorcivil servants at MENR were not prepared tomake any long-term commitments mainly

because of the uncertainty associated withtheir own positions in government. More-over, they faced difficulties in getting cabinetapproval for many policy matters as the min-isters were retreating to their political con-stituencies and focusing little attention ontheir ministerial responsibilities.

The question thus arises as to the wisdomof the World Bank’s initiating a dialogue onenvironmental adjustment in the first place,and subsequently disengaging after the ESAFcollapse in mid-1997. In interviews conduct-ed for this case study, various perspectivesemerged. In one view, given the govern-ment’s manifest lack of commitment toaddress issues of natural resource ownershipand access—as evidenced by its failure toimplement related reforms contained in thePFP—it was a mistake to pilot the environ-mental adjustment idea in Kenya.15 In anoth-er view, it was appropriate for the WorldBank to give the government an opportunityto demonstrate its credibility—and use itsleverage to invite other stakeholders into thedialogue—and equally appropriate for theWorld Bank to walk away from the processwhen no such credibility emerged.16 A thirdview is that the ESAF collapse precipitouslyended the environmental adjustment discus-sions prior to an Identification Mission—tooearly in the process to judge where those dis-cussions might have led.17

There is evidence to support each of theseperspectives, although the initial support forthe concept of environmental adjustmentfrom the Ministry of Finance and enthusi-asm from elements of the NGO communityimply that the World Bank’s initiation ofthese discussions was worth a try. However,events later in 1997 and early 1998 furthercalled into question the government’s and


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the World Bank’s ownership of the environ-mental policy reform agenda.

In the run-up to the elections, land grab-bing intensified, leading to the loss of some26,000 hectares of plantation forest.18 Inearly 1998, the World Bank finally closed itsFourth (and final) Forestry DevelopmentProject with an unexpended balance, after ithad become clear that the Forest Departmenthad no intention of implementing the insti-tutional reforms that had been agreed to inthe context of that project. Forest Departmentofficials were surprised by the World Bank’swillingness to disengage from the forest sector.

Yet there is no evidence that the WorldBank’s senior managers took the opportu-nity—at the close of almost three decades ofproject lending—to communicate to high-level Kenyan officials why the institution wasterminating lending in the sector. A yearlater, the World Bank’s voice was conspicu-ously absent when leaders of other interna-tional institutions spoke out against a blatantappropriation of public forest land in theKarura Forest in Nairobi and a related attackon peaceful demonstrators. Observers insideand outside the World Bank concluded thatWorld Bank senior managers were unwillingto risk the institution’s relationship with the Government of Kenya over forest andland issues.

Given the collapse of ESAF, another inter-esting question is how the World Bank pur-sued its environmental policy reform agendain Kenya in the absence of an adjustmentinstrument. As mentioned above, at the sametime the environmental adjustment discus-sions were terminated in mid-1997, theWorld Bank was embarking on an unusuallyparticipatory process to develop a new

Country Assistance Strategy (CAS). In July-August 1997, and again in December, theWorld Bank held consultations with a rangeof stakeholder groups (World Bank, 1998).Several NGO representatives who participat-ed in the CAS process tried to introduce spe-cific environmental issues, especially de-gazettement of forests and associated landgrabbing, in the context of broader gover-nance concerns, around which CAS discus-sions centered.

The resulting CAS, which was presented tothe World Bank’s board in September 1998,focused almost exclusively on poor gover-nance as “the central development challengein Kenya,” and did not elaborate strategies inany specific sectors (World Bank, 1998). Inparticular, the CAS does not mention envi-ronmental or natural resources issues, otherthan to rank environment as a low priorityfor the country and the World Bank, eventhough the World Bank’s curtailment of lend-ing in the forest sector earlier in the yearcould be seen as the leading edge of its newintolerance for corruption and lack ofprogress on reform (World Bank, 1998).

While EA discussions between the WorldBank and government officials made explicit

There is no evidence that the World Bank’s

senior managers took the opportunity—at the

close of almost three decades of project lend-

ing—to communicate to high-level Kenyan

officials why the institution was terminating

lending in the sector.


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the link between environmental problemsand poor governance—and indeed, accountedfor the EA’s proposed focus on institutionaland legal reforms related to the allocation ofland and other resources—the CAS did notmake the reciprocal linkage.19 In addition,the environment sector’s low priority in theCAS, especially in the context of an overallreduction in lending, translated into a lack ofsupport and incentives for World Bank staffto continue analysis and consultation relatedto environmental policy reform.


Nongovernmental Organizations

Domestic and international NGOs bothplayed roles in defining and promoting theconcept of environmental adjustment inKenya. According to World Bank officials,one of the reasons Kenya was chosen as thecountry in which to initiate environmentaladjustment discussions was that a relativelylarge and mature NGO community could beexpected to serve as a constituency for envi-ronmental policy reform. Indeed, a WorldBank official reported that he would not havepursued the environmental adjustment ideaif several Kenyan NGO leaders had not giventheir explicit encouragement.20

Early on, World Bank proponents of envi-ronmental adjustment floated the concept toNGOs, including the African Centre forTechnology Studies (ACTS) in Nairobi andthe World Wildlife Fund (WWF) inWashington. In 1996, these two organiza-tions facilitated an NGO dialogue amongorganizations in Nairobi and Washingtonparallel to the World Bank’s discussions withthe Government of Kenya, and monitored

World Bank-Government of Kenya discus-sions. The two organizations hosted a work-shop in Nairobi in November 1996, that wasattended by representatives of domestic andinternational NGOs.21 Following these dis-cussions, ACTS published a paper thatassessed the potential of environmentaladjustment from an NGO perspective(Mugabe et al., 1997).

The following month, the governmentinvited several NGOs to participate in the EAtaskforce. The inclusion of NGO representa-tives on the taskforce was at the recommen-dation and insistence of the World Bank. Intheir negotiations with the government,World Bank officials had called for an openand transparent process that would drawfrom civil society, consistent with the WorldBank’s new emphasis on working with NGOs and creating opportunities for theirparticipation in World Bank-supported policyprocesses.

Several factors constrained the effectiveparticipation of NGOs in the EA process.First, for many NGOs, the World Banklacked credibility as an agent of environmen-tal policy reform. Kenyan NGOs observedthat the World Bank had been engaged in along series of environmental policy process-es, in particular the NEAP, without ensuringfollow through on implementation. OneNGO representative maintained that theWorld Bank was not the best agency to pro-mote environmental adjustment in Kenyabecause of its contribution to environmentaldegradation in many parts of the world, inaddition to its poor record in promoting envi-ronmental reforms in Kenya. The adjustmentlabel was also problematic, because in Kenya,as elsewhere, NGOs associate the WorldBank’s structural adjustment programs with


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social hardship, erosion of institutionalcapacity, and infringement on national sover-eignty. Thus, while many NGOs agreed withthe stated objectives of the proposed environ-mental adjustment program, they were hesi-tant to openly support the World Bank. Inthe words of one NGO participant, the EAprocess and the associated taskforce were“perceived as too much of a ‘bank thing’ toreally get involved in.”22

Second, few of the NGOs were sufficientlyfluent in economic analysis, engaged withrelevant policy arenas, including the WorldBank, or broad-gauged enough to play strate-gic roles in shaping the proposed environ-mental adjustment operation. Similar to theircounterparts in government, many NGOsassumed that the adjustment operationwould finance government line agencies toundertake environmental projects. Few werefamiliar with the PFP, even after it became apublic document. Although the World Bankinformally circulated a study on the econom-ics of environmental degradation to a fewNGOs on the taskforce, the study was notavailable early enough in the process toempower their participation in taskforce dis-cussions with rigorous analysis. One NGOleader observed that partly because of fatigueat government inaction on environmentalpolicy, the NGO community did not ade-quately invest in exploring the potential ram-ifications of EA.23

The NGO community was also insuffi-ciently organized to exercise influence. Forthose NGOs who did see the potential foradjustment to address their policy reforminterests, they tended to focus on only onesubsector. The Kenya Forest Working Group(KFWG) mainly concentrated on how EAcould be used to get the government to stop

illegal degazettement of forests. Similarly,the Kenya Pastoralists’ Forum focused onland reforms and the reallocation of wildlifeuser rights to pastoralists. As a result,despite the World Bank’s efforts to includeNGOs in environmental adjustment-relateddiscussions, NGO participation did not trans-late into a constituency sufficiently strong toovercome the lack of government ownershipof the reform agenda.24

The Private Sector and Other Donors

The private sector’s involvement in discus-sions on environmental adjustment in Kenyawas limited. While the taskforce had a repre-sentative of the Kenya Association ofManufacturers (KAM), the representative’sparticipation was minimal. He saw EA as atool to help restructure the industrial forestmanagement regime, particularly by enlarg-ing the role of the private sector. The sector’smain interest was to ensure the privatizationof commercial plantations in order to reducecosts associated with government licensing,and to destroy the monopolies of a few politi-cally connected firms. However, these con-siderations were rarely debated in the task-force. Many MENR officials, particularly thethen Permanent Secretary and DeputyPermanent Secretary, considered such issuesto be outside the taskforce’s mandate, andargued that the issues were being handledwithin the context of World Bank forest sector project lending by a study on forestinstitutions.

