Sustaining Forests - ISBN: 0821357557documents1.worldbank.org/curated/en/424531468781760578/...e-mail [email protected]. Library of Congress Cataloging-in-Publication Data Sustaining

FORESTS

THE WORLD BANK

Sustaining

A Development Strategy

poverty reduction

economic development

forest values

conservationprotected areas

biodiversity

livelihoods

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Ninety percent of the world’s 1.2 billion people living in extreme poverty obtain at leastpart of their livelihood from forests. Forests in developing countries support up to 90 percentof the world’s terrestrial biodiversity. However, mismanagement and misuse of forestsresult in wasted expenditures, loss of livelihood, and damage to the environment.Sustaining Forests: A Development Strategy charts a path for the World Bank’s proactiveengagement in the forest sector to help attain the goal of lasting poverty reduction without jeopardizing the environmental values essential to sustainable development.

The World Bank’s Forests Strategy is built on three guiding pillars: harnessing the potentialof forests to reduce poverty, integrating forests into sustainable economic development,and protecting the vital local and global environmental services and values provided byforests. The strategy emphasizes government and local ownership of forest policies andinterventions, development of appropriate institutions to ensure good governance, and themainstreaming of forest concerns into national development planning. The strategy alsoaims to support ecologically, socially, and economically sound management of productionforests by ensuring good management practices through the use of safeguard proceduresand independent monitoring and certification.

This book is accompanied by a CD containing background materials on how the strategywas developed, including the stakeholder consultative process, as well as information onforests’ role in poverty reduction, economic development, and the provision of environmentalservices that helped to shape the strategy. World Bank safeguard policies relevant toforests and a short video highlighting the strategy’s objectives are also included on the CD.

In implementing this strategy, the World Bank will build and strengthen its partnershipswith governments, forest-dependent people, the private sector, nongovernmental organizations, and other donor agencies. Sustaining Forests: A Development Strategy will beof interest to all institutions that share the World Bank’s goal of promoting improved forestconservation and management at both the country and global levels.

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Administrator

29704 v.1

FORESTSSustaining

FORESTS


Sustaining

THE WORLD BANKWashington, D.C.

© 2004 The International Bank for Reconstruction and Development/The World Bank1818 H Street, NWWashington, DC 20433Telephone 202-473-1000Internet www.worldbank.orgE-mail [email protected]

All rights reserved.04 05 06 07 4 3 2 1The findings, interpretations, and conclusions expressed herein are those of the author(s) and do notnecessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries,colors, denominations, and other information shown on any map in this work do not imply any judgmenton the part of the World Bank concerning the legal status of any territory or the endorsement or acceptanceof such boundaries.

Rights and Permissions

The material in this work is copyrighted. Copying and/or transmitting portions or all of this work withoutpermission may be a violation of applicable law. The World Bank encourages dissemination of its work andwill normally grant permission promptly.

For permission to photocopy or reprint any part of this work, please send a request with completeinformation to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA,telephone 978-750-8400, fax 978-750-4470, www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422,e-mail [email protected].

Library of Congress Cataloging-in-Publication Data

Sustaining forests : a development strategy.p. cm.

Includes bibliographical references (p. )ISBN 0-8213-5755-7

1. Forests and forestry—Economic aspects. 2. Forest policy. 3. World Bank.4. Sustainable development. I. World Bank.SD393.S87 2004333.75—dc22 2004043984

Contents

List of Appendixes ix

Preface xiii

Acronyms and Abbreviations xv

Executive Summary 1

The Challenges 1World Bank’s Performance in the Forest Sector 1Elements of the Strategy 2

Harnessing the Potential of Forests to Reduce Poverty 3Integrating Forests in Sustainable Economic Development 4Protecting Vital Local and Global Environmental Services and Values 5

The Importance of Country Ownership 6Implementing the Strategy: Large Objectives, Modest Beginnings 6

Modifying the Forest Policy 7Developing Demand:The Global Commons and Economic and Sector Work 8Catalyzing Engagement and Investment 9Partnerships 9Selectivity and Sequencing 10

Expectations, Risks, and Realities 11Large Tasks and Institutional Constraints 11Outcomes 11Risks 12

v

CONTENTS

vi

Monitoring 14External Advisory Group 14

1. Challenges and Realities in Forests 15

Importance of Forests 15International Context: Global Conventions and Agreements 16

Global Challenges and Opportunities 17World Bank Forest Performance, Strategies, and Policies 18

OED Review of the 1991 Strategy and Policy 18Additional Indicators of Performance 19New Directions in Bank Priorities 20

Links to Other Bank Strategies and Policies 21Bank Safeguard and Operational Policies 21Integrating Forest Issues in Poverty, Environment, Rural Development,Gender, and Water Strategies 21

Developing and Implementing the New Bank Approach to Forests 22The Importance of Country Ownership 22Developing the Approach 23Implementing the Strategy 23

2. The Forest Strategy: Proposed Bank Action 25

Principles of Engagement and Comparative Advantage and the Pillars of the Strategy 25

Lessons for Engagement in Forests 25Comparative Advantage 25Three Pillars of the Forest Strategy 26

Harnessing Forests’ Potential to Reduce Poverty 26Integrating Forests in Sustainable Economic Development 29

Cross-Sectoral and Macroeconomic Linkages 29Expanding Nonfarm Rural Activities: Role of Small-Scale Forest Product Enterprises 31Governance in the Forest Sector: Forest Crime, Corruption,and Regulation 31Building a Role for Civil Society in Sustainable Forest Management 32Approach to World Bank’s Forest Policy and Sustainable Forest Management 34

Protecting Vital Local and Global Forest Values 37Evolving Perception of Protected Area Strategies 37Fostering Markets for Ecological Public Goods 37Fostering the Linkage between Forests and Climate Change 38Fostering Linkages between Poverty Reduction and Forest Conservation Strategy 39

vii

CONTENTS

Aligning Regional Programs with Corporate Objectives 40Africa 40East Asia and Pacific 41Europe and Central Asia 42Latin America and Caribbean 42Middle East and North Africa 43South Asia 43

3. Implementing the Strategy: Building Effective Partnerships 45

Issues in Implementation 45Building Effectiveness 45

Developing the Partnerships Necessary to Implement the Strategy 46Donor and National Stakeholder Partnerships 46Nongovernmental Organization Partnerships 49Improving Links to the Private Sector 51

Improving Internal Bank Working Relationships and Accountabilities 53International Finance Corporation and Multilateral Investment Guarantee Agency 53World Bank Institute 53Role of the ESSD Forests Team 53

4. Implementing the Strategy: Incentives, Selectivity,and Deliverables 55

Building the Internal Bank Commitment to Forests 56Increasing Economic and Sector Work 56Using Partnerships to Leverage Impact 56Seeking Blended Financing to Address Local and Global Forest Issues 57Supporting and Strengthening the World Bank/WWF Alliance 57Increasing Involvement with Private Sector Partners 57

Selectivity 58Alignment and Selecting Countries for Focus 58Developing the Focus on More Flexible Lending 58

Expectations and Realities: Risks and Monitoring Progress 59Institutional Realities 60Some Potential Broad Outcomes, in Perspective 60Risks 61Monitoring the Bank’s Role 64External Advisory Group 65

Notes 66

Bibliography 68

Index 74

CONTENTS

BOXES

1.1 Why Forests Are Important 161.2 World Bank and Forests 191.3 Staff Survey: Effectiveness of 1991 World Bank Forest Policy

and Strategy 203.1 Functions of the United Nations Forum on Forests 463.2 Principles of National Forest Programs 463.3 World Bank/WWF Alliance Targets for Forest Conservation

and Improved Management 50

FIGURE

2.1 The “Pyramid”—A Diagnostic and Planning Tool for Good Forest Governance 35

TABLE

4.1 Appropriate Forest Investments 59

viii

Note: These appendixes are included on the CD-ROM that accompanies this book.

Acronyms and Abbreviations A–vi

1. Management Responses to Operations Evaluation Department Recommendations on Forest Strategy and Policy A–1

2. Forests and Poverty Reduction A–3

3. Integrating Forests in Economic Development A–13

4. Protecting Global Forest Values A–31

5. Regional Strategies and Projections A–37

6. Bank Experience with Strategy and Policy in Forests:Lessons and Incentives A–47

7. World Bank Forest Strategy Consultation Process and Feedback A–53

8. Analytical Studies on Forests A–59

9. Forest Portfolio Data 1992–99 A–63

Notes A–77

ix

Appendixes

APPENDIXES

x

BOXES

A2.1 Sustainable Livelihoods Analysis A-4A2.2 Gender in Collaborative Forest Management A-7A2.3 Hill Community Forestry in Nepal A-8A2.4 Joint Forest Management in India A-9A2.5 Participatory Forest Land-Use Planning in Bolivia A-10A3.1 Cost of Forest Fires in Indonesia A-15A3.2 Forests of Georgia: Unrealized Potential A-16A3.3 Paying for Environmental Services in Costa Rica A-17A3.4 Contribution of Agroforestry Farming Systems to Household

Incomes A-19Bank-Sponsored Agroforestry Projects in China A-19

A3.5 World Bank Support for Small Enterprise Development in the Philippines A-20

A3.6 Successes and Failures in Bank-Financed Adjustment Operations:The World Resources Institute View A-22

A3.7 Costs of Forest Corruption A-24A3.8 Forest Law Enforcement in the Mekong Countries A-25A3.9 Independent Certification A-26A4.1 Conservation Trust Fund for Papua New Guinea A-33A4.2 Prototype Carbon Fund A-34

FIGURES

A3.1 Pyramid Model for Assessing Progress Toward Sustainable Forest Management (SFM) A-27

A4.1 Bank/GEF Investment in Biodiversity Projects A-32A9.1 World Bank Commitments for Specific Forest

Sector Activities, 1992–99 A-64A9.2 World Bank Annual Disbursements for Forest Sector and Forest

Components of Non-Forest-Sector Projects, 1992–99 A-65A9.3 Net Change in World Bank Forestry Economic and

Sector Work, 1992–95 and 1996–99 A-70

TABLES

A2.1 Forest Outputs and Rural Livelihoods A-5A3.1 Market and Nonmarket Forest Values A-14A3.2 Bank Initiatives for Diverting Highways away from Biodiversity Reserves A-21A7.1 Regional Consultation Schedule A-54A7.2 Principal Issues from Regional Consultations A-55A8.1 Analytical Studies Topics A-59

APPENDIXES

xi

A9.1 World Bank Commitments for Specific Forest Sector Activities by Region, 1992–99 A-63

A9.2 World Bank Annual Disbursements for Forest Sector Projects by Region, 1992–99 A-64

A9.3 World Bank Annual Disbursements for Forest Components of Non-Forest-Sector Projects by Region, 1992–99 A-64

A9.4 World Bank Annual Disbursements for Forest Sector and Forest Components of Non-Forest-Sector Projects by Region, 1992–99 A-65

A9.5 World Bank–Implemented GEF Overall Projects and Forest Projects by Region, 1992–99 A-66

A9.6 World Bank–Implemented GEF Forest Projects by Region, 1992–99 A-66A9.7 Comparison of Forest Sector Lending by Project

Type and Region, 1992–99 A-67A9.8 Net Change in World Bank Forest Economic

and Sector Work, 1992–99 A-68A9.9 World Bank Forest Economic and Sector Work, 1992–99 A-69A9.10 World Bank Expenditures for Project Preparation, Appraisal,

Supervision, and Completion for a Sample of Forest and Forest Component Projects, 1992–99 A-71

A9.11 Completed Forest Sector Projects, 1992–99 A-72A9.12 Completed Non-Forest-Sector Projects with Forest

Components Greater than 75 Percent, 1992–99 A-73A9.13 Sample of Completed Forest Sector Projects and Non-Forest-Sector

Projects with Forest Component of Greater than 75 Percent, 1992–99 A-74A9.14 Task Manager Specialization for World Bank Forest Sector

Projects, 1992–99 A-75A9.15 Task Manager Current Unit for World Bank Forest Sector

Projects, 1992–99 A-75A9.16 Task Manager Specialization for Non-Forest-Sector Projects

with Forest Components of Greater than 75 Percent, 1992–99 A-75A9.17 Task Manager Current Unit for Non-Forest-Sector Projects

with Forest Components of Greater than 75 Percent, 1992–99 A-76A9.18 Average Number of Task Managers for Active and Completed

Forest Sector Projects with Forest Component of Greater than 75 Percent, 1992–99 A-76

A9.19 Average Number of Task Managers for Active and Completed Non-Forest-Sector Projects with Forest Component of Greater than 75 Percent, 1992–99 A-76

xiii

The World Bank Group consists of closely associated but legally and financially distinct institutions that sup-port development in low- and middle-income client countries.

The International Bank for Reconstruction and Development (IBRD) and the International DevelopmentAssociation have a mandate to lend to sovereign governments. They often are referred to as the World Bank.Through its ongoing dialogue with client governments on a wide range of issues and its financial support tothe public sector, the World Bank is in a position to support government policy on a wide range of issues.

The International Finance Corporation (IFC) promotes sustainable private sector investment to enhanceeconomic growth and improve the lives of the poor. It operates principally through direct or indirect supportof private sector projects.

The Multilateral Investment Guarantee Agency (MIGA) provides guarantees against certain noncom-mercial risks (primarily political risk insurance) to foreign investors for qualified investments in developingcountries.

The International Centre for Settlement of Investment Disputes provides facilities for the settlement—byconciliation or arbitration—of investment disputes between foreign investors and their host countries.

The five World Bank Group institutions are aligned to the core mission of poverty reduction; therefore, theoverall vision, strategic framework, and objectives of this Forest Strategy are shared by the entire World BankGroup. The specific implementation tasks identified in the Forest Strategy document are addressed to the WorldBank. IFC and MIGA will implement the Forestry Strategy through their ongoing emphasis on financing/insuring private sector investments that improve forest management and sustainable outcomes. As for IFC’sforestry policy, it should be noted that all of IFC’s environmental and social safeguard policies are the subject ofa comprehensive review by IFC’s Office of the Compliance Advisor and Ombudsman. In addition, any futuresafeguard policy formulation for the forestry sector needs to be congruent with the findings of that review andconsistent with IFC’s need to provide clear policy guidance for private sector investments. For these reasons,the World Bank’s approach to the Forestry Policy described in chapter 2 of this strategy may not apply in itsentirety to IFC.

This book is accompanied by a CD containing background materials on how the World Bank’s Forests Strat-egy was developed, including the stakeholder consultative process, as well as information on the role of forestsin poverty reduction, economic development, and the provision of environmental services that helped to shapethe strategy. World Bank safeguard policies relevant to forests and a short video highlighting the strategy’sobjectives are also included in the CD.

Preface

xv

Acronyms and Abbreviations

AFR Africa Region

CAS Country Assistance Strategy

CBD Convention on Biological Diversity

CDF Comprehensive DevelopmentFramework

CDM Clean Development Mechanism

CEO Chief executive officer

CEPF Critical Ecosystem Partnership Fund

CFM Collaborative forest management

CI Conservation International

CIFOR Center for International Forest Research

CGIAR Consultative Group on InternationalAgricultural Research

CODE Committee on DevelopmentEffectiveness

CPF Collaborative Partnership on Forests

CTF Conservation Trust Fund

EAG External advisory group

EAP East Asia and Pacific Region

ECA Europe and Central Asia Region

ECOSOC United Nations Economic and SocialCouncil

ENFP Enhanced national forest program

ESSD Environmentally and SociallySustainable Development VicePresidency (or Network)

ESW Economic and sector work

EU European Union

FAO United Nations Food and AgricultureOrganization

FPIRS Forest Policy Implementation Reviewand Strategy

FSC Forest Stewardship Council

FSSP Forest sector strategy paper

GDP Gross domestic product

GEF Global Environment Facility

GNP Gross national product

ha Hectare

HIPC Heavily indebted poor countries

IBRD International Bank for Reconstructionand Development

ICRAF International Centre for Research in Agroforestry

IDA International Development Association

IFC International Finance Corporation

IFF Intergovernmental Forum on Forests

IIED International Institute forEnvironment and Development

IMF International Monetary Fund

IPF Intergovernmental Panel on Forests

ITFF Interagency Task Force on Forests

ITTO International Tropical TimberOrganization

IUCN The World Conservation Union

ACRONYMS AND ABBREVIATIONS

xvi

IUFRO International Union of Forest ResearchOrganizations

JFM Joint forest management

LAC Latin America and Caribbean Region

MDGs Millennium Development Goals

MIGA Multilateral Investment GuaranteeAgency

MENA Middle East and North Africa Region

NGO Nongovernmental organization

NFP National forest program

NTFPs Nontimber forest products

OD Operational Directive

OECD Organisation for Economic Co-operation and Development

OED Operations Evaluation Department

OP Operational Policy

OPCS Operations Policy and CountryServices

PCF Prototype Carbon Fund

PROFOR Program on Forests

PRSP Poverty reduction strategy paper

SAR South Asia Region

SFM Sustainable forest management

TAG Technical advisory group

TNC The Nature Conservancy

UN United Nations

UNDP United Nations DevelopmentProgramme

UNEP United Nations EnvironmentProgramme

UNFF United Nations Forum on Forests

UNFCCC United Nations FrameworkConvention on Climate Change

UNGASS United Nations General AssemblySpecial Session for Review andAppraisal of Agenda 21

WBI World Bank Institute

WRI World Resources Institute

WWF World Wide Fund for Nature/WorldWildlife Fund

THE CHALLENGES

More than 150 heads of state have declared thathalving extreme poverty by 2015 is central to theUnited Nations’ Millennium Development Goals(MDGs).1 These goals include increasing schoolenrollment, reducing child and maternal mortality,expanding health services, eliminating gender dis-parities, and improving environmental managementfor sustainable development. The World Bank sup-ports these goals by emphasizing the social andstructural dimensions of development, focusing itsefforts, increasing selectivity, and emphasizing part-nerships and transparency. As a result, the Bank ispursuing global and corporate advocacy prioritiesand areas of core competencies.

A Forest Strategy for the Bank that can make aneffective contribution to poverty reduction andenvironmental management is central to achievingthe MDGs. Forest resources directly contribute tothe livelihoods of 90 percent of the 1.2 billion peopleliving in extreme poverty and indirectly support thenatural environment that nourishes agriculture andthe food supplies of nearly half the population of thedeveloping world. Forests also are central to growthin many developing countries through trade andindustrial development. However, mismanagementof this resource has cost governments revenues thatexceed World Bank lending to these countries. Illegallogging results in additional losses of at least US$10billion to US$15 billion per year of forest resourcesfrom public lands. If captured by governments, these

losses could support expenditures in education andhealth that will exceed current development assis-tance to these sectors.

Forests also are central to maintaining the envi-ronmental commons. Nearly 90 percent of terrestrialbiodiversity is found in the world’s forests, with a dis-proportionate share in the forests of developingcountries. Most of the carbon emissions of develop-ing countries come from deforestation, whichaccounts for between 10 and 30 percent of global car-bon emissions. Unfortunately, the lack of markets forthe national and global environmental servicesoffered by forests has contributed to high rates ofdeforestation in developing countries. Growingforests are a valuable resource not just for their tim-ber and biodiversity values but also for their prospec-tive value if a global market emerges for the seques-tering of carbon from forests.

WORLD BANK’S PERFORMANCEIN THE FOREST SECTOR

The Bank’s performance in the forest sector over thepast decade has been unsatisfactory. The WorldBank’s 1991 Forest Strategy and 1993 Forest Policyfocused largely on environmental issues and protectingtropical moist forests. They reflected rising interna-tional concern about the rate of tropical deforesta-tion and strongly emphasized the need to preserveintact forest areas. While the 1991 Strategy recog-nized the role that forests could play in poverty

Executive Summary1

reduction and the importance of policy reforms incontaining deforestation, its hallmark was a strongcommitment not to finance commercial logging inprimary tropical moist forests.

In practice, this emphasis on safeguarding forestshas meant that little attention was paid to the activemanagement of natural forests in the tropics andtherefore to the poverty-reduction potential offorests. The 1993 Policy led to a generally passive “dono harm” stance on natural forests in the tropics.Interventions designed to more proactively improveeconomic and environmental management of thoseforests often were seen as too costly and risky. Whatthe World Bank’s Operations Evaluation Department(OED) has termed “the chilling effect” permeatedoperations in the Bank Group, including the Interna-tional Finance Corporation (IFC) and MultilateralInvestment Guarantee Agency (MIGA) (Lele and oth-ers 2000f).

Furthermore, the 1991 Forest Strategy did notclearly define implementation mechanisms. As a con-sequence, countries rich in forest resources have notreceived World Bank funding, nor have they benefitedfrom strong research and analytical sector work (inthe Bank, termed economic and sector work, or ESW)or engaged in a strong dialogue on Forest Policy andStrategy. The bulk of the US$3.7 billion lent by theWorld Bank for forests during the 1990s went toChina, India, and Eastern Europe. The OED reviewconcluded that the Bank had been “irrelevant” inslowing deforestation despite its commitment to thisobjective in its 1991 Forest Strategy. Therefore, theWorld Bank needs to modify its strategy, expand itspolicy to explicitly include all forest areas, and refocusthe strategy on poverty reduction and economicmanagement, including good governance.

Moreover, it is now acknowledged that theimpacts on forests and forest-dependent peoples ofwhat the Bank does in support of policy reforms andinvestments outside the forest sector are equal to, oreven greater than, its forest sector activities. Nonfor-est interventions, such as rural development andinfrastructure programs and projects and economicadjustment measures, must be carefully formulatedto take account of their influence on forest outcomes.

ELEMENTS OF THE STRATEGY

The Bank’s Comprehensive Development Framework(CDF) requires the institution to retain a broad diag-nostic and analytical capability but be selective in its

2

SUSTAINING FORESTS A DEVELOPMENT STRATEGY

direct assistance, seeking its comparative advantageand working with clients and partners. Through thisapproach, it is expected that the Bank will maintain ahigh degree of economic and technical work whileconsulting widely with partners and stakeholders.

Building the Bank’s new Forest Strategy has fol-lowed this model of analysis and consultations. Atwo-year process of analysis and consultation gath-ered input from development partners and stake-holders around the world, including governments,civil society in developing and developed countries,industry, forest-dependent peoples, and partnerdonor agencies and UN bodies (appendix 7). Theprocess also included broad consultations with Banktask managers and other staff.

These consultations were supported by extensiveanalytical, technical, and economic studies, somecommissioned by the World Bank and others done inparallel by independent institutions and nongovern-mental organizations (NGOs) on a wide range ofsubjects (see appendix 8). Among other things,these studies emphasized the importance of address-ing governance and quantified the costs of poor forestmanagement and illegal activities for several coun-tries. The studies also confirmed the close linkbetween the livelihoods of the poor and forests andhelped to refute the largely false notion that the poorare the cause of deforestation in developing countries.The studies also identified strategic approaches to for-est issues, including participation and partnerships.

From this process, the revised Forest Strategy hasbeen built on three equally important and interde-pendent pillars:

� Harnessing the potential of forests to reducepoverty

� Integrating forests in sustainable economicdevelopment

� Protecting vital local and global environmentalservices and values

Addressing these three aspects together makes a For-est Strategy complex and multifaceted. It is not onlyabout growing or protecting trees but also involves acomplex interaction of policy, institutions, andincentives. A narrow perspective on forestry—evensustainable forestry—is insufficient. To be effective,the strategy demands a multisectoral approach thataddresses cross-sectoral issues and takes intoaccount the impacts of activities, policies, and prac-tices outside the sector on forests and people whodepend on forests for their livelihoods.

Within these three pillars of engagement, theBank must be selective in the activities it supports. Inbroad terms, the Bank will focus on economic policyand rural strategies that embrace both conservationof vital environmental services and sustainable use.It will provide institutional and policy support forcommunity and joint forest management, gover-nance and control of illegal activities, building mar-kets, and financial instruments in support of privateinvestment in sustainable forest conservation andmanagement. It will emphasize the development ofnew markets and marketing arrangements for thefull range of goods and environmental services avail-able from well-managed forests. For the IFC and theMIGA, the major focus will be to support privateinvestments in sustainable forest management(SFM), conservation, and rural forest industries.

Harnessing the Potential of Foreststo Reduce Poverty

Implementation of the revised Forest Strategy willmake a significant contribution to meeting the goalsof the Bank’s revised Rural Development Strategy.This strategy refocuses the rural development processto concentrate on improving the well-being of ruralpeople and reducing poverty in the widest sense. Thelatter entails much more than increasing the averageincome of rural people. It envisions improving thequality of rural life. The underlying concept for thisstrategy is a developing world in which

� Rural residents enjoy a standard of living and aquality of life that are not significantly below thatavailable to urban residents;

� Rural communities offer equitable economicopportunities for all their residents regardless ofincome, status, or gender;

� Rural communities become vibrant, sustainable,and attractive places to live and work;

� Rural areas contribute to national developmentand the overall economy and are dynamicallylinked to urban areas;

� Rural areas adapt to ongoing economic, social,cultural, and technological change.

Analytical studies and field experience show thatforest outcomes are crucial for poverty reduction inmany of the Bank’s client countries. This result istrue in countries with large forest endowments aswell as in those with limited forests, although thenature and urgency of the challenge may vary. If

3

EXECUTIVE SUMMARY

forest issues are not fully incorporated in a broadassistance strategy, the broader goals of povertyreduction will not be met.

Effectively addressing the poverty issues relatedto forests is not straightforward. Experience hasshown that remedial strategies can generate internalconflicts. Assistance should be provided judiciouslyto those dependent on or who live near forests sothat they may develop their abilities to service theforest products market. If this is not done correctly,it could increase competition for the forests, excludeaccess to the poorest of the poor to essential forestproducts, and disrupt communal systems of man-agement by groups that traditionally have relied oncommon property forest resources for meetingessential fuelwood, grazing, and other needs. TheBank will need to rely on its partners—particularlycivil society—and on pilot operations supported byothers to demonstrate feasible approaches that canthen be scaled up to make a significant contributionto social, environmental, and economic objectives.

Within this framework, the Bank’s strategy willfocus on creating economic opportunity, empower-ment, and security for rural people, especially thepoor and indigenous groups. The main instrumentwill be through policy and institutional strengthen-ing to ensure that the rural poor are able to managetheir natural resources, especially forests, for theirown benefit. It will assist governments in buildingthe capacity to support and regulate community useof forests and plantations. Special attention will bedirected to the welfare of some 60 million indige-nous tribal peoples living in the rain forests of WestAfrica, Latin America, and Southeast Asia who havehigh levels of dependence on forest resources.Impacts will be reflected in strengthened tenurerights, improved food security, and spiritual welfareamong the poorest of the poor through assuredaccess to essential forest products on which theydepend primarily for subsistence.

Equally important will be the Bank’s support tocollaborative forest management systems that areemerging in India and many other parts of the worldand that have proved to be both beneficial and sus-tainable when managed correctly. Contemporaryapproaches to Protected Areas include the concepts ofthe World Conservation Union (IUCN) Category VIwhich cover “areas containing predominantly naturalsystems managed to ensure long-term protection andmaintenance of biological diversity while providing atthe same time a sustainable flow of natural productsand services to meet community needs.” Using this

broader definition suggests that community-man-aged forests, for example, those in India, also shouldbe recognized for their major contribution to thepreservation of biodiversity, carbon sequestration,and other environmental services. In support of forestoperations, IFC and MIGA have important roles incontinuing to support private investments in SFM,conservation, and rural forest industries. In collabora-tion with its client countries and partners, the Bank’sprimary roles will be

� To work with client countries to strengthen pol-icy, institutional, and legal frameworks to ensurethe rights of people and communities living inand near forest areas;

� To ensure that women, the poor, and other mar-ginalized groups in society are able to take a moreactive role in formulating and implementingrural forest policies and programs;

� To support the scaling up of collaborative and com-munity forest management so that local people canmanage their own resources, freely market forestproducts, and benefit from security of tenure;

� To work with local groups, NGOs, and other part-ners to integrate forest, agroforestry, and smallenterprise activities in rural development strategies.

Integrating Forests in SustainableEconomic Development

The analytical work and consultations have demon-strated that forests are one of the developing coun-tries’ most mismanaged resources. The reasons arethat forests are seriously undervalued, many of theirenvironmental benefits do not enter markets, andpoor governance has fueled illegal activities. In addi-tion, the impact on forests of policy and investmentsin other sectors is not well understood or is disre-garded. Although some level of deforestation is likelyto continue even with strong economic managementand governance, the rapid rates of deforestation inrecent decades are largely a result of the spillover ofpoor policies in other sectors, including macroeco-nomic and trade policy, and lack of effective gover-nance in the sector.

The Bank will need to focus on helping govern-ments improve policy, economic management, andgovernance in the forest sector, including forestconcessions policy and allocations. By supportingapplied research and improving economic analysis,the Bank will assist governments to evaluate their

4


policies and interventions and support reformsthrough adjustment credits and loans. It will alsoneed to examine the nature of those adjustmentoperations more carefully, in terms of their potentialimpacts on forests. During the consultative phase informulation of this strategy, a number of commen-tators noted that the proposed new forestry policydid not address potential forestry impacts of pro-grams supported by Bank adjustment lending.Because the time frame for an update of the Bank’sadjustment lending policy remained uncertain,some suggested that the Bank put in place a trans-parent set of procedures for systematically identify-ing significant forestry impacts associated with Bankadjustment operations, analyzing such impacts, and,if necessary, adopting and implementing appropri-ate mitigating measures.

In response to these concerns, the Bank hasdeveloped an approach to deal with development ofa new adjustment lending Operational Policy (OP)in a timely manner and to address potential prob-lems in the intervening period. This approach is out-lined in chapter 2, in the section on “IntegratingForests in Sustainable Economic Development.”

The Bank also will support government efforts tobring about socially, ecologically, and economicallysound management of production forests. In thisregard, the Bank also will encourage independentmonitoring and certification of forest operations—anincreasingly accepted approach to ensuring goodforest management. Independent monitoring andcertification will be additional to the Bank’s regularimplementation and safeguard procedures. It will helpensure that any direct Bank Group investments in pro-duction forests or indirect support through financialintermediaries or forest industries are contributing toimproved forest management and more sustainableoutcomes, including the protection of biodiversity andecologically and culturally sensitive areas.

In supporting independent certification, theBank will not endorse any one particular approachto certification. Outside the Bank there is an ongo-ing discussion on “mutual recognition” among vari-ous certification groups that is seeking to harmonizestandards and approaches. However, in the absenceof any broad stakeholder consensus on the accept-ability of particular systems, the Bank has adopted aset of principles and criteria to assess the adequacyof different certification systems in relation to recog-nized standards of economically, environmentally,and socially sustainable development. These princi-ples and criteria are discussed in chapter 2 of this

report and have been incorporated as a screeningtool in the OP. A key requirement is that the certifi-cation system incorporates reliable and independentassessment procedures.

Formal market-based certification systems arefinding increasing use in situations where a signifi-cant proportion of forest production enters environ-mentally discriminating domestic or internationalmarkets. They are less relevant in situations wherethe bulk of production will go to nonenvironmen-tally discriminating domestic markets. In these situ-ations, the Bank will work with borrowers to ensureindependent assessment through an open process ofreview by the main participants and interest groupsinvolved or affected by the forest use in question.These evaluations will be based on the standard andobjectives of the operation that will be establishedwith these groups at the outset.

The Bank has also worked with a number of part-ners to develop diagnostic tools based on a stagedmodus operandi that allows for periodic independentassessment of the progressive steps needed to put inplace a sound legislative, institutional, and fiscal pol-icy framework for improved forest management.

The Bank’s primary roles in supporting theobjectives of the second pillar will be as follows:

� To analyze and coordinate policies and projectsto ensure a cross-sectoral approach to planningand implementation of SFM, conservation, anddevelopment. In this context, the Bank will sup-port governments in making policy and institu-tional reforms to reduce the pressures on forestsfrom activities and interventions in other sectors

� To support improved governance through reformof inappropriate timber concession and subsidypolicies and the encouragement of multistake-holder involvement in the development andimplementation of Forest Policy and practice

� To assist governments in containing illegal activ-ities and corruption through improved forestlaws, regulations, and enforcement

� To address finance, fiscal, and trade issues relatedto the forest sector and forest products to enablegovernments to capture a higher portion of forestrevenues for sustainable social and economicdevelopment. The Bank will promote catalyticinvestments in the full range of goods and envi-ronmental services available from well-managedforests. These investments will be able to includesustainable timber harvesting and management,but only in areas outside critical forest conservation

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EXECUTIVE SUMMARY

areas in situations that can be independentlymonitored through a system of independentverification or certification that meets nationallyagreed and internationally acceptable standards

Protecting Vital Local and GlobalEnvironmental Services and Values

Implementation of the revised Forest Strategy willmake a significant contribution to meeting the goalsof the Bank’s July 2001 Environment Strategy. Thethree pillars of the revised Forest Strategy corre-spond closely with the main objectives of the Envir-onment Strategy: improving the quality of life,improving the quality of growth, and improving thequality of global commons. Both strategies recog-nize the importance of cross-sectional issues, main-streaming policy dialogue, governance, designinginterventions with selectivity, and fostering bettercooperation with development partners. An area ofparticular concern to both strategies is the protec-tion of the vital local and global environmental serv-ices provided by forest ecosystems.

