Forests Sourcebook - HCV Resource Network

Box 6.1
Indonesian Structural Adjustment and Forests
In 1997 the IMF and the World Bank provided an
adjustment loan to Indonesia following the financial
sector crisis in that country. The IMF began its negotiations
with the government of Indonesia on an assistance
package in October 1997. The original letter of
intent focused on banking sector reform and other
financial sector issues, and initially did not include
environmental provisions. Information that forestry
was the second largest contributor to Indonesian export
income and was probably a sector that may survive the
economic crisis better than others resulted in the IMF
and the Bank incorporating specific forest sector conditions
into the frameworks of these instruments.
By January 1998, the loan had become a US$43 billion
assistance package, which included a set of environmental
and forest sector reforms aimed at dismantling
the forest product marketing monopolies that
had dominated the sector and committed the government
to implementation of a series of forest concession
management reforms that the World Bank and other
development agencies had been promoting in Indonesia
for a considerable time.
In April 1998, the World Bank followed up on the
IMF package with the first of two Policy Reform Support
Loans (PRSLs), with a loan value of US$1 billion,
which was followed by a second PRSL in the following
year. The PRSL loans added detailed provisions calling
for reform of regulations and legislation governing the
award and management of concessions; an interim
moratorium on any further conversion of forested
lands to other uses; and moves toward stronger participation
of local communities in the management and
protection of forests, and ultimately recognition of traditional
title to forest.
Lessons drawn from the Indonesian experiences are
that (i) good, up-to-date analysis will allow for effective
links between reforms introduced and outcomes for
forests and forest-dependent people to be assessed, and
(ii) careful monitoring of actual outcomes and followup
with more focused and longer term operations (as
was proposed but not pursued in the Indonesia case)
are essential to good results.
Source: Douglas and Chandrasekharan Bher 2006.
private sector investment, thus promoting good governance,
encouraging private sector activity, and mitigating
short-term adverse effects of adjustment.
Independent of this evolution in DPL, some of the policy
reforms can have unintended negative effects on forests
or create opportunities for enhancing the forest sector.
Where forests are a significant part of the economic and
social resource base of a country, therefore, it will be necessary
to mainstream forest considerations into development
policies and planning processes, and to consider exogenous
impacts.
Forests are part of the national capital base in most
developing countries, and have important links to other
natural resources, especially water, soil, and, in some cases,
coastal marine assets. In developing countries, natural capital
generally has a larger role to play in overall economic
development than in wealthier countries. Therefore, alternative
sources of capital for investment are scarcer, and the
focus tends to be more heavily oriented toward natural
resource utilization, through mining, forestry, agriculture,
rural industries, and so on. The condition and sustainability
of those resources is therefore of critical importance to the
prospects for development and maintenance of economic
growth at the national scale.
PAST ACTIVITIES
The World Bank’s main engagement in macroeconomic
reforms is through DPL. DPL is rapidly disbursing, policybased
financing that the Bank provides in the form of loans
or grants to help a borrower address actual or anticipated
development financing requirements that have domestic or
external origins. These operations are large in scope and in
their objectives. They support the policy and institutional
changes needed to create an environment conducive to sustained
and equitable growth. Typically, they will include
improving the investment climate, diversification of the
economy, employment creation, and support for meeting
international commitments.
DPL was originally designed to provide support for
macroeconomic policy reforms, such as in trade policy and
agriculture. Over time it has evolved to focus more on structural,
financial sector, and social policy reform and on
improving public sector resource management. Develop-
204 CHAPTER 6: MAINSTREAMING FORESTS INTO DEVELOPMENT POLICY AND PLANNING