Discussions of environmental adjustmentwere largely confined to the World Bank andthe Kenyan government, and the many bilat-eral and multilateral donors operating in thecountry were not brought into the process.One official from a bilateral donor agency


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remarked: “We had heard about the WorldBank discussing with Kenya some form ofstructural adjustment for the environment atour donors’ meeting briefly attended by onestaff from Washington and the PermanentSecretary of Environment. It was World Bankand Government of Kenya business. Ourinput was not sought.”25 According to WorldBank officials, it would have been prematureto start involving other donors prior to theWorld Bank and the government more fullydefining the proposed program.26 However,the effectiveness of a coordinated effortamong donors to suspend adjustment lend-ing pending governance reforms in 1991 sug-gests that having donor involvement in theenvironmental adjustment agenda mighthave been important if EA discussions withthe government had moved forward.

THE BOTTOM LINE

The failure of the World Bank and propo-nents of environmental policy reform inKenya to realize an environmental adjust-ment program stems from many factors.First and foremost was the lack of a criticalmass of support or a strong champion withinthe Kenyan government. While agreeing thatin retrospect, borrower ownership was clearlylacking, a World Bank staffer remarked thatwhen the process was initiated in 1996, “wewere all fooled” by the government’s statedcommitments to reform.27

It proved a strategic mistake to accept thegovernment’s decision to select line ministryofficials—who were used to relating to theWorld Bank in the context of project lend-ing—as leaders of the environmental adjust-ment taskforce, rather than cultivating leadership from Ministry of Finance officialswho understood the potential benefits of

reform to the Kenyan economy. Many gov-ernment officials who participated in task-force discussions did not understand the con-cept of environmental adjustment. Moreover,there was insufficient capacity within thegovernment to undertake its own analysis toguide discussions with the World Bank.Some line agency officials felt betrayed bythe World Bank’s unwillingness to continuesupporting the forest sector and the NEAPsecretariat, and therefore did not supportenvironmental adjustment. In an internalmemo in 1996, a World Bank forestry spe-cialist cited the proposed environmentaladjustment loan as “an ideal vehicle to re-start the dialogue on forest sector policy andinstitutional reform, in a context where theOffice of the President and other lead politi-cal agencies in Kenya can be directly engagedin the process” (Douglas, 1996). Becausesuch lead political agencies were not suffi-ciently involved in the process that tookplace, the potential of environmental adjust-ment to leverage forest policy reform inKenya was not adequately tested.

To a degree unusual in the context ofdesigning a structural adjustment operation,the World Bank did attempt to open up theprocess to NGOs and other nongovernmentstakeholders, by encouraging the governmentto publish the PFP and include NGOs on theenvironmental adjustment taskforce. How-ever, the low credibility of the World Bankand the adjustment instrument in the eyes ofNGOs, as well as the NGO community’s lackof sophistication and coordination, meantthat NGO participation did not translate intoa significant constituency for environmentaladjustment.

The lack of ownership by the World Bank,particularly in the Nairobi office, precluded


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the possibility of increased World Bankengagement leveraging more intense andhigher-level in-country support. It is difficult-to assess whether more active World Bankengagement of government officials, NGOs,the private sector, or other donors early onmight have made a difference in constitu-ency-building leading to more borrower own-ership. More widely-available analytical workmaking a compelling case for environmentalpolicy reform through structural adjustmentlending—including its efficiency, equity, andgovernance dimensions—would certainlyhave been helpful.

Another factor influencing World Bankand borrower ownership was unfortunatetiming. Within the World Bank, a reorganiza-tion moved supporters of environmentaladjustment out of key positions, while theelection cycle distracted senior Kenyan civilservants. Although initiated during one ofthe periodic “go” phases of the World Bank’srelationship to the Kenyan government, theonset of a “stop” phase began before theWorld Bank could undertake an Identi-fication Mission. In any event, the unexpect-ed collapse of ESAF in mid-1997 precluded the possibility of an adjustment operation of any kind.

Following the ESAF collapse, it wouldappear that the World Bank missed an oppor-tunity to continue to focus attention on need-ed environmental policy reforms in the con-text of the participatory Country AssistanceStrategy (CAS) process. In particular, theWorld Bank could have used the CAS processto highlight the relationships between poor

governance, land grabbing, and social andenvironmental impoverishment. The CAS’sultimate focus on governance issues was as,or more, appropriate for the forest sector asfor other sectors, especially in light of theWorld Bank’s decision to terminate lendingto the sector. Some observers interpreted theWorld Bank’s failure to raise forest andbroader land issues with government officialsat the highest levels as a lack of seriousnessabout both forestry and governance issues.

Finally, with the end of project lending inthe forest sector and a CAS conditioning fur-ther lending on governance reforms, WorldBank staff were not able to continue work onenvironmental governance issues in theabsence of sectoral projects or a prospectiveadjustment operation. This illuminates theinstitution’s difficulty in unbundling lendingfrom policy analysis and stakeholder engagement.

In sum, the World Bank’s attempt to initi-ate the first environmental adjustment loanfailed to result in a policy reform program inKenya because of a lack of World Bank andborrower ownership, unfortunate timing, andinsufficient linkage of forestry and govern-ance issues. However, the idea of utilizingadjustment lending to promote environmen-tal policy reform remains intriguing as avehicle for mainstreaming environmentalissues into what is currently the WorldBank’s most significant lending instrument.The Kenya experience, while not a success,has not discredited the concept of environ-mental adjustment, and the World Bank maypromote the idea elsewhere in East Africa.


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Bragdon, S. 1990. Kenya’s Legal and InstitutionalStructure for Environmental Protection and NaturalResources Management: An Analysis and Agenda forthe Future. Washington D.C.: EconomicDevelopment Institute, The World Bank.

Douglas, Jim. 1996. “Kenya: Forestry DevelopmentProject.” Washington D.C.: The World Bank.Internal World Bank Memo.

Ganguly, Sushma. 1996. “Letter to PermanentSecretary Ambuka Regarding Kenya ForestryDevelopment Project (CR.2198-KE), Mid-TermReview Mission.” Washington D.C.: The WorldBank.

Government of Kenya. 1996. “Economic Reformsfor 1996–1998: The Policy Framework Paper.”Nairobi: Government Printer.

Juma, C., Torori, C. and Mwangi, A. 1995.“Institutional Capacity for Natural ResourcesManagement in Kenya.” Report Submitted to theUnited States Agency for InternationalDevelopment (USAID). Washington D.C.: USAID.

Juma, C. and Ojwang, J.B. eds. 1996. In Land WeTrust: Environment, Private Property andConstitutional Change. Nairobi: African Centre forTechnology Studies Press.

Kahl, Colin H. 1998. “Population Growth,Environmental Degradation, and State-SponsoredViolence: The Case of Kenya, 1991–93.”International Security Vol. 23, No. 2 (Fall 1998):pp.80–119.

Klopp, Jacqueline M. 1998. “The Politics of LandGrabbing in Kenya.” Paper prepared for delivery

at the 1998 Annual Meeting of the AmericanPolitical Science Association, in Boston, MA.

Marekia, N. 1991. “Managing Wildlife in Kenya.” InGaining Ground, edited by A. Kiriro and C. Juma.Nairobi: African Centre for Technology StudiesPress.

Mugabe, J., Seymour, F. and Clark, N. 1997.Environmental Adjustment in Kenya: EmergingOpportunities and Challenges. Nairobi: AfricanCentre for Technology Studies Press.

Mugabe, John and George Krhoda. “The Politics ofPublic Policy Reform in Kenya: The Case ofEnvironmental Adjustment.” Nairobi, Kenya.Mimeo.

O’Brien, F.S. and T.C.I. Ryan. 1999. Aid and Reformin Africa: Kenya Case Study. Washington, D.C.:The World Bank. Available at: www.worldbank.org/research/aid/africa/papers.html

Republic of Kenya. 1965. “African Socialism and itsApplication to Planning in Kenya.” SessionalPaper No. 10 of 1965. Nairobi: GovernmentPrinter.

—1971. “National Report on the HumanEnvironment.” Nairobi: Government Printer.

—1993. “National Environment Action Plan(NEAP).” Report E0092. Nairobi: GovernmentPrinter.

Swamy, G. 1994. “Kenya: parchy, intermittent com-mitment.” In Adjustment in Africa: Lessons fromCountry Case Studies, edited by Husain, I. et al.Washington D.C.: The World Bank.

R E F E R E N C E S


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World Bank, The. 1990. Kenya: Forestry DevelopmentProject. Staff Appraisal Report No. 9005-KE.Washington, D.C.: The World Bank.

—1998. “Project Completion Report: FourthForestry Development Project.” Washington,D.C.: The World Bank.

—(no date.) “Draft Concept Paper on Kenya

Environmental Adjustment Credit.” Paper pre-pared by the World Bank and discussed by the EATaskforce at its meeting June 18, 1998.

—1998. “Kenya: Country Assistance Strategy:Improving Economic Governance for SustainableDevelopment.” Washington, D.C.: The World Bank.


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1. This chapter draws on “The Politics of PublicPolicy Reform in Kenya: The Case of Environ-mental Adjustment,” by John Mugabe andGeorge Krhoda, which is available at http://www.wri.org/wri/governance/iffeforest.html as wellas interviews conducted by the authors inNairobi and Washington, D.C. on a not-for-attri-bution basis. This chapter also draws on “CaseStudy #3: Environmental Adjustment in Kenya”by Frances J. Seymour and Karyn Fox, draftpaper circulated at WWF workshop on Main-streaming Biodiversity into Country and SectorDevelopment Strategies, September 1996.