Protected Areas have been the traditional methodused to protect biodiversity and other key environ-mental services. At present, more than 600 millionhectares (ha) of Protected Areas have been estab-lished in developing countries. However, while manyof these areas are economically inaccessible, otherareas are under increasing pressure from develop-ment and illegal activities, including logging andpoaching. Many governments do not have theresources to effectively administer and protect theseareas. In addition, other forests outside ProtectedAreas that are ecologically sensitive and rich in bio-diversity are under increasing threat.

OED noted the inherent difficulty in protectingforests that are in high demand for a range of fre-quently mutually exclusive uses by competinggroups within society. Although the Bank has gener-ated significant increases in funding for biodiversityprotection and related purposes, this contribution isdwarfed by the incursions into forests. The problemof invasive pressures is likely to worsen unless signif-icant additional funds for protection can be madeavailable from multiple sources, at highly conces-sional or on grant terms, or unless effective marketsfor the ecosystem values of forests can be developed.

Because of these difficulties, few countries ineither the developing or the developed world havebeen either willing or able to devote more than

10 to 20 percent of their forest areas to strict conser-vation reserves. Given these constraints and thelikely stresses associated with accelerating climatechange and the continued growth in human popula-tions and activity, it is clear that the future of forestsand their dependent biodiversity and human popu-lations is going to be influenced as much—andprobably even more—by how forests outside strictProtected Areas are managed. Thus, improving for-est management practices in production forests out-side strict Protected Areas is an essential componentof any strategy to protect vital local environmentalservices and values.

The Bank will assist in this area by developingand funding mechanisms to ensure that nationalparks receive the minimum funding needed foreffective management and in building and facilitat-ing new markets for forest ecosystem services. Theincreased revenues and incomes that national gov-ernments and local communities can gain fromthese environmental services can serve as a majorincentive to sustain forests.

The Bank’s primary role in implementing thethird pillar will be

� To assist governments to proactively identify andconserve critical forest conservation areas in allforest types in all borrower countries;

� To assist governments to promote the wide-scaleadoption of responsible forest management prac-tices in production forest outside critical forestconservation areas;

� To develop options to build markets and financefor international public goods such as biodiver-sity and carbon;

� To assist governments to develop measures tomitigate and adapt to the anticipated impacts ofclimate change and reduce the vulnerability ofthe poorest people to its effects;

� To assist governments to design, implement, andfinance national markets for local environmentalservices provided by forests;

� To assist governments to strengthen forest invest-ments, policies, and institutions to ensure thatindirect and cross-sectoral impacts of policy andinvestments on high conservation and protectionareas are minimized;

� To ensure that Bank investments and programsin the forest sector and other sectors that couldpotentially harm protected forests and naturalhabitats are implemented according to the Bank’soperational policies and safeguards.

6


THE IMPORTANCE OF COUNTRYOWNERSHIP

As will be elaborated upon throughout this paper, amajor reason for adopting the three pillars of strat-egy outlined above is that they encompass thebroader interests that borrower governments andother local stakeholders have in the managementand use of their forests.

The success of the new approach will be com-pletely dependent on the development of demandfor Bank involvement in various ways from govern-ments and other interest groups. It will also dependon their willingness to take a leadership role in theanalytical and consultative work that underpins thisapproach, so that the results of this work genuinelydevelop country-level consensus and commitmentto whatever lending or nonlending activities areproposed for that country. The partnerships andprocesses proposed in this strategy to implement thenew approach have been chosen with a view to theircompatibility with country ownership.

IMPLEMENTING THE STRATEGY: LARGEOBJECTIVES, MODEST BEGINNINGS

The importance of the forest sector to povertyreduction, sustainable development, and the main-tenance of environmental services and values is rec-ognized. The gap between performance and visionneeds to be closed. The Bank’s effectiveness in forestshas been declining in some important regions of theworld. As pointed out by OED, involvement in theforest sector is often seen as being high cost andrisky. To increase engagement and demand on thepart of some major client governments, the benefitsof forest operations need to be demonstrated, thecosts of doing business reduced, and the risks bettermanaged.

The tasks involved in the three pillars are large,but the potential outcomes for forests, forest-dependent people, and countries with large forestresources are even larger (see page 13 below). Theprogram for the Bank to reengage in the forest sec-tor therefore begins modestly, recognizing that timeand effort will be needed to build the institutionalcapacity and the expanded demand from borrowersfor Bank involvement to a level that will be on a scalewith the broad goals. In its early stages, it is based onanalysis and consultative work, linked to Bank andnational forest program (NFP) priorities, and is

strongly supported by partnership arrangements.Later developments will depend on outcomes ofthese activities and will proceed in the directionsidentified by client countries.

To achieve even these modest initial measures, theBank will need to undertake a number of specificinternal measures: (a) updating its OP framework;(b) strengthening analysis to ensure that the Bank’sability to adequately consider forest impacts andissues in Country Assistance Strategies (CASs) andpoverty reduction strategy papers (PRSPs) is enhanced;and (c) increasing enhanced loans and credits in thesector, based on a country’s demand and readiness toinvest in sustainable forest conservation and manage-ment. The objective will not be to necessarily havestand-alone forest operations, but to integrate forestissues in the broad agenda of country dialogue, povertyreduction strategies, and economic support.

Implementation of the proposed approach hassignificant implications for the Bank. Steps that willneed to be taken include

� Modifying the 1991 Forest Policy to focus onprotecting environmentally and culturally criticalforest areas and permitting more proactive sup-port of SFM (the new OP was approved by theWorld Bank’s Board of Directors on October 31,2002);

� Developing demand through knowledge sharingand country-driven ESW;

� Working with borrower governments to catalyzeengagement and economically viable, environ-mentally sustainable, and socially responsibleinvestments by the Bank, other donors, and theprivate sector;

� Building and strengthening partnerships;� Applying selectivity and sequencing to the Bank’s

engagement, based on the principles outlined inchapter 4 (see especially table 4.1).

Modifying the Forest Policy

One of the most controversial issues relating to theBank’s operations in the forest sector is the impactof the Bank’s current 1993 Operational Policy onForestry (OP 4.36). In reviewing this policy, theOED, most participants in the regional consulta-tions, the World Bank sector boards, and the Envi-ronmentally and Socially Sustainable Development(ESSD) Council recommended that the currentForest Operational Policy be modified.

7

EXECUTIVE SUMMARY

By changing the OP, the Bank recognized thereality that few countries in either the developed orthe developing world have been willing or able todevote more than 10 to 20 percent of their forestareas to strict Protected Areas and that, irrespectiveof any actions by the World Bank, most accessibleand commercially valuable forests around the worldwill continue to be used for timber productionsooner, in all likelihood, rather than later. The Bankalso recognized that, frequently, the incentives fornonsustainable logging are strong for both govern-ments and the private sector. Very often, the realchoice available is not between doing logging anddoing something less invasive and damaging to theforest, especially when these alternatives have notbeen developed to large-scale market viability.Rather, the choice is between doing logging reason-ably well or doing it destructively so that conversionof the logged-over site to other nonforest usesbecomes almost inevitable. The pace and proximityof agricultural and other forms of development canalso influence this decision, but in any event it isessential that the questions of what forests are usedfor, and by whom, are considered rationally whenmaking it.

The Bank believes it has significant comparativeadvantage in proactively assisting its client coun-tries to improve the quality and sustainability offorest operations; address illegal logging; directmore of the benefits from forestry toward localcommunities; and ensure that logging operationsare carried out in a manner that minimizes theirimpact on biodiversity, water catchment, andother forest environmental functions. Under nocircumstances will the Bank Group invest in non-sustainable commercial logging or logging in envi-ronmentally or culturally critical forest areas, andthis is reflected in the new OP.

Revisions to the Bank’s (OP 4.36), discussed inchapter 2, will permit the Bank to become moreproactive in both identifying and protecting criticalforest conservation areas and in supportingimproved forest management in production forestoutside these areas. These revisions will retain manyof the strengths of the current OP 4.36 and expandits effectiveness by using new initiatives in third-party certification and monitoring that have beendeveloped since the previous OP was adopted in1993. This new approach requires all forest harvest-ing and management operations financed by theWorld Bank to be monitored through independentassessment and certification. These third-party

monitoring and evaluation systems have been devel-oped through various initiatives and organizationsinvolving civil society and the private sector. Therisks associated with this approach are discussedunder the general section on risks toward the end ofthis summary.

In addition, all Bank-supported forest harvestingand management operations are required to con-form to existing Bank policies, including, especially,OP 4.01 (Environmental Assessment), OD 4.20(Indigenous People) to be superseded by OP 4.10(Indigenous People), OP 4.04 (Natural Habitats),OP 4.11 (Cultural Property), and OP 4.12 (Involun-tary Resettlement). The implementation of this fullcomplement of operational policies will provide thebases for ensuring that forest operations meet thehigh standards demanded by many stakeholders inthe sector. Monitoring by government bodies, theBank’s own supervision, and independent third par-ties will provide the necessary assurances that forestoperations are benefiting forest-dependent peopleswhile contributing to economic growth and povertyreduction. Although shortfalls in implementationhave occurred in the past, the Bank has strengthenedits capacity to meet the high standards that it hasimposed on its operations. These standards continueto set the benchmark to which other organizationsin development strive to achieve.

Developing Demand: The Global Commonsand Economic and Sector Work

The Bank has recognized forests as a global environ-mental commons and has elevated conserving andmanaging forests well to be one of its global priorities.To meet this priority, the Bank is committed toimproving both the level and effectiveness of itsengagement in forests and increasing and strengthen-ing diagnostic and analytical work within the Bank onforest sector issues. Unfortunately, forest ESW hasdeclined precipitously in the Bank in recent years. Thenew strategy proposes increasing ESW as a primaryinstrument for enabling the Bank to reengage moreeffectively with borrowers and other partners in forestconservation and management. This will lead toincreased interest in and commitment to sustainableconservation, management, and development of theforest sector on the part of borrowers, other stake-holders, and elements of the Bank itself. Incorporat-ing timely and accurate analysis of the importance offorests into economic and social outcomes will befundamental to the Bank’s achieving its broader goals

8


in poverty reduction and sustainable development.The Bank will need to do the following:

Provide the analytical support for effectively inte-grating forest conservation and management inCASs and into broader poverty reduction and eco-nomic development programs being prepared byCountry and Sector Departments. Where there isappropriate support by borrower governments andBank Country Departments, ESW will be undertakenboth to identify the opportunities for sustainable for-est development and conservation and to determinethe potential impacts on forests and forest-dependentpeoples of nonforest sector activities contemplated bythe Bank through investment, adjustment, and broadpoverty reduction programs. For the most part, thisESW will be sponsored by Country Departments,supported by partnerships and, in some cases,cosponsored by sector units responsible for design ofthe broad programs. This approach is intended to bedemand driven: it will rely on expression of needs asdefined by borrowers and Country Departments. Thelarger question of how Bank management and theBoard will ensure that these larger programmaticinvestments take specific account of natural resourceissues and outcomes in their design is not addressedin any detail here; that will be dealt with in specificdiscussions at the Board on the possible conversion ofOD 8.60 (Adjustment Lending) to an OP, or a revisionof it in its present format.

Develop and maintain an enhanced forest sectorlending portfolio in the Bank. An increased ESWprogram is indispensable for lending. It will need tobe leveraged by strong interaction with borrowercountries, donors, and other stakeholders withcommon interests in the forest sector. This empha-sizes the country ownership focus of the Bank’s newapproach in this sector, without which it is unlikelythat any significant change in either the forest sectorportfolio or forest conservation and developmentoutcomes will result from this work.

While the normal ESW budget of the Bank willfinance most of the sector work, some of these incre-mental activities may be financed through corporateprograms aimed at developing the organization’sfocus on global public goods. As discussed later,knowledge-building partnerships with other privateand public organizations, including the Program onForests (PROFOR), also will contribute to theenhanced knowledge of the forest sector and cross-sectoral impacts.

Catalyzing Engagement and Investment

For the Forest Strategy to be successfully imple-mented, sufficient financing will need to be madeavailable to assist countries to realize their nationalforest objectives for both development and conser-vation. This financing will need to be available onblended terms, ranging from investment funds atmarket rates through to concessional terms, includ-ing grants. To achieve blended terms, the Bank willneed to work together with other donors includingthe Global Environment Facility (GEF), bilateraldevelopment assistance agencies, NGOs, civil soci-ety, and the private sector (including “green” privateinvestment funds) to create the right blend of lend-ing and grant financing from multiple sources.

To catalyze this financing strategy, the Bank willhave to be prepared to raise its own profile and par-ticipation and to make available its own loans andcredits to finance forest operations in close coopera-tion with other institutions and entities. The pro-posal presented in this Forest Strategy is that theBank will support additional lending for the sectorby centrally defraying the costs of preparing forestprojects and programs incurred by Regions andCountry Departments. The longer-term objectivewill be to lower the presently high transaction costsof forest operations by bringing more countries to asituation where they can absorb more programmaticassistance in this sector. This approach will be imple-mented under country programs, based on theinterest and commitment of borrowers, and Coun-try Departments’ willingness to commit to incre-mental lending from their own resources, after someinitial encouragement through corporate funding tocover the higher initial costs of preparing invest-ments in this sector. Attention will be given to theissue of how best to provide incentives for the Bank’sCountry Departments to initiate lending in difficultsectors in which the issues are important to develop-ment and the Bank’s mission but the risks and coststend to be higher than the norm.

As noted, incremental Bank lending needs to besupplemented by other sources of finances. The moti-vation and coordinating framework will be based ona shared agenda for forests, so that all groups are ableto focus their inputs on the same basic set of objec-tives in the sector. In many countries, this frameworkwill be provided by enhanced NFPs. It is important tonote that this concept has been developed through anextensive intergovernmental process which, amongother things, has stipulated that NFPs must be led by

9

EXECUTIVE SUMMARY

governments and developed with the participation ofall stakeholders. These NFPs will address investmentsand policies within the forest sector but also accountfor activities outside the sector that may impact thesuccess or failure of forest operations and policies.Over the next five years, funding for forest activities incountries willing to commit to NFPs or like processeswill be expected to increase significantly. The dis-bursement of these funds will be handled in parallelbut coordinated programs to support countries inrealizing their forest-related objectives.

Partnerships

Partners, including a number of important donors,already have indicated their willingness to worktogether, both analytically and financially, to realizethe objectives of better forest conservation andmanagement at both the country and global levels.Working with its partners, the Bank will need toassist in developing a framework for policy andinvestments. In many countries, the Bank already isoperating within CDFs to establish the overall devel-opment and policy agenda for a country. The pro-posed NFPs will rest within the umbrella of the CDFand form the bases for partnerships in the countries.This proposed Forest Strategy argues that additionalBank investment in fostering partnerships in thethree following areas will be essential to underpin itsown efforts to raise engagement in forests and con-tribute to building coordination and agreement onpriorities for investments and policy reform:

Partnerships with other donors. An existingforests donor partnership, PROFOR, has moved tothe Bank from its previous location in the UnitedNations Development Programme (UNDP), whichbecause of rationalization of the UN system hasdecided to reduce its direct involvement in forests.PROFOR is an analytical, knowledge-building pro-gram, focused on forests and forest-dependent peo-ple, and supported by a group of bilateral donors. Ithas strong linkages to the NFP process, and thereforeto country-managed development of priorities andstrategies for forest-based development. The princi-pal PROFOR donors have strongly supportedmoving PROFOR to the Bank. They see majoradvantages in linking the country-led analytical andknowledge-disseminating capacity PROFOR canprovide to the Bank’s comparative advantages: anability to analyze broadly across sectors and at themacroeconomic level; to establish and maintain

a dialogue with senior political and economicdecisionmakers; to apply a range of lending andnonlending instruments to reform and develop-ment; and to convene public, private sector, and civilsociety stakeholders for these and other relatedpurposes. The move to the Bank will also enablePROFOR to draw on the knowledge and expertise ofother research and policy bodies, including those inthe Consultative Group on International Agricul-tural Research (CGIAR) system, with which theBank has close relationships.

Partnerships with NGOs. The World Bank/WorldWide Fund for Nature (WWF) Alliance for ForestConservation and Sustainable use is a well-developedpartnership for sustainable forest conservation anduse. However, the Alliance requires additional sup-port to increase its ability to draw on the strengths ofeach institution and to mainstream dialogue onimportant issues, including independent certificationand monitoring of forest operations. Another majorNGO partnership is the Critical Ecosystem Partner-ship Fund (CEPF) with Conservation International,which supports the protection and management ofparticularly important areas of biodiversity. Eachpartnership is time bound, with the Bank’s contribu-tion highly leveraged in terms of resource flows.

Partnerships with the private sector. The CEOsForum, chaired by the World Bank president, has ini-tiated a dialogue among leading forest companies,NGOs, and the Bank. Through plenary meetings andworking groups, it has debated major issues such asmanaging forests sustainably and controlling illegalforest operations. In Africa, it has led to a draft codeof conduct that could have significant implicationsfor how responsible logging companies conduct busi-ness in the region. The CEOs Forum needs to widenits contacts in the private sector, especially to intensifythe dialogue with some large institutional investorsthat have expressed interest in working more closelywith the Bank on investments in SFM in some keyBank client countries. The new Forest Strategy willbuild on the CEOs Forum to strengthen its engage-ment with responsible investors in the private sector.IFC and MIGA are crucial to this engagement.

Together, these partnerships will enable the Bankto apply more effectively its multisectoral approach,convening power, and access to economic decision-makers as well as its instruments, such as adjustmentlending, the guarantee instrument, CASs, and otherapproaches to the central objective of improving

10


poverty reduction and economic sustainability out-comes from forests. At the same time, other partnerswill be able to use their comparative advantages andfinancing capabilities to participate in the develop-ment of a broad, cohesive program in forests inmajor forest countries. Importantly, the Bank willmaintain a small, independent technical advisorygroup (TAG) to help monitor implementation of thestrategy and provide advice on any potentially con-troversial proposals for Bank investment support.

The result of these partnerships is to bring to theforest sector both knowledge that is widely sharedand accepted and financing that is blended frompublic and private sources. Combining knowledgeand sufficient financing at a spread of terms and rateswill provide powerful incentives to bring forests intothe mainstream of sustainable development and toassist in maintaining their environmental services tocountries and the globe. Exceeding a threshold ofknowledge and financing will be the most criticalstep to reverse the negative outcomes of increasingpoverty and environmental degradation that oftenaccompany the exploitation of forest resources.

Selectivity and Sequencing

Raising the level of engagement of the Bank willneed to proceed in a measured and prioritized man-ner, particularly given the shortcomings of the pastidentified by OED in its thorough review of theBank’s forest operations. Selectivity and focus acrosscountries will be important, as will linking specificforest interventions with country assistance priori-ties and programs. Two steps are envisaged in thisprocess.

An initial selection of countries on which tofocus incremental ESW and potential follow-upinvestments will need to be made. Obviously,regional and country teams and their client govern-ments will be the primary actors in this process. Inthis selection, between 6 and 8 countries are con-templated for major focus, with perhaps 10 more forsome additional attention. If the Forest Strategy isapproved and the additional resources are providedthrough various sources, preliminary analyses byBank Regional staff indicate significant potential forexpansion in lending for forest activities and policyinterventions, well beyond levels projected underbusiness-as-usual assumptions. Obviously, inpractice, a sequenced approach to expansion will berequired, so that progress on sector analysis, interna-tional cooperation, the establishment of rational

sector objectives and priorities, and the receptivityof the borrower in each case could be assessed.

As each country will be at a different level of readi-ness—with public commitment, institutions, andpolicy at various stages of development—it is impor-tant to prioritize the type of engagement. In the maintext (chapter 4, table 4.1), a hierarchy of engagementis suggested, including the types of activities andassociated estimates of the transaction costs per dol-lar lent. As noted earlier, the high transaction costs forforest operations will require higher-than-normalbudgets for the Bank to prepare investments in thissector. The analytical and consultative processes thatwill be financed under this strategy through increasedESW and the leveraging of ESW through donorpartnerships will lead to better-designed projectswith higher and more specific benefits to the com-munity and country. The knowledge base will be builtthrough sector work, experience from projects, andlearning through monitoring. Once this knowledgebase exists and sufficient agreement emerges fromNFPs on the priorities and basic reforms needed,transaction costs can be reduced to levels more con-sistent with or even below other Bank operations.

EXPECTATIONS, RISKS, AND REALITIES

Large Tasks and Institutional Constraints

The Bank must acknowledge, clearly and unambigu-ously, that the tasks implicit in the three pillars ofthis strategy are extremely large, while the institu-tional and human resources that can be brought tobear on them within the Bank in the short term areconstrained. Some additions to the present staffingbase (see section on Expectations and Realities: Risksand Monitoring Progress, in chapter 4) may be madesoon, but, even with these, the Bank will need to relyon its partnerships, and also on the success of a cat-alytic approach, to play a significant role in achiev-ing the desired objectives.

In the particular case of the forest sector, this isalmost an inevitable situation. The reality is that theflow of funds from private and other sources intoforests in the developing world (and in manyinstances these funds will be focused on unsustainableand even quite destructive practices) will continue todwarf whatever financing the donors and multilaterallending agencies as a group can bring into this sector.Moreover, the flow of funds into cross-sectoral oreconomywide activities that can have major impacts

11

EXECUTIVE SUMMARY

(not necessarily always understood or anticipated)from all sources will always remain considerablylarger than financing going directly into the sectorfrom donors and multilateral lenders. It is essential,therefore, that the Bank and its partners adoptapproaches that will help generate demand for sus-tainable but economically viable activities from bor-rowers and other stakeholders and assist in providingthe means to create an enabling environment forthese forms of forest use. This, in addition to grant-based funding to support the necessary protection offorests that should not be subjected to any form oflarge-scale production, will offer the best prospectsfor success at a scale comparable to the size of theresource and its current problems and issues.

Outcomes

It is useful to consider the magnitude of impacts thatcould result from an effective international programto address the Rio Forest principles, and subsequentintergovernmental agreements on what is needed inforests, to gain some appreciation of the importanceof the task. On the basis of some previous commit-ments by governments and other stakeholders madethrough these processes, and figures on the scale andmagnitude of the forests’ potential contribution todevelopment and environmental protection dis-cussed earlier in this paper, it is reasonable to suggestthat a significant and well-directed effort amongdonors, NGOs, the private sector, and borrowercountry governments and stakeholders should aimto have some meaningful impact on the scale offorest-related problems over the next 5 to 10 years.The following individual goals are suggested as rea-sonable for the international community and othermajor stakeholders as a whole:

Poverty. Improve the livelihoods of 500 millionpeople, most of whom are poor and dependenton forest and tree resources, primarily throughcommunity forest management and development ofagroforestry.

This number, while large, is less than half thenumber of poor people estimated to be dependentto some significant extent on forests for their liveli-hood. This can be regarded as a subset of the MDGon poverty reduction.

Governance. Strengthen the institutional capacityto reduce the losses from illegal logging by US$5 bil-lion per year and improve the management of forest

concessions to increase government revenues byUS$2.5 billion per year.

As noted in chapter 1, the estimated losses fromfailure to collect appropriate royalties and taxes fromlegal forest operations are costing governments aboutUS$5 billion annually. Illegal operations probablycost them a further US$10 billion in lost revenues.Recovery of half the amounts currently lost throughimprovements in the capacity of governments andother stakeholders to collect revenues, raise morereliable sources of financing for forest operations,and control illegal operations would represent a sig-nificant achievement, if not eliminating the problementirely. The Bank’s experience in forest governancereform in Cameroon (see Essama Nssah and Gock-owski 1999) is indicative of the significant level ofimprovement that can be obtained in this fieldthrough a cooperative effort between governmentand other stakeholders to apply the right measures.

Protection and conservation. Bring 50 million haof forests into new Protected Areas and improve themanagement of 50 million ha of currently ProtectedAreas.

These protection outcomes derive principallyfrom commitments governments themselves havemade in recent years, finalized into “stretch” targets asoutlined by World Bank President Wolfensohn at theUnited Nations General Assembly Special Session(UNGASS) for Review and Appraisal of Agenda 21 in1997. A recent midterm review of progress with theWorld Bank/WWF Alliance for Forest Conservationand Sustainable Use indicates that there has in factbeen significant progress with these targets, and it islikely they will be exceeded within the original 2005time frame set by the president.

Sustainable forest management. Bring 200 millionha of global forests under SFM that is independentlyverified and certified. This target is also one of the“stretch” goals enunciated by the Bank president atthe 1997 UNGASS meeting.

Progress with this objective is likely to be slowerthan anticipated in 1997. However, the area of forestunder certification has expanded exponentially sincethen, from virtually nil to about 27 million ha world-wide. About 9 million ha of this total is in Bankborrower countries, of which some 3 million is intropical forest. Given that there are on the order of600 million to 800 million ha of natural forest thatalready are, or will soon be, under some form of con-tractual or informal intent for production activities in

12


the Bank’s borrower countries, it would seem reason-able to aim at bringing 10 to 15 percent of this areaunder improved standards of forest managementwithin a 10-year period. Fulfilling this aim, along withcontinued rapid progress in developed country certi-fication, would achieve the target by then.

Risks

The final section of chapter 4 discusses the mainrisks of adoption of this strategy for the Bank andthe mitigating measures that have been incorporatedto deal with these risks. In brief, these are as follows:

Modifying the Forest Policy. Revising the OP, espe-cially to alter the broad-based ban on Bank supportfor logging in primary tropical moist forest to morecarefully targeted approaches, has been interpretedin some quarters as “opening the floodgates” to Banksupport for unsustainable and destructive practices.

This is untrue, and the realities of the Bank’s inten-tions in this regard are discussed at length in thispaper and will also be reproduced in a Questions andAnswers paper that accompanied the proposed revi-sions of the OP when it was publicly posted. This issueis discussed extensively in chapter 2 of this paper,which makes it clear that the intention of modifyingthe policy in this area was to ensure that the Bankbecomes an effective player in the management offorests in an appropriate manner and to utilize vari-ous new approaches that will allow this to happen.There has been no financing of unsustainable loggingby the Bank in Regions where the ban in the previouspolicy did not apply (since it applied only in primarytropical moist forest). There is in fact no indication ofborrower demand for Bank financing of such activi-ties. Bank support for commercial harvesting activi-ties, in any event, is restricted in the new policy tosituations where there will be independent validationof agreed standards in forest operations.

Credibility of program. There is some risk thatsome observers will conclude that expectations cre-ated by the large tasks listed under the three pillars ofstrategy, and the international community’s overallForest Policy objectives (discussed immediatelyabove), cannot be achieved through the modestprogram of reengagement that is proposed in thisstrategy, and that there is therefore a major credibil-ity gap. A related risk is that borrowers may notdemand the assistance that could be made availablein this sector.

As noted above, the reality is that the flow offunds from donors and multilateral lenders intoforests, for management and protection purposes,will continue to be dwarfed by investments inactivities that may have damaging impacts onforests. The Bank will need to continue to commu-nicate the view that the only available approach is acatalytic one, aimed at building an enabling envi-ronment for sustainable use and effective protec-tion of forests. This will aim at providing an appro-priate enabling environment for financial supportfor sustainable forest conservation and manage-ment from other sources. So far as country demandis concerned, it is emphasized throughout thisstrategy that the ESW-led approach, and its partic-ular focus on developing consensus and analyticalsupport within countries for necessary reforms, isthe best means to develop country ownership forthis approach.

This risk will be further minimized by (a) ensuringthat analytical work and other ESW are concentratedon building momentum and consensus for reform,not on analysis for its own sake, with flexibility so thatresources can quickly be rechanneled to more prom-ising prospects if the dynamic for change is not build-ing; and (b) working closely with partners early in theanalytical process so that understanding and confi-dence through which investments will be successfulcould be built jointly, through strong interaction withborrowers and other stakeholders.

Insufficient incentives. There is a risk that themeasures proposed for reengagement in this strategymay not contain sufficient incentives to overcomeinternal Bank reluctance to engage in this sector, asexemplified in the “chilling effect” identified byOED, and the high transaction costs that are docu-mented in this paper for forest investments.

One of the reasons for pursuing a relativelymodest and cautious reengagement is to allow staffand managers to reduce their exposure to risk whilere-engaging, first through the ESW approach, andthen to investments if and when the necessary com-mitment from stakeholders is built up. The revisedOP will provide a new and proactive atmosphere forforest engagement, and the emphasis on independ-ent assessment and certification in this newapproach to the management of forests also pro-vides collateral monitoring of requirements of othersafeguard policies, since these will enter the criteriaand indicators for such assessment. Again, this willlower the risk of unforeseen problems with compli-

13

EXECUTIVE SUMMARY

ance with these policies. If investment in forestsbecomes more highly demanded as a result of thisnew approach, the Bank will need to consider cor-porate support for the higher preparation andsupervision costs involved, to maintain the momen-tum of reengagement.

It is encouraging to note that at the time ofwriting, the Environmental and Rural SectorBoards in the Bank had initiated a program to hiremore natural resource specialists in the Bank, andit is significant that the Regions have requestedthat an emphasis be given to hiring staff qualifiedto deal with forest issues and programs under thisinitiative.

Partnerships. The approach adopted in this strat-egy is heavily dependent on new partnerships, espe-cially PROFOR, and these carry reputational andinstitutional risks for the Bank.

As detailed in chapter 4, a number of specificmeasures will be negotiated with the PROFORdonors, prior to establishment of the five-year pro-gram in the Bank, to clarify accountabilities, respon-sibilities, and continuity of support for this initiative.

The risks of a program aimed at these outcomesare considerable, but manageable. It should also bepointed out that the risks to the Bank of not adopt-ing a more proactive stance toward forests are alsoconsiderable: There has been a strong expectationamong most stakeholders that the Bank will re-engage in the sector and will revise its policy to allowthis to be done effectively. There is increasing inter-est and attention being paid to the general issue ofthe impacts of nonforest investments on forests, andat the very least the Bank must have an approachthat will allow some of the relevant issues, and off-setting measures, to be analyzed and made ready fortimely incorporation into the design of these largeinvestments: the reputational consequences of inad-vertent damage will be high.

Therefore, within the Bank there is now a majorrequirement for increased attention to quality andcompliance, not just of forest operations but of allinvestment programs that could indirectly impact for-est resources. The costs are equally manageable, evenunder tight budget constraints: the increased budgetsproposed for the program in forests proposed abovewill amount to less than 0.1 percent of the Bank’soverall budget. Critical, however, will be putting inplace the necessary incentives to address difficultissues and manage risks and costs. Meeting this chal-lenge is possible but requires some bold approaches to

how the Bank does business. It also requires the devel-opment of support from governments, the privatesector, and civil society working in partnership toachieve these results. A program that addresses eco-nomic priorities, addresses the well-being of the poor,seeks the voices of all stakeholders, and is open andtransparent in its operation will be essential.

Monitoring

Monitoring of implementation will be an essentialingredient of success. The monitoring of the Bank’sprogram will focus on four indicators:

Developing demand. The effectiveness of incre-mental analytical and consultative activities will bemonitored in the focus countries. Criteria willinclude the alignment of NFPs and like processeswith the major pillars of engagement put forward inthis strategy, the establishment of working partner-ships at the country level with other donors andmajor local stakeholders, and the degree of owner-ship and consensus on major elements of reform inthe sector, including the development of interest andparticipation by major agencies of government inthe agenda. Monitoring will be through analysis ofprograms and focus groups.

Building sector engagement. The test of this compo-nent will come later in the program, in the form of ini-tiating the preparation of investments that haveresulted from the ESW activities supported. In addi-tion to normal Bank quality-at-entry and perform-ance indicators, an important criterion will be theassessment of the degree of parallel financing or cofi-nancing by donor partners and the private sector thatemerges as a result of collaborative activities. Estab-lishing a baseline at the beginning of the program willbe an important measure to allow assessment of thisfactor. Working with the Collaborative Partnership onForests (CPF) will provide a base for monitoringfinancial flows. The amount and direction of financingflows to the forest sector in countries engaged in forestprograms that are consistent with the three pillars ofthis strategy will be an indicator of implementation.

Impact of broader involvement on forestoutcomes. It also will be necessary to evaluate theimpact of the knowledge and analysis generatedthrough this strategy on Bank activities originatingoutside the forests sector: the identification and incor-poration of critical forest issues into cross-sectoral,

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adjustment, and broad programmatic lending and theinclusion of forest topics in broader ESW and CASdevelopment work programs. Monitoring will includeindicators of inclusion of forests in CASs and PRSPs.

Selectivity and sequencing. Effective disbursementand implementation of the incremental activitiesproposed, in the time frame outlined, will be a majorfactor here. The balance of activity types andprogress toward the lowering of overall costs ofdoing business in the sector, through a movement ofcountry situations being addressed up through thehierarchy of engagement as illustrated in table 4.1,will be a major factor for evaluation. Using table 4.1as a model, indicators of types of engagement andcosts will be recorded.

