Forests Sourcebook - HCV Resource Network

NOTE 6.2
Prospects for Using Policy Lending to Proactively Enable
Forest Sector Reforms
At first glance, policy lending instruments (for
example, DPLs and poverty reduction support
credits [PRSCs]) seem well-suited to achieving
basic reforms in forests. Forests, like all natural resources, are
public goods and need to be managed in the interests of local
people, the country, and the global environment. Effective
management of forest resources involves difficult choices
and reforms ranging from reshaping and enforcing taxation
regimes (see note 5.4, Strengthening Fiscal Systems in the
Forest Sector), curbing illegal logging (see note 5.5, Addressing
Illegal Logging and Other Forest Crime), restoring the
traditional rights of local populations (see chapter 12, Applying
OP 4.10 on Indigenous Peoples), closing down parastatals,
and reforming institutions (see note 5.2, Reforming
Forest Institutions).
Despite this, there are mixed opinions in the World Bank
on the effectiveness of using policy loans (versus investment
loans) to address sectoral reforms in forest sector. There is no
current consistent case evidence from Bank activities to support
an unambiguous conclusion on this matter. This note
presents key principles to consider when addressing forest
sector reform through Development Policy Lending (DPL).
OPERATIONAL ASPECTS
Coordination between analytical and lending activities.
Independent of whether a policy lending instrument 1
is used to address forest sector reform, upstream analytical
work, the development policy loan, and sectoral investments
need to be coordinated so as to make the best use of
the capacities of each of these instruments to bring about
needed changes (see box 6.9). 2 Such coordination is especially
critical where forests are both significant (important
for economic revenue, poverty alleviation, and environmental
services) and vulnerable to cross-sectoral impacts.
Upstream analysis is a way to improve the World Bank’s
ability to identify the appropriate sectoral reforms (or priorities)
and, where relevant, anticipate and address potentially
adverse forest impacts resulting from key sectoral and
cross-sectoral macro policy reforms. This requires allocation
of human and financial resources. In addition, it is
important to integrate upstream analysis into ongoing work
for PRSPs, CASs, and other Bank activities.
Development policy loans are usually issued in a single
tranche, and consist of quick-disbursing assistance that can
help restore balance of payments equilibria (and as such, are
Box 6.9
Mexico Environmental SAL: Making It Work
In an environmental structural adjustment operation
in Mexico (Mexico Environmental Structural
Adjustment Loan [ENVSAL] fiscal 2004), the
objective was to mainstream environmental issues
into key economic sectors. The policy loan was
seen as effective in achieving its objective. It
involved establishing a functioning intersectoral
technical working group for each of the key sectors
(water, energy, forestry, and tourism). The
ENVSAL complemented investment loans that
were focused on specific sectors. In the case of
forestry, it was linked with the investment loan on
community forestry and focused on complementary
policy measures and fiscal instruments to
enhance sustainability and betterment of livelihoods.
A shortcoming of the Mexico ENVSAL is
that the number of conditionalities was high and
the triggers covered a broad range of developmental
areas, which raised supervision and transaction
costs significantly.
Source: Authors’ compilation.
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