Both authors were participants in some of theevents described in this chapter. John Mugabeserves as Director of ACTS and was a memberof the Inter-ministerial Taskforce onEnvironmental Reforms. As Director ofDevelopment Assistance Policy at WorldWildlife Fund, Frances J. Seymour participatedin meetings with World Bank officials and rep-resentatives of U.S. and Kenyan NGOs to dis-cuss the proposed environmental adjustmentoperation during 1996.

2. Personal communication with World Bank offi-cial, September 1999; and Ganguly (1998).

3. Not-for-attribution interview with Kenyan gov-ernment official, December 1998.

4. Not-for-attribution interview with World Bankofficials, March 1999.



7. One Kenyan government official in Nairobiremarked that the proposed Land Commission“impinges on every big boy in this town.” (Not-for-attribution interview with Kenyan govern-ment official, December 1998.)



10. Not-for-attribution interview with Governmentof Kenya officials, December 1999.

11. Some MENR officials claimed that it was tooearly to review the 1996–98 PFP and that thePresidential Economic Commission, which wasresponsible for overseeing implementation ofthe PFP, should provide consent to any processto review the PFP. However, after several infor-mal meetings between some NGO representa-tives and the then Permanent Secretary of theMENR, he became convinced of the potentialusefulness of the 1996–98 PFP review in thecontext of the environmental adjustmentprocess.

12. Not-for-attribution interviews with Governmentof Kenya officials, December 1998.

13. Not-for-attribution interviews with World Bankofficials, March 1999.

N O T E S


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14. Not-for-attribution interviews with World Bankofficial, December 1999.

15. Personal communication with Peter Veit,November 1999.


17. Personal communication with World Bank offi-cial, September 1999.


19. Jacqueline Klopp stresses the need for the donorcommunity “to censure all forms of corruption,including those that most immediately affect themajority of Kenyans.” (Klopp, 1998)


21. Participants included representatives from suchagencies as World Neighbors, East African

Wildlife Society, Kenya Forest Working Group,the Kenya Energy and EnvironmentOrganizations (KENGO), the African WildlifeFoundation, Greenbelt Movement, EarthCouncil, Kenya Pastoralists’ Forum, the WorldResources Institute, World Conservation Union(IUCN), and Action-Aid Kenya.

22. Personal communication with NGO activist,January 2000.



25. Not-for-attribution interview with bilateraldonor official, February 1999.




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T he cases in this report demonstratethat under the right conditions, theWorld Bank has been able to effect

key forest policy changes in the context ofadjustment lending, tipping the scales infavor of reformist elements and against vest-ed interests. Under the wrong conditions, the World Bank’s efforts have been met withfrustration for both the World Bank and theborrower, and a stalemate in the reformagenda.

In Papua New Guinea, progressive forcesin the government bureaucracy and theirallies in the World Bank were successful inusing adjustment lending to consolidate poli-cies that reined in rampant logging, and forseveral years prevented attempts by vestedinterests to roll back those reforms. Expe-rience in the Philippines provides anotherexample of the use of adjustment lending byreformist elements to shift domestic politicstoward forest policy reform.(See Box 1.3). InIndonesia, the World Bank and the IMF tookadvantage of the 1997 financial crisis toshine a spotlight on governance issues in theforest sector and to force the dismantling offorest product monopolies.

Those examples of limited success are alsocounterbalanced by significant failures and

omissions. In Indonesia and Cameroon, theWorld Bank has so far been unable to trans-form government commitments into mean-ingful change in concession allocation andmanagement systems. None of the cases provide evidence of the effective promotionof reforms focused primarily on equity orenvironmental objectives. In Kenya, an

attempt to promote a more broadly conceivedenvironmental adjustment program nevereven reached the point of an identificationmission, much less a lending operation.Experience in the Solomon Islands in theearly 1990s provides further evidence of thelimits of the World Bank’s leverage over forest policy in the context of structuraladjustment. (See Box 2.1.)

C O N C L U S I O N

6

Under the right conditions, the World Bank

has been able to effect key forest policy changes

in the context of adjustment lending, tipping

the scales in favor of reformist elements and

against vested interests.


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The case studies thus raise a number ofquestions regarding where, when, and howthe World Bank should attempt to promoteforest policy reform through adjustmentlending. Under what conditions is condition-ality effective? How important is ownershipby the borrower and the World Bank? Whatcan the World Bank do to build and sustaincoalitions for change? The remainder of thischapter will summarize the insights on theseunder-what-conditions questions provided bythe case studies, and their implications forthe World Bank.

TWISTING ARMS ANDTIPPING SCALES

The recent literature on adjustment lendingstresses the dominance of domestic politicalfactors in determining policy outcomes inborrower countries. Quantitative studies offactors influencing the success or failure ofadjustment programs have concluded thatvariables under the control of external actors,including the level of effort expended by theWorld Bank, are not significant (World Bank,1998). Similarly, a previous study of WorldBank conditionality and forest policy reformconcluded that as long as the balance ofdomestic political forces favored logginginterests, there was nothing the World Bankcould do to stimulate reform (Ross, 1996).

Indeed, the poor record of the WorldBank’s “arm twisting” style of attempting toleverage policy reform through conditionalityis leading to a new conventional wisdombased on the principle of selectivity. Accord-ing to this school of thought, captured in theWorld Bank’s Assessing Aid, since donors can-not “buy” commitment to reform throughpolicy-based lending, such lending should betargeted only at those governments already

demonstrably committed to the “right” policyframeworks (World Bank, 1998). This pre-scription rests on five conclusions: that thereis one readily discernible right policy frame-work and that the World Bank knows what itis; that conditionality cannot be effectivewithout borrower ownership; that it isstraightforward to distinguish betweenclients that do and do not have the necessarycommitment; that the World Bank’s ownownership of the reform agenda is not a sig-nificant variable; and that the World Bankcannot generate borrower ownership where itis lacking.

The case study experience described in thisreport challenges each of these conclusions.The remainder of this section summarizesthe nuances added by the case studies to current thinking about conditionality, WorldBank ownership, and borrower ownership.The following section will also discuss theprocess of determining the right policyframework and building coalitions forchange.

Conditionality and Policy Change

In Papua New Guinea, the World Bank’s will-ingness to hold the line on the concessionallocation system forced a new governmentbacked by logging interests to reluctantlyback down from letting those interestsreassert control over the forest sector. In thiscase, World Bank staff worked closely withreformist elements inside the government todesign appropriate conditionality. Eventhough the policy regime proved fragile overthe long term, the World Bank’s exercise ofconditionality bought time against whatwould have been the irreversible impacts of amajor unleashing of uncontrolled loggingactivity. The Suriname case, described in Box


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1.2, also highlights the importance of sus-tained international intervention to buy timefor domestic reform.

Can forest policy conditionality be effectivewithout such borrower ownership? InIndonesia, the World Bank in cooperationwith the IMF employed conditionality at astrategic moment to stimulate key changes inforest policy, even when the borrower’s com-mitment to those reforms was far from cer-tain. The inclusion of forestry issues inIndonesia’s January 1998, bail-out packagerocketed those issues to the first tier of goodgovernance challenges on the national agen-da, something that previous World Bank pro-jects and a year of unprecedented forest fireshad failed to do. After some foot-dragging,agreed reforms resulted in non-trivial powershifts within and among the timber industryand related government agencies.

Why might conditionality be more effectivein the context of adjustment lending, whenconditions attached to forest projects haveconsistently proven ineffective? The casestudies suggest two reasons. First, the mereinclusion of forest-related conditions in anadjustment loan raises the conditions’ profilefrom dialogue with sectoral agencies to anational priority on the agenda of more pow-erful ministries of finance and planning. InIndonesia, increases in stumpage fees pro-

moted under forest sector projects were onlyachieved after being included in the WorldBank’s policy dialogue with the Ministries of Finance and Planning. In the Philippines,the SECAL had the effect of raising forestryissues above the level of the Department ofEnvironment and Natural Resources. (See Box 1.3.)

Second, at the sectoral level, World Bankproject loans face competition from bilateralprojects funded by grants. In Indonesia, theexplicit reason for discontinuing cooperationwith the World Bank in the forest sector in1995 was the availability of less costlyfinance for project activities. In adjustmentlending, however, the World Bank has nocompetitors,1 so the price paid by borrowergovernments for rejecting conditions is higher.2 It is significant that the govern-ments of Papua New Guinea, Cameroon, andIndonesia were all experiencing economiccrises at the time that they agreed to theWorld Bank’s forest-related conditions fornew lending.

Conditionality and Implementation

In Kenya, the World Bank was driven to pro-pose an environmental adjustment operationprecisely because the government had consis-tently failed to follow environmental policyreform commitments with implementation.However, the case study experience demon-strates that adjustment conditionality is notan effective instrument for leveraging policychanges that depend on reform of the institu-tions responsible for implementing thosechanges. While the World Bank’s principalinterlocutors in structural adjustment lend-ing—ministries of finance and planning—areoften able and willing to implement policychanges in tax rates and other reforms

The mere inclusion of forest-related conditions

in an adjustment loan raises the conditions’

profile from dialogue with sectoral agencies to

a national priority.