Although these indicators are important to trackprogress, effective monitoring will involve externalstakeholder and technical advisers working withboth Bank senior management and Committee onDevelopment Effectiveness (CODE) engagement.Without some form of accountability that pene-trates to the country level and teams, monitoringwill be an empty exercise. Management will bear theresponsibility to see that the overall objectives of theForest Strategy are being realized.

External Advisory Group

External assessment will be built into the evaluationprocess, continuing the approach used during thepreparation of the forest sector strategy paper(FSSP). Stakeholders will be consulted at every stage.Specifically, an ad hoc external advisory group(EAG) will be formed, utilizing the former TAGformed to assist the Bank with development of thenew strategy and policy as a roster for selection onan as-needs basis. Small teams (8 to 10 members)would be formed for specific tasks, comprisingindividuals from major stakeholder groups (clientgovernments, civil society groups, academic andprivate sector interests, and major donor partners)represented on the former TAG. The EAG processwould be formulated in fiscal year (FY) 2003, in timeto allow selected group(s) to assess design, relevance,and progress of the activities for implementationoutlined below, with a specific objective of advisingon implementation matters related to the Bank’s OPand the overall aims of the strategy as set forwardin the FSPP. In addition, the EAG will regularlyadvise the president of the World Bank regarding itsview of the status of the forest program.

IMPORTANCE OF FORESTS

Important progress has been made in improvingoverall living standards in a significant numberof developing countries. Over the past 40 years,

child mortality rates in developing countries havedropped by more than half, and malnutrition rateshave declined by almost one-third. Despite thesepositive trends, poverty persists in many countries:1.2 billion people live on less than US$1 a day;2.8 billion people live on less than US$2 a day.Mounting evidence demonstrates that poverty—especially in rural areas—can be reduced only bysustainably managing natural resources both for theincome they generate and for the environmentalservices they provide. The forests of the world areone of the most important of these naturalresources.

The link between forest outcomes and povertymay not always be direct, or even evident in somecases. The economic benefits of forests are fre-quently undervalued, and they also often bypass thepoor, because of existing tenure and participationconditions. Undoubtedly, in some cases, the poorwould benefit from removal of forests and conver-sion to land uses to which they have more access,and in some of these cases, this conversion would bejustified from a broader economic and environmen-tal perspective as well. However, decisions on thesematters must recognize the longer-term implica-tions of change to natural systems, especially for thepoor, who typically depend more upon their main-

tenance than do many others. There is considerablepotential for the poor to benefit much more from alltypes of forest use, but this will occur in fact only ifthe right policies, institutions, and implementationcapacity to include them are in place.

In general, forests provide support for nearlyhalf of the 2.8 billion people living on US$2 or lessa day. Thus, forests can—and must—take a farlarger role in meeting the United Nations 2000Millennium Development Goal of halving extremepoverty by 2015. A World Bank Group ForestStrategy must give priority to poverty reduction,while also focusing on lowering the wider risksof environmental degradation, biodiversity loss,and global warming. To meet these priorities, theBank’s strategy must focus on people as well astrees. It must participate in bringing local, national,and international stakeholders together to makedecisions as to how forests are to be protected andused. The strategy also must recognize that forestsare always a part of larger economic, environmen-tal, and governance systems that must worktogether for the goals of poverty reduction, sus-tainable economic development, and environmen-tal protection to be met.

Global agreements and initiatives require theWorld Bank to bring forest issues more deeply intothe poverty reduction and sustainable developmentagendas. The 1992 Rio Earth Summit process hasclosely linked environmental concerns with sustain-able development. New financing instruments areemerging that can considerably change the land-

C H A P T E R O N E

Challenges and Realities in Forests15

16


Forests cover 33 million square kilometers—26 percentof the Earth’s land surface. They fulfill major economicfunctions, help maintain the fertility of agriculturalland, protect water sources, and reduce the risks ofnatural disasters such as landslides and flooding.The world’s forests are home to at least 80 percent ofremaining terrestrial biodiversity and are a major car-bon sink that mitigates climate change.

More than 1.6 billion people depend to varyingdegrees on forests for their livelihoods. About 60million indigenous people are almost whollydependent on forests. Some 350 million people wholive within or adjacent to dense forests depend onthem to a high degree for subsistence and income. Indeveloping countries, about 1.2 billion people relyon agroforestry farming systems that help to sustainagricultural productivity and generate income.Worldwide, forest industries provide employmentfor 60 million people. Some 1 billion people world-wide depend on drugs derived from forest plants fortheir medicinal needs.

In the 1990s, forests were lost at the rate of 15 mil-lion ha to 17 million ha per year, and in some coun-tries up to 2 to 3 percent of forest cover was lost peryear (United Nations Food and Agriculture Organi-zation [FAO] 2000). In some countries in the Asia-Pacific region, forest destruction is responsible for 2to 5 percent per decade of global biodiversity losses,with inestimable losses to ecosystem stability andhuman well-being. Deforestation also accounts forup to 20 percent of the global greenhouse emissionsthat contribute to global warming. Mismanagementof woodlands in humid and subhumid tropical coun-tries significantly contributes to soil losses equivalentto 10 percent of agricultural gross domestic product(GDP) per year.

Forests are consistently and seriously underval-ued in both economic and social terms. For example,in Indonesia, official data show that forests con-tribute 1 to 2 percent of GDP, whereas the Bank esti-

mates that the potential value of forests to that econ-omy is closer to 15 to 20 percent of GDP. Nationallyand regionally, forests provide important watershed,soil management, pollination, and pest managementfunctions that usually are not captured by markets, inaddition to timber and nontimber forest products.For many peoples, forests also are an important partof their cultural and religious heritage and practice.

While extremely difficult to quantify, the eco-nomic value of the ecosystem services of the world’sforests is vast. A 1997 study in the journal Nature esti-mated the global value of the goods and services thatforest ecosystems provide—from timber to climateregulation to water supply to recreation—at someUS$4.7 trillion a year, more than one-quarter of thatyear’s world gross national product (GNP) of US$18trillion (Costanza and others 1997). The authors esti-mated that at least 70 percent of these values aregenerated in developing countries. Subsequent com-ments published in Nature and elsewhere questionedthe basis used to estimate these aggregate figures byCostanza and others. Among the criticisms were,first, nonmarketed values from forests tend to be sitespecific; thus, aggregation, as used in the article, isproblematic. Second, the basic usefulness of valuingthe stock of forests is questionable since what mattersultimately are the changes in human well-being thatresult from incremental changes in the use of specificforest areas.

However, there is general agreement that thevalue of forest ecosystem services that are outside for-mal markets is significant. It also is generally agreedthat relatively little account is taken of these values inmuch of the land-use decisionmaking that drives for-est change. The challenge for policymakers is to bringthese values into markets, cross-sectoral decisions,and macroeconomic policymaking and into thedevelopment of the economy in general.

Sources: Costanza and others 1997; FAO 2000.

BOX 1.1

Why Forests Are Important

scape for financing of goods such as biodiversity andcarbon, both of which are integral to forests andtheir management. The World Bank is prepared andobligated to assist its borrowers to meet their com-mitments under international conventions and to

take advantage of new financing opportunities tomanage their forests.

International Context: Global Conventionsand Agreements

The legal and international framework that governsforest issues has advanced and broadened since thelast Bank Forest Strategy was issued in 1991, bring-ing forth additional concerns and providing newopportunities. The World Bank Group’s new ForestStrategy must be consistent with and support thisemerging international framework.

Rio Earth Summit. The 1992 Declaration of ForestPrinciples at the Rio Earth Summit affirmed thatstates have sovereign rights over their naturalresources, but also recognized that forests are aglobal public good that provides ecosystem servicesof global value and significance, such as biodiversitypreservation, carbon sequestration, and nutrientand hydrological cycling. Throughout the 1990s,forests became a topic of increasing concern, con-tention, and cooperation in diplomatic circles and inthe global marketplace. In October 2000, throughthe Economic and Social Council of the UnitedNations (ECOSOC), the international communitycreated the United Nations Forum on Forests(UNFF), a new international body that will providea platform for high-level policy discussions andcooperation. The Bank is obligated to assist itsclients to meet the commitments and internationalconventions arising from the Rio Earth Summit.

Kyoto Protocol. The United Nations FrameworkConvention on Climate Change’s (UNFCCC) 1997Kyoto Protocol created three “Flexible Mechanisms”to mitigate climate change. Two of these relate tothe Bank’s client countries. The first, “Joint Imple-mentation,” allows parties within the “Appendix 1”countries (developed countries and countries in eco-nomic transition) to transfer or acquire emissionreduction units from any other party. This mecha-nism could play an important role to support SFM incountries in economic transition. The second mech-anism, the “Clean Development Mechanism(CDM),” regulates greenhouse gas emission tradingbetween industrial countries and developing coun-tries. The role of forests in CDM has yet to be fullydefined; however, the protocol holds out the possibil-ity of integrating forest management and conserva-tion with a particular emphasis on reforestation andafforestation activities. This integration could mobi-lize substantial resource flows to developing coun-tries. The Bank is not directly engaged in the political

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CHALLENGES AND REALITIES IN FORESTS

debate that underlies the Protocol but has taken upthe role of testing the market for some of the flexiblemechanisms to ensure that this debate is informedby practical experience. In addition, a Bank represen-tative has chaired the scientific panel examining theevidence on global warming. Because of both thepotential resource flows from markets in carbon andthe need for its clients to adapt to possible climatechange, the Bank has a strong role to play regardingclimate change, especially in the forest sector.

GLOBAL CHALLENGESAND OPPORTUNITIES

Many studies have drawn attention to the formidableglobal challenges presented by forests. These studiesunderscore the point that the forest sector representsone of the most challenging areas in the developmentof community and global public policy.

Despite significant resource flows, internationalconcern, and political pressure, the potential offorests to reduce poverty, realize economic growth,and be valued for their contributions to the local andglobal environment has not been fully realized.A combination of market and institutional failureshas led to forests failing to contribute as significantlyto address these issues as would be possible undergood economic and technical management. Instead,the forest sector often demonstrates the failure ofmarkets and governance to capture its full value.

Failure of governance. Forests often have beendisregarded in economic policy and have beenplundered for short-term gain and, frequently,then removed and replaced by less valuable and lesssustainable activities. Such loss with degradationoften has been at the expense of national econ-omies and rural people who depend on forestresources for their livelihoods. Despite their des-perate need for fiscal resources for development,governments have failed to capitalize on the valueof their forest resources. World Bank estimatesplace the annual revenue loss to governments fromfailure to collect taxes from forest concessions atmore than US$5 billion. In addition, the annualmarket value of losses from illegal cutting of forestsis placed at over US$10 billion.

Need to integrate forests in the fight against ruralpoverty. To realize the international commitmentto halve the number of people living in absolute

poverty by 2015, increased prosperity must bebrought to rural areas, in which the majority of thepoor live. In many developing countries, ruralpoverty cannot be reduced unless forest resourcescan be sustainably developed and better used.Broadly defined, forest resources include denseforests, open woodlands, agroforestry, smallholderwoodlots, and commercial-scale plantations. How-ever, rural strategies often have neglected forests,because the latter are mistakenly viewed as outsidethe mainstream of agricultural development.

Need to deal with conflict in resolving forestissues. Forest Policy has become one of the mostcontroversial and heated issues in development. Touse forests for poverty reduction requires a stronginstitutional framework—and an effective legaland regulatory environment—in which the rights ofspecific groups among the poor are recognized andprotected, while opportunities to develop sustain-able forest businesses are provided to these peopleand other groups. Such a framework often has beenlacking. Dealing with these issues puts a premiumon participation, conflict resolution, and an institu-tional structure attuned not only to the technicaland economic issues in forestry but also theinevitable conflicts.

Failure of markets to capture environmentalservices of forests. Forests deliver some products—primarily lumber and fuelwood—through markets.However, many of forests’ other contributions to theenvironment, biodiversity, and the stability of theglobal climate are not recognized in terms offinancial values and, therefore, go unrecognized inmarkets. Although rarely estimated, the indirectconsequences for a nation’s economy and environ-ment of this undervaluation are likely to be evenmore devastating as local people lose their sources offuelwood and fodder and the protection that intactforests offer their water and soils.

Need to account for global values from forests.Globally, forests are one of the world’s most man-ageable sinks for carbon and the home of most ofthe planet’s terrestrial biodiversity. Because thesevalues contribute to the world’s well-being, they arenot only local values. Climate change will have wide-spread consequences for both the poor and the rich.A world without significant diversity of life has neg-ative economic consequences and will impoverishthe lives of all people.

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To maximize its potential to address these chal-lenges, the Bank will have to focus its efforts—boththose specific to forests and those it undertakes morebroadly that can impact forests and forest peoples—on the roles of forests. Bank activities must facilitateforests’ role in reducing poverty, must integrateforests in sustainable economic growth, and mustprotect the local and global environmental andcultural values that forest ecosystems provide. Inmaking these efforts, the Bank will need to functionat both the country and global levels. Most impor-tantly, its contribution will need to be built onpartnerships, consultation, and participation.Unfortunately, despite its visible economic andpolitical presence in many key forest countries, todate, the Bank has not always been able to rise tothese challenges.

WORLD BANK FOREST PERFORMANCE,STRATEGIES, AND POLICIES

These values of forests and the institutional andmarket failures in managing the sector have notgone unrecognized in World Bank strategies andpolicies, although the emphasis and remedies haveevolved over the years, guided by major policypapers published in 1978 and 1991 (box 1.2).

OED Review of the 1991 Strategy and Policy

In a 1999–2000 review of the Bank’s 1991 policy, theOED lauded the Bank’s ambitious goals and thestrong signal the policy had sent about the Bank’snew emphasis on conservation. However, OEDfound that implementation of the strategy had fallenfar short of these goals and that the logging ban andcontroversy about the policy had had “a chillingeffect” on new forest initiatives. OED asserted thatthe Bank’s direct forest lending had stagnated,“hobbled” by low borrower demand, high transac-tion costs, and fear of public controversy. OEDtermed the effectiveness of the strategy “modest”and called for a new policy that would “make theBank Forest Strategy more relevant and strengthenthe Bank’s ability to achieve its strategic objectives inthe forest sector.” OED called for the Bank to inte-grate forests more closely in its overall mission ofreducing poverty and to bring forest strategies intorural development programs.

OED also recommended that the Bank take amuch more active role in forest-related activities,

extending its reach by mobilizing additional conces-sional resources for the sector and forming partner-ships with national and global stakeholders. Thedepartment also contended that the Bank shouldbroaden its role away from concentrating on moisttropical forests to encompass all types of natural andplanted forests and that conservation efforts shouldbe streamlined and linked to national developmentgoals. OED called for the Bank to mainstream itsforest activities by giving them more weight inmacroeconomic analysis and paying greater atten-tion to forest issues in its other sector operations.The department advised that the Bank should pro-vide its staff adequate resources and incentives“to address the risky and controversial issues of theforest sector.” It also pointed out the impact thatnational governance issues have on forests—particularly regarding illegal logging—and recom-mended that the Bank mobilize national stakehold-ers to improve and monitor governance. Finally,OED called for the Bank to continue its involvementat the global level through participation in the

19


United Nations’ efforts to unite governments toachieve better forest management.

OED’s analysis included a survey of Bank staffinvolved in forest issues. The survey found that stafftended to agree with the overall aims of the 1991policy but saw problems in its specifics and did notbelieve that the Bank had succeeded in its major aimof reducing deforestation (box 1.3).

Appendix 6 (on CD) adds detail to OED’s dataand summarizes the history of the Bank’s forestportfolio from 1992—when the new strategy andpolicy began taking effect—until 1999. The “chill-ing” effect identified by OED is evident: over the1992–99 period, direct Bank investments in forestmanagement in the tropics either declined orremained static at fairly low levels. Appendix 1 sum-marizes the responses to OED’s recommendationsthat are embodied in this revised strategy.

Additional Indicators of Performance

Appendix 9 shows strong regional differences ininvestment in forests and in specific responses to

The World Bank financed its first forest operations—in then Yugoslavia and Finland—in 1949. The earlyprojects financed the purchase of timber equipment.The Bank’s approach evolved from a focus on indus-trial operations to social forestry and agroforestry,then to an emphasis on conservation. Prior to thepublication of its 1978 Forestry Sector Policy (WorldBank 1978), the World Bank Group had supportedforestry primarily by investing in log extraction oper-ations, pulp and paper mills, and technical assistancefor species trials and by strengthening forestry insti-tutions. Forest-related lending was ad hoc and lackedoverall appraisal of the potential of forests to con-tribute to economic development or environmentalprotection. In addition to the role that forest indus-tries play in creating employment and generatingincomes, the 1978 policy paper reflected growingawareness of the ecological functions of forests andtheir contributions to agricultural productivity andenhanced rural incomes.

During the 1980s, rising international concernsabout the escalating rate of tropical deforestation

and its implications for biodiversity loss, globalwarming, and environmental degradation triggereda revision of the Bank’s policy. The ensuing ForestPolicy paper, “The Forest Sector” (World Bank1991e), recognized poverty reduction, policy reformsaimed at containing deforestation, and resourceexpansion as themes. At the same time, the policypaper strongly emphasized preserving intact forestareas and included a Bank commitment not tofinance commercial logging in primary moist tropi-cal forests under any circumstances. The broad goalsof the 1991 strategy were to prevent or significantlyreduce deforestation and to stimulate plantationsand creation of additional forest resources. The strat-egy argued that the existence of major externalitiesarising from forest use and a range of perverse poli-cies and incentives were leading to exploitative andunsustainable use of natural forests by a range ofstakeholders—including the poor, who were seen asa major cause of forest destruction.

Source: World Bank data.

BOX 1.2

World Bank and Forests

sector issues. The data also indicate that the Bank’sforest portfolio in general is in decline. Disburse-ment trends show a decrease since 1995, and theBank’s forward pipeline implies a continuing declinein forest sector projects, unless the priority given toforests changes. Very few forest projects are in prepa-ration for Africa or Latin America, and problemsexist elsewhere as well. ESW in the forest sector, amajor prerequisite in building a portfolio pipeline,fell from US$3.2 million in 1992 to US$870,000 in1999. This decline has been general across all regions.

Staff turnover and high costs also have been con-tributing factors to this decline. An average of 3.2 taskmanagers has been engaged in each forest project,from preparation through close. It is well known andrecognized in the Bank that a high turnover of taskmanagers throughout a project is undesirable forcontinuity and good supervision. The average cost ofpreparing and supervising a forest loan is approxi-mately 1.6 percent of the value of the loan; the Bankproject loan average is on the order of 1.1 percent.This added budgetary cost has been a disincentive to

20


Bank managers to engage in the sector. Some of thisdifference reflects the fact that forest projects tend tobe smaller than average, and some preparationcosts are largely fixed regardless of project size.Nevertheless, the bulk of the difference is due to thecomplexity and high transaction costs of dealing withconsultations and safeguards in this sector. Clearly,there is a need to deal with these costs throughseeking greater efficiencies, selectivity, and reductionin the average costs of forest lending operations.

New Directions in Bank Priorities

As elaborated in chapter 4, the Bank has finalized theselection and definition of its global priorities and isin the process of better aligning global corporatepriorities with country program goals. Forests areincluded in the top five issues singled out as integralcomponents of the Bank’s new global priorities: theenvironmental commons.

The principles underlying the strategic approachto these priorities include effectively mapping them

The Bank’s OED survey of staff concerning the 1991Forest Policy found that:

� The ban on Bank financing of commerciallogging in primary tropical moist forests had noimpact in these areas. A more flexible policy thatencouraged the Bank to enter this realm (on thecorrect side) would have been more effective.

� Forest sector issues were not well integrated in theBank’s broader mission of poverty reduction andeconomically and socially sustainable develop-ment. Performance in the sector would beimproved by promoting more focus on naturalresource protection, institutional reforms, andmultisectoral approaches to forest developmentand plantations.

� Country managers saw forest sector involvement ashigh cost, low return, and risky. Apart from theinstitutional risk factor, the staff believed that therewere internal Bank reasons for this managerial atti-tude. These reasons included inadequate resourcesESW, project preparation, and supervision—all of

whose costs have been relatively high. This pastexperience reflects the reality that, in many situa-tions, politically difficult land use and social andenvironmental issues have had to be addressed inthe course of project design.

� Staff also identified exogenous reasons for mana-gerial reluctance to become engaged in forests.These reasons included the high levels of corrup-tion often present in the sector and inadequateappreciation of the sector and its issues by policy-makers in client countries. The latter was exacer-bated by the low status and influence of forest andenvironment ministries in most cases.

� The Bank could and should become a globalleader in forest-related matters, such as climatechange, carbon and the Clean DevelopmentMechanism, biodiversity conservation, and natu-ral resources management. A clearer strategy andincentives, with the necessary resources, wouldallow better use to be made of GEF resources.

Source: World Bank 2000g.

BOX 1.3

Staff Survey: Effectiveness of 1991 World Bank Forest Policy and Strategy

into country programs, applying realistic stretch tar-gets for individual priorities, and developing theaction programs and cost estimates to do so. Theseprinciples are adopted for forests in this strategy. Inthe strategic approach to the global priorities, theneed to centrally budget and finance these priorities isrecognized as an incentive for implementation at thecountry level. Chapter 4 gives specific attention to thisaspect of implementation of the new Forest Strategy.Sector strategies are to focus on the priorities and theneeded programs and targets to achieve them. CASsare to be aligned with the priorities, and sector boardsare to monitor implementation. To ensure alignmentwith its global priorities, the Bank will need to apply amultisectoral approach to forests and integrate forestpriorities and issues in its broader CDF and its majorpoverty reduction initiatives, such as PRSPs.

LINKS TO OTHER BANK STRATEGIESAND POLICIES

Bank Safeguard and Operational Policies

For the Bank to implement a genuinely multisectoralapproach to forests, it would have to address the pol-icy, institutional, and structural issues in broader non-forest sector programs that have particular influenceon forests and integrate forest outcomes in these pro-grams. The current review of OP 8.60, which governsthe implementation of structural adjustment pro-grams, will be of particular relevance in this regard.

Also relevant are the provisions of environmentalassessment embodied in OP 4.01, which require thatimpacts of any proposed activity on the naturalenvironment, human health and safety, and socialaspects are taken into account, referencing Opera-tional Directive (OD) 4.20 (Indigenous Peoples),and Operational Policies 4.11 (Physical CulturalProperty, forthcoming), 4.12 (Involuntary Resettle-ment), and 4.04 (Natural Habitats). OP 4.04 in par-ticular requires that the Bank not support projectsthat, in its opinion, involve the significant conver-sion or degradation of critical natural habitats. Incases in which conversion or degradation of non-critical natural habitats is necessary, the project mustinclude mitigation measures acceptable to the Bank.These mitigation measures include minimizinghabitat loss, for example, strategic habitat retentionand postdevelopment restoration, and establishingand maintaining an ecologically similar ProtectedArea. The Bank accepts other forms of mitigationmeasures only when they are technically justified.

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Integrating Forest Issues in Poverty,Environment, Rural Development, Gender,and Water Strategies

The Bank will need to continue and further exploitits comparative advantage to influence nonforestsector policies that impact forests. It also will need toproactively seek opportunities to integrate the mainelements of this new Forest Strategy into the Bank’sbroader poverty reduction, rural development(including integrated natural resources manage-ment), environment, gender, and water strategies.

In December 1999, the Bank and the IMFendorsed a new framework for poverty reduction.This framework requires the preparation of PRSPsas a basis for providing funding from the Bank andIMF, as well as debt relief under the HeavilyIndebted Poor Countries (HIPC) initiative. Recently,there was intensive dialogue within the Bank con-cerning how to ensure that these PRSPs incorporateand quantify environmental determinants ofpoverty dimensions. The results of this dialogue willbe vital in forming a real link between forest out-comes and broad Bank activities aimed at povertyreduction. Chapters 2 and 3 and appendixes 2 and 3provide some quantification of the economicimportance of forests and their relationships to largenumbers of rural poor. In the formulation of targetcountry PRSPs, it will be important that the strategyand implementation plan for forests provide oppor-tunities to factor forest information in the broaderproposals for poverty reduction.

The rural development and natural resourceframework that has been developed focuses on thetwo highest global good priorities for which theBank’s Vice Presidency for ESSD has responsibility:(1) environmental sustainability and protection ofthe environmental commons, which includesatmosphere (climate change and ozone depletion),bio-diversity, forests, food and water security, andland management; and (2) long-term social sustain-ability, with emphasis on the empowerment of poorpeople, voice, engaging civil society in dialogue,community-based development, and managing pre-and postconflict situations. The approaches andissues raised in this proposed Forest Strategy arefully consistent with these broader priorities. Thiscongruence will make integration of forest issuesand concerns in larger rural development programsrelatively straightforward, so long as the investmentin linking the programs and strategies is made at thefield level.

Similarly, this proposed strategy is consistentwith the three basic objectives of the Bank’s environ-ment strategy: (1) improving people’s quality of lifeby focusing on enhancing livelihoods and reducingenvironmental health risks and the vulnerability ofthe poor to natural disasters (such as deforestation-induced landslides and forest fires); (2) improvingthe quality of growth, with special emphasis onhelping countries to develop a better policy, regula-tory, and institutional framework for sustainableeconomic growth and on strengthening environ-mental safeguard systems; and (3) improving thequality of the global commons through approachesthat include special financing mechanisms to com-pensate countries for the incremental costs theyincur to protect the global commons.

As outlined in the Bank’s “Integrating Genderinto the World Bank’s Work: A Strategy for Action”dated January 2002, one of the main components ofthe World Bank’s strategy for changing gender pat-terns, which are potentially costly to growth, povertyreduction, and human well-being, is to work withclient countries to prepare periodic, multisectoralcountry gender assessments. Country gender assess-ments are designed to analyze gender dimensions ofdevelopment across sectors—including rural devel-opment and forest management—and to identifygender-responsive actions. As pointed out in numer-ous international reports, the sustainable use offorests requires the participation of all rural popula-tions, including women. Although women’s needsoften differ from those of men, many programs tendto overlook women’s specific needs regardingforestry—often because policymakers lack adequatedata, information, and methodologies to addressthem. The lack of gender awareness constrains thesustainable use and management of forests and for-est ecosystems in many places throughout the world.Under the new Forest Strategy, Bank staff will workto ensure that country gender assessments are appro-priately designed to help identify gender dimensionsof forestry and rural livelihoods in individual coun-tries. Likewise, forestry-related analytical and advi-sory services will incorporate gender issues as part ofits analysis. Together, these can be used to developpriority policy and operational interventions thatrespond to these assessments. At the project level, asidentified in the Forest Strategy (e.g., Box A2.2),gender analysis will be an important tool to providesimple information on resource use, responsibility,perspectives, and needs and therefore serves a criticalrole in the quality of forest investment design.

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Gender analysis has already been incorporated aspart of social assessments that are now routineduring the preparation stage of forest projects.

The World Bank’s Water Resources Sector Strat-egy focuses on the role that effective water resourcesdevelopment and management play in sustainablegrowth and poverty reduction. Improved waterresource management (such as watershed projects indegraded environments) is a major focus of theemerging Strategy and is shared with the Forest Sec-tor Strategy. There is a growing program in water-shed management in the Bank portfolio at present,and this will necessitate closer programming andworking relationships between forests and water-shed technical and operational staff in the Bank.Strong links between the Forest Sector Strategy andthe emerging Water Resources Sector Strategy willensure a sharing of common issues.

DEVELOPING AND IMPLEMENTING THENEW BANK APPROACH TO FORESTS

The Importance of Country Ownership

One of the major requirements of an effective reen-gagement by the Bank in forests in its borrowercountries will be commitment by the borrower, andother major local stakeholders, to the objectives andmeans proposed by the Bank to do so. This might beseen by some as a major constraint on the speed atwhich a reengagement can proceed, from the lowbase that has been produced by the Bank’s virtualabsence from the sector in some countries. In fact, itis seen here as an opportunity in these countriesto engage in a dialogue and an analytical processinvolving country stakeholders before a return tosectoral investments is implemented, through a con-certed ESW activity. Thus, the implementation strat-egy for the Bank’s reengagement in forests proposedin this strategy emphasizes enhanced ESW initially,which will allow this dialogue with governmentsand other stakeholders to commence or, where it isalready in progress, to develop. Moreover, a focus ondeveloping consensus at the country level throughcountry-driven dialogue and analysis of major sectorissues and priorities will also open the way for incor-poration of sectoral concerns and measures thatresult in larger Bank investment activities, instead ofthese inputs being either introduced through a top-down-only approach or ignored completely.

A major reason for adopting the three pillars ofstrategy outlined earlier in this chapter is that theyencompass the broader interests that borrower gov-ernments and other local stakeholders have in themanagement and use of their forests, by comparisonwith the more restricted focus that arose, in somecases, from the previous Bank 1991 strategy and1993 policy in this sector. This is a deliberate choice,recognizing that the success of the new approach willbe completely dependent on the development ofdemand for Bank involvement of various types bygovernments and other interest groups, and that thiswill be forthcoming only if these stakeholders seereality and relevance in the broad strategic approachthe Bank adopts. The approach set out in this strat-egy relies on stakeholders’ willingness to take a lead-ership role in the analytical and consultative workthat underpins this approach, so that the results ofthis work genuinely develop country-level consensusand commitment to whatever lending or nonlendingactivities are eventually proposed for that country.

The partnerships and processes proposed in thisstrategy to implement the new approach have beenchosen with a view to their compatibility with coun-try ownership. In the case of the new PROFOR ini-tiative, for example, it will be of central importancethat activities it sponsors are determined by criteriarelating to the Bank’s own broad poverty and sus-tainable development agenda with its borrowers,since these are now broadly defined by countriesthemselves through the CAS process, and thenincreasingly refined in design by countries throughPRSPs and other mechanisms. Equally, however,PROFOR will have close links to the NFP approach.This process was designed and approved throughextensive intergovernmental dialogue on forests overrecent years; it therefore already has strong politicalownership by countries that participated in thatprocess, and its design requires that individual coun-try governments must take ownership of an NFP forit to progress.

Developing the Approach

Chapter 2 sets out the strategic pillars for the Bank’snew Forest Strategy. In the process, it considers somepotential difficulties or conflicts that need to beaddressed when considering approaches. Thesechallenges include

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� Difficulties inherent in assisting one category ofpoor people living near forests without inadver-tently worsening the situations of other groups;

� Controversy that surrounds the use of the con-cept of SFM as a basis to engage in operations innatural forests;

� Limitations on present approaches in the Bank toincorporate forest issues and activities in largercross-sectoral and macroeconomic programs;

� Constraints on the Bank and other fundingagencies to finance protection of forests, ascompared with the magnitude of competitionfor forest areas;

� Options available to leverage the impact of theselimited financial resources.

Finally, chapter 2 summarizes some projections offuture activities to support forests that the Bankcould consider, in the context of an expanded pro-gram of involvement in the sector.

Implementing the Strategy

Selectivity. Implicit in the discussion of the strategyis the principle of selectivity in Bank activities inforests. Country ownership will be a broad criterionin this determination. The specific activities dis-cussed in chapter 2 indicate a refocusing of Bankactivities in this portfolio on poverty reduction, withthe resulting increased emphasis on forest resourcesand forest-dependent people. In addition, the needto integrate forest activities and issues in largercross-sectoral and broad economic programs willprogressively move the forest portfolio toward amore programmatic and less specific, project-oriented approach. How the Bank, borrower govern-ments, and their partners should develop the forestportfolio, and in what way, also is discussed inchapters 2, 3, and 4. Chapter 4 makes an argumentfor selective engagement based on country commit-ment and readiness for support. This engagementcould range from basic policy dialogue to large-scaleprogrammatic lending.

Developing partnerships. As discussed in chapter3, the World Bank has formed partnerships withother institutions—in part through an interagencytask force on forests and now through a newlyformed Collaborative Partnership on Forests in sup-port of the new UNFF. The Bank also is building aspecific partnership to work on forests with bilateraldonors (PROFOR). In addition, the Bank has

formed partnerships with NGOs—including theWWF, Conservation International, and other civilsociety groups—and is further exploring closer rela-tionships with large, international, private sectorinvestors interested in following a sustainable devel-opment approach to forests.

These partnerships are an important part of theBank’s new strategy. They will enable the Bank tobuild on its comparative advantages in addressingforest issues through a broad spectrum of cross-sectoral strategies and policies. The partnershipswill permit the Bank to collaborate closely withnational governments and other groups that will bemore able to take up some of the specific technical,capacity, and knowledge development activitiesneeded for an integrated forest intervention.