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amenable to the stroke of a pen, ministries offorestry are much less amenable to reform-ing themselves.

This finding is quite significant, since inevery case study country, the World Bank sin-gled out the lack of institutional capacity asthe principal impediment to long-term, sus-tainable forest management. In Indonesia,follow-through on commitments to implementauctions and performance bonds was under-mined by the lack of a system to measureand monitor performance, as well as by thelack of political will within the relevant ministry. In Cameroon, World Bank staffintentionally designed new regulatory andfiscal regimes for the forest sector so as torequire the least capacity on the part of thegovernment, in particular, removing opportu-nities to exercise discretion and, therefore, corruption.

Adjustment lending is poorly suited to sup-porting implementation and institutionalreform because of its short timeframe, limit-ed to the disbursement period of one to twoyears. In Indonesia, Papua New Guinea, andCameroon, the World Bank envisioned fol-lowing up on policy changes leveragedthrough adjustment lending with sectoralloans (Indonesia) or specific projects (PapuaNew Guinea and Cameroon) designed in part

to address institutional capacity issues.Experience in those countries demonstratedthat project lending to improve forest man-agement undertaken prior to the kinds ofreforms promoted through adjustment lend-ing was ineffective. There is not yet a recordof experience to judge whether or not a reversal of the sequence will enjoy greatersuccess.

Design of Conditionality

The case study experience illuminates a livelydebate about the kinds of conditions that aremost effective in promoting reform. In bothCameroon and Indonesia, the governmentwas able to evade the spirit of the WorldBank’s conditionality while complying withits letter. According to some officials in bor-rower governments, forest policy conditionsshould focus more on desired outcomes thanon specific measures. Even reformist officialssometimes resent the World Bank’s micro-management, and several interviewed for thisstudy expressed a preference for beingempowered to achieve an objective withouthaving their hands tied to specific means. Atthe same time, World Bank officials with significant experience in adjustment lendingexpressed strong skepticism that such anapproach would be effective.3

In Indonesia, academics and activists inter-ested in forest policy reform felt that animportant function of World Bank-imposedconditionality would be to require trans-parency and public participation in thereform process itself, to open up forest poli-cymaking. By insisting on publication ofdraft regulations and legislation and consul-tation with domestic stakeholders, the WorldBank was able to increase its perceived legitimacy and credibility in the eyes of key

In every case study country, the World Bank

singled out the lack of institutional capacity

as the principal impediment to long-term,

sustainable forest management.


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constituencies for change outside of govern-ment. Similarly, observers of recent develop-ments in Cameroon and Cambodia stress thesignificance of independent forest monitorsrequired by World Bank conditionality.

The proper sequencing of reforms is also acritical challenge in the design of condition-ality. The 1998 Indonesia reform packagewas criticized for mandating reform of theconcession management system without dueattention to the necessary preconditions thatwould have to be in place for such reform tobe effective. First among these was the needfor baseline information on the extent andquality of forest resources, criteria and indi-cators for improved forest management, andan effective system for evaluating concessionperformance. Similarly, some observers claimthat World Bank-supported community forestprovisions in the Cameroon reform processhave actually made things worse by failing toanticipate the ability of unaccountable localelites to capture the benefits, which shouldhave been predictable based on experiencewith land reform efforts in the 1970s. In suchcases, the credibility of World Bank reformefforts may be jeopardized if imposed condi-tions are prima facie infeasible to implement.

World Bank Ownership

With all the attention given to the necessityof borrower ownership of reform in adjust-ment lending, there is a danger of slightingthe importance of World Bank ownership ofthe reform agenda. The case studies suggesta strong relationship between the strength ofthe World Bank’s commitment to forest policy reform and the likelihood of success inthe context of adjustment lending. The linkbetween forest policy reform and the broaderadjustment agenda can cut either way: the

full weight of the World Bank’s leverage canbe brought to bear on forest-related issues, orthe forest agenda can be sacrificed to pre-serve the World Bank’s relationship with theborrower.

In the Papua New Guinea case, a persis-tent World Bank country team outraged bythe government’s bad faith was backed up byan unusually strong country director able tomediate between forestry specialists andmacroeconomists within the World Bank.This group overrode World Bank culture and

contradictory signals from the vice presiden-tial level to hold the line on forest condition-ality by suspending disbursement of theadjustment loan. In Indonesia, the WorldBank’s commitment to forest policy reformwas apparently supported all the way up thechain of command, such that the govern-ment’s failure to comply with forest-relatedconditions was the last sticking point in atranche release delay in late 1998.

By contrast, the Cameroon and Kenya sto-ries illustrate the costs of inconsistent sup-port and commitment within the WorldBank. In the Cameroon case, the technicalstaff responsible for forest policy feltbetrayed when more senior managers, who

The case studies suggest a strong relationship

between the strength of the World Bank’s

commitment to forest policy reform and the

likelihood of success in the context of adjust-

ment lending.


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were not willing to disrupt the broader relationship with the borrower, ignored thegovernment’s allocation of concession to lowbidders in 1997 in contravention of WorldBank-sponsored reforms. In Kenya, aWashington-based task manager’s effortsproved insufficient to focus the government’sattention on the opportunity for environmen-tal adjustment without stronger support fromthe country director, other staff at the resi-dent mission in Nairobi, or more seniormanagement.

Attention to environmental and naturalresources management issues is rare in thecontext of adjustment lending. According tointerviews conducted for this study, constel-lations of World Bank staff sufficiently com-mitted to that portion of the reform agendato buck existing incentive systems are rarerstill. Thus, attaining a sufficient degree ofWorld Bank ownership of forest policy reformmay be among the more difficult conditionsto get right.

Borrower Ownership

The adjustment literature’s treatment of bor-rower ownership suffers from the assump-tion that the borrower is a unitary actor. Thecase studies expose the oversimplificationthat results from just dividing borrowers intotwo groups, those with or without ownership.Even where there are strong individual cham-pions for reform, such as the head of theDENR in the Philippines (see Box 1.3), or re-formist elements in government, as was thecase in Papua New Guinea, they must wage apolitical struggle against those with vestedinterests in maintaining the status quo. InIndonesia, the Ministry of Forestry was delib-erately excluded from early discussions of thereform agenda, under the correct assumption

that these bureaucrats would be among thosemost resistant to reform. In these cases,reformers enjoyed at least partial success inleveraging World Bank conditionality to pro-mote policy change.

In other cases, borrower ownership provedinsufficient. In Cameroon, the parliament’sunwillingness to go along with commitmentsmade by the President frustrated attempts toestablish a rational forest policy framework.The President’s tepid efforts to seek parlia-mentary approval raised questions about howcommitted to change the highest levels ofgovernment were, despite reformist elementswithin the bureaucracy. In Kenya, governmentcommitment to reform was similarly calledinto question by weak leadership of the envi-ronmental adjustment planning process.While some government officials expressedgenuine support for the reform program, no single well-placed individual sufficientlyunderstood or cared about the opportunityenough to exercise leadership or rally supportinside or outside of government. Even thoughWorld Bank officials had targeted Kenya as atest case for environmental adjustment precisely because of Kenya’s strong NGOcommunity and the high profile of naturalresource management issues in the politicaleconomy, these elements proved insufficientfor generating a sustained reform process.

Considering the complexity of domesticpolitics in each of the four case study coun-tries, it is not clear that it would have beenpossible to discern in advance which caseshad enough borrower ownership, inside andoutside government, to merit the World Bankpursuing a reform agenda. The Papua NewGuinea case best illustrates this complexity,in which many reformers inside the govern-ment bureaucracy were themselves expatri-


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ates, and where policy stances were laterreversed upon the advice of a former offi-cial of the World Bank. Experiences in theSolomon Islands (see Box 2.1), and inCambodia (see Box 4.4), provide further evi-dence of the difficulty of discerning the polit-ical prospects of reform proponents com-pared with those favoring logging forces.

The dichotomous approach to borrowerownership begs an interesting question: whatis the appropriate World Bank response tocases that lie somewhere between completeownership of the reform agenda and a totallack of commitment to change? Only in rarecases are there no latent constituencies forreform in either the government or civil soci-ety. In cases where some parts of a borrowergovernment—or the private sector or theNGO community—are in favor of reform, yetare faced by staunch opposition from en-trenched vested interests, can the WorldBank utilize the adjustment process to “tipthe scales” from insufficient to sufficientownership? The following section suggestssome insights from the case studies.

BUILDING COALITIONS FOR CHANGE

The case studies hint that engaging broadstakeholder groups before and during theadjustment process is an effective way for theWorld Bank and reformist elements in theclient country to cultivate a critical mass ofdomestic political support for forest policyreform. The Philippines case presents a goodexample of the borrower leading the con-stituency-building process. (See Box 1.3)However, only in Papua New Guinea did theWorld Bank undertake a significant and com-prehensive outreach effort, therefore much ofthe evidence regarding the potential of stake-

holder engagement is about opportunitieslost rather than captured. At minimum, thecases demonstrate that a failure to engagekey stakeholder groups can leave a reformprogram vulnerable to attack, and illustratethe difficulties encountered by the WorldBank in attempting to reach out to a largegroup of actors and to incorporate a range ofissues in the adjustment process.