Coordinating across the Bank. Preparation of thisrevised Forest Strategy involved close collaborationbetween the ESSD Forest Team, which is responsiblefor its preparation, and Regional sector operationalstaff and managers (chapter 2). The IFC also was aparticipant in the strategy preparation. Chapter 3argues that it is important that this level of coopera-tion and coordination be maintained in the future.The World Bank Group must follow the same strate-gic path to encourage sustainable development ofthe forest and forest industry sector. Its several insti-tutional arms—the International DevelopmentAssociation (IDA), IFC, MIGA, International Bankfor Reconstruction and Development (IBRD)/World

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Bank, and the World Bank Institute (WBI)—willwork on the basis of a unified strategy to implementinternationally supported and financed technicalsupport and economic analysis.

Financing the new strategy and leveraging impact.As noted at the outset of this chapter, forestspresently are regarded as an important element inone of the Bank’s new global priorities: the environ-mental commons. Significant changes in approachto the sector are expected to result from this status.The financing strategy proposed in chapter 4 isbased on:

� Encouraging the development of blended financ-ing arrangements from multiple sources toreduce the overall financing cost to client coun-tries of overall forest and environmental services.Developing blended financing would lead theBank, donors, and the private sector to moreclosely coordinate their support. These fundswould go to countries willing to implementnational programs of SFM, Forest Policy reform,and improved governance and institutions. TheIFC will continue to invest in private sector com-panies that are willing to operate in accordancewith internationally accepted criteria for SFMand are committed to independent certificationof their operations. For all projects involving theutilization of forest products or the protection orenhancement of environmental services, the

An effective Bank Forest Strategy must con-sider all activities, current and potential,that can influence forest and related social,

economic, and environmental outcomes—ratherthan focusing only on forestry activities such as pro-duction or conservation. However, the Bank must beselective in its engagement, seek its comparativeadvantage, and build on the pillars that set the basefor its activities.

PRINCIPLES OF ENGAGEMENTAND COMPARATIVE ADVANTAGEAND THE PILLARS OF THE STRATEGY

The Bank’s impact on forests is determined not onlyby its direct investments in forests and forest-relatedactivities but also by its investments in other activi-ties that have indirect effects on forests and forest-dependent peoples. As a consequence, its nonlend-ing activities, analysis, dialogue, and safeguardpolicies take on increased importance. In addition,to have impact on the ground, the Bank must followthe principles that underlie the CDF. These princi-ples—partnerships, ownership, and a framework forengagement in the sector that defines the roles andrequirements for progress—all will be fundamentalto success.

Lessons for Engagement in Forests

Bank experience in the forest and other sectorssuggests several principles that need to apply to itsnew strategy:

The Bank will help build and respect ownership.Governments and people must own the policiesand interventions that will make their forests moreviable. This ownership can be built only throughknowledge, participation, and consultations. Withits partners, the Bank must help bring knowledgeto bear and be open in supporting the voices ofthe people.

The Bank will operate in partnership. The Bankhas neither the financial resources nor the staff tomeet the objectives of this strategy on its own.Specializing in its comparative advantage will enablethe Bank to concentrate on its strengths without dif-fusing its resources, while drawing on and comple-menting the strengths of its partners.

The Bank’s commitment to address forest issueswill be long term and of a sufficiently large scale toenable change to materialize. The foundations ofsustainable management of forest resources are goodgovernance and institutions. Building these founda-tions will take time.

Comparative Advantage

The new Forest Strategy relies on the Bank Group tofocus on its strengths. The Bank Group has compar-ative advantage in the forest sector in five areas:

1. Cross-sectoral analysis, dialogue, and investments.The Bank has the ability and means to operateacross sectors with both policy dialogue andinvestment programs. Its economic and technical

C H A P T E R T W O

The Forest Strategy: ProposedBank Action 25

work emphasizes linkages across sectors, with themacroeconomy, and with trade.

2. Economic policy and country dialogue. The Bank’sleadership in country policy dialogues and assis-tance strategies gives it the capability to fosterdialogue and influence policy. This dialogue hasexpanded to include support to good governanceand combating corruption.

3. Convening power. The Bank is capable of bringingtogether stakeholders and donors to discussimportant issues and to set objectives for assis-tance strategies. As the chair of the consultativegroups for most countries, the Bank has theresponsibility to work with governments anddonors as they formulate their investment pro-grams and policy agendas. This convening powerallows the Bank to be catalytic in bringing forthnew and experimental programs and agendas.

4. Scaling up and mainstreaming projects andprograms. Through its ability to bring supportthrough large loans and grants to projects andprograms, the Bank has the means to scale upand mainstream successful projects and pro-grams. In doing this, the Bank can encourage andsupport meaningful policy reforms and institu-tional changes. The Bank Group also can bringinto play a multitude of financing and guaranteeinstruments to support the engagement of manydifferent stakeholders, including civil society andprivate enterprise, and can address issues such aspolitical and regulatory risk.

5. Working with the private sector. The focus will beon aligning public sector interventions and pri-vate sector objectives. Through its focus on theenabling environment for environmentally,socially, and economically responsible invest-ments, catalytic investments by IFC, and theguarantees provided by MIGA, the Bank Grouphas an important role in stimulating appropriateprivate sector activity in the forest sector.

Three Pillars of the Forest Strategy

The Bank’s Forest Strategy will be based on threeequally important and interdependent pillars:

1. Harnessing the potential of forests to reducepoverty

2. Integrating forests in sustainable economicdevelopment

3. Protecting vital local and global forest environ-mental services and values

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These three aspects must be addressed together. Thisnecessity makes the Forest Strategy complex andmultifaceted. It is not simply about growing or pro-tecting trees but is a complex interaction of policy,institutions, and incentives. A narrow perspective onforestry—even sustainable forestry—is insufficient.To be effective, the strategy demands a multisectoralapproach that addresses cross-sectoral issues andtakes into account impacts on forests and forest-dependent peoples that originate from activities,policies, and practices outside the sector.

HARNESSING FORESTS’ POTENTIALTO REDUCE POVERTY

Economic growth alone cannot combat povertyeffectively. More focused interventions are requiredthat address opportunity, empowerment, and secu-rity and that acknowledge the potential conflictsinherent in addressing the different groupings ofpoor people who depend on forests in differing ways.A broader livelihood approach must be taken thatplaces forests—productive capacity, institutional andlegal structures, market access, and tenure—in thebroader context of rural development. Priority areasfor Bank action will include:

� Promoting policy, institutional, and legal frame-works that ensure that the rights of indigenousand other forest-dependent peoples and commu-nities are protected

� Empowering women, the poor, and marginalizedgroups to take a more active role in formulat-ing and implementing rural forest policies andprograms

� Supporting the scaling up of collaborativeforest management so that local communitiescan manage their own resources, rehabilitate andprotect forests, market forest products, andbenefit from security of tenure. The emphasishere will be on involving small farmers. A princi-pal mechanism will be much closer integration offorest activities and investments in broader ruraldevelopment programs

� Working with local groups, NGOs, the privatesector, and other partners to integrate forest andagroforestry farming systems into rural develop-ment strategies

Appendix 2 (on CD) summarizes some past experi-ences of attempts that have been made by the Bank

and other agencies to incorporate poverty-reductionconcerns in forest strategies and national developmentplans. Appendix 2 highlights some of the more diffi-cult issues and lessons learned from these experiences.

Ensuring participation of the poorest. Althoughmost rural households are poor in absolute terms,there are considerable variations in levels of wealthamong the rural poor, even in individual communi-ties. This variation usually means that only the betterendowed, or politically more powerful, are able totake advantage of the more rewarding forest produc-tion opportunities that are available. Moreover, alltoo often, their advancement is at the expense of thepoorest, who may easily find themselves excludedfrom access to the resources on which they rely. Asthe intention of the new Bank Forest Strategy is tohelp the poorest as well as those better able to bene-fit from assistance, care will be taken to structureBank support to reach all segments of rural society.

Protecting access by the poorest to nontraditionalforest products. A primary focus of Bank supportfor many forest dwellers will be reducing povertyand ensuring continued access to subsistence sup-plies. Specific measures through which the Bank willseek to implement this strategy include:

� Implementing the policies spelled out in OP 4.10(when approved by the Board) to protect indige-nous peoples’ rights. Within that framework,special emphasis will be given to support policydialogue aimed at legislative reforms that willprotect the forest land ownership and accessrights of the poorest

� Supporting collaborative forest management(CFM), improving forest harvesting and man-agement programs, and incorporating safe-guard measures aimed at minimizing the risk ofmore powerful members of the community oroutside commercial interests appropriatingnontimber forest products on which the poor-est depend

� Through a combination of ESW, policy dialogue,and policy-based investment programs, tacklingdifficult issues such as how to mitigate undesir-able impacts of globalization and market liberal-ization in the forest and other industrial sectorson poor forest-dwelling societies. These impactsinclude expanding commercial-scale forest andagribusiness operations, mining, oil explorationoperations that may lead to appropriation, or pri-

27

THE FOREST STRATEGY: PROPOSED BANK ACTION

vatization of forest resources that the very poorcontinue to need to access as common property

Sharing by the state and the rural poor in forestbenefits. One of the more fundamental policyissues that the Bank will need to address is competi-tion between smallholder and community produc-ers for their shares of the economic benefits fromforest outputs. Governments impose taxes and othercharges and costs on forest outputs. In addition,state forest agencies often support local producersunder one program and subsidize state-run opera-tions, or large corporate activities that competeunfairly with local producers, under another. In theshort term, the scope for improving the situationprobably lies primarily in removing or relaxing reg-ulatory provisions that reinforce the structural andscale advantages that the state possesses as a pro-ducer of many forest products. The relationshipbetween forest departments and small local forestusers also could be improved by separating govern-mental forest departments’ regulatory functionsfrom delivery of forest support services.

In the longer term, a logical solution in somesituations will be to phase out state production inmarkets in which smallholder production has acomparative advantage. This shift also would con-tribute to meet a more fundamental concern thathas been raised: the potential for the rural poor tobenefit will continue to be limited so long as they areunable to participate in the more profitable anddynamic production activities.

Integrating forest activities focused on the verypoor in rural development strategies. Implemen-tation of the revised Forest Strategy will make asignificant contribution to meeting the goals of theBank’s revised Rural Development Strategy. Thisstrategy refocuses the rural development process toconcentrate on improving the well-being of ruralpeople and reducing poverty in the widest sense. Thelatter entails much more than increasing the averageincome of rural people. It envisions improving thequality of rural life. The underlying concept for thisstrategy is a developing world in which

� Rural residents enjoy a standard of living and aquality of life that is not significantly below thatavailable to urban residents;

� Rural communities offer equitable economicopportunities for all their residents regardless ofincome, status, or gender;

� Rural communities become vibrant, sustainable,and attractive places to live and work;

� Rural areas contribute to national developmentand the overall economy and are dynamicallylinked to urban areas;

� Rural areas adapt to ongoing economic, social,cultural, economic, and technological change.

Special attention will be given to incorporate sustain-able forest resource management and agroforestryinitiatives into Bank-supported dry land, watercatchments, wasteland reclamation, and other ruraldevelopment programs. Past Bank experience inBurkina Faso (community-based natural resourcesmanagement programs), Turkey (Anatolia WatershedProject), and China (poverty reduction–orientedprojects) provides useful lessons of wider relevance.

Regarding the interests of the poorest of thepoor, the arguments in favor of joint and collabora-tive management have become more prominent as ithas become apparent that user communities andinstitutions often are unable to take responsibilityfor control and management unaided. Governmentsalso have favored joint management, because trans-ferring management and protection responsibilitiesto the community level can help offset reducedbudgetary resources available to forest departments.However, such forms of local management runthe risk of the state’s continuing to exert too muchcontrol.

While, in general, Bank experiences with collabo-rative management have been reported as successfuland have resulted in a greater degree of involvementof rural users, this involvement has not always bene-fited the poorest of the poor. Some earlier interven-tions were based on insufficient understanding of thecircumstances under which collective management isappropriate and of the realities of the rural popula-tions involved. Experience also has exposed seriousproblems in the ways in which governments havedevolved responsibilities for forest management.Accordingly, the Bank’s strategy will seek to addressthrough ESW and policy dialogue some of the inher-ent weaknesses in current CFM approaches. Theseweaknesses include failure by governments to trans-fer effective authority, restrictions on rights grantedto the poor, and ineffective and frequently inequi-table local institutions.

Emphasis will be given to situations in which land,labor, and capital availability favor multistory “homegardens,” which increase land productivity. In suchsituations, agroforestry systems as demonstrated by

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Bank-supported International Centre for Researchon Agroforestry (ICRAF) research can significantlyreduce poverty by providing low-cost inputs from,for example, nitrogen-fixing fodder trees that reducethe dependency of poorer farmers on purchasedfertilizer or animal feed.

Fostering linkages between the forest industry andrural poor. The Bank will foster partnershipsbetween industry and local communities andsmallholders to provide access to credit, extension,markets, and skills development. It also will seek tostrengthen cooperative arrangements to improve thebargaining position of the rural poor and enablethem to participate in the benefits from downstreamprocessing and trading. These improvements couldinclude removing government subsidies to expand-ing industrial capacity that impinges on small-scaleproducers—as happened with rattan productionin Indonesia.

An underlying objective of Bank strategy in thisarea will be to encourage situations in which thebulk of timber or industrial roundwood require-ments of larger forest industries such as pulp andpaper are met from common property, or collabora-tively managed or privately owned forest resources.For example, fostering collaboration between small,private woodland owners and industrial companiesis a major focus of ongoing Bank-supported strate-gies in Bulgaria, Romania, and several other transi-tion countries of Eastern Europe.

Tree out-grower arrangements and other formsof contractual agreements such as those fostered byBank loans in Argentina, Brazil, and the Philippinescan provide important links to markets and supportfor farmers, but care needs to be taken to ensure thatthey are targeted at those able to benefit from them.Growing can be especially appropriate for small-holders who have sufficient annual income fromother sources to secure their ongoing needs and landthey can use for trees that is not needed for foodcrop production or for other more basic needs. Treegrowing is likely to be an attractive option in thesecircumstances in which the features of an assuredmarket and access to technical advice and inputsmake tree crops a more stable source of income thanalternative uses of the land. These features and theprobable need to have title to their land to be eligiblefor a loan indicate that tree out-growing is unlikelyto be feasible for many smaller or extremely poorfarming families. It is more likely to be an appropri-ate activity for the moderately poor.

INTEGRATING FORESTS IN SUSTAINABLEECONOMIC DEVELOPMENT

The element, integrating forests in sustainable eco-nomic development, focuses on capturing the largecurrent and potential asset value of forests (outlinedin appendix 3) and proposes that this asset needsto be well managed to yield sustainable economicgrowth. Good management of the forest resourceincludes controlling illegal activities, promotingeffective participation, and managing strong cross-sectoral and macroeconomic linkages with forests.

Cross-Sectoral and MacroeconomicLinkages

The Bank must have an appreciation of how itsactions and investments in other sectors, or at themacroeconomic level, will impact forests and forestpeoples. It then must act on this information toincorporate measures to offset or minimize theimpacts. At present, in the Bank, the level of integra-tion of major forest concerns in the design of largeradjustment and cross-sectoral activities is relativelylow. The priorities for Bank engagement in this areawill be as follows:

Cross-sectoral approaches. Policies and projectsneed to be analyzed and coordinated to ensure across-sectoral approach to planning and implemen-tation of SFM and forest conservation and develop-ment. The Bank’s strategy will give special emphasisto supporting the large number of rural poor livingwithin forest margins or outside forests (predomi-nantly agricultural populations) who are able toaccess forests, tree stocks outside forests, and treeson farms, and to respond to market opportunities.Forestry assistance will be defined broadly toencompass all tree stocks and activities on whichthey are based.

The Bank will invest more in analyzing thepotential impacts on forests of large programs inrural development and infrastructure.2 In this strat-egy, a major task for Bank operations staff and man-agement will be to develop the necessary linkagesand processes to ensure that when large rural pro-grams are under consideration, forest issues are fac-tored in. Most of the poor who live in or near forestsare associated with some form of agriculture and aresignificantly dependent on nearby forests for aspectsof their livelihood. The broad patterns of develop-ment that occur should preserve this balance

29


(appendix 3). Closer linkages will need to be devel-oped with agencies such as ICRAF and the Centerfor International Forest Research (CIFOR), whichhave considerable experience in designing andimplementing these options.

The Bank will seek opportunities to supportcollaborative forest management, in particular,building on past Bank experiences in countries suchas India, Mali, Mexico, and Niger. Much has beenlearned in these countries about how to involve usergroups in sustainably harvesting and managing dryland savanna fuelwood resources.

A key concern is to prevent any significant con-version or degradation damage to critical habitatarea, including all critical forest areas. The funda-mental guidance given to Bank staff and clients isthat in assessing the significance of change they musttake a precautionary approach (see OP 4:04, NaturalHabitats, paragraph 1).

In assessing the significance of any change likely tobe induced by a particular investment operation,key considerations include the intensity and scale ofthe operation. Furthermore, the acceptability of anychange will be determined by the environmental,social, and managerial context of the forest or habitatarea concerned. In some countries, official guidancesuggests that loss or inability to reproduce of 1 percentof any species would be considered “significant.”However, this does not take into consideration thevariation between species in terms of reproductionrates, or the ability of the population to recover fol-lowing impacts (Treweek 1999). In some park andwildland management settings, systematic planningframeworks for assessing the acceptability of changeare available (see McCool and Cole 1997).

This issue will be addressed in greater detail, andin the form of guidelines for determining signifi-cance in a specific context, in the forthcomingSourcebook for implementation of this strategy,and consideration will also be given to whether anyrevision of existing definitions of “significant” needto be amended in various OPs.

Macroeconomic impacts. Relatively little analysishas been done in the Bank on the impact of macro-economic policies on forest outcomes. Furthermore,most of what has been done directly addresses theimpacts of specific provisions for forests andforestry that occasionally have been included inthese larger policy frameworks. The current revisionof the Bank’s OD on adjustment operations willconsider such impacts and issues. In the meantime,

careful attention will be paid to policies with thepotential to have major impacts on forests, includingtrade and tariff policies favoring extensive agricul-ture or tree crops and overall public expenditurereduction (appendix 3).

During the consultative phase in formulation ofthis strategy, a number of commentators noted thatthe proposed new forestry policy did not addresspotential forestry impacts of programs supportedby Bank adjustment lending. Because the timeframe for an update of the Bank’s adjustment lend-ing policy remained uncertain, some suggested thatthe Bank put in place a transparent set of proce-dures for systematically identifying significantforestry impacts associated with Bank adjustmentoperations, analyzing such impacts, and, if neces-sary, adopting and implementing appropriate miti-gating measures.

In response to these concerns, the Bank hasdeveloped the following approach to deal withdevelopment of a new adjustment lending OP in atimely manner and to address potential problems inthe intervening period:

� The Bank plans to address the treatment of pos-sible forestry impacts of programs supported byBank adjustment operations as part of the treat-ment of overall environmental impacts of suchprograms in the ongoing update of OD 8.60 onadjustment lending into a new OP/BP8.60. Thisapproach will put the forestry impacts of Bank-supported reform programs into the appropri-ate context of the full reform program, whileavoiding a fragmentation of Bank OP on adjust-ment lending into a multitude of sector-specificprovisions.

� At the time of writing of this strategy, an issuespaper on this new OP had been posted for publiccomment and review. An initial draft of the OPitself had been prepared on the basis of responsesand specific consultations and was presented tothe Committee on Development Effectiveness ofthe Board of Executive Directors. A new version iscurrently under preparation. Public consultationmeetings were held in London, Washington, D.C.,and Amman, Jordan. Further meetings are sched-uled in Dakar, Dar es Salaam, Mexico City, Seoul,Warsaw, and South Asia.

� For the period until the new OP/BP8.60 is inplace, the Bank intends to put in place a set oftransparent arrangements for the treatment offorestry impacts associated with Bank-supported

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adjustment operations, including systematicallyidentifying possible significant forestry impactsassociated with Bank adjustment operations,analyzing such impacts, and, if necessary, adopt-ing and implementing appropriate mitigatingmeasures. A three-pronged approach is planned,beginning with pilots focused on cases with clearforest linkages that may provide useful lessonswith broader applicability.

1. The Bank will continue implementing thegood practice advice in the current OP onadjustment. This good practice is summarizedin the Operational Memorandum “Clarifica-tion of Current Bank Policy on AdjustmentLending” of June 5, 2000: “. . . it is good prac-tice for Bank staff, in preparing appropriateassistance programs, to review environmentalpolicies and practices in the country, takeaccount of any relevant findings and recom-mendations of such reviews in the design ofstructural adjustment programs, and identifythe linkages between the various reforms pro-posed and the environment. If there are nega-tive linkages, it is good practice to devisespecific measures to counteract the possiblenegative effects, or explain how mitigation isbeing achieved elsewhere within the Bank’sCountry Assistance Strategy.”

2. Building on this good practice, the Bankplans to put in place a process whereby RegionalVice Presidencies will work with ESSD and Oper-ations Policy and Country Services (OPCS) toscreen forthcoming adjustment operations—asearly as possible during program preparation—for specific policies supported by the operationwith possible forestry impacts. In those caseswhere impacts are likely to be significant, theBank envisages a more detailed follow-on reviewwith a view to assisting governments in develop-ing measures to help avoid/mitigate them.

3. In assessing potential adverse impacts onforests, the Bank expects to draw on a range oftechnical expertise and country knowledge. TheBank is considering calling on the assistance ofthe TAG, a multistakeholder group that was setup to assist the Bank in developing its Forest Pol-icy and Strategy. The TAG could act as a roster ofexpertise, from which specific individuals orgroups would be drawn to assist the Bank, on acase-by-case basis at the request of the Bank, byproviding input in judging forest impacts of pol-icy reform and possible mitigation measures.

Expanding Nonfarm Rural Activities: Roleof Small-Scale Forest Product Enterprises

In nearly every country in which such informationexists, small-scale forest product activities areamong the three largest categories of nonfarm ruralcommercial activity in terms of numbers of peopleengaged in these activities. Bank interventions inthis area have the potential to benefit large numbersof people.

The Bank will target its assistance to small,wood-based enterprises to help the rural poor suc-cessfully engage in processing and trading. TheBank will support

� Market research and improved marketingstrategies;

� Provision of micro credit (as a component ofmore broad-based Bank support for small-scaleenterprise development);

� Technical and business management training;� ESW aimed at identifying regulatory and other

constraints to small-scale wood enterprises.

Governance in the Forest Sector: ForestCrime, Corruption, and Regulation

Examples in appendix 3 show the costs and thepervasiveness of crime and corruption in the forestsectors of many countries. Persistently low resourcerents and nontransparent resource allocation proce-dures are strong indicators of the potential for majorforest corruption and governance problems. Addi-tional indicators include market cartels and otherdistortions; inadequate forest conservation and pro-tection measures; significant and organized illegalactivity including timber theft, misrepresentationof volumes, species, or the quality of log harvests;poaching; and commercial-scale encroachment ofagricultural or other activities on lands designatedas permanent forest zones. Poor governance alsousually is reflected in unclear and conflicting tenureor management mandates for forest lands and thesystematic exclusion of local peoples from decision-making that affects forest lands.

Illegal logging and corruption. By far, the greatestforest concern for many governments is the cost ofillegal logging and forest-related corruption. In thisarea, the World Bank will take these actions:

� Use its involvement in formulating CASsand NFPs (chapter 3) to support legislative and

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institutional reforms that will help make forestlaw enforcement more effective and just. TheBank is developing guidelines for its futureinvolvement in forest law enforcement activities

� Finance monitoring programs that support SFMplanning and help identify the extent of problems.Along with deeper analysis on the underlyingincentives to forest users and managers, these pro-grams will provide valuable input to governmentsas they develop NFPs or strategies

� Initiate dialogue with countries and regions tofoster collaborative partnerships among nationalgovernments, local people living in and near for-est areas, private industry, NGOs, donors, andother stakeholders to more effectively monitorand control forest use. These partnershipswill include a wide range of measures aimed atdetecting, preventing, and suppressing illegalforest activities. The partnerships will give partic-ular emphasis to strengthening civil society andkey actors such as the judiciary, law enforcementbranches, and government forest managementagencies. The Bank also will initiate dialogue withother intergovernmental organizations, such asthe FAO and International Tropical TimberOrganization (ITTO), and international environ-mental NGOs, such as Global Witness and GlobalForest Watch, which work in this area

Although experience in this area is limited, govern-ments, including in Cambodia and Indonesia, alreadyhave given encouraging responses to Bank-supportedforest law enforcement initiatives. As a result, similaractivities are being planned in other regions.

Reforming timber concession policies. The Bankwill promote the use of rigorously designed regula-tory frameworks for timber concessions to enhancethe contribution of planned forest use to economicand social development and environmental protec-tion. Forest concessions in both tropical and temper-ate countries often have not yielded an equitabledistribution of economic benefits. In addition, inten-sive exploitation of forests frequently has led to thedegradation of the forest resource and the unneces-sary loss of both timber and nontimber values.

Policy changes will have to be coupled with address-ing the technical competency of forest officials,eliminating corruption in field-level operations, andinvolving local communities and their representativesin forest management, including the concession alloca-tion processes. The Bank will encourage governments

to take advantage of growing opportunities to engageindependent third-party certification bodies inperformance-based monitoring of forest harvestingand management operations.

Building a Role for Civil Societyin Sustainable Forest Management

Sustainable forest management issue. Recognitionis growing that effective forest management is criti-cal to sustainable development, particularly for localor national economies that are based significantlyon the use of forest resources. Given the extent ofthe resource in many countries, few governments orcommunity stakeholders accept that logging shouldbe banned in all accessible forests. Therefore, the keyquestions in most countries are where loggingshould occur and how well it will be managed.

In a land-use planning context, the major chal-lenge is to ensure that extractive activities such aslogging take place in areas in which the benefits ofthe activities outweigh any social or environmentalcosts that they may engender. A priority here is toensure that areas of special conservation value orsocial significance are conserved in culturally appro-priate forms of Protected Areas. However, few coun-tries have been able to afford to allocate more than10 to 20 percent of their forest areas for this purpose.Thus, there is a growing consensus among ecologistsand resource management specialists that biodiver-sity cannot be adequately conserved by ProtectedAreas alone.

This reality has proved to be the case in NorthAmerica, which arguably has the world’s best-fundedand most extensive national park–wilderness conser-vation system. The capacity of Protected Areas toprotect biodiversity is likely to be even less in tropicalareas with their higher levels of habitat differentia-tion, disjunctive species distributions, low aerialpopulation densities of many species, and highendemism. In addition, IUCN global data indicatethat some 85 percent of existing Protected Areas havehuman populations living either inside or immedi-ately adjacent to the reserve. Therefore, the long-termfuture of biodiversity will depend just as much onsympathetic management of productive, humanizedlandscapes as it will on the balanced selection andmanagement of traditional Protected Areas.

A key part of this process, which will need to beapplied on a larger portion of the world’s accessiblenatural forests, is to combine conservation and pro-duction goals in the same area. Such an approach

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needs to be based on consensus. In addition, wher-ever ownership and tenure arrangements permit,planning and management should be collaborative.Ecological and silvicultural knowledge is incom-plete. Nevertheless, sufficient knowledge is availableand proven for all major forest types, including trop-ical humid forests, for natural forests to be managedin ways that will maintain high levels of environ-mental, economic, and social value. However, eventhis available knowledge frequently is not put intopractice because of a lack of appropriate incentivesfor forest users and inefficient monitoring by forestservices. Larger economic and governance issuesoften are at the root of these problems.

What the Bank should and should not do inforests stimulated considerable controversy, bothinside and outside the Bank, while and after the 1991strategy and the 1993 policy were developed. Theseissues remain contentious.

A complicating factor has been the continuing,still unresolved, and, at times, highly emotionaldebate over definitions of SFM. It is a given thatmany national governments of forest-rich tropicalcountries, such as Brazil, Cameroon, and Indonesia,will continue to sanction harvesting operations insignificant areas of their primary tropical forests.Therefore, the regional consultations leading up toformulation of this strategy voiced considerableagreement for the Bank to become actively involvedin promoting more sustainable forms of use inforests outside formally Protected Areas. Support forthis type of activity was seen as essential if the Bankis to be a meaningful actor in the struggle to containsocially, ecologically, and economically damagingforest activities that reduce forests’ potential tocontribute to sustainable poverty reduction.

As an interim step, pending a clearer interna-tional consensus on this issue, the Bank has agreedwith leading international conservation agenciesthat it will encourage the widespread use of interna-tionally agreed criteria and indicators for SFM.These criteria include those defined by the ITTC,discussed in the Intergovernmental Panel on Forests(IPF), Intergovernmental Forum on Forests (IFF),and embodied in the principles and criteria of bod-ies such as the Forest Stewardship Council (FSC).The Bank worked with WWF and a wide range offorest sector stakeholders to design a set of princi-ples and criteria for certification systems to moveforest management toward SFM. These principlesand criteria are set out in the World Bank/WWFAlliance 1998 “Guidance Note for Improved Forest

Management and Certification Target: Achievingthe Independent Certification of 200 MillionHectares of Well Managed Production Forests by theYear 2005.”3 It would be divisive and potentiallymisleading to suggest that SFM can be definedunambiguously and then assumed to be alwaysattainable within the time frame of a given interven-tion. Rather, this strategy will emphasize improvingforest management along the lines of the pyramidapproach described below. This approach has beendeveloped by the World Bank/WWF Alliance tosupport the Alliance’s global target for SFM: toachieve 200 million ha of independently certifiedproduction forests by 2005.

A number of specific issues arise in relation to theBank’s involvement in certification:

� Under the principles and criteria set out above, theBank has accepted the principle of independentmonitoring of forest operations. However, theBank has not endorsed any particular certificationsystem but will assess particular approaches inrelation to their compliance with these principlesand criteria. The Bank recognizes the ongoing“mutual recognition” debate in the internationalcommunity to harmonize acceptable standardsand approaches and expects that these principlesand criteria will contribute to these discussions.

� There is some debate on the issue of whether afixed time limit should be applied to achievementof certification. The new OP will require the nego-tiation and disclosure of a time-bound action planacceptable to the Bank wherever support is given toimproving operations that cannot currently meetthe requirements of an acceptable certification sys-tem. Because of the wide range of circumstanceslikely to be encountered in different enterprises andin different countries, selection of an arbitrary timelimit for all cases would not be advisable. Timingshould be determined on a case-by-case basis dur-ing project preparation with full disclosure. Theforthcoming Sourcebook will address the subject ofhow an acceptable time frame for achievement ofcertification standard operations should be deter-mined in each individual case.

� There is an issue of how firms suitable for certifi-cation should be selected; in particular, the weightthat should be given to a proven track record incertification when selecting firms. It would notbe advisable to insist that any firm wishing tocompete for a certification contract should neces-sarily have a track record, because this would

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exclude new firms from entry, even if they hadclear capability and access to experienced staff. Itmight also result in a virtual monopoly for someexisting certification firms or agencies in somelocations, and the Bank has consistently tried toavoid this outcome by ensuring that objectivestandards of performance and process becamethe criteria for evaluation, not mere existence.This also relates to the first issue raised above—the need for the Bank to avoid endorsing a par-ticular firm or agency. There is also the questionof country capacity building or ownership. Ifclient countries or regions develop systems thatclearly meet all the performance standards theBank requires, then giving a priori mandatorypreference to established outside bodies/systemswould potentially inhibit country ownership forgood forest practice and the transparency ofrobust certification processes. However, selectionof firms to undertake certification under Bank-financed projects will be subject to standard duediligence provisions under the procurementguidelines, requiring that assessment of capabilityof firms to be included for consideration iscarried out. More generally, the forthcomingSourcebook will provide criteria and guidelinesfor assessing certification firms, and it is evidentthat these will require that due weight be given totrack record when formulating a choice.

� In projects involving certification in which theBank is investing, it will need to take responsibil-ity for decisions on the criteria to be employed incertification, and also for ensuring that these cri-teria are then applied in the field appropriately.This will be supported by material in the Source-book and in other material on what the stan-dards and norms are, derived from the growinginternational literature on this subject. More-over, it is almost certain that any project inwhich the Bank was intending to be involvedwith forest operations and certification will beassigned Environmental Category A. This meansit will require an advisory panel, as required inthe Environmental Assessment OP (OP 4.01),and in cases involving certification this panelwould include expertise on certification, andthus would allow for independent evaluation ofthe scheme being considered.

� The question of adding chain-of-custody require-ments to certification has been raised. Chain ofcustody is a valid and useful activity, which servesthe purpose of verifying the origins of wood and

allows for control over illegal logging operations.The Bank has used chain-of-custody log trackingin places such as Papua New Guinea, whereunderreporting and other corrupt practices wereissues and where it was possible to attain coverageat all export points. However, the need for this,and its practicability, should be assessed on a case-by-case basis; it will not always be possible toattach chain-of-custody activities. One factor inthe decision will be the extent of coverage of allforest operations intended under the investmentbeing considered. Certification can be applied ona concession or field operation level, and willaddress the issue of illegal removals from suchoperations. Chain of custody relies heavily on suf-ficient coverage to be able to stem the tide of ille-gal timber in aggregate, and therefore demandsheavy and broad investment to achieve. Guide-lines on the decision to apply chain of custody willbe included in the forthcoming Sourcebook.