Broadening the Agenda

The content of the forest policy reform agen-da is a key driver of domestic political sup-port or opposition. Policy changes restrictedto the World Bank’s efficiency-oriented con-ventional wisdom (see Box 1.4) are likely toprovoke strong opposition from those withvested interests in maintaining the rent-seek-ing opportunities in existing forest policies.At the same time, the indirect benefits ofsuch policy changes, through allocation ofincreased government revenue to povertyalleviation or reduced forest degradation, arelikely to be contested or poorly understood byconstituencies for forest policy reform.Further, depending on the institutional con-text, efficiency-oriented reforms may evenlead to perverse social or environmental consequences.

The case studies indicate that opportuni-ties for coalition-building increase as theadjustment reform agenda is expanded andconstituencies are engaged. In Cameroon,Indonesia, and Papua New Guinea, potentialconstituencies for reform were either left dor-mant, or actively alienated, by their percep-tions that the World Bank was insufficientlyopen to incorporating forest policy objectivesrelated to social equity and environmentalprotection into the adjustment process.


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Consistent with the traditional focus ofadjustment lending on macroeconomic policyreform, forest-related conditionality in theadjustment operations analyzed tended tofocus on efficiency objectives. In the wordsof one World Bank task manager, “I still consider getting anything of significance onforests onto the adjustment agenda, especial-ly that of the IMF, to be a victory.”4 To theextent that there were other objectives, suchas signaling a break with cronyism inIndonesia, reforms were chosen based ontheir consistency with efficiency justifica-tions. As a result, the reform agenda wasdenied the support of, and sometimes evenwas faced with opposition by, natural con-stituencies for change in the forest sector.

The Indonesia case provides the clearestexample of the above-mentioned situation.Even though the World Bank’s own 1995 sec-tor review had recommended recognizing therights and roles of forest-dwelling communi-ties in forest management, these recommen-dations were not in the January 1998 bail-outpackage. As a result, many NGOs, academics,and donors active in Indonesian communityforestry or environmental movements per-ceived the World Bank-IMF reform agenda asbeing limited to improving the efficiency of afundamentally flawed forest managementparadigm, and did not see an opportunity to pursue their objectives—including a re-thinking of how property rights for forestresources are allocated—in the context ofadjustment. Only when discussions of a pos-sible forest sector SECAL were initiated laterin the year was this wider set of issues puton the table.

Expanding the adjustment umbrella toencompass broader objectives also has impli-cations for forest policy reforms designed to

meet efficiency objectives. In Papua NewGuinea, a significant segment of the NGOcommunity was alienated by the WorldBank’s refusal at the time of the adjustmentloan to consider imposing a log export ban,despite NGO concerns about the grand-scalecorruption associated with log exports andthe desire to nurture small-scale processingactivities at the community level. Accordingto the World Bank, the log export ban wouldlead to inefficient domestic industry. NGOssaw the World Bank’s rejection of their con-cerns as being based on an ideological com-mitment to economic liberalization that over-rode domestic considerations.

Domestic Constituencies

The case studies illustrate how the WorldBank’s attempts to include NGOs in policyformulation and implementation were con-strained by the World Bank’s limited legiti-macy and credibility in the eyes of thosestakeholders, and by the efficiency-orienta-tion of its reform agenda. In both Indonesiaand Kenya, domestic NGOs were suspiciousof the World Bank’s motives, even in situa-tions where World Bank staff were trying topromote progressive forest policy reform andengage in a genuine consultative process. In

The World Bank’s attempts to include NGOs in

policy formulation and implementation were

constrained by the World Bank’s limited legiti-

macy and credibility in the eyes of those stake-

holders, and by the efficiency-orientation of its

reform agenda.


141

Indonesia and Papua New Guinea, NGOsreacted to the World Bank’s initial focus onreforming industrial forestry and the lack ofemphasis on social equity and environmentalprotection by keeping the World Bank atarm’s length.

At the same time, where the World Bankdid engage in consultation, meaningful NGOengagement was constrained by the lack ofsophistication and coordination of domesticNGO communities in borrower countries. InKenya, where the World Bank chose to pilotthe concept of environmental adjustmentwith the encouragement of some NGO lead-ers, the NGO community failed to exploit theopportunity that was offered. In Indonesia,the NGO community’s lack of understandingabout the mechanics of adjustment lendingled to a misperception about how funds froma sectoral adjustment loan would be allocatedand used. In Papua New Guinea, the legiti-macy of those NGOs who most vocally sup-ported the forest conditions was underminedby questions about whose interests thosegroups represented.

In Papua New Guinea, the World Bank wastaken by surprise early in the preparation ofan Economic Recovery Program when contro-versy swirled around a proposed provisionconcerning land registration, which was laterdropped. World Bank staff had failed to high-light publicly the pro-rural and pro-landown-er components of the so-called sustainabledevelopment reforms that were a significantpart of the reform package, so other interestgroups less favorably affected were able todominate public debate. As a response, theWorld Bank launched a concerted outreacheffort to gain support for the reform programfrom NGOs. The results of this effort, espe-cially public statements supporting the World

Bank made by a particular individual fromthe NGO community, at least headed offinternational NGO opposition. However,because of limited staff on the ground andsavvy about domestic politics, the outreacheffort was vulnerable to manipulation bydomestic political interests not necessarilyconsistent with the forest policy reform agenda.

In Cameroon, the World Bank-supportedreform program was similarly vulnerable topopulist attacks, which were voiced in theparliamentary debate on new forest legisla-tion. However, the relative dearth of orga-nized civil society groups, downwardlyaccountable local government officials, orother representatives of the rural populationthat stood to gain from the reform programwould have posed a challenge to any WorldBank effort to include those constituencies inthe reform dialogue.

In Indonesia, the World Bank’s approachwas characterized by a gradual evolutionfrom the almost unilateral imposition of con-ditions through the IMF bail-out package inJanuary 1998, to its mid-1999 posture ofstrongly encouraging the government to con-sult relevant stakeholders on draft forestrylegislation. While the former approachresulted in limited success of some efficien-cy-oriented reforms, constituencies for morecomplex policy changes, such as reform ofthe concession allocation and managementsystem, were unwilling to settle for a closeddecisionmaking process.

International Constituencies

The evidence from the case studies regardingthe benefits of engaging the broader interna-tional community of public and private sector


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stakeholders is ambiguous. In Papua NewGuinea and Cameroon, moving forward on areform program required at least the tacitsupport of former colonial governments,respectively Australia and France. The extentto which frictions related to forest sector pro-jects and policies between these governmentsand the World Bank undermined what mighthave been more active support for the WorldBank’s reform agenda is not clear. InIndonesia, although the bilateral donorsactive in the forest sector were surprised bythe reform package in January 1998, theyquickly rallied to play supportive analyticaland convening roles. In Kenya, despite thelarge bilateral donor agency presence in theforest and other environment-related sectors,the World Bank did not attempt to marshaltheir support for the proposed environmentaladjustment program. The Cambodia caseprovides a good example of donor coordina-tion in forest-related conditionality. (See Box 4.4)

The cases suggest that the World Bank’sengagement with international NGOs canhelp to shape the agenda and hold the WorldBank and borrower governments accountablefor their commitments. In Indonesia, inter-national NGOs drew attention to inconsisten-cies in the World Bank reform package.Australian NGOs provoked a commitmentfrom the World Bank President to engageNGOs in Papua New Guinea, and interna-tional environmental activists later tacitly en-dorsed the reforms related to forests in theadjustment loan. International conservationgroups with programs in Cameroon support-ed reforms related to community forestry,and—to the dismay of the government andthe logging industry—publicized their exis-tence to rural villagers. In Cambodia, aninternational human rights organization

raised the profile of government complicityin illegal logging, and was later appointed bythe government as the official monitor of theforest sector in compliance with World Bankconditions. In Kenya and other cases, inter-national and domestic groups linked throughNGO networks influenced each others’ think-ing about structural adjustment and forestpolicy reform.

Cameroon was the only case in which theWorld Bank is known to have had significantdirect engagement with international privatesector actors in the forest sector. In that case,World Bank staff consulted regularly with theEuropean timber companies with interests atstake in the reform program. Nevertheless,the industry engaged in periodic denuncia-tions of the World Bank’s program, boycotteda concession auction in 1997, and went onstrike to protest a new tax on wood enteringdomestic sawmills, causing the governmentto back down.

To summarize, the effectiveness of WorldBank-led reform programs, as well as theirperceived credibility and legitimacy in theeyes of nongovernment stakeholders, can insome cases be enhanced by World Bankefforts to reach out to greater constituencies,and to include broader reform objectives. Theappearance (or reality) that World Bank-supported reform agendas are limited toachieving economic efficiency objectives inthe context of inequitable and environmental-ly unsustainable forest management regimesdenies proponents of reform the support ofkey domestic constituencies. While suchefforts are no guarantee of success, failure totake these steps can certainly limit itsprospects.


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IMPLICATIONS FOR THEWORLD BANK

The case study experience summarized inthis report has implications for the WorldBank at two levels. At the operational level,the foregoing analysis suggests severalchanges in the World Bank’s procedures,staffing, and incentives that would increasethe potential for using adjustment lending asan effective instrument for forest policyreform. At the strategic level, the analysisilluminates the opportunities and challengespresented by the recent shift in the WorldBank’s portfolio toward increased adjustmentlending, as well as the institution’s newemphasis on promoting good governance.