The Bank believes that, in many countries, greaterinvolvement of local communities and other keystakeholders in forest management and planning isneeded to produce equitable outcomes and raise theoverall social value of forests. In some cases, the needfor greater transparency and accountability at thelocal level will require the use of local stakeholderassessment as an alternative to third-party assess-ment of commercial-scale operations.

The Bank will encourage national governmentsto develop standards for natural forest managementand forest restoration that are locally relevant andmeet internationally recognized principles and crite-ria for SFM. The institution also will provide sup-port to national governments to create representa-tive, multistakeholder, and independent forestmonitoring bodies.

The “Pyramid”—a diagnostic and planning toolfor good forest governance. Forest management,for both exploitation and conservation objectives,depends critically on matters far from the forestitself. It depends on the extent and quality of theenabling policy, legal, and institutional conditions—on good forest governance. In an effort to introduce asimple, but robust, means for stakeholders to worktogether in assessing, and in planning, these keyenabling conditions, the World Bank introduces the“Pyramid” (figure 2.1) which was developed in theframework of the World Bank/WWF Forest Alliance.The objective of the Pyramid is to offer a framework

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to stimulate participatory assessment and target set-ting in forest governance at the country level. Theconcept behind this analytical framework is thatsome elements of good forest governance are com-mon to a wide range of nations. By grouping theseelements in several tiers of complexity, the Pyramidcan serve as a country-level planning tool in forestmanagement. In a multistakeholder process, the toolcan be used to assess the status of forest governanceusing a scoring system to identify what is working,what is missing, and what needs to be done for dif-ferent elements of forest governance. The tool isintended to fill the “forest governance gap” betweenassessing and accelerating field-level progress inSFM and international policy, assessment, andreporting. By filling this gap, stakeholders’ capabili-ties to deliver national governance that supportslocal forest governance—and potentially improvesinternational forest governance—can be improved.

To assess the governance situation in Bank clientcountries prior to a forest operation, Bank task man-agers are interested in using this tool to analyze theelements of forest governance and in prioritizingstrategic areas for cooperation with these countrieson forest sector issues. Piloting countries includeKazakhstan, Armenia, and Cambodia.

The individual tiers of the Pyramid are seen asmutually reinforcing and not necessarily so rigidlylinked as to form preconditions. The Pyramid con-cept acknowledges different stages and approachesin building improved forest management and avoidsforcing the pace with unsustainable solutionsbeyond the absorptive capacities of the governmentsand communities concerned. It also helps identifymilestones that acknowledge incremental gains inplaces in which forest governance problems aregreatest. In addition, it helps encourage policy dia-logue aimed at eliminating those constraints.

Approach to World Bank’s Forest Policyand Sustainable Forest Management

To respond to OED’s recommendations, the con-cerns raised by many in the external and internalconsultations, and the analytical studies on advancesin understanding forest issues, it was necessary tomodify the 1993 Forest Policy, OP 4.36, in bothscope and clarity. OP 4.36 also needed revision to beconsistent with this revised strategy.

Since the 1992 Rio Earth Summit, the interna-tional community has agreed that the internationalforest dialogue must transcend discussion solely of

tropical forests to focus on all forests in all countries.In addition, especially since the advent of the Bank’smajor engagement with the Eastern European andCentral Asian countries, temperate or boreal forestshave become major elements in the Bank’s forestlending program. However, OP 4.36 focused prima-rily on tropical moist forests. In addition, OP 4.36was issued before the approach to independentassessment of the quality of forest operations on thebasis of performance-based certification was devel-oped. Independent certification is becoming theindustrial standard for improved forest manage-ment. OP 4.36 was silent on certification.

Furthermore, and as demonstrated by OED,OP 4.36 had a “chilling effect” on Bank Groupinvolvement in virtually all aspects of tropical forestmanagement. This reduced Bank involvement cre-ated a particular difficulty in relation to the major

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targets for the achievement of SFM that the Bank’spresident presented to the Special Rio+5 Session ofthe General Assembly of the United Nations in 1997and that the Bank and WWF, its partner in theGlobal Alliance for Forest Conservation and Sus-tainable Use, have adopted as one of the majorobjectives of that partnership.

As noted elsewhere in this paper, the target of200 million ha under SFM by 2005 will be difficult toachieve in any event—especially given the restrictionsOP 4.36 has applied to some of the activities neces-sary to achieve the target. The longer the blanketrestriction on financing logging operations in tropi-cal moist forests under any circumstances remainedin place, the more difficult this sustainability goalbecame.4 This prohibition on Bank involvement infinancing commercial harvesting “in any circum-stances” was justified at the time it was adopted given

Verification of SFMAudit, certification, orparticipatory review

undertaken

ExtensionPromotion of SFM to consumers

and stakeholders undertaken

InstrumentsCoherent set of "carrots and sticks" for

implementation in place

PoliciesForest policies, standards for SFM,

and legislation in place

RolesStakeholder roles and institutions in forestry and land use

negotiated and developed

FoundationsProperty/tenure rights and constitutional guarantees

Market and investment conditionsMechanisms for engagement with extrasectoral influences

Recognition of lead forest institutions (in government, civil society, private sector)

FIGURE 2.1The “Pyramid”—A Diagnostic and Planning Tool for Good Forest Governance

Source: Mayers, Bass, and Macqueen 2002.

that the vast majority of tropical forest harvestingpractices were demonstrably unsustainable.5 How-ever, in the current situation, a viable policy mustallow for circumstances in which such involvementdemonstrably would improve conservation anddevelopment outcomes. OP 4.36, as it was, inhibitedthe Bank, particularly the IFC, from assisting coun-tries and the private sector to improve their forestoperations or, for that matter, from engaging in ameaningful dialogue on SFM. In consultations onthis subject, several client countries indicated theirreluctance to engage with the Bank in this area whenthe Bank takes such a prohibitive stance on financing,regardless of the quality of the forest operation.

The new forest OP redresses this weakness andenables the Bank to more proactively promote desir-able forest conservation and development outcomes.The new policy should prevent the financing ofcommercial logging operations in critical forests inall major forest types, not just primary tropicalmoist forest. It also ensures that no Bank financingwill be provided to logging operations, in any type offorest, in which these operations do not meet accept-able standards of sustainability, as verified throughcertification processes.

The new policy will help the Bank to achieve themajor objectives it has set in this strategy, by provid-ing a clear operational framework based on rigorous,performance-based independent certification andconsistent application of the Bank’s overall safeguardspolicy framework. It will signal to the forest commu-nity that the Bank is supportive of well-managedforest operations that conform to recognized interna-tional certification standards.

Risks and issues. The new, more proactive policythat enables the Bank to become involved in thesustainable management of production forests car-ries some risk. However, there also were major repu-tational risks for the Bank in retaining the previouspolicy, which did not explicitly address the issue ofthe temperate forests at all. The policy was criticizedseverely by many stakeholders and interested partiesoutside the Bank as being a major factor in theBank’s failure to make a significant contribution toforest conservation and development. Critics alsosaw the 1993 policy as failing to meet the challengeof mobilizing the considerable potential contribu-tion of forest conservation in the attack on povertyand economic and social underdevelopment.

A further implication of adopting the new policyapproach proposed above is that it will require mon-

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itoring of all prospective and ongoing operations forcompliance with these standards.

Major underlying arguments for the new policyapproach were, first, that the Bank needs to recognizein its policy the reality that many forests around theworld that are accessible and commercially valuablewill be used for timber production—sooner, in alllikelihood, than later. Under the new policy, the Bankwill commit to avoid at all costs financing commerciallogging in critical natural habitats and other nonsus-tainable forms of commercial-scale logging. However,it will be prepared to use its influence and financialresources to help improve the quality and sustainabil-ity of commercial operations outside these criticalforest areas and ensure that a more equitable share ofthe benefits from commercial activities is directedtoward local communities living in or near forestareas. Very often, the real choice available in this sec-tor is not between logging and doing something lessinvasive and damaging to the forest, especially whenthese alternatives have not been developed to large-scale market viability. Rather, it is between doing log-ging reasonably well, or doing it very destructively sothat conversion of the logged-over site to other usesbecomes almost inevitable. In addition, as noted ear-lier, the Bank will require all projects involving theutilization of forest resources to include an evaluationof the prospects for new markets and marketingarrangements for all the goods and services that canbe produced from well-managed forests. This willhelp to ensure better market-based incentives forgood forest practice and more sustainable and con-servation-oriented patterns of forest land use.

Second, as discussed earlier in this chapter, sincethe previous Forest Policy was adopted in the early1990s, powerful citizen-driven certification and inde-pendent monitoring procedures have emerged. Theseprocesses are helping to ensure that, increasingly, largecommercial-scale logging and forest industrial opera-tions around the world are being subjected to andaccepting close scrutiny and systematic assessment oftheir impact on both people and forests. In partner-ship with the WWF, the Bank has committed to aglobal target of 200 million ha of independently certi-fied, well-managed forest by 2005. This fact shouldhelp to allay the fears of some environmentally con-cerned groups that, by revising its OP on forests, theBank would merely be opening the flood gates to amassive expansion of nonsustainable logging.

Third, recognition is growing around the world ofthe complementarity of forest conservation and sus-tainable forest-use strategies at the landscape level.

Governments of leading forested countries such asBrazil, Canada, and Malaysia have adopted forestland-use “zoning” strategies that allow for a contin-uum of (a) totally Protected Areas; (b) multiple-useforests in which overriding concerns for protection ofbiodiversity and other environmental benefits areintegrated with continued harvesting of thosenumerous forest products that are essential for sub-sistence and local use; and (c) production forests inwhich independently certified, sustainable timberharvesting embraces the goals of preservation of vitalforest environmental functions.6 Such an integrated,ecosystem-based approach drives the mix of conser-vation and sustainable management objectivesdefined in the World Bank/WWF Alliance for ForestConservation and Sustainable Use. The new ForestPolicy enables the Bank to become a more proactivepartner in addressing the urgent need to assist clientcountries to achieve better conservation and devel-opment outcomes with their forest resources.

PROTECTING VITAL LOCAL AND GLOBALFOREST VALUES

The third major pillar of the revised strategy is toprotect vital global and local environmental servicesand values that come from forests. This pillar focuseson the problem that domestic and internationalmarkets and individual incentives do not accountfor these externalities, despite their importance forsustaining rural incomes, economic growth, andecosystem protection. There also is insufficientinternational financing to offset these tendencies atthe national level.

Evolving Perception of Protected AreaStrategies

One of the problems identified by OED is the diffi-culty inherent in protecting forests in high demandfor a range of—frequently, mutually exclusive—usesby competing groups within society. In cooperationwith the GEF, the Bank has generated significantincreases in funding for biodiversity protection andrelated purposes (chapter 3 and appendix 4). Never-theless, the scale of this contribution is dwarfedby the incursions being made into forest areas—including forests that ideally should be protectedfrom invasive use. Moreover, Bank client govern-ments do not, by and large, wish to borrow funds forforest protection. The reality, therefore, is that,

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unless significant additional funds at highly conces-sional or grant terms blended from multiple sourcescan be made available for protection, or effectivemarkets for the ecosystem values of forests devel-oped, the problem is likely to worsen. It is importantto bear these facts in mind when considering theBank strategy in this area.

This larger funding problem is not always apparentwhen protection activities are being considered. Unlikethe Alliance sustainability target discussed above,achievement of the Alliance 2005 target of 50 millionha of new Protected Areas is well on the way to real-ization. Through the Critical Ecosystem PartnershipFund, another major effort is under way to set asideimportant biodiversity hot spots. However, if theseefforts are to lead to protection across the board inremaining natural forests, and not only in selectedareas, perceptions of Protected Areas that would givehigh priority to setting aside discrete wilderness areasand biodiversity reserves and excluding them from allforms of human use will have to evolve. There aresigns that this change in perception is happening. It isnow widely recognized that local communities andforest-fringe farmers can play a key role in biodiversitypreservation. There is a trend toward a wider defini-tion of Protected Areas that embraces the concepts ofIUCN Category VI: “areas containing predominantlynatural systems managed to ensure long-term protec-tion and maintenance of biological diversity whileproviding at the same time a sustainable flow of natu-ral products and services to meet community needs.”

Adopting and promoting the expansion of IUCNCategory VI Protected Areas have major implica-tions for the Bank’s revised strategy. These changessuggest the possibility that large areas of commu-nity-managed forest, such as those in India andmany other parts of the world, also will be recog-nized as making major contributions to the preser-vation of biodiversity, carbon sequestration, andother environmental services.

Fostering Markets for EcologicalPublic Goods

A second key element for the Bank in expandingthe potential to protect forests, discussed further inchapter 3, is helping to facilitate and build new marketsfor forest ecosystem services. These services include

� Services of local and national significance,including watershed, soil, and other environmen-tal sustainability purposes;

� Global forest common goods, includingbiodiversity—already the subject of debt-for-nature swaps—and conservation concessions;

� Carbon, potentially a much larger and morelucrative source of funding for the retentionof forests.

Developing such markets is an important factor inenabling countries to recognize, and then realize, thereal value of their forests. The increased revenuesand incomes that national governments and localcommunities can reap from these environmentalservices can serve as major incentives to sustainforests—rather than to cut or burn them for short-term returns. However, these long-term uses willbecome attractive to national decisionmakers onlywhen reliable market mechanisms are in place.

The two major opportunities in this area that theBank will pursue are:

� Helping to build and finance markets for interna-tional public goods, such as carbon and biodiver-sity. Major potential appears to exist for use ofthe guarantee instrument. In September 2000,the Bank approved an experimental Partial RiskGuarantee to encourage international privateinvestment in Russia’s forest products sectorthrough a guarantee arrangement between thegovernment and the Bank. This instrument willunderwrite the risk that adverse and unpre-dictable policy changes pose for private investorsin the Russian economic environment. In thiscase, it is a potentially powerful approach forbuilding the partnership between the Bank andthe private sector. In other circumstances, itcould be an equally powerful approach to under-writing commitment to sequestration or protec-tion zones, when combined with grant-basedfinancing for these purposes

� Taking advantage of a considerably underusedopportunity by assisting governments to design,implement, and finance the start-up of effectivenational markets for environmental services pro-vided by forests. A number of options have beenexplored, by the Bank and others, includingfinancing regulation, environmental servicespayments, tradable rights development systems,disincentive systems, and financing innovation(World Bank 2001c). All of these approacheshave been applied successfully to protect or pre-serve aspects of the forest ecosystem that wouldotherwise be in jeopardy

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Fostering the Linkage between Forestsand Climate Change

Climate change is projected to significantly alter thecomposition and possibly the productivity of alltypes of forests, but particularly in the tropical andboreal latitudes. Such alterations are due to changesin the mean, variability, and extremes of tempera-ture and precipitation, coupled with an increase indisturbance regimes, that is, pest outbreaks and fires.Nevertheless, forests and forestry can play a majorrole in mitigating greenhouse gas emissions and inpreparing client countries to adapt to today’s climatevariability and long-term climate change.7,8

The economic consequences of climate changeare expected to fall disproportionately on developingcountries and, within these countries, on the poor.Climate change will have its greatest negative impactin the tropics and subtropics, with higher tempera-tures, increases and decreases in total rainfall, moreheavy precipitation events, more El Nino–like condi-tions, and an increase in tropical cyclone wind andprecipitation intensities. These changes are likely tolead to, among other things, an increase in floods,droughts, and landslides, which often affect the poormost of all and exacerbate their already inadequateliving conditions. Climate change is expected toexacerbate inequities in health status and accessto adequate food, clean water, and other resources.Although some adaptation is possible, developingcountries, especially the poor within developingcountries, are unlikely to have the institutional, tech-nical, and financial means to adapt.

The role of forests in reducing and preventingrisks and vulnerability from natural disasters at thelocal level is well known and does not require a newagenda. For example, reforestation can help avoidlandslides, avalanches, and flash floods in headwaterstreams. Forest products and tree crops are lessvulnerable to weather hazards and often provide acushion for the poor in times of food shortage. Inthe present strategy, adaptation measures involvingforestry are considered an integral part of the pro-posed poverty reduction strategy.

Of a more controversial nature is the use offorests’ capacity to sequester carbon and hold it overlong periods. While the bulk of global carbon emis-sions come from fossil fuel consumption in indus-trialized countries, deforestation and subsequentland-use change also are significant, especially inthe tropics. In the tropics, forest loss causes between10 and 30 percent of the global CO2 releases.

Afforestation and reforestation are regarded as effi-cient means to sequester atmospheric carbon. More-over, conserving and sustainably managing existingnatural forests and forest soils, which are large storesof carbon, can significantly reduce greenhouse gasemissions. Arrangements for the first commitmentperiod (ending 2012) under the Kyoto Protocolallow afforestation and reforestation but not defor-estation to be eligible activities under Article 12 ofthe Kyoto Protocol, that is, the CDM.9 Theseallowances, and their potential longer-term exten-sion to areas such as avoided deforestation, have thepotential to provide new revenue streams to localeconomies for forest protection and forest manage-ment services. Industrialized countries, includingthose with transitional economies, already areallowed to meet their obligations by trading carbonusing afforestation, reforestation, and avoided defor-estation activities under Article 6, Joint Implementa-tion. Hence, forests could have a major role inclimate mitigation in the near future, and the Bankcould take a leadership role in developing and facili-tating equitable market arrangements that willenable this to happen.

The Intergovernmental Panel on Climate Changespecial report, “Land Use, Land-Use Change, andForestry” (2000), specifies the role of forests andforestry within the climate change framework.Forestry projects are likely to be as, or more, cost-effective in offsetting carbon emissions than otheroptions and could have a significant impact on sus-tainable development in many of the Bank’s clientcountries. Taking into account the considerablepolitical uncertainties and controversy that prevail,the Bank needs to consider the perceived value offorests offered within the framework of the UnitedNations Convention on Climate Change. As statedearlier, some forestry activities are already eligibleunder the CDM, and their eligibility will stimulatethe development of international markets for car-bon credits from forestry through new forest planta-tions and forest restoration. However, procedureshave yet to be negotiated. To the extent that longer-term trading might reduce deforestation, especiallytropical deforestation, it also will reduce loss of bio-diversity and other local environmental services,such as watershed protection.

In the long run, the world’s interest in abatinggreenhouse gas emissions is likely to remain strong,and forests can and should play an important role.Thus, it is imperative that the international commu-nity fund forestry activities that reduce net carbon

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emissions. This necessity suggests that sooner orlater market-like mechanisms are likely to be createdto encourage forest-based carbon storage or abate-ment. Hence comes the motivation for the WorldBank to take a pioneering role in the field of “carbonforestry” and to engage continuously in developingand improving equitable and environmentallyresponsible forest carbon markets and adaptationmeasures in forestry.

Fostering Linkages between PovertyReduction and Forest ConservationStrategy

The concerns with biodiversity conservation thathave shaped so much of GEF, Bank, and WorldBank/WWF Alliance assistance for forests have beenprimarily about global conservation values. Theyreflect predominantly Northern concepts and donorpreoccupations and, in some situations, have con-strained the pursuit of forest uses that can alleviatepoverty. The Bank’s revised strategy is based on therecognition that forest degradation and removalare not necessarily a consequence of poverty. Theycan be precipitated just as readily by rising incomes.In addition, the poor often conserve rather thanoveruse the resources that they manage. Therefore,approaches to SFM should not be based on assump-tions of a mutually reinforcing “downward spiral” ofpoverty and forest degradation that can be haltedonly by limiting or preventing use of the forests bythe poor.

Through ESW, policy dialogue, and its support toProtected Area programs, the Bank will promoteimproved understanding of the linkages amonghuman activity, landscape change, and biodiversitypreservation. Much of what might be considered byecologists and foresters to be degradation or deple-tion of a forest resource can be considered by thosedepending on it for inputs in their livelihood sys-tems to be transformation and even improvement ofthe resource.

There is, therefore, a need for greater appreciationamong external stakeholders that the poor experi-ence their own environmental problems, which needto be addressed separately from environmental poli-cies seeking to satisfy concerns about global values.To address these local concerns, the Bank will seekopportunities to combine global macro initiativeswith a more situation-specific focus. Such linked ini-tiatives should reflect the protective mechanisms thatlocal users themselves adopt and the attributes of a

resource that they value and seek to conserve. As anexample, recent Bank-supported initiatives in CostaRica are moving in this direction.

Because a large part of the remaining tropicalforest genetic resource exists in managed land-scapes rather than in formally Protected Areas, itwill be logical to focus more of the internationalcommunity’s conservation effort on sustainablemanagement of what is in use. Many of theselocally managed resources have high levels of bio-diversity. However, in developing these arguments,it needs to be stressed that the Bank is not advocat-ing downgrading the importance of biodiversityconservation. Rather, its concern is to better focusits approach on effective conservation. In recogni-tion of the importance of forest uses for povertyreduction, conservation objectives for forests ofvalue to local people appropriately could shift froma predominantly protective orientation towardencouraging sustainable systems of producinglivelihood benefits in as “environmentally benign” away as possible. This shift can be made, for exam-ple, by encouraging options that result in land-scapes such as those found in parts of SoutheastAsia that maintain a patchwork or mosaic of agri-cultural and agroforestry systems. While lessspecies-rich than forests, such landscapes preservemuch more biodiversity than the alternatives ofplantations or clearance to crop agriculture. TheBank-supported Meso-American Biological Corri-dor is one example of this approach.

ALIGNING REGIONAL PROGRAMS WITH CORPORATE OBJECTIVES

The key challenge to improve the Bank’s perform-ance in forests along the lines described in this chap-ter is to link global priorities with the country initia-tives of its Regional departments. The best approachto this task is improving coordination among Coun-try Departments and Regional sector units, Regionaloperational units, and the groups in the Bankresponsible for establishing and maintaining exter-nal partnership arrangements, special funding ini-tiatives, safeguard policy application and monitor-ing, and knowledge management.

The Bank’s operational units face severe budgetconstraints and will need to find cost-effectivemechanisms to add these ingredients to their normalworkloads. Choices will have to be made on how tofocus budget and staff time on activities that can

40


reap the highest benefits for poverty reduction andsustainable development. It is likely that incrementalassistance to individual task managers through theBank’s system of Networks will be needed to achievethis emphasis.

This linked approach implies both a need formore focused and timely ESW and a strong prefer-ence for integrating forest issues and activities inlarger cross-sectoral or economywide programswherever possible. The operational Regions of theBank have given considerable thought to theseissues. As part of the Forest Strategy developmentprocess in the Bank, each Region assessed its previ-ous programs and framed its own Forest Strategy fordiscussion in the Regional consultations. Followingthose consultations and the development of thethree pillars of strategy and the financing proposalpresented here, each Region prepared an outline ofits current portfolio and reviewed the issues involvedin building a program consistent with the threestrategic pillars.

At this stage, the real prospects for increasedinvestment in forests have yet to be assessed. Inparticular, willingness to borrow will be influencedby investments made in ESW (defined broadly toinclude consultative work) and the extent to whichthe Bank succeeds in the strategy of drawing donorgrant-based assistance and focused investmentfrom the private sector into the forest portfolio(chapter 4). Further work will need to be done withthe Regions to expand their portfolios, based oncountry demand among other factors.

Africa

More than 70 percent of the population of Sub-Saharan Africa (SSA) is rural and depends on forestsand woodlands for its livelihood. As much as one-fifth of the daily livelihood needs for rural familiescomes directly or indirectly from forests, including20 percent of the disposable income used by thelandless and poor families to pay for school fees andmeet other family needs. Woodlands and forestssupply approximately 60 percent of all energy(including industrial) used in Africa, as well asbuilding materials and domestic energy for about80 percent of all Africans and the totality of therural population.

At various times throughout the past decade,forest-related activities have accounted for at least10 percent of the GDP of 19 (forest-rich and forest-poor) African nations and for more than 10 percent

of the national trade of 10 nations. Because of poorgovernance, the share of economic benefits remainshighly skewed in favor of vested-interest groups,often depriving the state and the rural people oftheir fair share.

From a global biodiversity perspective, Africa ishome to 25 percent of the world’s remaining rain-forests and contains 20 percent of the world’s bio-diversity hot spots. Four African countries featureamong the world’s 17 “mega-biodiversity” countries.The Central African forests alone store more than23 billion tons of carbon, making them a criticalbuffer against global climate change.

Contrary to overall growth trends in the Bank’sportfolio for Africa as a whole, the Africa Region’sforest-related portfolio has been declining for morethan 15 years. Current operations are of good qual-ity, but the Bank’s overall intervention is consideredtoo small to have a meaningful effect.

Bank support to the Africa Region is shiftingfrom traditional projects to programmatic opera-tions that emphasize policies, institutional capacity,and partnerships and that are based on broad con-sultation, country ownership, and national and localpolitical understanding and support.

Poverty reduction. A strategy will focus on inte-grating forests and biodiversity-related dimensionsin broader Bank-supported rural-developmentpolicies and lending. In forest-poor countries,interventions will emphasize tree management andtree planting as part of policy and technology pack-ages designed to help small farmers and generateincome for the landless poor in the management ofwoodlands. In forest-rich countries, the emphasiswill be on protecting rights (traditional and mod-ern) and continued access to forest resources bythose who depend on forests for subsistence, espe-cially during the lean season. Emphasis also willbe placed on creating frameworks enabling thepoor to become partners with external investors insustainable timber harvesting and to establishlocal hunters/wildlife management associations touse wildlife and other nontimber forest productssustainably.

Progress will be measured by the number andperformance of new operations and programs inte-grating forests in broader Bank activities (especiallycommunity-driven development, natural resourcesmanagement) and social monitoring of the poor’saccess to forests and of poor communities’ partici-pation in forest management and use.

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Integrating forests in sustainable economic devel-opment. Forests will be integrated in sustainableeconomic development primarily through interven-tions in governance. These include improving corefunctions of government forest institutions, privati-zation, integration of forests in decentralizationprocesses, fighting corruption, and empoweringcommunities. To ensure that broad-based, self-sustaining support coalesces around the environ-mental governance agenda, politically difficult issuessuch as concessions and taxation reforms, treetenure, and improved revenue collection will betackled using public information, independentobservers, participation, and partnerships.

Progress will be measured by successfully imple-menting institutional and policy reforms andimprovements, increasing employment opportuni-ties and fiscal forest revenues to the state and localcommunities, increasing transparency, and reducingcorruption.

Protecting global and local forest values. Bankinterventions will help reconcile long-term globalenvironmental goals with short-term national eco-nomic needs and local priorities. While promotingmarket-based instruments to demonstrate thatenvironmental services, certified products, andprocesses indeed can accrue economically impor-tant benefits, the Bank also will create opportunitiesfor direct international resource transfers dedicatedto conservation. Global initiatives such as trans-boundary parks and Protected Areas will be used tospearhead subregional integration through the har-monization of environmental policies and imple-mentation of environment-related conventions(biodiversity, desertification, climate change).

Progress will be measured by the flow of funds intosuccessful protection activities and the emergence ofsuccessful ecosystem market development programs.

East Asia and Pacific

The Bank’s forest program is approximately 7 percentof total lending in this region: in relative terms, sig-nificantly larger than in other regions. In most cases,a sectorwide approach is being taken, strongly inte-grated with rural development and natural resourcesmanagement programs. A major Bank concern in thenatural forest component of its program has been theprevalence of the concession system of management,which has produced great pressure on the resourceand social and environmental problems in many

places. Governance issues are at the core of thisproblem. In addition, the rapid trend toward decen-tralization in the countries of the region will haveconsequences on managing the complicated, inter-connected natural resource systems that will notnecessarily be positive.

Poverty reduction. The focus is on the role of forestsin the broader rural economy, community develop-ment, and user groups’ participation in forest manage-ment. Resource expansion has been and will remain amajor activity and will continue to advance towardmanagement by communities and small farmers.

Progress will be assessed by the presence of for-est issue activities in larger cross-sectoral programs,community ownership, and management of newresource projects.

Integrating forests in economic development.Major activities are being undertaken to addressgovernance. These activities are focused principallyon illegal logging operations, primarily in Cambodiaand Indonesia. Policy analysis and reform are beingpursued, especially in China, given its rapid changein regulatory and institutional structures. Landtenure reform is a particularly important issue innatural resources management in general through-out this region. The application of Bank instrumentssuch as guarantee operations could be considered. Inaddition, the incorporation of forests and naturalresource issues in structural adjustment and otherbroad economic programs and operations have beenand are being implemented.

Progress will be measured by developments thathelp address the illegal log trade, introduction ofpolicy and regulatory reforms, changes in forest landtenure, and treatment of forest issues in broad eco-nomic interventions.

Protecting global and local values. The focus willbe to develop additional grant-based financing,work more effectively with partners, and apply thesafeguards to achieve protection results.

Progress will be measured by the developmentof financing for Protected Areas and safeguardmonitoring.

Europe and Central Asia

Primary issues of concern in forests in this regionare the weakening of forest institutions and indus-tries through rapid political change and conflicts;

42


the impacts of changes in resource ownership, espe-cially the restitution issue in some countries; andmajor needs for upgrading, training, and educationthroughout the region.

Poverty reduction. The primary focus will berecovery of forests and forest industries that havefallen into major disrepair and have contributed to amajor intensification of poverty, and more effectiveengagement of civil society in collaborative forestmanagement.

Progress will be measured by success in the revi-talization of forest activities and industries andsocial assessment of the poor’s engagement in forestmanagement and protection.

Integrating forests in economic development.Close attention will be given to the impacts ofmacroeconomic reforms and adjustment, includingmeasures taken under European Union (EU) acces-sion; transparency and governance; improvedinvestment climate for environmentally responsibleand socially beneficial forest industries; major priva-tization issues in the sector; and improved forestmanagement and protection, including investmentsin fire and watershed management.

Progress will be assessed by monitoring inclusionof major forest issues in adjustment, PRSPs, and CASpreparation, as well as in governance and public sec-tor reform programs. Forest industry developmentand forest management outcomes will be tracked.

Protecting global and local values. The focus willbe forest-poor areas and direct contributions forprotection and conservation activities, especiallythose involving the poor. In forest-rich regions,the focus will be to develop effective markets forecosystem services to generate greater national andlocal benefits.

Progress will be monitored in terms of incremen-tal GEF and other grant-based financing for protec-tion and conservation activities and evidence ofdeveloping markets for ecosystem services.

Latin America and the Caribbean

In recent years, the forest portfolio in this region hasdeclined; yet, significant potential exists to invest inforests. The Latin America and the Caribbean region(LAC) contains the largest remaining areas of tropi-cal moist rain forest, and the dependence of localand poor communities on forests of all types is high.

A major joint paper by the World Bank and Imazonin Brazil indicates that, in 83 percent of the Amazonforest, using land for agriculture yields low returnsand has limited potential, so that, from the nationaleconomic point of view, sustainable managementof forests is a much preferable use of the Amazon(Schneider and others 2002).

Poverty reduction. Some 40 million indigenouspeople—the majority of them poor—are concen-trated in forest areas in the LAC region. The Bank’sstrategy is, with governments, to develop the policy,institutional, and legal bases to protect indigenouspeoples’ rights and access to forests; empower poorand marginalized groups; develop tenure security;and integrate agroforestry and secondary forestrestoration activities involving the poor in ruraldevelopment programs.

Progress will be measured by implementation ofpolicy and legal reforms and social assessment of out-comes and by increases in engagement of the poor inforest aspects of larger cross-sectoral programs.

Integrating forests in economic development.Increased emphasis will be given to integration offorest management in major cross-sectoral pro-grams; governance and illegal operations issues;development of awareness of the link between broadeconomic reforms in trade and fiscal areas to forestoutcomes; and catalytic investments in SFM.

Progress will be measured by the presence of for-est issues and activities in cross-sectoral programs,developments in governance and illegal removals,and field investments in SFM.

Protecting global and local values. The focus willbe Bank involvement in GEF and other grant-basedsupport to Protected Areas, the building of marketsfor ecosystem services, and evaluation of cross-sec-toral impacts on forest areas.

Progress will be assessed by the initiation offunctioning Protected Areas, evidence of ecosystemservice market development, and ESW on cross-sectoral impacts.

Middle East and North Africa

Forests in the Middle East and North Africa region arescarce but vital for watershed protection and land-scape outcomes. For this reason, forests need to bethoroughly integrated in natural resources manage-ment and sustainable rural development as a whole.

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Poverty reduction. The priorities are to increaseemployment of the poor in reforestation, increaseconservation and rehabilitation activities, buildstakeholder incentives to manage resources sustain-ably, and develop local participation in theseprocesses.

Progress will be measured by social assessmentsof the poor’s participation in forest activities.

Integrating forests in economic development. Thepriorities are to incorporate forest issues in compre-hensive development frameworks; develop linkagesto forests in cross-sectoral investments, especially inrural development and water management; andundertake additional ESW on the linkages betweenforest land management and broader economic,rural, watershed and grazing policy, and institu-tional reforms.

Progress will be measured by the presence of forestissues and activities in large development programs.