OPERATIONAL IMPLICATIONS

Safeguard Policies

To support the development of domesticpolitical coalitions for reform in borrowercountries, the World Bank needs to enhanceits credibility with key stakeholder groups asa proponent of environmentally friendly poli-cy change through adjustment lending. TheWorld Bank’s credibility problems are clearlyhighlighted when internal contradictions in areform package undermine environmentalobjectives.

One way to prevent the unintended nega-tive environmental impacts of adjustmentlending that currently damage the WorldBank’s credibility is to apply environmentalassessment procedures to adjustment loans.For example, such an assessment of the 1998Indonesian reform package—even a quickdesk review—would have flagged the poten-tial for the liberalization of investment in thepalm oil sector to increase deforestation.

Sustained Sectoral Engagement

The World Bank can be more effective inpromoting forest sector reform through poli-cy-based lending if the necessary analysisand contacts are in place prior to the adjust-ment operation. In Papua New Guinea, theWorld Bank was well-positioned to influencethe complex and contentious arena of forestpolicy reform in 1995 when economic dis-tress presented both a crisis and an opportu-nity. Since their initial engagement in thesector through the TFAP process in 1989,World Bank staff had developed significantexpertise and contacts through sector analy-sis, project lending, and sustained policy dialogue. As a result, the World Bank wasarmed with the technical and political knowl-edge necessary to design conditions thatwould be effective in staving off an attemptby logging interests to reassert control overthe sector.

In contrast, the World Bank’s resident staffin Indonesia had allowed forest policy analy-sis and engagement to lie fallow after therupture in the relationship with the Ministryof Forestry in 1995. Faced with the opportu-nity of including forest sector reforms in the1998 bail-out package in a matter of hours,World Bank staff had no choice but to drawfrom recommendations contained in a sectorreview almost four years out of date. In

The World Bank can be more effective in pro-

moting forest sector reform through policy-based

lending if the necessary analysis and contacts

are in place prior to the adjustment operation.


144

initiating the subsequent dialogue, theJakarta-based task manager had to rely on thestaff of other donor agencies to introducehim to key Ministry officials, as he had nocontacts of his own. The World Bank’s credi-bility as a leader of the reform effort was,thus, initially hampered by its lack of recentengagement in the sector.

The effectiveness and legitimacy of WorldBank intervention in the forest sectorthrough adjustment lending could also beimproved by investing in up-to-date analysisthat addresses the social equity and environ-mental implications of proposed changes inthe forest management regime.5 Such analy-sis could serve as an important basis for abroader agenda of reform than the currentlynarrow focus on efficiency objectives, as wellas a platform for intellectual commitment toreform on the part of domestic constituen-cies inside and outside of government. Inboth Cameroon and Papua New Guinea, thelegitimacy of the adjustment conditionscould have been increased if their benefits torural communities had been better under-stood and communicated.

However, according to interviews withWorld Bank staff, current policy and practicein budget allocation tie funds for sectoralengagement to lending volumes. This meansthat investment of staff time and analysismust be commensurate with anticipatedlending. However, the case studies in thisanalysis indicate that in some cases theremay be a reverse correlation between theneed for investment in sectoral engagementand lending volume. The World Bank there-fore needs to reform its budgeting process toprovide resources for sustained engagementin key countries and sectors even in theabsence of a projected lending program.

Stakeholder Engagement

The World Bank needs to invest moreresources in communicating with key stake-holder groups about the nature and purposeof adjustment lending and listening to theirpriorities and concerns. The case studiesreveal that when adjustment lending isapplied to an unconventional sector, such asforestry, or environmental policy reformmore generally, government and nongovern-ment actors alike are confused about howadjustment actually works. The perceivedlegitimacy of proposed adjustment loans wasundermined by the belief of Kenyan govern-ment officials and NGO activists inIndonesia that the loans would channelfunds directly to line ministries charged withforest management, although in neither casewas it true. In addition, increased communi-cation can strengthen the World Bank’s com-mitment to stay the course: in Papua NewGuinea, the World Bank’s resolve on with-holding the second tranche release may havein part been driven by the need to live up toits prior public pronouncements.

Of equal importance for both effectivenessand legitimacy is the need to move beyond anoutreach mode to establishing a dialoguewith key stakeholders and incorporating theirinsights into the design and implementationof the proposed reform program. While theknowledge of institutional and political con-straints will always be asymmetrical, in-creased communication between World Bankstaff and domestic reform constituencies canhelp to narrow the gap.

Thus, had World Bank staff been in con-tact with the informal community of forestpolicy reformers in Indonesia (includingMinistry of Forestry officials, donors, acade-


145

mics, and NGOs) in the months prior to the1998 reform package, the conditionalitiescould have been more carefully tailored toprevailing challenges and opportunities. TheIndonesia experience highlights the impor-tance of maintaining an engagement withrelevant stakeholders even in the absence ofan active lending program. While resourceconstraints preclude the World Bank’sinvolvement in all sectors in all countries atall times, the political, economic, social, andecological significance of the forest sector inIndonesia would arguably merit the WorldBank’s attention.

Conditionality Engineering

The number and nature of forest-related con-ditions should reflect emerging lessons abouttheir effectiveness.6 As described above, theWorld Bank has tended to have more successusing adjustment conditionality to leverage asmall number of high-profile policy changes,rather than to effect a large number of incre-mental steps necessary for their implementa-tion. The timing and sequencing of forest-related conditions present a particular chal-lenge, given the limited disbursement periodof adjustment loans. The rush to meet unre-alistic deadlines for developing and imple-menting reforms can lead to bad process andbad policy. As illustrated by the Indonesiacase, implementing reforms designed toimprove the efficiency of forest managementprior to dealing with property rights issuescan cause internal contradictions within thereform program.

One option for the World Bank to exploreis to supplement conditions designed tostimulate policy decisions with process-oriented conditions that specify characteris-

tics of the decisionmaking process for implementing those decisions, as well as outcome-oriented conditions that specify theobjective to be met. For example, a conditionrequiring formulation of a new system forcollecting rent would be accompanied by con-ditions regarding transparency and consulta-tion in the formulation process. In Indo-nesia, reform constituencies outside theMinistry of Forestry have convinced theWorld Bank that one of the most importantroles it can play is to open up forest policy-making to public scrutiny and participation,although to date its success has been mixed.

Staffing and Incentives

Many of the prescriptions outlined above run counter to the World Bank’s currentstaffing, budgeting, and incentive systems.Broadening the adjustment agenda to includenontraditional issues and constituenciesrequires a different set of skills and attitudeson the part of World Bank staff: to conductstakeholder analyses, the World Bank willneed more social scientists; to move beyondefficiency objectives, macroeconomists willneed to share responsibility for the reformagenda with others; and to avoid alienatingpotential members of coalitions for change,arrogance will need to be replaced by collegiality.

Appropriate staff skills and attitudes mustalso be supported by institutional incentives.As noted by Robert Wade in the recent his-tory of the World Bank, “[A]nything thatrequires ‘environment’ to be handled otherthan as a subnational sector is difficult toorganize and sustain, for it runs againstestablished budgetary and reward systems”(Wade, 1997, p. 732). The case studies


146

indicate that the World Bank’s ownership ofthe reform agenda and effectiveness in promoting it are often dependent upon the personal commitment and style of individualtask managers and country directors.

However, extensive staff investment inanalysis (in the World Bank’s terminology,“Economic and Sector Work”) and stakehold-er engagement in the forest sector over thelong term, especially when decoupled froman active lending program, are neither sup-ported by current budget allocation mecha-nisms nor encouraged as a path to careeradvancement. Indeed, one World Bank staffmember interviewed for this study suspectedthat efforts to mainstream environmentalconsiderations into adjustment lending mayhave damaged the careers of the staffinvolved. Clearly, finding ways to create“incentives for sustainable interest within theBank” (Wade, 1997, p. 723) in tackling suchdifficult issues as forest policy reform is,thus, one of the major challenges for theWorld Bank to address.

STRATEGIC IMPLICATIONS

Selectivity

An influential World Bank research report,Assessing Aid, asserts that “[t]he role of agen-cies such as the World Bank is not to arm-twist governments to do what they are reluc-tant to do” (World Bank, 1998, p. 59), argu-ing that donors should focus their resourceson countries with governments that havealready demonstrated their commitment toreform. And yet, at least with respect to theforest sector in Papua New Guinea andIndonesia, such arm twisting was welcomedby domestic constituencies for reform, and atminimum resulted in setbacks to those with

vested interests in unsustainable logging.Similarly, it would be difficult to argue thatthe World Bank and the IMF should not havepressed the Cambodian government to clampdown on illegal logging, even though the gov-ernment was clearly reluctant to do so (seeBox 4.4).

A strict application of selectivity based onstrong borrower ownership of the reformagenda would have ruled out the WorldBank’s interventions in these cases. Theproposition that conditioned assistanceshould be limited to those countries alreadycommitted to reform ignores the possibilitythat World Bank conditionality can itselfempower domestic constituencies for reform.Conditionality can alter the political dynam-ics of forest issues, if only by raising the pro-file of these issues on the national agenda.

The same World Bank report concludesthat for assistance to be effective in countrieswith weak institutions and policies, there is aneed to identify “champions of reform,” andfor aid to support innovations that “involveengaging civil society” (World Bank, 1998, p.116). Experience from the case studies relatedto the forest sector is fully consistent withthese conclusions, but as indicated above,suggests that the World Bank’s internalincentive systems do not yet reward staff for“supporting reformers rather than disbursing

The case studies indicate that the World Bank’s

ownership of the reform agenda and effective-

ness in promoting it are often dependent upon

the personal commitment and style of individ-

ual task managers and country directors.


147

money” (World Bank, 1998, p. 116). Whenthe World Bank terminated project lending tothe forest sector in Indonesia in 1995, therewas no mechanism available to maintainengagement in the sector. While it can beargued that the World Bank exercised appro-priate selectivity in the Kenya case by notmoving forward with the proposed environ-mental adjustment loan, it is also true thatthe efforts of World Bank staff to cultivatesupport for reform were not adequately sup-ported.

The Governance Agenda

In recent years, leadership of the World Bankhas increasingly emphasized governance con-cerns. In his 1999 address to the Board ofGovernors, President Wolfensohn assertedthat if countries “do not have good govern-ance . . . their development is fundamentallyflawed and will not last and proposed anambitious agenda for the World Bank to pro-mote good governance” (Wolfensohn, 1999).

The case studies show that for the WorldBank to be effective in promoting reform inthe forest sector, governance issues must beaddressed centrally. In Papua New Guineaand Indonesia, the World Bank was able tocatalyze forest policy reforms when theadjustment instrument was used to challenge“the rules of the game” in the forest sector,elevating forestry-related governance con-cerns to the top of the policy agenda. InCameroon, by contrast, World Bank manage-ment was unwilling to give priority to similarconcerns when the government backtrackedon commitments, sending a signal to corruptelements in the government—as well as to ayounger generation of aspiring reformers—that some corruption will be tolerated. Theincreased use of adjustment conditions to

promote transparency and consultation inforest policy decisionmaking is a specificmechanism for linking forestry and gover-nance concerns.

Conversely, the case studies also indicatethat in some countries, for the World Bank tobe effective in promoting good governance,forest issues must be addressed. In PapuaNew Guinea, Indonesia, and Cameroon, for-est issues are important enough in real andsymbolic terms to the national political econ-omy that to talk about good governance with-out reference to the forest sector would beincomplete at best. In Kenya, many observersinside and outside the World Bank interpret-ed the World Bank’s failure to speak out onthe Karura forest episode as evidence that theWorld Bank lacked seriousness about its gov-ernance agenda with the Moi regime. Eventhough a participatory process to develop anew Country Assistance Strategy resulted ina focus on governance concerns, the WorldBank missed an opportunity to frame theenvironmental adjustment agenda in broadergovernance terms. These findings supportthe suggestion that the environment and nat-ural resources arena is “a particularly suit-able place” to pursue a governance agenda(Hyden, 1999).

THE BOTTOM LINE

Can the World Bank be an effective propo-nent of forest policy reform through adjust-ment lending? The case studies suggest thatthe answer is a qualified “yes”—under theright conditions. On the part of the borrower,those conditions include constituencies forreform within the borrower government orcivil society, and opportunities for meaning-ful policy changes that do not require exten-sive institutional reform to implement. On


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the part of the World Bank, those conditionsinclude strong and consistent commitment tothe reform agenda and engagement with keystakeholders in defining and communicatingthe objectives and strategy for reform.

While sustained policy reform and imple-mentation ultimately depend on the interplayof domestic political forces, forest-relatedconditions imposed by the World Bank havebeen effective in raising the profile of forestissues on the national agenda, prodding gov-ernments to commit themselves to new poli-cies, and providing support to the efforts ofdomestic constituencies for reform. Experi-ence in the case study countries indicatesthat variables within the control of the WorldBank can sometimes influence the domesticpolitics of the forest-related issues, and,hence, borrower ownership, broadly defined.However, the World Bank has been muchless effective in using adjustment lending toleverage the long-term institutional changesthat are often necessary to implement signifi-cant reforms.

The World Bank’s effectiveness is ultimate-ly influenced by both its legitimacy and credi-bility, as support, or lack of opposition, fromkey constituencies is critical for success. Thecase studies confirm that key stakeholdersoften do not believe that the World Bank is acredible champion of forest policy reform inthe context of structural adjustment lending.The World Bank’s credibility can be en-hanced by long-term in-country involvementin the sector, good analysis and outreachemphasizing the benefits of reform, and anexpansion of the reform agenda to includeequity and environmental objectives. Con-versely, the World Bank’s credibility can beundermined by imposing forest-related conditions out of sequence, including non-

forest related conditions that negatively affectforests, and backing down when borrowersflout agreed conditions. Overcoming theWorld Bank’s credibility deficit will requiresignificant changes in the current staffingand incentive patterns.

Finally, the case studies indicate that theWorld Bank’s use of adjustment-related con-ditionality to leverage forest policy reformcan be seen as legitimate even by WorldBank critics when: government policy ismanifestly against the public interest (forexample, when irreversible damage to forestsis threatened in the near term); there aresome domestic constituencies for reform inthe borrower country; the World Bank canmake a compelling case that alternative poli-cies would better serve sustainable develop-ment objectives; and the World Bank’s inter-vention is sufficiently grounded in local reali-ties to provide a reasonable chance of successwithout significant unintended negative con-sequences. The World Bank’s legitimacy canbe further enhanced by working to make theforest policy reform process more transpar-ent, accountable, and participatory, both inits own activities and through its leverageover borrower governments.

Under the right conditions, in the bor-rower country and on the part of the WorldBank, the World Bank can be an effectiveproponent of forest policy reform throughadjustment lending. These findings suggestthat adjustment lending, the World Bank’smost significant instrument, presents animportant opportunity for mainstreamingsocial, environmental, and governance objectives into the World Bank’s work. Thefindings also offer a sobering challenge tothe institution to get the conditions right.


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Catán, Thomas, and Gwen Robinson. 1999. “PapuaNew Guinea’s Fraught Bond Debut.” FinancialTimes, June 30, 1999.

Hyden, Goran. 1999. “Environment and NaturalResource Management: The New Frontier ofDemocracy & Governance Work?” Gainesville, FL:University of Florida. Mimeo.

Nelson, Joan. 1999. Reforming Health and Education:The World Bank, The IDB, and Complex Institu-tional Change. Washington D.C.: OverseasDevelopment Council.

Ross, Michael. 1996. Conditionality and LoggingReform in the Tropics. In Institutions forEnvironmental Aid, edited by R. O. Keohane andM. A. Levy. Cambridge, MA: MIT Press.

Wade, Robert. 1997. “Greening the Bank: TheStruggle over the Environment, 1970–1995.” InThe World Bank: Its First Half Century, edited byD. Kapur, J. P. Lewis and R. Webb. WashingtonD.C.: Brookings Institution Press.

Wolfensohn, James D. 1999. “Coalitions forChange: Address to the Board of Governors.”Address to the Board of Governors at the WorldBank Annual Meetings, September 28, 1999.Washington D.C.: The World Bank. Available at:http://www.worldbank.org/html/extdr/am99/jdw-sp/index.htm

World Bank, The. 1998. Assessing Aid: What Works,What Doesn’t, and Why. Washington, D.C.: TheWorld Bank.

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1. An important exception is highlighted by theCameroon case: from 1989–1993, significantfinancial support from the France enabled thegovernment to avoid adjustment.

2. Just how much higher is demonstrated byrecent experience in Papua New Guinea. Toavoid World Bank conditionality, in mid-1999the government unsuccessfully attempted toattract bond finance through private capital markets at interest rates up to three times thatoffered by the World Bank (Thomas andRobinson, 1999).

3. This opinion was expressed by several WorldBank participants in the April 1999, workshopat WRI.

4. Personal communication, September 1999.

5. Practitioners from the World Bank and NGOrepresentatives who attended the April 1999,workshop at WRI felt strongly about this point.The recommendation that the World Bankinvest in better sector analysis is also consistentwith Joan Nelson’s prescription to multilateraldevelopment banks to “make haste slowly” insocial sectors and focus on establishing the preconditions and constituencies for change(Nelson, 1999, p. 93).

6. This was a point of least consensus among per-sons interviewed for this study and participantsin the April 1999, workshop at WRI.

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T he central analytic question of thisstudy is: to what extent, and underwhat conditions, can the World Bank

be an effective proponent of forest policyreform through structural adjustment lending?

APPROACH

Our approach was to examine a limited set ofcases where the Bank intentionally attemptedto incorporate environmental goals intoadjustment lending. Our primary interestwas in the process by which adjustment lend-ing was initiated, formulated, negotiated, andimplemented.

By contrast, other reviews of adjustmentlending have utilized cross-country regres-sion analysis (Killick, 1997; Mosley, Harri-gan, and Toye, 1995; World Bank, 1998),with a view to isolating factors associatedwith the success or failure of adjustmentloans. This approach was not suitable for ourpurpose for three reasons. First, many of thefactors we believed to be important—degreeof borrower ownership, extent of civil societyengagement by the Bank—were not amen-able to quantification. Second, the number ofcases where the World Bank used adjustmentlending for forest policy reform was too

limited to provide robust regression results.Third, a binary measure of success was toocrude to capture the range of outcomes wewished to assess.