South Asia

Increasingly, the focus in South Asia is better useof major inputs for rural development (especiallyland and credit) and development of better markets(trade and agroprocessing issues), as well as publicsector institution reform (agriculture, water, forests,energy, health, finance, and infrastructure), particu-larly to achieve better service delivery to the poor.The forest program is closely tied to this broadapproach to rural development and has the follow-ing objectives: (a) to increase benefits to the ruralpoor through empowerment, ensuring that theycontrol natural resources through rights to owner-ship, access, management, or usufruct and maximiz-ing the value of the resources through efficientmarkets; and (b) to provide environmental servicesfor all sections of society through a managed viablesystem of sustainable use, increased productivity,and improved conservation of natural resources.The forest program will operate through rural devel-opment and natural resources management pro-grams on issues such as empowerment of the poor,SFM, and improved local community control overnatural resources use, rights, and markets.

Poverty reduction. Building on a long history ofengagement in community forestry in South Asia, theBank will continue to emphasize creating an enablingenvironment for poverty reduction, improving com-munity participation and institutions, increasing

returns to forest activities (through productivity andjoint forest management), and reducing vulnerabilityby securing access and diversifying ownership of theresource asset base toward the poor.

Progress will be measured by continued socialand implementation assessment of joint forest man-agement activities.

Integrating forests in economic development. Thefocus will be on improving governance (especially,correcting major distortions in incentives and mar-kets that reduce the value of the forest resource andexperimenting how to adequately pay communitiesfor providing ecosystem services), reforming thepublic sector (including responsiveness, accounta-bility, and fiscal soundness of institutions), anddeveloping efficient markets and competitive privatesector producers in the sector.

Progress will be assessed by the policy and insti-tutional reforms designed and adopted, perform-ance of local forest product and ecosystem servicemarkets, and changes in relative private sector andpublic sector roles in forestry-related activities.

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Protecting global and local values. South Asiangovernments have emphasized the interests of poorrural communities in international fora, such asthose on the climate change, biodiversity, and deser-tification conventions. The regional strategies’emphasis on poverty reduction and sustainablelivelihoods provides further backing to this stanceand supports meaningful action in the field. Theseactions may include the conservation of biodiversityin mixed-use forest settings, adding rigor to fiscaland poverty impact analysis, strengthening partici-patory performance monitoring, and more effec-tively addressing the impacts of nonforest activitieson forest areas.

Progress will be assessed by the further develop-ment of mixed-use forest management systems thatsuccessfully address local livelihood as well as globalbiodiversity and global warming concerns, and as wellas the development of cost-effective assessment andmonitoring systems that meet adaptive managementrequirements, document local and global impacts,and more effectively address land-use managementand social and environmental assessment needs.

ISSUES IN IMPLEMENTATION

The new Forest Strategy proposed here will requirespecial emphasis on implementation. In its review ofthe 1991 Forest Strategy, OED not only was critical ofits content but also was particularly concerned aboutthe failure in implementation. OED recommendedthat, to fulfill both its global and country roles, theBank be proactive in establishing partnerships with allrelevant stakeholders; that it align its resources withits objectives in the forest sector; and that it use its“global reach” to address mechanisms for, and mobi-lization of, international concessional resources out-side its lending activities (see appendix 1 for a specificresponse to OED’s recommendations and appendix 6for the full text of those recommendations).

Implementation of the proposed strategy willemphasize selectivity in areas of focus so thatresource use will more closely match objectives andpartnerships that generate effectiveness both inter-nationally and in client countries and mobilizefinancing both externally and internally. In addition,the content of the strategy is built around Bankstrengths: analytical capacity and ability to convenemultiple stakeholders. Although implementationwill remain a major challenge requiring innovationand facing risks, the rewards in reducing poverty andmore effectively preserving environmental serviceswill be significant.

Building Effectiveness

Building the Bank’s effectiveness to achieve theobjectives discussed in this document will require

� Addressing the global challenges and realities forforests and the Bank’s role; then refocusing theBank on engagement in the sector on the basis ofthe priorities embodied in the three pillars of therevised strategy (chapters 1 and 2);

� Addressing the major cross-sectoral and macro-economic linkages and sector policy issues(chapter 2);

� Developing the necessary partnerships withdonors and other stakeholders to leverage coor-dinated efforts being made in forests;

� Attending to the internal Bank institutionalissues and incentives so that these will (within aprudent and realistic framework) encouragerather than work against the overall directions ofthe proposed Forest Strategy.

This chapter will discuss the development of the part-nerships that will be needed to maximize the Bank’seffectiveness in forests, and it will introduce impor-tant internal institutional issues. The internal incen-tive implications related to these topics will be dis-cussed in chapter 4.

C H A P T E R T H R E E

Implementing the Strategy:Building Effective Partnerships 45

DEVELOPING THE PARTNERSHIPSNECESSARY TO IMPLEMENTTHE STRATEGY

Donor and National StakeholderPartnerships

Past failures by the donor community to effectivelyaddress deforestation and related issues are partly areflection of the fragmentation of individual donorpriorities. They also are related to the reluctance ofsome governments and donors to engage in policydialogue on politically sensitive issues such as thenegative social and environmental consequences ofpowerful vested interests. Therefore, this strategyshould give major emphasis to working withnational and local partners on strong, consensus-based agendas. When vested interests and very largefinancial gains are at stake, the potential to leveragesolutions depends on the agreement of all the majorstakeholders on a shared strategy for forests. Lever-aging solutions also depends on developing thenecessary consultation and dialogue with actors atall levels to ensure that the agreed strategy can andwill be implemented. Donors in particular will needto agree on the broad objectives of their engagementin forests. Even more importantly, donors will needto agree on the specific steps and investments to bemade through a carefully developed engagementstrategy. To succeed, this dialogue and approach willrequire the strong support and ownership of gov-ernments and other stakeholders. Building thisdialogue and consensus will be one of the majorchallenges of the partnerships.

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At the global level, the Bank should continue toparticipate in fora that enable it to work in partner-ship with other organizations of global reach andwithin the framework of international agendas. TheUNFF should provide a useful core framework. TheUNFF was created under the Economic and SocialCouncil of the United Nations in October 2000, aftera 10-year process of intensive discussions amonggovernments. UNFF’s objectives are to “promote themanagement, conservation, and sustainable devel-opment of all types of forests and to strengthen long-term political commitment to this end” (box 3.1).UNFF offers an intergovernmental platform for pol-icy dialogue through which difficult issues, such asgood governance in the sector, can be reinforced bya broad intergovernmental commitment and effec-tive monitoring and progress assessment. It offers anintergovernmental forum in which countries can putforward their pledges and accomplishments in SFM.It is a forum through which the Bank can supportthe international commitments of its client countriesto promote the implementation of IPF/IFF Proposalsfor Actions while working closely with other institu-tions, particularly in the areas in which the Bank hasa comparative advantage.

In parallel, and supportive of the UNFF, is thenewly formed CPF, which will contribute substan-tively to the work program of the UNFF. CPF con-sists of major multilateral organizations such as theWorld Bank, other UN agencies, research organiza-tions, and other forest-related organizations.10 CPF’srole will encompass facilitating and promotingcoordinated and cooperative action, including joint

The ECOSOC resolution assigns the followingfunctions to the UNFF:

� Facilitate and promote the implementationof the Intergovernmental Panel on Forests/Intergovernmental Forum on Forests Proposalsfor Action as well as other actions that maybe agreed.

� Provide a forum for continued policy developmentand dialogue.

� Enhance cooperation as well as policy and pro-gram coordination on forest-related issues.

� Foster international cooperation.� Monitor and assess progress at the national,

regional, and global levels.� Strengthen political commitment for the manage-

ment, conservation, and sustainable developmentof all types of forests.

Source: United Nations 2000.

BOX 3.1

Functions of the United Nations Forum on Forests

programming and submissions of coordinatedproposals, and facilitating donor coordination. TheCPF will submit coordinated inputs and progressreports to the UNFF and undertake periodic reviewsof its effectiveness. The World Bank will continue totake reporting responsibility in the specific fields inwhich it has recognized comparative advantages.

The Bank already is operating within comprehen-sive development frameworks that establish the over-all development and policy agenda for a country.

The concept of NFPs with governments andother stakeholders has been developed throughrecent major intergovernmental dialogues onforests: the IPF and the follow-up IFF, which werethe forerunners of the UNFF. These processes havethe potential to develop strong political commit-ment to reform and development of the forest sec-tor. In the field, an NFP is convened by a govern-ment, supported by a group of donors, and based onconsultation with a broad group of stakeholders.The purpose of an NFP is to develop a consensus onhow forests are to be used, by whom, and for what;and then to implement that agreement.

The Bank could become involved in this processin selected countries in which the potential existsto develop and refine programs that are highly com-patible with the Bank’s CDF. The Bank could provide

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IMPLEMENTING THE STRATEGY: BUILDING EFFECTIVE PARTNERSHIPS

an organizing mechanism for governments, donors,NGOs, and the private sector to work togetheron sector matters and the linkages to broader eco-nomic and environmental issues. This collaborativeapproach will amount to an enhanced NFP. Where itis possible to achieve, it could be a productive mech-anism to align, select, and prioritize donor activitiesin the forest sector. The collaboration could have alonger-term objective of improving the performanceof donor programs in forests, thus enhancing thewillingness of donors to raise their future contribu-tions to the sector. However, it must be emphasizedthat, at this stage, the Bank probably could use thisapproach only on a highly selective basis.

Two major aspects of developing and enhancingNFPs are a challenge for the Bank and its partners:(a) integrating cross-sectoral approaches in NFPformulation and implementation processes; and(b) coordinating Bank programs and prioritieswith broader donor programs. NFPs will need to becomprehensive, covering forest issues rangingfrom cross-sectoral policies and investments inforest management to establishing and sustainingProtected Areas. The implementation of these NFPswill require blended financing from multiplesources ranging from funds at commercial rates tofunds at highly concessional terms.

Principles of NFPs were determined at the fourthsession of the IPF in 1997. They include

� National sovereignty and country leadership;� Consistency with national policies and interna-

tional commitments;� Integration with the country’s sustainable devel-

opment strategies;� Partnership and participation;� Holistic and intersectoral approaches.

In addition, at the same session, the IPF adopted thefollowing specific elements to be considered duringthe development and implementation of NFPs:

� Appropriate participatory mechanisms thatshould involve all interested parties

� Decentralization, where applicable� Empowerment of regional and local government

structures consistent with the constitutional andlegal frameworks of each country

� Recognition and respect for customary andtraditional rights of, among others, indigenouspeoples, local communities, forest dwellers, andforest owners

� Secure land tenure arrangements� Establishment of effective coordination mecha-

nisms and conflict resolution schemes

Source: United Nations 1997.

BOX 3.2

Principles of National Forest Programs

The PROFOR Initiative. The analytical work thatwill underlie NFPs is critical to the implementationof the proposed strategy. Since knowledge is animportant public good, it requires being developedin partnership and shared among stakeholders. Oneimportant means by which the Bank could pursuethis objective would be to host a multidonor part-nership on forests.

An existing donor forests partnership—PROFOR—which has been moved from its previouslocation at UNDP to the Bank, is a possible mecha-nism.11 Bringing the PROFOR arrangement closerto the Bank enhances the focus on three aspects ofNFPs that closely match the Bank’s interests: cross-sectoral policies, governance, and financial instru-ments. The PROFOR donors strongly favor movingit to the Bank because this would enable the PRO-FOR analytical resources to combine with the Bank’sstrengths in analytical and sector work and countrydialogue. PROFOR will supplement the WorldBank’s operations in ESW and support governmentsin their policy reforms and planning. Specific provi-sion will be made for Bank Regional operationalstaff to work with PROFOR both on the definitionof priority countries and tasks and then on imple-mentation of the work program. The terms of refer-ence and objectives for PROFOR would ensure thateach supporter obtains value from the arrangement.To ensure key stakeholder representation, an over-sight committee would be established to guide activ-ities and monitor progress. The Bank will need toprovide an effective linkage between the PROFORprogram and the Bank’s sector portfolio and tomanage ESW, identification, and preparation activi-ties so that major improvements in coordinationresult from the process.

Activities sponsored by the PROFOR Initiativewill be based on the three objectives listed inchapter 2: (1) harnessing the potential of forests toreduce poverty, (2) integrating forests in sustainableeconomic development, and (3) protecting vital localand global forest environmental services and values.The PROFOR team will work closely with Bank oper-ational staff, client governments, and other stake-holders to select the specific analytical and knowledgeactivities to be carried out. The team would ensurethat this analytical work is integrated and coordi-nated with broader cross-sectoral and economywideinterventions. Opportunities would be sought toincorporate the results of enhanced sector analysisand consultation, and the issues they raise, in BankCASs, business plans, and forthcoming PRSPs;

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adjustment operations; and major cross-sectoralprograms in rural development, natural resourcesmanagement, and infrastructure.

Total donor support for PROFOR is expected tobe in the range of US$13 million to US$15 millionover five years. This amount would permit a dedi-cated group of experts to support Regional staffin ESW and the development of sector programsthrough NFPs. In their support to improved NFPprocesses, the PROFOR team would focus on fourcritical thematic areas:

� Building institutional, legal, and policy structuresto enhance the contribution of forests to sustain-able livelihoods.

� Building and reinforcing the relationshipbetween improved governance and forest sectordevelopment.

� Assembling the institutional and legal frameworkfor national financing strategies for sustainableforest sector development, including analyzinginnovative financing mechanisms for all thegoods and services that can be produced fromwell-managed forests.

� Analyzing the cross-sectoral and macroeconomiceffects of policy interventions and investmentson forests.

Other international arrangements. As outlinedearlier, successful implementation of enhancedNFPs will require the active participation of allstakeholders through a consultative process. Consul-tation should be ongoing throughout implementa-tion. It will be necessary to bring together nationaland international research and technical groups. Themain international collaborative research organiza-tions will be CIFOR, ICRAF, the European ForestInstitute, FAO, and ITTO. In addition, research andtechnical support will be sought from internationalNGOs such as IUCN, WWF, World Resources Insti-tute (WRI), and International Institute for Environ-ment and Development (IIED).

Collaboration with FAO. FAO is establishing anImplementation Facility to provide technical sup-port to strengthen in-country capacity for develop-mental work on NFPs. It will be important for theBank Group and FAO to work together and withother major partners on this initiative, using theirrespective comparative advantages. For the past30 years, the Bank has had a strong collaborativepartnership with FAO, especially through the par-

tially Bank-financed FAO/IBRD Cooperative Pro-gram, which has played a key role in supportingBank in-country agriculture and forest-related sec-tor studies and project identification/preparationactivities. The PROFOR Initiative would provide animportant vehicle in which the two agencies couldcollaborate. For the focus group of countries, work-ing closely with the government and other stake-holders, PROFOR would use the resources and com-parative advantages of the partners to formulate aconsultative and analytical process in each country.This process then would form the basis of an NFP.The government would be in a position to identifyissues and priorities and a comprehensive requestfor an NFP to support the broad-based program ofreform and development.

CGIAR. Through its support to the CGIAR system,the Bank has developed strong partnerships with theIndonesia-based CIFOR and Kenya-based ICRAF.The emerging research results of these and otherCGIAR centers will be integrated in Bank-supportedin-country sector work.

Other research institutions. The Bank has a globalrole in sharing knowledge and supporting research onforest issues. While the Bank has limited comparativeadvantage in forestry and the technical aspects of for-est management, it can be a vehicle to produce andshare knowledge in the areas of cross-sectoral impactsas well as economic and policy analysis. The GlobalForest Information Service, coordinated by the Inter-national Union of Forest Research Organizations(IUFRO) and FAO, has the potential to support theseactivities. Although not supported directly by theBank, the work of several other specialized technicaland/or policy research institutions has enhancedBank staff understanding of forest-related issues, con-straints to progress, and potential solutions. Theseinstitutions include, for example, IUFRO, the Euro-pean Forest Institute, the Iwokrama InternationalCentre for Rain Forest Conservation and Develop-ment, WRI, and IIED. Periodically, the Bank also hasdrawn on its linkages with universities that are pursu-ing research on topics of mutual interest.

GEF. The GEF brings together more than 165 mem-ber governments, development institutions, and thescientific community as well as a wide range ofnongovernmental and private sector organizations towork toward the common goal of global environmen-tal protection. It facilitates technical and information

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linkages between GEF’s focal points and projects. TheGEF has been a close partner of the Bank in helping todevelop the Bank’s forest and biodiversity portfolio,which amounts to about US$380 million in morethan 50 countries.

ITTO. An active dialogue is ongoing about thepossibility for closer collaboration between the Bankand the ITTO. This intergovernmental organizationis itself undergoing reform. It has adopted a series oftargets that fit well with some aspects of the Bank’sown programs, including (a) a 15-million-ha Pro-tected Area target by the year 2003 for transbound-ary protection areas in the tropics; and (b) a forestmanagement target of bringing 500 forest enter-prises under ITTO’s Criteria and Indicators schemeby the year 2003. This second target includes theestablishment of an independent monitoring sys-tem. A third target is a total of 10 million ha ofrestored forest ecosystems by the year 2003.

Nongovernmental OrganizationPartnerships

World Bank/WWF Alliance. In 1998 the Bankjoined forces with WWF to form the WorldBank/WWF Alliance to promote both the conserva-tion of forests and SFM. This partnership hasembraced the World Bank’s goal of ensuring sustain-able livelihoods for forest-dependent poor andindigenous peoples and was founded to achievethree global targets by 2005 (box 3.3). The Alliancewill be an important partnership in implementingthe Bank’s Forest Strategy and Policy. The Alliance’sambitious targets challenge not only the Bank andWWF, but also other actors—governments, busi-ness, conservation groups, local communities, andaid agencies—to take action to reduce the loss anddegradation of forest resources.

The partnership strives to achieve its goals andobjectives through strengthening policies and insti-tutions and bringing together stakeholders to facili-tate their work: building capacity for improvedmanagement and providing the framework for inde-pendent certification of forest management both inmarket and nonmarket contexts.

The Alliance is moving into implementation ofits Protected Areas and forest management targets. Itis doing this through pursuing:

� Activities in key forest countries in which theAlliance works with governments, NGOs, and the

private sector to develop programs and projectsthat can bring about commitment and change atthe scale required by the global targets.

� Activities designed to enhance integration of theAlliance targets and activities with “upstream”investments. These investments are aimed at gen-erating future interventions and resources toimprove forest management and facilitating keystakeholder groups within countries. Thesegroups are expected to develop and apply stan-dards for forest management certification andassess and improve the effectiveness of ProtectedArea design and management.

Through the Alliance, WWF and the World Bank arecommitted to finding ways to achieve more thaneither organization could accomplish indepen-dently. By combining the World Bank’s financingoperations, access to policy dialogue, conveningpower, private sector partnerships, and analyticalcapacity with WWF’s knowledge of conservationscience, local field presence, large technical skill base,public trust, and market influence, the Alliance is amechanism formed to tackle forest managementissues much more broadly. It will require additionalsupport and partners to maximize its ability todraw on the strengths of each institution and to

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mainstream dialogue on important issues, includingindependent monitoring and certification of forestoperations.

Other NGO partnerships. Other NGO partner-ships also are being developed and will need tobe strengthened.

Forest Trends is a Washington-based NGO cre-ated in 1998 with support of the World Bank and theMacArthur Foundation. Forest Trends grew out ofthe earlier multistakeholder, Bank-supported ForestMarket Transformation Initiative. Forest Trends hasbrought together a potentially influential coalitionthrough its board of directors of Northern andSouthern private sector entities and NGOs activelyengaged in the forest sector.

Forest Trends focuses its work in two strategicdirections. One is to develop markets for forestecosystem goods and services and SFM that will leadto healthy and expanding forest ecosystems and sus-tainable livelihoods for forest-dependent peoples.The other is to improve the efficiency of forestproduct use and the development of alternativesustainable sources of fiber to take the pressure offnatural forests. Forest Trends has increased privatesector understanding of forest carbon marketopportunities and the challenges of creating a

Targets for 2005:

� 50 million ha of new forest Protected Areas.� A comparable area of existing but highly threat-

ened forest Protected Areas secured under effec-tive management.

� A global target of 200 million ha of productionforests under independently certified sustainablemanagement.

The initial global targets for forest conservationand improved forest management were designed tobe significant considering the scale of the problembut also had to be achievable within a reasonabletime frame (seven years).

Conservation targets. Of the 3,300 million ha offorests remaining on Earth, only 6 percent are in

legally Protected Areas. Many of these legally Pro-tected Areas exist only on paper, without effectiveprotections on the ground. Hence, the targets wouldincrease the global current area under IUCN protec-tion categories I–III by more than 25 percent.

Improved forest management targets. These targetsaim at improving the overall biological, social, cul-tural, and long-term equity and economic outcomesof existing forest utilization operations. Targetswould be achieved through a range of approachesfrom large-scale landscape analysis to local projects.Achieving these targets would mean demonstrablyimproved management in approximately 30 percentof production forests worldwide.

Source: World Bank/WWF Alliance 1999b.

BOX 3.3

World Bank/WWF Alliance Targets for Forest Conservationand Improved Management

market in forest carbon offsets to support forest con-servation and sustainable use. Forest Trends also hasconvened industry leaders, analysts, and advocatesto evaluate and promote dialogue and investment innontimber forest goods and services.

Critical Ecosystem Partnership Fund (CEPF). TheCEPF is a major new source of international fundingdirected primarily to nongovernmental, community,and grassroots organizations. Within 21 “hotspot”ecoregions, it seeks to engage all stakeholders thatcan best contribute to solutions for biodiversityconservation. The CEPF is a partnership amongConservation International (CI), the GEF, theMacArthur Foundation, and the World Bank.

Closer collaboration between the Bank and theIUCN is being developed. The IUCN has been amajor partner with the Bank in developing therevised Forest Strategy and Policy. Closer coopera-tion with IUCN could greatly strengthen the Bank’sapproaches to collaborative forest management,achievement of SFM and Protected Area targets, andstrategies to more effectively contain forest fires.The revisions proposed in this strategy for a moreintegrated approach to forest conservation anddevelopment are highly compatible with the priori-ties outlined in the Forest for Life Strategy jointlydeveloped by IUCN and WWF.

Possibilities also are being explored for developingcollaboration with The Nature Conservancy (TNC),a leading conservation agency, which has been col-laborating closely with the Bank in developing inno-vative financing approaches for forest conservation.

Collaborative possibilities also are being exploredwith a WRI-sponsored initiative, Global ForestWatch, which is an independent network of nationaland local organizations engaged in monitoring andmapping logging, mining, road building, and otherdevelopments that impact forests in major forestedregions of the world.

Improving Links to the Private Sector

Participation of the international private sector isespecially important to produce favorable forest out-comes. International flows from private interests toforest operations and forest-using industries dwarfthe combined flows from multilateral developmentbanks, donor agencies, and NGOs. There are majoropportunities to leverage more private sector invest-ment into sustainable forest activities, or relatedinvestments (for example, in processing), especially

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in situations in which the environment for responsi-ble investment is not favorable.

CEOs Forum on Forestry. In 1998, the president ofthe World Bank initiated the CEOs Forum onForestry, a dialogue originally initiated with the chiefexecutive officers (CEOs) of large forestry firmsfrom around the world. This arrangement has sinceexpanded to include retailing and production firmsand some major international and Southern NGOs.The forum has become an important vehiclethrough which the Bank and others can exchangeviews and develop ideas on how to approach forestissues, to partner more effectively with the privatesector in its programs, and to more actively incorpo-rate the private sector in Forest Policy dialogue withnational and international stakeholders. As a directresult of the CEOs Forum, working groups onspecific issues and regions have been initiated. TheCEOs Forum Africa Working Group has become amajor initiative in the Congo Basin, bringingtogether major international forest companies,international and local NGOs, representatives fromscience, and the African Timber Organization. Thegroup focuses its work on codes of conduct, bushmeat poaching, reduced-impact logging, biodiver-sity conservation in forest concession areas, andissues in sector governance and timber trade. TheForest Dialogue Group, another spin-off of theCEOs Forum, seeks to maintain a global dialogue onimportant issues in forest development amongindustry, NGOs, forest owners, and forest workersassociations.

Need for additional partnerships. A new partner-ship with the private sector, civil society, and gov-ernments needs to be established for forest carbon.All forests store carbon, and this carbon is releasedwhen they are disturbed or burned. Up to one-thirdof greenhouse gases being emitted into the atmos-phere are estimated to come from biomass burning,clearing, and related activities. Protection of threat-ened forests and reduction of the impacts from log-ging and agricultural development are potentiallyimportant ways of increasing the contributionsof forest lands to carbon emissions. In addition,the creation or enhancement of new carbon sinksthrough tree planting has been suggested to offsetsome greenhouse gas emissions.

The clear potential to reduce emissions from for-est lands and to use forest lands to sequester carbonstored in the atmosphere has led to considerable

interest from some countries and companies in spon-soring forest conservation and management projectsto offset their carbon emissions. However, while theseoffset projects could provide useful funds for forestconservation and management, they remain contro-versial. Many environmentalists fear that offset proj-ects might encourage bad forestry practices, forexample, by providing incentives to replace naturalforests with fast-growing exotic species. It also is clearthat forests alone can never be more than a relativelysmall but still significant part of an overall solution tothe greenhouse gas problem and that early actions toreduce the fossil fuel emissions from industrializednations at their sources remain essential.

The enhancement and improved management of“carbon sinks,” including afforestation, reforesta-tion, and forest conservation, are eligible activitiesunder the Joint Implementation provision of theKyoto Protocol. At the resumed Sixth Conference ofthe Parties in Bonn, July 2001, Parties to theUNFCCC agreed that afforestation and reforestationactivities also were eligible activities for the achieve-ment of emissions reductions under the Kyoto Pro-tocol. The Parties decided that applicable ruleswould be agreed at the Ninth Conference of the Par-ties to the UNFCCC in 2004. The volume of certifiedemissions reductions achieved through afforestationand reforestation to meet UNFCCC obligations ofthe industrialized countries in the first commitmentperiod of 2008–2012 is five times 1 percent of theirindividual emissions reductions obligations underthe Protocol. The door is now formally opened tousing the carbon-offset trade to stimulate reforesta-tion and afforestation activities, but not as an incen-tive to avoid deforestation. Nevertheless, appliedsensitively to environmental and social concerns,these eligible forest asset creation activities underthe Kyoto Protocol can support improved forestmanagement in developing countries.12 Throughpublic–private partnerships and with its experiencein implementing the Prototype Carbon Fund (PCF),the Bank will contribute to the Parties’ review of therules governing afforestation and reforestation activ-ities in the CDM.

The Bank’s PCF is able to invest up to 10 percentof its subscribed capital—about US$15 million—inKyoto Protocol–eligible carbon sequestration activi-ties in transitional economies and developingcountries. These PCF carbon purchase activitieswill enable the Bank to pioneer environmentally,economically, and socially responsible investment inforest conservation, management, and restoration

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activities in developing and transitional economiescatalyzed by largely private sector finance. PCFresources are still modest in terms of the scale ofrequired demonstration activities. Therefore, a “pro-totype forest carbon” or “sinks” fund embracingpartnership with NGOs, industry, and governmentsseems warranted to extend “learning by doing” increation of Protocol-eligible carbon assets fromforestry in an environmentally and socially responsi-ble way across a representative range of potentiallyreforested landscapes and contexts. However, theBank’s role should be catalytic only. Once soundperformance benchmarks are in place and thesemarkets have attracted private sector participation,the Bank’s role will have been completed.

More generally, the Bank needs to consider theexpanded opportunities for interaction with the pri-vate sector that are presented by increased privatesector interest in investment in forests in Bank clientcountries. For example, a number of very large insti-tutional investors are becoming interested in sup-porting responsible forest investments both in thelarge remaining natural forest areas of the world andin plantation activities. Institutional investors citethe findings of studies indicating that returns toforest investments are countercyclical to equitiesmarkets movements and therefore a useful hedge.They recognize the option values of forests, namely,that contrary to virtually all other commoditiestraded internationally, the real price of forest outputhas a long-term tendency to rise. There also arestrong possibilities that the potential markets forcarbon sequestration and other environmentalgoods and services from these forests will grow.

Because of the institutional origin of the fundsthey invest, the interest of these firms is firmly in thearea of sustainable investments and social responsi-bility. Many governments have a strong interest insuch investors entering their forest sectors. Theseinvestors bring management strength and access toreliable international funds, and, ultimately, theyaffect the credit standing of the countries in whichthey invest. What often is lacking in some countrieswith large forest potential is reasonable political risksecurity and the means to address problems or con-straints with the investment-enabling environment.The Bank could have a major role in developing thispotential, largely through its capacity to addressissues of the investment-enabling environment inforest sectors. That is, the Bank could address someof the risk factors that presently inhibit these desir-able forms of development.

The Bank Group and its partners are in a goodposition to address some of these difficulties becausethey have

� Access to government economic decisionmakerson the basis of long association under existinglending and other programs;

� Access to the guarantee instrument, which couldbe employed in creative ways to combine reducingthe exposure of potential investors to policy riskwith private underwriting of commercial risk;

� The means to incorporate specific policy reformsand undertakings needed to attract responsibleprivate investors to the forest sector into largereconomic restructuring and reform programs,such as those being developed under structuraladjustment, poverty reduction, or other broadeconomic reform interventions;

� Field presence to include specific forest activitiesin larger rural development or natural resourcesmanagement programs that could gain the atten-tion and support of important local stakeholdersand political figures resulting in positive forestoutcomes.

Clarifying and supporting a framework to attractappropriate private sector investment in the forestand forest industry sector will facilitate IFC’s role infinancing new investments and investors in sustain-able forest operations. IFC has the capacity tofinance a wide range of operations from largeinvestors to medium-sized enterprises through loansor equity investments made directly or throughfinancial intermediaries. IFC’s investments in pri-vate sector, sustainably managed forestry and forestindustry projects have demonstrated and will con-tinue to demonstrate the financial viability of inde-pendently certified, sustainable private sectorforestry operations.

The Bank Group could follow a threefold strategyto develop this potential. First, it would raise its ownprofile within the framework of NFPs. Second, itwould develop a sharper focus on the interests offorest-dependent people, improved forest manage-ment, and effective protection of forest resources incritical forest regions. To achieve this, the BankGroup would need to invest in partnership-basedconsultative processes. Third, it would emphasizebringing the message of the value of forests to allstakeholders.

There is a need for the Bank to deepen both therange of activities supported through its interaction

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with the private sector and its contacts in the privatesector, especially to intensify the dialogue withsome very large institutional investors that haveexpressed interest in working more closely with theBank on investments in SFM in some key Bankclient countries.

IMPROVING INTERNAL BANK WORKINGRELATIONSHIPS AND ACCOUNTABILITIES

International Finance Corporation andMultilateral Investment Guarantee Agency

Two institutions of the World Bank Group, the IFCand the MIGA, offer additional important instru-ments for drawing the international private sectorinto investing in SFM in Bank client countries.Clearly, to implement this strategy, a closer workingrelationship between the IFC and IBRD/IDA needsto be sought. The ESSD Forests Team would havea role in bringing this about by building a closerrelationship with forest-oriented staff in IFC.MIGA could have a larger role in forests through itsability to insure private investors against politicaland catastrophic risk.

World Bank Institute

The WBI has the capacity to bring awareness andtraining to policymakers in developing countries.By focusing on the thematic areas of forests andpoverty, governance and economic management,and local and global markets, WBI can help lay thegroundwork for the solid implementation of a newForest Strategy and Policy. WBI also can help coun-tries that wish to embark on Forest Policy reformprograms. In countries in which programs and proj-ects are being prepared, WBI can work in parallelwith the Bank to support the intensive consultationand dialogue processes that will be needed to ensurethat understanding and feedback on forest initiativesare broadened and that constituencies for changeare developed.

Role of the ESSD Forests Team

The integration of forest-focused staff and resourcesfrom the Environment and Rural DevelopmentDepartments of the ESSD Vice Presidency into a singleforests anchor team in 1999 has provided a basis forcoordinating policy and some global tasks for forests.The expanded activities implied for the Bank forest

program in the new sector strategy suggest that themajor priority tasks for this team are

� To be instrumental in improving coordination withIFC, MIGA, WBI, and GEF. However, to achievethis, the team must broaden its mandate beyondthe IBRD/IDA forest community and develop spe-cific strategies to engage with these groups

� To coordinate with PROFOR and assist in fulfill-ing its objectives, support the World Bank/WWF

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Alliance, and manage other major internationalpartnership arrangements

� To take major responsibility, through the sectorboards and by other means, for monitoring andadvising Regional forest teams in the Bank onimplementing the new strategy. To do this effec-tively, the team will need to develop partnershiparrangements with the Quality Assurance Group

� To advise the Regions in applying and monitor-ing the new OP on forests

The Bank’s strategic approach to forestsneeds to be integrated in country programsthrough developing and costing interven-

tions that can lead to meaningful levels of achieve-ment consistent with country priorities. Suchintegration will need to be consistent with the Bank’sorganizational structure and decisionmaking. Spe-cial incentives may be necessary to ensure that thestrategic objectives are achieved.