By emphasizing process, we faced twomethodological issues. First, how were we toevaluate the effectiveness of the World Bankin promoting policy reform? A clear answerwas hampered by the lack of a counter-factu-al—what would have happened in the absenceof adjustment lending—against which tomeasure success. Keeping this problem inmind, our approach sought to identify theelements of success and failure in the policyreform processes considered here—“the rightconditions.” Moreover, while the ultimatetest of effectiveness is improved environmen-tal and social outcomes, in this study werestricted ourselves to the formulation of policy conditions in adjustment loans and,where information was available, the transla-tion of those conditions into national policy.Hence, we assumed that policy reform is anecessary if not sufficient condition toachieving sound outcomes in the forest sector.

Second, given our emphasis on process,what was our assessment of the scope and content of reforms? On the scope, we

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acknowledged that the state of the forests isnot influenced exclusively by forest policy,but as much, or more, by decisions takenoutside the forest sector. These include pro-jects in other sectors that affect land-use and,hence, forest patterns (Kaimowitz andAngelsen, n.d.) and macroeconomic policiesthat shift incentives in favor of forest exports(Cruz and Repetto, 1992). Yet, forest policyremains an important part of the puzzle andis the piece we chose to focus on in this study.

On the content of forest policies, weacknowledged that there are ongoing debatesover the various elements of forest policyreform introduced through adjustment lend-ing. For example, the linkage betweenimproved efficiency in industrial logging andimproved environmental outcomes is contro-versial. In this study, we did not attempt toenter these debates, but rather explored,through each case study, the links betweenthe process of formulating reforms and theultimate content of those reforms, as well asthe connection between process and the like-lihood of eventually implementing reforms.

RESEARCH QUESTIONS

The research questions were groupedaround three categories:

Stakeholders and context. Who are thestakeholders in forest policy reform in thecountry and in the World Bank, what was atstake for each of these actors, and what is thepolitical and economic context within whichthe adjustment operation was formulated andimplemented?

Content. What was the environmental con-tent of the adjustment loan, how was it articulated, how was it understood and con-

tested by different stakeholders, and how wasit implemented in the loan?

Borrower ownership and donor strategy. How accurately did World Bankstaff assess borrower ownership, how effec-tively did they identify and engage with keystate and nonstate actors, what was thenature of this engagement, and, in light ofthis engagement, to what extent and how wasconditionality applied and enforced?

METHODOLOGY

We used these questions to guide ourresearch in four case study countries—PapuaNew Guinea, Cameroon, Indonesia, andKenya—working in collaboration with aresearch partner in each country. The princi-pal methods were semi-structured interviewswith key informants from government agen-cies, civil society, and the private sector ineach country, as well as with World Bank andIMF officials, all on a not-for-attributionbasis. This information was supplemented byofficial government and donor agencyreports, secondary analysis of adjustmentprograms, and press coverage.

In addition, in April 1999, we held aroundtable discussion on the preliminaryresults from the cases. Participants in thediscussion included the principal case studyauthors, World Bank and IMF staff withexpertise in the case study countries, andresource-persons with independent expertisein one or more of the case study countries.

CASE STUDY SELECTION

The set of possible cases was defined by thecountries in which the World Bank has intentionally incorporated forest policy


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reform objectives into its adjustment lend-ing. This was a relatively limited set. Inselecting among these, we sought a geo-graphic spread across the cases. We wereunable to identify appropriate cases in LatinAmerica or Central and Eastern Europe andthe Newly Independent States. We sought toavoid a clustering of cases in East Asia, theregion where adjustment lending for forestpolicy reform has been most intensivelyapplied. Thus, Philippines, Indonesia, PapuaNew Guinea, and Cambodia were all candi-date cases, but only two of these were select-ed for full case studies. In addition, therewas an inevitable dimension of pragmatisminvolved in the selection process. Specifically,we drew on cases where the primary authorscould build on existing knowledge and con-tacts, and we decided not to pursue furthercases that had been comprehensively studiedby other scholars, notably the Philippinescase, discussed in Box 1.3 (Ross, 1996). Thisled us to select three primary case studies:Papua New Guinea, Cameroon, andIndonesia. In all these cases, the Bank hadintentionally included forest policy reformobjectives into a broader adjustment loan.

In addition, we opted to add a fourth case,Kenya, which stands apart from the otherthree. In Kenya, an environmental adjust-ment loan designed entirely to address envi-ronmental objectives was proposed, but notagreed to or implemented.

Finally, we conducted a series of shorterand less comprehensive analyses based large-ly on secondary sources to complement theseprimary cases. These shorter studies, onCambodia, Philippines, Solomon Islands,and Suriname, are peppered throughout thereport in text boxes.

Our approach sought to discover and out-line causal mechanisms inductively throughthe careful analysis of cases. Hence, the casestudies were chosen on the basis of the phe-nomenon we wished to study (here, theintentional application of adjustment lendingfor environmental objectives), rather than onthe basis of a set of independent variables.We favored the former approach for two rea-sons. First, from a theoretical viewpoint, webelieved the intensive approach to be the bestway to identify causal factors and processes.By contrast, selection based on independentvariables required that we have confidencethat those independent variables capturemost, if not all, the variation in outcomesacross cases. Second, from a pragmatic pointof view, selection across likely independentvariables would have been unlikely to give usa sufficient spread in outcomes, since thenumber where the World Bank applied adjust-ment to environmental objectives is small.

It is instructive to note some patternsacross the cases, including the text box levelcases. First, in all the case study countries,forestry is either of considerable economic orsymbolic importance. Second, many of thecases, with the notable exception ofIndonesia, tend to be small countries of littlegeopolitical significance and, hence, coun-tries where donor intervention fails to beheavily scrutinized in the international arena.Third, many of the countries have a reputa-tion for poor governance as indicated, forexample, by a low ranking on the CorruptionPerceptions Index compiled by TransparencyInternational.1 Fourth, the cases represent arange of adjustment instruments, from struc-tural adjustment loans in most cases to a sectoral adjustment loan in Philippines, to anadjustment loan exclusively for environmen-tal reform in Kenya.


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1. Indonesia, Kenya, and Cameroon all rankedbetween 70 and the lowest ranking of 80 in theindex. Papua New Guinea was not included. Theindex is available at: http://www.transparency.de/documents/cpi/index.html

Cruz, Wilfrido, and Robert Repetto. 1992. TheEnvironmental Effects of Stabilization and StructuralAdjustment Programs: The Philippines Case.Washington D.C.: World Resources Institute.

Kaimowitz, David, and Arild Angelsen. no date.“The World Bank and Non-Forest Sector Policiesthat Affect Forests.” Bogor, Indonesia: CIFOR.Mimeo.

Killick, Tony. 1997. “Failings of Conditionality.”Journal of International Development 9 (4): 483–495.

Mosley, Paul, Jane Harrigan, and John Toye. 1995.Aid and Power: The World Bank and Policy-BasedLending. New York: Routledge.

Ross, Michael. 1996. “Conditionality and LoggingReform in the Tropics.” In Institutions forEnvironmental Aid, edited by R. O. Keohane andM. A. Levy. Cambridge, MA: MIT Press.

World Bank. 1998. Assessing Aid: What Works, WhatDoesn’t, and Why. Washington, D.C.: World Bank.

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Frances J. Seymour is the Director of the World Resources Institute’s Institutions andGovernance Program. Her work focuses on international financial flows and institutions, andsustainable development challenges in Southeast Asia. Prior to joining WRI, she served asDirector of Development Assistance Policy at World Wildlife Fund, and spent five years inIndonesia with the Ford Foundation.

Navroz K. Dubash is a Senior Associate in the Institutions and Governance Program at WRI.His work explores the impact of financial globalization on problems of environment anddevelopment. Before joining WRI, he served with the Environmental Defense Fund as coordi-nator of the international Climate Action Network, and has also worked in India on localinstitutions for the management of groundwater resources.

Jake Brunner is a Senior Associate in WRI’s Information Program and coordinates WRI’spolicy research in Central Africa. He also advises USAID’s Africa Bureau and its missions onthe use of remote sensing and GIS for the agency’s natural resource management projects.Prior to this, Mr. Brunner taught remote sensing and GIS at London University and OxfordUniversity.

François Ekoko is a Forest Programme Specialist at the United Nations DevelopmentProgramme in New York. He currently works on institutions and governance issues, and for-est policy. Previously with the Center for International Forestry Research in Cameroon, hispublications have focused on forest policy, poverty and deforestation, and governance.

Colin Filer heads the Social and Environmental Studies Division of the National ResearchInstitute in Papua New Guinea, and is currently on secondment to the Australian NationalUniversity, where he is working on the Resource Management in Asia Pacific Project in theResearch School of Pacific and Asian Studies. He has published widely on matters of forestpolicy, biodiversity conservation, and the social impact of mining and petroleum projects inPapua New Guinea.

Hariadi Kartodihardjo is a Professor at the Faculty of Forestry, in Bogor AgriculturalUniversity, Indonesia. Dr. Kartodihardjo is in active collaboration with several local NGOsand is one of the founders of the Indonesian Ecolabeling Institute. He also served as an advisor to the Ministry of Forestry as a member of The Forestry and Estate Crops Develop-ment Reformation Committee.

John Mugabe is Executive Director of the Nairobi-based African Centre for TechnologyStudies (ACTS). He is the author of several publications on technology and environmentalpolicy. His recent research has focused on international politics and policy on biotechnologyand its impacts on global economic change.

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The World Bank, Structural Adjustment, and Forest Policy Reform.

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Transcript of The World Bank, Structural Adjustment, and Forest Policy Reform.