Decentralization of Bank decisionmaking, withits focus on demand-driven priorities established atthe country level, has implications for the institu-tion’s engagement in the forest sector. On the onehand, decentralization is highly compatible with theemphasis in this strategy on integrating forest issuesand activities in broader economywide and cross-sectoral programs and strategies and achievingcountry ownership. On the other hand, decentral-ization may strengthen the tendency already appar-ent in some countries to avoid proposing andborrowing for projects and programs with morerisks and higher transaction costs, but whose impor-tance to economic and environmental sustainabilityis substantial and whose benefits to the poor arehigh but possibly less immediate. This outcome isespecially likely in cases in which forest projects alsoare perceived by Bank country teams and managersto involve intensive management of external rela-tions. The average size of forest projects in the Bankis relatively small, but some project preparationcosts are fixed; and safeguard compliance costs arehigher in this sector than in many others. The net

result is that overall transaction costs of engagementin forests are higher than the average for Bankbudget allocations. These higher transaction costsand higher risks must be balanced against theimportance of forests to reducing poverty and to thedelivery of vital environmental services both locallyand globally.

The Bank must find strategic ways to leverage itsfinance and use its influence to address global andcountry issues in the forest sector while recogniz-ing the importance of country ownership andacknowledging the higher costs associated withmanaging projects and programs in important butsensitive sectors such as forestry.13 The approach toimplement the strategy proposed in this documentis based on the following:

Adapting the new approach to global and corporatepriorities being developed in the World Bank toenhance the commitment and resources devoted tothe incremental PROFOR outlined in chapter 3.

Using incremental budget resources for ESW, thusenabling country teams to incorporate potential for-est impacts more adequately into CASs, PRSPs, andcross-sectoral and economywide measures underconsideration by the Bank. In the medium term, thefunds will underwrite the (relatively higher) costs ofpreparing and supervising incremental investmentin forests. ESW and analytical work will be front-loaded in the program to build the foundationsfor increased investments in the forest sector and toheighten awareness inside and outside of the Bankof forest issues.

C H A P T E R F O U R

Implementing the Strategy:Incentives, Selectivity, andDeliverables

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Using this enhanced level of commitment by theBank to leverage additional donor funds andstronger participation by other partners. Thesefunds and participation will be channeled intobetter-aligned programs of assistance for the forestsectors in selected client countries. Enhanced fund-ing and stronger participation by the Bank andother partners also will provide an opportunity tocoordinate donor analytical work more effectivelyand to make better use of the comparative knowl-edge and analytical strengths of the major partners.The funds will involve support for some donor andNGO partnership initiatives that already are welladvanced in conceptual design and the formationof other initiatives that are less well developed.Especially important will be strengthening rela-tionships in client countries with compatibleprivate sector investors (or potential investors) inforest management and protection and forestindustry development.

Developing and maintaining an enhanced forestsector lending portfolio in the Bank. An increased ESWprogram is indispensable, to be leveraged by strongerinteraction with borrower countries, donors, andother stakeholders with common interests in theforest sector (see section on Selectivity below).

BUILDING THE INTERNAL BANKCOMMITMENT TO FORESTS

Raising the Bank’s engagement in the forest sectorwill be initiated through incorporation of forestissues, where these are relevant and important,well upstream in PRSP and CAS discussions so thatCountry Departments can undertake the necessaryfollow-up analysis in a timely fashion. The basicobjective of analytical work is to raise awareness ofthe potential and importance of dealing effectivelywith forest outcomes. As demand results fromthis process, additional resources could be commit-ted to increase lending and nonlending activities inthe sector.

Increasing Economic and Sector Work

The primary means to initiate the process of build-ing analysis, awareness, and then demand for forestinvestments and for incorporation of forest issuesin larger programs through the CAS and PRSPprocesses would begin with an enhanced commit-ment to focused ESW. As noted in chapter 1, ESW

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in the World Bank’s forest program has declinedprecipitously. A major objective of the new strategywould be to rebuild ESW in forests and forest-related work to a level close to that which prevailedat the beginning of the 1990s, for a defined period,after which it is assumed that client demand willlead to higher allocations for this purpose that willbe made autonomously through the normal coun-try budgeting process. Under the broader goal ofhaving forests take their place in an enhancedWorld Bank commitment to environmental com-mons, the two specific objectives of increased forestESW are the following:

� To provide the knowledge base and analyticalsupport to effectively integrate forests in develop-ment programs and to link policies, projects, andprograms in other sectors to forest outcomes.Besides establishing the importance of forests inpoverty reduction, sector work will determine thepotential impacts on forests and forest-dependentpeoples of forest and nonforest sector activitiescontemplated by the Bank through investment,adjustment, and broad poverty reduction pro-grams. It will establish the alternative paths bywhich policy, institutions, and management offorest resources can be improved.

� To develop the analytical and consultative basesneeded to build awareness and demand for for-est investments. Sector work will provide thebases for effectively integrating forest programsin CASs and PRSPs not only by creating knowl-edge of forest outcomes but also by buildinggovernment and public support for engage-ment. For sector work to build this awarenessand demand, it must be participatory andwidely discussed.

Using Partnerships to Leverage Impact

Donor partnerships to boost the ESW program.As discussed in chapter 3, hosting PROFOR willstrengthen the Bank’s international role in the forestsector. A primary spin-off of this multidonor part-nership will be the addition of analytical outputs forcountry forest sectors that would well exceed thecapability of any one of the partners to developalone. Since the externalities of this sector work arehigh, it is expected that all donors, including theBank, would contribute to the common effort ofbuilding knowledge through analysis.

Seeking Blended Financing to Address Localand Global Forest Issues

Forests are part of the environmental commonsand, as demonstrated in chapter 2, offer manyexternalities to both local people and the widernational and international community. Besidesaddressing poverty and economic development,improving the quality of forest operations will gen-erate benefits through securing future productivity,maintaining watershed quality, preserving biodi-versity, and sequestering carbon in the environ-mental commons. Many client countries haveargued that, because some of these key benefits areglobal benefits, the countries that provide themmust be compensated through concessional fund-ing mechanisms. In its review of the 1991 ForestPolicy, OED discussed and agreed with this view.

In addition to the need for concessionalresources, forest operations will need financing ofsufficient magnitude to make a difference. Isolatedforest projects will not always bring sufficient bene-fits to stakeholders to warrant their interest inconserving forest cover. Financing from otherdonors, the private sector, and NGOs will be neededto supplement government and Bank investments.This program of investment from various sourceswill need to be coordinated and have a unifiedstrategic focus.

To leverage the impact of its own increased com-mitment to forests, the Bank will seek the activeparticipation from donors and responsible privatesector investors. This financial participation willhelp develop a shared agenda, enabling all groups tofocus their inputs on the same basic set of objectivesin the sector within the framework of enhancedNFPs. The disbursement of these funds will be han-dled in parallel—no centralized fund is proposed—using coordinated programs to support countriesin realizing their NFPs. Financing partners alreadyhave indicated their willingness to work togetherboth analytically and financially to realize theseobjectives.

The advantage of this arrangement is that partic-ipating donors would be relying on a single strategicapproach: one that would emulate a grant-and-loan-based instrument to client countries. This approachshould lead to greater focus and cohesiveness ininvestment strategy. All stakeholders will benefitfrom this approach, because it is based on develop-ing assistance programs that focus on priorityimprovements, with a strong emphasis on necessary

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IMPLEMENTING THE STRATEGY: INCENTIVES, SELECTIVITY, AND DELIVERABLES

extensive sector analysis and stakeholder consulta-tion. It will enable the application of the principlesof selectivity and alignment across the activities of agroup of participating financiers, rather than thoseof the Bank alone. It will improve the focus of inter-ventions and lower reputational and institutionalrisk in the sector for all involved by ensuring moreparticipation by stakeholders early in the commit-ment cycle. In addition:

� The Bank will gain leveraging impact for itsfinancing, and other donors will gain the impact ofcoordinated policy reform and strong linkage ofsector issues with broader economic frameworks.

� Opportunities will increase for private sectorparticipation in responsible forest investmentsfrom the reduced risk expected to result fromthe improved policy and enabling environmentand the more unified stakeholder approach tothe sector.

� Clients will gain from efficiencies and streamlin-ing in the sector programs they are planning andexpected to implement.

Supporting and Strengthening the WorldBank/WWF Alliance

The Bank has been supporting the World Bank/WWFAlliance through trust funds, the Development GrantFacility, and some Bank budget funds raised throughthe ESSD Network. It is necessary to ensure that thetrust fund support continues: some commitments tothe Alliance are time bound and will terminate at theend of FY02. There also needs to be adequate supportin ESSD to manage this Alliance and in the Regions tocontinue support for operational staff to dedicatesome of their time to act as Regional coordinators.Some prospects for expanding this initiative to focusmore on the use of forest conservation and manage-ment for sustainable poverty reduction, to involve abroader group of NGO partners, and to involve theGEF more directly are under consideration by theAlliance Steering Committee.

Increasing Involvement with Private SectorPartners

For forest management to improve, responsible pri-vate investors who are willing to support SFM needto be brought into the sector and logging enterprisesthat participate in destructive and sometimes rogueand illegal forest operations need to be shut down.

If governments, the Bank, and its partners worktogether to develop a positive enabling environmentfor long-term and sustainable private sector invest-ments in natural resources, responsible and environ-mentally conscious investors that are interested insupporting SFM and conservation can be broughtinto the sector. The potential to attract suchinvestors is likely to increase as mechanisms aredeveloped for investments in forest-based carbonthrough which afforestation, reforestation, and pre-serving standing natural forests can be made morefinancially attractive.

At present, the Bank’s main interaction with theprivate sector on a multilateral basis is the CEOsForum, in which private enterprises meet togetherwith leading NGOs and representatives from otherorganizations. As in the case with the Africa WorkingGroup of the CEOs Forum, collective action canbring about codes of conduct that better meet inter-national standards of forest management. Workingtogether through dialogue, third-party oversight,and encouragement of responsible institutionalinvestments can change the landscape of privateinvestment in production forests from nonsustain-able practices to sustainable management and con-servation. Indeed, a major priority of this revisedForest Strategy is to allow the Bank to play a signifi-cant role in helping what are all too rare examples ofgood forest management practice become privatesector norms rather than private sector oddities.Abandoning the partnership with the private sectorcan lead only to the continuation of the currentwidespread patterns of economically inequitable,socially destructive, and environmentally irresponsi-ble exploitation of the world’s forests.

The IFC has many individual investments invarious private sector companies. Drawing on thesecontacts will open another avenue by which theBank Group could expand its involvement withthe private sector. Maintaining the CEOs Forum,contacting potential new members, and expandingefforts through the Forum to generate specificfield investments will require additional budgetarysupport for the Forum and increasingly sharedresponsibility.

SELECTIVITY

Given the limits on both Bank resources and capac-ity, it will be necessary to be selective as to where theefforts to increase Bank engagement in forests are to

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be applied and also to prioritize the specific forms ofinvolvement to gain the most impact.

Alignment and Selecting Countriesfor Focus

The task of building engagement will consist ofbringing selected candidates from among thesepotential investments through the CAS and PRSPprocesses, then into the project identification andconcept development processes, and on into theRegional pipelines.

The essential items needed to realize a selectedprogram of investments from this range of possibil-ities are the generation of Bank and borrower com-mitment to increased investments and partnershipswith donors and others to create blended financingand attractive rates of return. If a decision is madeto proceed with the strategy proposed in this docu-ment to rebuild Bank engagement in forests, thefirst step will be to select a group of client focuscountries in which the Bank is (or will be) engagedin developing CASs, PRSPs, and/or significant nat-ural resources or adjustment operations and inwhich forests are important in terms of both theenvironment and poverty reduction. Approxi-mately 15 countries in this category will be identi-fied, and initial evaluation of the prospects made.As indicated by the evaluation, six to eight coun-tries will be identified to receive more intensive anddirect support.

Developing the Focus on More FlexibleLending

One of the medium-term implementation objectivesof the Forest Strategy is to move toward more flexi-ble programmatic lending to assist borrowers toimplement their forest programs with lower transac-tion costs. Under this strategy, the Bank will adopta different approach depending on the readinessof countries to proceed with their enhanced NFPs(table 4.1). In some countries, the Bank will be ableto participate only in country dialogue and to do ini-tial sector work. At the other extreme, lending will below cost with heavy reliance on government com-mitment to implement agreed forest programs.Facilitated by increased ESW, this approach isexpected to lower lending costs and improve loaneffectiveness in the forest sector.

Once the knowledge base has been built throughsector work, project experience, and learningthrough monitoring, the Bank can proceed to more

flexible forms of lending at lower transaction costs.Table 4.1 indicates how this progression will takeplace and how the cost of lending will change witheach step of increase in country ownership andcommitment.

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EXPECTATIONS AND REALITIES: RISKSAND MONITORING PROGRESS

A primary message of the consultations done forthis strategy is that, to make a difference in the for-est sector, the Bank must become more engaged.

Table 4.1 Appropriate Forest Investments

Category of client forestsituation Type of involvement Cost/implementation implications

Category 1: Completed (or welladvanced) enhanced NationalForest Programs (ENFPs);demonstrated capacity toimplement forest programs; andadequate policy and institutions,including fiduciary oversight andgood governance.

Category 2: Government and othermajor stakeholders committed to(or in early stages of involvementin) ENFPs or equivalent nationalsector strategy development; policyand institutional reforms andstrengthening still needed.

Category 3: Significant interestamong stakeholders and reformistelements in government in forestsector management anddevelopment; major policy andinstitutional issues unresolved.

Category 4: Governmentcommitment and awareness onmajor sector issues weak or notpresent; other stakeholders poorlyorganized or in major conflict;major economic and socialdifficulties present.

Adopt longer-term, more flexibleapproach to support the sector.Continue adjustment lending anduse guarantees where needed.

Major participation in ENFPdevelopment. Follow-up investmentsfor scaling up piloted approaches tonational scale via project investmentlending and adaptable programloans. Intensification of donortechnical assistance in fieldoperations and monitoring andevaluation. Possible use of sectoradjustment instruments andguarantee mechanisms to stimulatescaling up of appropriateinvestments in the sector.

ESW and other investment indialogue and sector analysis,investment in institution buildingand piloting feasible approaches tomanagement, protection andimproved participatory approaches(via learning and innovation loans).Possibly some incorporation ofbasic policy reforms in plannedstructural adjustment operations.

ESW and other inputs to supportinitiation of dialogue and basicsector analysis; outreach andconsultation to build sectorconstituency groups in-country.Strategic support through IFC andthe World Bank/WWF ForestAlliance for NGOs and catalyticprivate or community operatorsprepared to meet internationalnorms of good forest managementpractice.

Bank: Lower budgetary costs;0.75 to 1.0 percent of funds lent aspreparation and supervision costs.Client: Lower risk status for privatesector borrowing; higher leveraging ofgrant funds for protection and relatedpurposes.

Bank: Medium budgetary cost:1 to 2 percent of funds lent (dependingon proportion of sector lendingadjustment present in portfolio).Client: Reduced risk perceived bypotential private sector lenders; higherprospects of Bank and otherinstitutional loans being successful.

Bank: Higher cost, 2 percent-plus onlending amount due to continued up-front dialogue/ESW costs.Client: Limited exposure to lending inrelatively poor implementationenvironment; opportunity to build astrategic approach and a strongconstituency for reform.

Bank: Limited lending to governmentsat this stage; limited inputs into basicsector analysis, dialogue/watching briefactivities.Client: Basic awareness building, initialstakeholder contacts.

ESW, economic and sector work; IFC, International Finance Corporation; WWF, World Wide Fund for Nature; NGO, nongovern-mental organization.

The ultimate beneficiary of the Bank’s renewedengagement in the forest sector through this strat-egy will be the poor and the global environmentalcommons. In the earlier of the initial five years ofthe strategy’s implementation, the focus will be pri-marily analytical work and implementing the finan-cial partnerships with donors, NGOs, and the pri-vate sector in focus countries willing to progress onforest issues.

Institutional Realities

It is acknowledged here that the tasks involved in thethree pillars of strategy discussed in this paper arevery large, that the potential outcomes for forestsand forest-dependent people and countries withlarge forest resources are even larger (see the BroadOutcomes section below), and that these largeexpectations could cause some reputational risk forthe Bank (this specific issue of risk is discussedunder the Risks section below). The reality is thatany feasible program for the Bank to reengage in theforest sector must begin modestly, recognizing thattime and effort will be needed to build both theinstitutional capacity and the expanded demandfrom borrowers for Bank involvement. In its earlystages, reengagement in the forest sector must bebased on analysis and consultative work, linked toBank and NFP priorities, and supported by partner-ship arrangements. Later developments will dependon outcomes of these activities and will proceed inthe directions indicated by country commitments.

This caution is due largely to the reality that a re-engagement in this sector will take time to build fromthe present low human and technical resource baseavailable in the Bank. At the time of writing, the Bankhad 25 operational staff who could be classified asbeing engaged in forest work for more than 50 per-cent of their time. Of these, approximately one-thirdare located in the field. A further five staff memberswork in the ESSD Forests Team, and the equivalent ofthree more are in the Development Economics Unitand WBI. More than half of these people are regularstaff; the remainder are appointed on various consul-tancy contracts, and some are in the process of con-version to regular status. A further 12 staff work morespecifically on biodiversity and conservation issues,which overlap forest areas to a significant extent.

Eventually, an increase in resources focused onforests will be essential. At the time of writing, theEnvironmental and Rural Sector Boards in the Bankhad initiated a program to hire more natural resource

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specialists in the Bank, and it is significant that theRegions have requested that an emphasis be given tohiring staff qualified in forest areas. The time frameover which increased engagement in the sector occurs,and the nature of that engagement, will depend onspecific Regional and Country circumstances. TheBank’s commitment to reengage in the sector will itselfraise the confidence of other donors, NGOs, and pri-vate sector investors that the Bank is willing to imple-ment its Forest Strategy. Bank engagement will followits comparative advantage in policy and institutionalstrengthening and scaling up successful programs offorest management and conservation.

Some Potential Broad Outcomes,in Perspective

It is useful to consider the magnitude of impacts thatcould result from an effective international programto address the Rio Forest principles, and subsequentintergovernmental agreements on what is needed inforests, to gain some appreciation of the importanceof the task. On the basis of some previous commit-ments, and figures on the scale and magnitude offorests’ potential contribution to development andenvironmental protection discussed earlier in thispaper, it is reasonable to suggest that a significantand well-directed effort among donors, NGOs, theprivate sector, borrower country governments, andstakeholders could aim for the following large goalsover the next 5 to 10 years:

Poverty. Improve the livelihoods of 500 millionpeople, most of whom are poor and dependent onforest and tree resources, primarily through com-munity forest management and development ofagroforestry.

This number, while large, is less than half thenumber of poor people estimated to be dependent tosome significant extent on forests for their livelihood.

Governance. Strengthen the institutional capacityto reduce the losses from illegal logging by US$5 bil-lion per year and improve the management of forestconcessions to increase government revenues byUS$2.5 billion per year.

� As noted in chapter 1 of this paper, the estimatedlosses from failure to collect appropriate royal-ties and taxes from legal forest operations is cost-ing governments about US$5 billion annually.Illegal operations probably cost them a further

US$10 billion in lost revenues. Recovery of halfthe amounts currently lost through improve-ments in the capacity of governments and otherstakeholders to collect revenues, raise more reli-able sources of financing for forest operations,and control illegal operations would represent asignificant achievement, if not eliminating theproblem entirely.

� An example from recent Bank experience cited inthe current World Development Report 2000/2001: Attacking Poverty relates to significantreforms in governance and revenue collectionthat have occurred in Cameroon, through acooperative effort over a number of yearsbetween the government and the Bank, in thecontext of structural adjustment operations.While the process is not yet complete, it has led tosignificant gains in transparency, revenue yield,participation by communities, and compliancewith proper forest management procedures.

Protection and conservation. Bring 50 million haof forests into new Protected Areas and improvethe management of 50 million ha of currentlyProtected Areas.

These protection outcomes derive principallyfrom commitments governments themselves havemade in recent years, finalized into “stretch” targetsas outlined by President Wolfensohn at the UNGASSmeeting in 1997. There has in fact been significantprogress with these targets, and it is likely they willactually be exceeded within the original 2005 timeframe set by the president.

Sustainable forest management. Bring 200 millionha of global forests under SFM that is independentlyverified and certified. This “stretch” target was alsoone of the goals enunciated by the Bank president atthe 1997 UNGASS meeting.

� Progress with this objective is likely to be slowerthan anticipated in 1997. However, the area of for-est under certification has expanded exponentiallysince then, from virtually nil to about 27 millionha worldwide. About 9 million ha of this total is inBank borrower countries, of which some 3 millionis in tropical forest. Given that there are on theorder of 600 million to 800 million ha of naturalforest that already are, or will soon be, under someform of contractual or informal intent for pro-duction activities in the Bank’s borrower coun-tries, it would seem reasonable to aim at bringing

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10 to 15 percent of this under improved standardsof forest management within a 10-year period.Fulfilling this aim, along with continued rapidprogress in developed country certification, wouldachieve this certification target.

The reduction of poverty through mechanisms thatsimultaneously improve the global environmentalcommons benefits all stakeholders. However, it isreiterated here that to achieve these goals will requirethe concerted and coordinated efforts of all stakehold-ers. This proposed strategy indicates a possible pathfor the Bank to play a significant part in that (albeitwith limited resources) through a catalytic approach:building partnerships and knowledge and increasingthe blended financial flows to developing countriesneeded to realize the potential contributions offorests to sustainable conservation, development, andpoverty reduction.

Risks

The most immediately obvious risk for the Bank inadopting the new strategy proposed in this paperwas the necessity to modify the 1993 Forest Policy,OP 4.36, a move that was deemed necessary toachieve the aims of this strategy. This risk was espe-cially high if the replacement of the present broad-based ban on Bank financing of logging activities inall of the primary tropical moist rain forest withmore closely targeted provisions were to be seen assimply “opening the floodgates” to Bank support fordestructive and unsustainable logging operations inthese forests.

� This issue has been extensively discussed inchapter 2 of this paper. It is made clear in thatdiscussion that the intention of modifying thepolicy in this area was to ensure that the Bankbecomes an effective player in the managementof forests in an appropriate manner and utilizesvarious new approaches that will allow this tohappen. There has been no financing of unsus-tainable logging by the Bank in Regions wherethe ban in the 1993 OP does not apply (since itapplies only in primary tropical moist forests).There is in fact no indication of borrowerdemand for Bank financing of such activities.

� Bank support for commercial harvesting activi-ties is, in any event, restricted in the new policy tosituations where there will be independent vali-dation of agreed standards in forest operations.

The new OP utilizes new developments in inde-pendent assessment and certification of forestoperations to ensure that any operations sup-ported in any way by the Bank will be significantimprovements over the norm, in any given situa-tion. The approach will also provide an ongoingmechanism by which performance in the objec-tive of improving the social, environmental, andsustainable development objectives of forestoperations are in fact being met. This will have astrong collateral effect on the compliance withother safeguard policies, since in the area of natu-ral habitats, indigenous people, and cultural sites,the requirements of the Forest Policy specify in aforest context the requirements of these othersafeguards, and therefore would incorporatethese in criteria and indicators for forest opera-tions under some form of independent assess-ment or certification.

� It is made clear in this strategy that the largemajority of stakeholders who were consulted inall regions of the world on the issue of the Bank’spolicy and its approach were strongly in favor ofthe Bank, adopting the policy measures now inthe new OP (included on the CD), as an essentialpart of its reengagement in the sector, whichmany saw as long overdue.

A major risk for the Bank in the approach outlinedin this strategy paper is in the large gap that manywill perceive between the tasks needed to achievesignificant progress with the three pillars outlined inchapter 1 as well as with the international commu-nity’s Forest Policy objectives, on the one hand, andthe fairly cautious and modest measures proposedfor the Bank to initiate its reengagement in forests,on the other hand.

� It is essential that the Bank should acknowledgenot only the size and urgency of the task in forests,but also the limitations that apply to its own capac-ity to deal with these, at least in the immediate andnear-term future. Even when combined with themost optimistic projections of what other multi-lateral banks and donor agencies might bring tothis sector, the total flow of resources will continueto be dwarfed by the flow of private sector fundsinto the sector (much of which is presently focusedon inappropriate and unsustainable use of forests),and also the flow of all funds into other parts of theeconomies of important forest countries—whichhas potentially large impacts on forests. This is why

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the approach outlined in this paper emphasizes thecatalytic role of the Bank and other donor partnersin the forest sector: the objectives must be to pro-mote an enabling environment that will encouragethe right kind of investment to ensure that thethree pillars are addressed effectively; to utilize theBank’s influence to draw the right kind of privatesector financing into the sector; and to increase itsown abilities to incorporate forest and forest peo-ples issues effectively into its own broader-basedinvestments with its borrower countries.

A related risk is the possibility that insufficient inter-est and commitment will arise in borrower countries,as a result of the inputs proposed here, to generatethe major changes and reforms necessary and thedemand for investments needed to achieve them.Two basic approaches to mitigation of this risk areembedded in the overall approach proposed:

� The nature of the ESW proposed is directlyfocused on this issue: the Bank and other part-ners will work directly with borrower govern-ments and other local stakeholders to identify thereal economic and environmental opportunitiesthat forests offer, the costs of developing theseopportunities, and the costs of ignoring them.This will help ensure that the real situation isclearly understood by all major stakeholders andallow all to focus on the priorities and realitiesinvolved in managing and protecting the forestsand the interest of forest people.

� The catalytic nature of the involvement outlinedabove, as it applies to the private sector, will haveparticular application to mitigating this risk. TheBank will utilize its convening power to bringnew financiers into the sector in borrower coun-tries, including external and large-scale “green”investors, and local investors, who to date havebeen reluctant to enter this sector given its per-ceived problems of governance and nontrans-parency in many cases.

A parallel risk to that of commitment by borrowersand other stakeholders exists internally in the Bankamong managers and staff within the Bank, as a resultof the “chilling effect” on direct involvement in forestsresulting from the 1993 Forest Policy that OED hasidentified, and the perceived high transaction costs ofdealing with this sector, which is connected to theneed to comply with other safeguard policies. The riskis that the reluctance to deal with the more difficult

aspects of the sector created by these constraints maybe too strong and entrenched to be overcome by themeasures proposed in this strategy. First, it needs to beacknowledged here that the overall package of safe-guard measures the Bank applies to investments andother programs that involve natural forests are likelyto lead to more effective and sustainable projects.Equally, however, there is little doubt that, under pres-ent conditions, meeting the demands of these safe-guards in project design and implementation canbe onerous and expensive. This is due in large part tothe nature of forests, which are a complex of compet-ing goods and services, often further complicatedby unresolved and frequently contentious issues ofaccess, ownership, and rights among various group-ings in society. The approach outlined in this paperwill provide some effective mitigation of the problemof continued risk aversion to direct involvement inforests within the Bank in three ways:

� The new OP underpins a new, proactive attitudeto engagement in natural forests by the Bank,and, if adopted, will send a clear signal to bothBank staff and borrowers that this is the case.This will directly address the “chilling effect.”

� As noted under the discussion of the risks associ-ated with adoption of this new policy, an impor-tant collateral effect of the independent assessmentand certification measures proposed as part of thenew OP will also assist in identifying complianceissues in the other important safeguards that applyto forest protection and use. This will providesome assurance to staff and managers that a com-petent and continuous process of assessment ofcompliance with important safeguards is built intothe operation of a project and will provide timelywarning of possible problems, so that these can bedealt with effectively.

� While no specific lending targets are proposed inthis strategy, it is recommended (in the BusinessStrategy attachment) that when interest, commit-ment, and demand for further engagement in theBank are built through the enhanced ESW pro-gram proposed, the Bank will need to considerthe use of corporate funds, if necessary, to reducethe incremental cost burden that preparation andsupervision of projects based on forests incur forCountry Departments. While it will remain adecision for Bank management at the timewhether and how this assistance will be provided,it has some precedent in the Bank, in the form ofcentral funding of global public goods initiatives.

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There is, as always, a significant risk for the Bankinherent in entering into new partnerships. Theessential risks are (a) that accountabilities and rolesfor all parties to the arrangement will not be clearlyenunciated and negotiated at the outset, leaving thelikelihood that the activities and outcomes may notbe agreed upon later, or that the Bank, as host organ-ization, will need to absorb more responsibility thanit can manage; (b) that parties’ priorities and capac-ities may change during the course of the partner-ship program, leading to the possibility that they willnot continue to meet their agreed obligations andresponsibilities; and (c) that the parties to the part-nership may have widely differing interpretations ofits role and function.

Two issues remain to be addressed in this discus-sion of risk:

First, an effective communication strategy will beessential, to ensure that the development and imple-mentation of this strategy are clearly enunciated andunderstood, and the constraints and realities are rec-ognized from the outset. As a first measure, the post-ing of this strategy and the draft revision of the OPfor public review will be accompanied by a compre-hensive questions-and-answers paper, which willexplain in depth the reasons for adoption of certainmeasures and decisions that may prove controver-sial, and which will also explain the reasons foradoption of a gradual scaling up of reengagementand a catalytic approach, as discussed above. A sec-ond important element in the communication strat-egy will be the proposed EAG for implementation ofthis strategy: in addition to providing independentadvice on implementation issues, this body willserve as a conduit to interest groups for informationon the status and effectiveness of the program, andin this way will serve a valuable transparency role.

Second, when evaluating the risks and mitigatingmeasures as discussed above, it must be borne inmind that there would also be major risks for theBank in maintaining the status quo in its previousForest Strategy and Policy:

� As noted above, certain stakeholders will regardany variation of the broad-based ban on supportfor logging activities in the tropical moist forestas an “opening of the floodgates” (and in fact thisgroup will press for an extension of this ban tocover all old growth forest in nontropical areas,as a minimum condition). However, the 1993Policy, even if extended in this particular way, wascriticized by the majority of stakeholders and

interested parties outside the Bank as being a sig-nificant factor in the Bank’s perceived withdrawalin recent years from major areas of the sector. Inthese circumstances, the best approach to manag-ing this risk is not to adhere to the status quo butto develop a proactive policy that engages stake-holders with the Bank in defining acceptable for-est outcomes and then monitoring activities toensure that they are achieved. It is certain that amuch larger group of stakeholders, includingsome important international environmentalNGOs, agree with this approach and will regardany move by the Bank to circumscribe or mini-mize its proactive reengagement in this sector asa major failure of will.

� Certainly, this would prejudice the possibilities ofa growth in borrower demand for Bank involve-ment in forests, since the interpretation would bethat the Bank continues to have limited interestin this sector.

� The strategy calls for an enhanced commitmentto ESW and proposes a major partnership toassist in implementing that. Among other things,this will allow forest issues and impacts thatmight be of relevance to larger Bank programsbeing considered to be considered in a timelymanner. Without this, there are possibilities thatBank nonforest sector activities might inadver-tently cause deleterious impacts on forests andforest peoples that could have been avoided with-out prejudicing the basic aims of the investment,had the right offsetting measures been designedinto the process.

� The partnerships proposed for inception orexpansion in this strategy will build linkagesamong the Bank and the private sector, the donorcommunity, and major NGOs. In each case, thiswill lead directly to benefits from coordinationand shared knowledge that are not present (or arepresent to a more limited extent) in presentarrangements. Given the high levels of activityfrom all quarters in the forest sectors of Bankborrower countries, the partnerships proposedwill certainly lower the risk of overlapping initia-tives; poor sequencing of respective donor, NGO,and private sector initiatives; and discontinuitiesin the assistance provided that has characterizedthis sector in recent years.

None of these approaches will be easy to implement,and all will require an ongoing commitment by themanagement and the Board of the Bank. However,

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there is little alternative to this: so far as the very vis-ible challenges now presented by forests and forest-dependent people to the Bank are concerned,attempts to preserve the status quo will provide norefuge from political controversy and criticism.

Monitoring the Bank’s Role

As will be apparent from the above discussion,the Bank can expect to encounter major difficultiesinherent in attempting to contribute effectivelyto large tasks and objectives with limited resourcesby relying on catalytic activities and strongpartnerships—but it has little alternative but toembark on this approach. For a decentralized insti-tution such as the Bank, joint engagement is evenmore difficult when global priorities are involved.However, joint engagement is essential to success inthe forest sector and other sectors where effectiveengagement of the Bank and other partners is indis-pensable to achieving the MDGs.

Monitoring and reviewing progress will thereforebe an important activity for this strategy, since itwill make it possible to assess whether measuresand activities are correctly focused and adequate.Monitoring implementation of the strategies for theincreased engagement proposed for the Bank will bebased on the following performance indicators:

Developing demand. The Bank will monitor theeffectiveness of incremental analytical and consulta-tive activities in the focus countries. Criteria willcomprise the alignment of these activities with themajor pillars of engagement put forward in thisstrategy and with NFP activities and objectives; theestablishment of working partnerships at the coun-try level with other donors and major local stake-holders; and the degree of ownership and consensuson major elements of reform in the sector, includingthe development of interest and participation bymajor agencies of government in the agenda.

Building engagement. The test of this componentwill come later in the program in the form of initiat-ing the preparation of investments that have resultedfrom the ESW activities. In addition to normal Bankquality-at-entry and performance indicators, animportant additional criterion will be the assessmentof the degree of parallel financing or cofinancing bydonor partners and the private sector, which emergesas a result of collaborative activities. Base lining at thebeginning of the program will be an importantmeasure to allow assessment of this factor.

Impact on forest outcomes of broader involve-ment. It also will be necessary to evaluate theimpact of the knowledge and analysis generatedthrough this strategy on Bank activities originatingoutside the forest sector: the identification of criticalforest issues; their incorporation in cross-sectoral,adjustment, and broad programmatic lending; andthe inclusion of forest topics in broader ESW andCAS development work programs.

Selectivity and sequencing. Effective disbursementand implementation of the incremental activitiesproposed, in the time outlined, will be a majorfactor. The balance of activity types and progresstoward lowering overall costs of doing businessin the sector through a movement of country situa-tions being addressed up through the hierarchy ofengagement, as illustrated in table 4.1, will be amajor factor for evaluation.

Mid-term evaluation. Provision for a specific mid-term review is included in the Business Plan for thisstrategy. The objectives and terms of reference forthis will need to be carefully designed to concentrateevaluation on ESW as well as whatever investmentimplementation is in progress. The mid-term reviewshould be carried out by OED, and the proposed

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EAG that is intended to support implementation ofthe new strategy would be intensively engaged in thisexercise as well.

External Advisory Group

External assessment will be built into the evaluationprocess, continuing the approach used during thepreparation of the FSSP. Stakeholders will be con-sulted at every stage. Specifically, an ad hoc EAG willbe formed, utilizing the former TAG formed to assistthe Bank with development of the new strategy andpolicy as a roster for selection on as as-needs basis.Small teams (8 to 10 members) would be formed forspecific tasks, comprising individuals from majorstakeholder groups (client governments, civil societygroups, academic and private sector interests, andmajor donor partners) represented on the formerTAG. The EAG process would be formulated in FY03,in time to allow selected group(s) to assess design,relevance, and progress of the activities for imple-mentation outlined below, with a specific objective ofadvising on implementation matters related to theBank’s OP and the overall aims of the strategy as setforward in the FSPP. In addition, the EAG will regu-larly advise the president of the World Bank regard-ing its view of the status of the forest program.

1. The Millennium Development Goals affirm theinternational community’s commitment to freeindividuals from the dehumanizing conditions ofabject poverty. The United Nations (UN) announcedthe goals in September 2001 following extensiveconsultations among the UN Secretariat,International Monetary Fund (IMF), Organisationfor Economic Co-operation and Development, andthe World Bank. These targets and indicatorsrepresent the harmonization of the InternationalDevelopment Goals agreed at various globalconferences and summits of the preceding decadewith the UN Millennium Declaration adopted inSeptember 2001 by 147 heads of state.www.imf.org/external/np/sec/nb/2001/nb0190.htm

2. An example is the recent study by Schneider andothers (2002 [English], 2000 [Portuguese]),“Sustainable Amazon: Limitations and Opportunitiesfor Rural Development.” This study shows that83 percent of the area of the Amazon is unsuitablefor agriculture and ranching and that continuationof these activities in forests will result in extremelylow returns from this type of land use, as well aspermanent loss of the forest areas.

3. See World Bank/WWF Alliance for ForestConservation and Sustainable Use 1998. The Alliancebelieves that a common set of principles shouldunderscore any standard for improving themanagement of both natural and planted forests.These principles include compliance with all relevantlaws, documented tenure and use rights, respect forindigenous peoples’ rights, respect for communityrelations and workers’ rights, encouragement ofmultiple benefits from the forest, containment of theenvironmental impacts of forest use, rigorous forestmanagement planning, active monitoring andassessment, and the maintenance of critical naturalforest areas. The Alliance believes that credible

certification systems must be consistent with thefollowing criteria:

� Institutionally and politically adapted to localconditions

� Goal oriented and effective in reaching objectives

� Acceptable to all involved parties

� Based on performance standards defined at thenational level that are compatible with generallyaccepted principles of sustainable forestmanagement

� Based on objective and measurable criteria

� Based on reliable and independent assessment

� Credible to major stakeholder groups (includingconsumers, producers, and conservation NGOs)

� Certification decisions free of conflicts of interestfrom parties with vested interests

� Cost-effective

� Transparent

� Equitable access to all countries

4. See discussion of the conditions for World Bankinvolvement regarding the preservation of intactforest areas in “The Forest Sector.” (World Bank1991e, pp. 19–20, 65–66.)

5. A 1989 ITTO study found that less than 1 percentof commercial operations in tropical forests globallymet reasonable operational standards forsustainable forest management. See Poore andothers 1989.

6. To illustrate: In 1998 the government of Brazilannounced its intention to develop a mosaic ofconservation areas in the Amazon within which some50 million ha of national forests under sustainableharvesting and management operations will form abuffer around a network of national parks and

N OT E S

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67

NOTES

indigenous reserves covering approximatelytwo-thirds of the Amazon forest region.

7. Mitigation is defined here as human intervention toreduce the sources of greenhouse gases or enhancetheir sinks.

8. Adaptation is defined as the ability to adjust toclimate change (including climate variability andextremes), to moderate potential damages, to takeadvantage of opportunities, or to cope with theconsequences.

9. The two major flexible mechanisms under the KyotoProtocol are Joint Implementation (JI), which dealswith carbon emission trade in the “Appendix 1”countries, and the CDM, which deals with carbonemission trade between Appendix 1 countries anddeveloping countries. The role of forests and forestrystill needs to be specified in the CDM framework.

10. The CPF is composed of all former members of theInteragency Task Force on Forests (ITFF), along withsome other organizations. Current members includethe United Nations Framework Convention onBiological Diversity (CBD), CIFOR, FAO, ICRAF,ITTO, IUCN, United Nations Convention to CombatDesertification, United Nations Department ofEconomic and Social Affairs, UNDP, United NationsEnvironment Programme (UNEP), UNFCCC, andthe World Bank.

11. PROFOR was established in 1997 in response to theproposals for action of the IPF to promote SFM andrelated public and private sector partnerships andthus to enhance forests’ contribution to sustainablelivelihoods. At the national level, PROFOR’scollaborative work supports countries in developing

and implementing Forest Policy planning andimplementation processes that more effectivelyaddress local needs and national priorities and reflectthe internationally agreed principles for NFPs. It alsopromotes the use of NFPs as a basis to enhancecooperation in the forest sector. At the internationallevel, PROFOR generates and promotes knowledge ofNFP processes and critical thematic issues related toNFPs—notably, livelihoods, governance, andfinancing strategies—among client countries andinternational organizations.

12. Even in the absence of this agreement, carbontrading is taking place using developing countryforests as sinks. This activity has become policy forsome corporations ahead of any formal internationalagreement on mechanisms.

13. It is axiomatic that, to succeed, a strategy for buildingthe Bank’s engagement and effectiveness in forestoutcomes will need to be:

� Implemented through country teams andprograms, beginning with the clear reflection ofintentions and priorities in CASs, PRSPs, andbusiness plans.

� Activated under the management of Regional VicePresidents, who will hold the responsibility to linkoutcomes under the newly adopted Bank globalissues with country programs.

� Demand driven with sufficient attention andresources devoted to dialogue and incentives toattract the interest of borrower governments,other major stakeholders, and Bank CountryDepartments to invest in the forest sector.

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Note: Page numbers with the prefix A– are in theAppendixes, found on the CD-ROM that accompaniesthis book.

AAdjustment lending, A-22, A-40, A-52Africa. See also individual countries

forest projects in, 19World Bank’s Forest Strategy and, 40–41, A-37–39

African Timber Organization, 51Agroforestry, 40, A-18–19

contribution of, to household incomes, A-19Algeria, Bank-financed projects in, A-44Alliance for Forest Conservation and Sustainable Use.

See World Bank/WWF AllianceArgentina

Bank forest projects in, A-43Bank loans in, 28, A-21forest management in, A-43

Armenia, Pyramid used in, 34, A-28Asia, tree establishment technologies in, A-19.

See also individual countries

BBangladesh, Bank-financed projects in, A-45Belarus

economic and sector work in, A-42macroeconomic problems in, A-41

Benin, joint World Bank and GEF financing in, A-39Bequest value, A-14Bhutan, Bank-financed projects in, A-46Biodiversity, protecting through market mechanisms

and funding, A-31–33Bolivia

forest management in, A-43

high-value forests in, A-43participatory forest land-use planning in,

A-10–11Bosnia, economic and sector work in, A-42Brazil

Bank loans in, 28, A-21, A-48deforestation in, A-17economic and sector work in, A-43forest land-use “zoning” strategies adopted in, 37forest management in, A-43harvesting operations in, 32high-value forests in, A-43natural resource management projects in, A-43revenue-sharing policies in, A-16

BulgariaBank-supported strategies in, 28, A-21economic and sector work in, A-41

Burkina FasoBank experience in, A-18natural resources management programs in, 28planting “live fences” in, A-19

CCambodia

adjustment lending in, A-22forest law enforcement in, 31, A-25, A-40illegal logging in, 42, A-25importance of forestry in, A-40major policy issues and problems in, A-40Pyramid used in, 34, A-28structural adjustment operations in, A-40timber taxation systems and, A-43

Cameroonadjustment lending in, A-22forest governance reform in, 12

I N D E X

74

harvesting operations in, 32joint World Bank and GEF financing in, A-39timber taxation systems and, A-43

Canada, forest land-use “zoning” strategies adopted in, 37

Carbon. See Forest carbonCDM (Clean Development Mechanism), 17Center for International Forest Research (CIFOR), 29,

48, 49, A-19, A-34Central African Republic, technical assistance project

in, A-39Central America. See also individual countries

forest fires in, A-15Meso-American Biological Corridor and, A-43

Central Asia. See also individual countriesBank projects in, A-41–42Bank’s forest lending in, 35World Bank’s Forest Strategy and, 42, A-41–42

CEOs Forum on Forestry, 10African Working Group of, 51, 58Forest Dialogue Group and, 51functions of, 51initiation of, 51

CEPF. See Critical Ecosystem Partnership FundCertification, 4–5, 33–34, A-25–28, A-49CGIAR (Consultative Group on International

Agricultural Research), 10, 49, A-34Chain of custody, 33–34, A-26China

agroforestry in, A-19Bank-financed projects in, 2, 28, A-18, A-47,

A-50, A-51money for forests lent to by World Bank, 2plantations established in, A-40policy analysis and reform in, 42poverty reduction projects in, 28, A-18tree planting in, A-47, A-48

China Council for International Cooperation onEnvironment and Development, A-40

CI (Conservation International), 10, 23, 51, A-32, A-35CIFOR (Center for International Forest Research), 29,

48, 49, A-19, A-34Clean Development Mechanism (CDM), 17Climate change, 17, 18, 38–39, A-33Collaborative forest management, 27, 28, A-6–10Collaborative Partnership on Forests (CPF), 14,

23, 46–47Colombia, natural resource management projects

in, A-43Congo, Democratic Republic of, as “mega-diversity”

country, A-38Congo, Republic of, forest-related activities in, A-38Congo Basin, CEOs Forum’s initiative in, 51Conservation International (CI), 10, 23, 51, A-32, A-35Consultative Group on International Agricultural

Research (CGIAR), 10, 49, A-34Corruption, forest-related, A-23–24.

See also Illegal logging

75

INDEX

Costa RicaBank forest projects in, A-43Bank-supported initiatives in, 40, A-34Ecomarkets Project and, A-32paying for environmental services in, A-16, A-17

Côte d’Ivoire, joint World Bank and GEF financing in, A-39

Country ownership, 6, 22–23CPF (Collaborative Partnership on Forests), 14, 23,

46–47Critical Ecosystem Partnership Fund (CEPF), 10,

37, A-31functions of, 51

Croatia, economic and sector work in, A-42

DDeforestation, 1, 16, A-11, A-17, A-33

avoided, A-33–34Direct-use value, A-14, A-15

EEAG (external advisory group), 14, 63, 65East Africa, tree establishment technologies in, A-19.

See also individual countriesEast Asia and Pacific region, World Bank’s Forest

Strategy and, 41–42, A-39–41. See also individualcountries

Eastern Europe, countries ofBank-supported strategies in, 28, A-21. See also

individual countriesWorld Bank’s forest lending in, 2, 35

Ecomarkets Project, A-16, A-32Economic development, integrating forests in, 2, 4–5,

26, 29–37, 41, 42, 43, 44, A-13–29, A-38, A-39, A-41,A-42, A-44, A-45

Ecosystem services. See Environmental servicesEcuador

future forest projects possible in, A-43natural resource management projects in, A-43

El Salvador, future forest projects possible in, A-43Environmentally and Socially Sustainable

Development (ESSD) Council, 7, 30, 57, A-53ESSD Forests Team and. See ESSD Forests TeamEnvironmental services

cross-sectoral aspects and impacts of, A-16–20failure of markets to capture, 18paying for, A-16, A-17protection of, 2, 5–6, 26, 37–40, 41, 42, 43, 44value of, A-14–15water catchment and, A-16

ESSD. See Environmentally and Socially SustainableDevelopment Council; ESSD Forests Team

ESSD Forests Team, 24, 60role of, 53–54, A-53

Europe and Central Asia region, World Bank’s ForestStrategy and, 42, A-41–42. See also individual countries

European Forest Institute, 48, 49

European Union (EU), A-41. See also individual countriesmacroeconomic reforms and adjustment in, 42“Existence” value, A-14

External advisory group (EAG), 14, 63, 65

FFAO. See United Nations Food and Agriculture

OrganizationFinland

commercially sustainable forests in, A-21forest operations in financed by World

Bank, 19Forest carbon, 17, 18, 39, 51–52

markets for, A-33–34Forest Dialogue Group, 51Forest management, 3–4, 29, 32–37, 61

civil society and, 32–34, A-13, A-25–29collaborative, 27, 28, A-6–10gender in, A-7joint, A-7–8, A-9Pyramid and, 34, 35sustainable. See Sustainable forest management

Forest Market Transformation Initiative, 50Forest plantations, A-12Forest Policy Implementation Review and Strategy

(FPIRS), A-53–57Forests

access to, by poor and indigenous peoples, A-6adjustment lending and, A-22, A-40, A-52agroforestry and. See Agroforestryanalytical studies on, A-59–61carbon and. See Forest carboncertification and, 4–5, 33–34, A-25–28, A-49chain-of-custody log tracking and, 33–34, A-26challenges in, 15–24climate change and, 17, 18, 38–39, A-33conflicts regarding, 18corruption and. See also Illegal logging, A-23–24deforestation and. See Deforestationglobal challenges and opportunities presented

by, 17–18illegal logging and, 1, 11–12, 31, 42, A-23–24, A-25,

A-40, A-43, A-49–50importance of, 15–17infrastructure and, A-21integrating in sustainable economic development,

2, 4–5, 26, 29–37, 41, 42, 43, 44, A-13–29, A-38,A-39, A-41, A-42, A-44, A-45

land titling and, A-18land-use planning and, 37, A-10–11macroeconomic policy impacts on, A-21–23management of. See Forest managementmining and, A-21natural, timber production areas in, A-11outputs of, rural livelihoods and, A-5plantations and, A-12

76

INDEX

poverty reduction and, 2, 3–4, 11, 17–18, 26–28,39–40, 41, 42, 43–44, 60, A-3–12, A-17–20, A-38,A-39, A-41, A-42, A-44, A-45. See also Poverty

realities in, 15–24, 60rural poor and, A-20–23sustainable livelihoods analysis and, A-4tropical dry, A-49value of. See Forest value(s)World Bank’s 1992-99 portfolio data regarding,

A-63–77Forest Stewardship Council (FSC), 32, A-25Forest Trends, 50Forest value(s)

bequest, A-14direct-use, A-14, A-15estimates of categories of, A-14–15“existence,” A-14in formal sector, A-15indirect-use, A-14market failure and, A-13–16need to account for, 18option, A-14protection of, 2, 5–6, 26, 37–40, 41, 42, 43, 44,

A-31–35, A-38–39, A-40, A-41, A-42, A-44, A-45water catchment and, A-16

FPIRS (Forest Policy Implementation Review andStrategy), A-53–57

FSC (Forest Stewardship Council), 32, A-25

GGabon

forest-related activities in, A-38joint World Bank and GEF financing in, A-39

GEF. See Global Environment FacilityGender

in collaborative forest management, A-7patterns in, 22

Georgia, forests in, A-16, A-41Ghana

illegal logging in, A-23, A-24timber concession policies in, A-24

Global Environment Facility (GEF), 9, 37, 43, 51, 54,57, A-34, A-41, A-43, A-46, A-47, A-48, A-51Conservation Trust Fund for Papua New Guinea

and, A-33functions of, 49investment in biodiversity projects and, A-31, A-32,

A-39, A-40, A-45Protected Areas and, A-11, A-31, A-43World Bank implemented overall and forest-related

projects, 1992-99, A-66Global Forest Information Service, 49Global Forest Watch, 31, 51, A-24Global Witness, 31, A-24Governance

failure of, 11–12, 17, 31–32, A-13

goals regarding, 60–61, A-38, A-49–50Pyramid and, 34, 35, A-27–28World Bank’s revised Forest Strategy and, 11–12,

31–32, 60–61, A-23–25Great Britain, A-25Guatemala

future forest projects possible in, A-43natural resource management projects in, A-43

Guyana Shield countries, high-value forests in, A-43

HHeavily Indebted Poor Countries (HIPC) initiative, 21HIPC (Heavily Indebted Poor Countries) initiative, 21Honduras, forest management in, A-43

IIBRD (International Bank for Reconstruction and

Development), 24, 49, 53, 54, A-47, A-51ICRAF (International Centre for Research on

Agroforestry), 28, 29, 48, 49, A-18, A-19IDA (International Development Association), 24, 53,

54, A-41, A-47IFC. See International Finance CorporationIFF (Intergovernmental Forum on Forests), 32, 46, 47IIED (International Institute for Environment and

Development), 48, 49Illegal logging, 1, 11–12, 31, 42, A-23–24, A-25, A-40,

A-43, A-49–50Imazon, 43IMF. See International Monetary FundIndia

agroforestry in, A-19Bank-financed projects in, A-45–46, A-50, A-51forest management in, 3, 4, 29, A-9, A-10, A-18money for forests lent to by World Bank, 2Protected Areas in, A-46Indirect-use value, A-14Indonesiaadjustment lending in, A-22CIFOR (Center for International Forest Research)

based in, 49environmental management plans in, A-25export taxes on palm oil in, A-21forest fires in, A-15forest law enforcement initiatives in, 31future of forest projects in, A-40harvesting operations in, 32illegal logging in, 42, A-23, A-24major policy issues and problems in, A-40rattan production in, 28structural adjustment operations in, A-40timber concession policies in, A-25timber taxation systems and, A-43value of forests to, 16

Intergovernmental Forum on Forests (IFF), 32, 46, 47Intergovernmental Panel on Forests (IPF), 32, 46, 47

77

INDEX

International Bank for Reconstruction andDevelopment (IBRD), 24, 49, 53, 54, A-47, A-51

International Centre for Research on Agroforestry(ICRAF), 28, 29, 48, 49, A-18, A-19

International Development Association (IDA), 24, 53,54, A-41, A-47

International Finance Corporation (IFC), 2, 24, 36,54, A-51Ecomarkets Project and, A-16private investments in forests supported by, 3, 4, 10,

26, 53, 58International Institute for Environment and

Development (IIED), 48, 49International Monetary Fund (IMF), A-25

new framework for poverty reduction endorsed by, 21

World Bank coordination with, A-24, A-40International Tropical Timber Organization (ITTO),

31, 48collaboration with World Bank and, 49, A-24

International Union of Forest Research Organizations(IUFRO), 49

IPF (Intergovernmental Panel on Forests), 32, 46, 47Iran, Islamic Republic of, Bank-financed projects

possible in, A-44ITTO. See International Tropical Timber OrganizationIUCN. See World Conservation UnionIUFRO (International Union of Forest Research

Organizations), 49Iwokrama International Centre for Rain Forest

Conservation and Development, 49

JJoint forest management, A-7–8, A-9

KKazakhstan

economic and sector work in, A-42forestry and natural resources review planned

for, A-42Pyramid used in, 34, A-28

Kenyaadjustment lending in, A-22ICRAF (International Centre for Research on

Agroforestry) based in, 49Kyoto Protocol, 17, 39, 52, A-33–34Kyrgystan, forestry and natural resources review

planned for, A-42Kyrgyz Republic, economic and sector work in,

A-41, A-42

LLand titling, A-18Land-use planning, 37, A-10–11Lao People’s Democratic Republic

forest law enforcement in, A-25

forest management goals in, A-40village and community forest management in, A-40

Latin America. See also individual countriesEcomarkets Project and, A-16, A-32forest projects in, 19Protected Areas in, A-31rain forests of, people living in, 3

Latin America and Caribbean region, World Bank’sForest Strategy and, 42–43, A-42–43. See alsoindividual countries

MMacArthur Foundation, 50, 51Madagascar

adjustment lending in, A-22as “mega-diversity” country, A-38

Maghreb, Bank-financed projects possible in,A-44Malaysia

forest land-use “zoning” strategies adopted in, 37losses in, from Indonesian forest fires, A-15major policy issues and problems in, A-40timber concession policies in, A-25

Mali, forest management in, 29, A-18MDGs (Millennium Development Goals), 1, 11, 15,

64, A-4Meso-American Biological Corridor, 40, A-35, A-43Mexico

Bank forest projects in, A-43, A-50forest management in, 29, A-18

Middle East and North Africa region, World Bank’sForest Strategy and, 43, A-43–44. See also individualcountries

MIGA. See Multilateral Investment Guarantee AgencyMillennium Development Goals (MDGs), 1, 11, 15,

64, A-4Mongolia, land reform in, A-40–41Morocco, Bank-financed projects in, A-44Multilateral Investment Guarantee Agency (MIGA), 2,

24, 54private investments in forests supported by, 3, 4, 10,

26, 53, A-32

NNational forest programs (NFPs), 6, 9, 11, 14, 31, 48,

49, 53, 57, 60, 64, A-10, A-23–24, A-32principles of, 47purpose of, 47

Nature, 16, A-14The Nature Conservancy (TNC), 51, A-32

Conservation Trust Fund for Papua New Guineaand, A-33

NepalBank-financed projects in, A-45, A-46gender as issue in seedling care in, A-7hill community forestry in, A-8

78

INDEX

Netherlands, A-25NFPs. See National forest programsNGOs (nongovernmental organizations), World Bank

partnerships with, 10, 26, 49–51, 56, 57, 60, 64Nicaragua

Bank forest projects in, A-43forest management in, A-43

Niger, forest management in, 29, A-18Nongovernmental organizations (NGOs), World Bank

partnerships with, 10, 26, 49–51, 56, 57, 60, 64North America, national park-wilderness conservation

system in, 32. See also individual countries

OOED review of 1991 Forest Strategy, 2, 5, 6, 10, 13,

18–19, 20, 45, 57, 62, 65, A-29, A-42, A-46,A-47–52, A-53Forest Policy Implementation Review and Strategy

(FPIRS) and, A-53–57major issues and recommendations and, A-48–51management responses to, A-1survey of Bank staff and, 20, A-50–51

Option value, A-14

PPakistan, Bank-financed projects in, A-45Panama, Meso-American Biological Corridor and, A-43Papua New Guinea

adjustment lending in, A-22, A-40chain-of-custody log tracking used in, 34Conservation Trust Fund for, A-33environmental management plans in, A-25future forestry projects in, A-41illegal logging in, A-23, A-24major policy issues and problems in, A-40

Paraguay, future forest projects possible in, A-43Partnerships

additional, need for, 51–53, 64, A-49developing, 7, 9–10, 23–24, 25, 64leveraging impact with, 56national stakeholder, 46–49with NGOs, 10, 26, 49–51, 56, 57, 60, 64with other donors, 9–10, 46–49, 51, 60, 64with private sector, 10, 26, 51, 57–58, 60, 64risks and, 13–14

PCF (Prototype Carbon Fund), 52, A-34, A-42Peru

economic and sector work possible in, A-43forest management in, A-43high-value forests in, A-43natural resource management projects in, A-43

PhilippinesBank loans in, 28, A-21Bank support for small enterprise development

in, A-20

major policy issues and problems in, A-40timber concession policies in, A-25

Plantations, forest, A-12Poverty

differentiating the poor and, A-5–6goals regarding, 3, 11, 15, 17, 21, 60, A-3, A-4rural, forests and, A-20–23sustainable livelihoods analysis and, A-4World Bank’s commitment regarding, A-3, A-34

Private sector, World Bank partnerships with, 10, 26,51, 57–58, 60, 64

PROFOR. See Program on ForestsProgram on Forests (PROFOR), 8, 9–10, 13, 23, 55

initiative of, 48Protected Areas, 3, 12, 32, 37, 39, 40, 41, 42, 43, 47,

49–50, 51, 61, A-17, A-31, A-34, A-39, A-43, A-46functions of, 5–6, A-11, A-29, A-35Prototype Carbon Fund (PCF), 52, A-34, A-42

Pyramid, 34, A-27–28illustrated, 35, A-27

RRain forests, people living in, 3The Right Conditions (World Resources Institute), A-22Rio Earth Summit (1992), 15, 17, 34–35, 60Romania

Bank-supported strategies in, 28, A-21economic and sector work in, A-41forests in, A-41

Russiaeconomic and sector work in, A-41forest taxation reform in, A-41illegal logging in, A-23, A-24private investment in forest products of, 38timber concession policies in, A-25

SSFM. See Sustainable forest managementSingapore, losses in, from Indonesian forest fires, A-15Solomon Islands, adjustment lending in, A-22South Africa, as “mega-diversity” country, A-38South Asia, World Bank’s Forest Strategy and, 43–44,

A-45–46. See also individual countriesSoutheast Asia. See also individual countries

agricultural and agroforestry systems in, 40, A-34–35forest fires in, A-15rain forests of, people living in, 3

Sri Lanka, Bank-financed projects in, A-45Sudan, forest-related activities in, A-38Sustainable economic development, integrating forests

in, 2, 4–5, 26, 29–37, 41, 42, 43, 44,A-13–29, A-38, A-39, A-41, A-42, A-44, A-45

Sustainable forest management (SFM), 29civil society’s role in, 32–34, A-13, A-25–29

79

INDEX

goals regarding, 61promoting, A-15–16World Bank’s 1993 Forest Policy and, 34–37, A-29World Bank’s 1991 Forest Strategy and, A-28

Sustainable livelihoods analysis, A-4Sweden, commercially sustainable forests in, A-21

TTajikistan, economic and sector work in, A-42Tanzania, joint World Bank and GEF financing in, A-39Thailand

forest law enforcement in, A-25losses in, from Indonesian forest fires, A-15

Timber concession policies, reform of, 31–32, A-24–25TNC. See The Nature ConservancyTransparency International, A-24Tropical dry forests, A-49Tunisia, Bank-financed projects in, A-44Turkey

Anatolia Watershed Project in, 28, A-18economic and sector work in, A-41

Turkmenistan, economic and sector work in, A-42

UUkraine, economic and sector work in, A-42UNDP (United Nations Development Programme),

9, A-25UNFF. See United Nations Forum on ForestsUnited Nations

Development Programme (UNDP) of, 9, A-25Economic and Social Council (ECOSOC) of, 17, 46Food and Agriculture Organization (FAO) of. See

United Nations Food and AgricultureOrganization

Forum of, on Forests (UNFF). See United NationsForum on Forests

Framework Convention of, on Climate Changes(UNFCCC), 17, 39, 52, A-33

General Assembly Special Session (UNGASS) of, 12,35, 61

Millennium Development Goals (MDGs) of, 1, 11,15, 64, A-4

United Nations Development Programme (UNDP),9, A-25

United Nations Food and Agriculture Organization(FAO), 16, 31, A-25World Bank’s collaboration with, 48–49, A-24

United Nations Forum on Forests (UNFF), 23CPF and, 23, 46–47creation of, 17, 46functions of, 17, 46

United States, commercially sustainable forests in, A-21Uzbekistan, economic and sector work in, A-42

VVenezuela, Repµ̇blica Bolivariana, economic and

sector work possible in, A-43Vietnam

forest law enforcement in, A-25plantations established in, A-40

WWBI. See World Bank InstituteWest Africa, rain forests of, people living in, 3Wolfensohn, James, 12, 35, 51, 61World Bank

adjustment lending by, A-22, A-40, A-52diverting highways away from biodiversity reserves

and, A-21July 2001 Environment Strategy of, 5, 21–22Forest Policy Implementation Review and Strategy

(FPIRS) and, A-53–571993 Forest Policy of. See World Bank’s 1993 Forest

Policyforest portfolio of, 1992-99 data regarding, A-63–771978 Forestry Sector Policy of, 19Forest Strategy of. See World Bank’s 1991 Forest

Strategy; World Bank’s revised Forest Strategyinternal commitment of, to forests, 56–58investment in biodiversity projects and, A-31, A-32new framework for poverty reduction endorsed by, 21performance of, in forest sector, 1–2, 18–21priorities of, new directions in, 20–21Prototype Carbon Fund (PCF) implemented by, 52,

A-34, A-42revised Rural Development Strategy of, 3, 21, 27–28strategy of, for changing gender patterns, 22Water Resources Sector Strategy of, 22World Development Report 2000/2001: Attacking

Poverty and, 61, A-3, A-7World Wide Fund for Nature (WWF) and.

See World Bank/WWF AllianceWorld Bank Institute (WBI), 24, 54, 60

functions of, 53World Bank’s 1993 Forest Policy, 32

failures of, 36focus of, 1–2modifying, 7–8, 12, 61sustainable forest management and, 34–37, A-29

World Bank’s 1991 Forest Strategy, 32consultation process and feedback and, 2, A-53–57effectiveness of, A-47–48focus of, 1–2global conventions and agreements since, 16–17OED review of. See OED review of 1991 Forest

Strategysurvey of Bank staff regarding, 20, A-50–51sustainable forest management and, A-28

World Bank’s revised Forest Strategycountry ownership and, 6, 22–23

80

INDEX

developing demand and, 7, 8, 14, 64elements of, 2–6engagement and, 7, 9, 64expectations and, 11–14, 59–65external advisory group (EAG) and, 14, 63, 65financing of, 24global conventions and agreements and, 16–17governance and, 11–12, 31–32, 60–61, A-23–25implementation of, 3, 5, 6–11, 23–24, 45–65institutional constraints and, 11internal Bank’s commitment to forests and, 56–58investment and, 7, 9, 59leveraging impact and, 24links of, to other World Bank strategies and policies,

21–22monitoring and, 14, 64–65outcomes and, 11–12, 60–61, 65, A-22–23partnerships and. See Partnershipspillars of, 2–6, 22–23, 26–40poverty and, 2, 3–4, 15, 21, 26–28, 39–40, 41, 42,

43–44, 60, A-3, A-34, A-38, A-39, A-41, A-42,A-44, A-45. See also Poverty

proposed Bank action supporting, 25–44realities and, 15–24, 60risks and, 12–14, 36–37, 61–65selectivity and, 7, 10–11, 14, 23, 58–59, 65sequencing and, 7, 10–11, 14, 65

World Bank/WWF Alliance, 10, 12, 35, 37, 39, 54,A-25, A-34, A-35, A-40, A-41functions of, 49–50Pyramid and, 34, 35, A-28supporting and strengthening, 57targets of, 33, 50, A-11, A-27, A-31

World Conservation Union (IUCN), 3–4, 32, 37, 48,51, A-35Forest Reborn initiative and, A-19role of, A-53

World Development Report 2000/2001: AttackingPoverty (World Bank), 61, A-3, A-7

World Resources Institute (WRI), 48, 49, 512000 study (The Right Conditions) by, A-22

World Wide Fund for Nature (WWF), 23, 32–33, 36,48, 51Alliance for Forest Conservation and Sustainable

Use and. See World Bank/WWF AllianceForest Reborn initiative and, A-19

WRI. See World Resources InstituteWWF. See World Wide Fund for Nature

YYugoslavia, forest operations in financed by World

Bank, 19

ZZambia, timber concession policies in, A-25Zimbabwe, Campfire Program and, A-2

FORESTS

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Ninety percent of the world’s 1.2 billion people living in extreme poverty obtain at leastpart of their livelihood from forests. Forests in developing countries support up to 90 percentof the world’s terrestrial biodiversity. However, mismanagement and misuse of forestsresult in wasted expenditures, loss of livelihood, and damage to the environment.Sustaining Forests: A Development Strategy charts a path for the World Bank’s proactiveengagement in the forest sector to help attain the goal of lasting poverty reduction without jeopardizing the environmental values essential to sustainable development.

The World Bank’s Forests Strategy is built on three guiding pillars: harnessing the potentialof forests to reduce poverty, integrating forests into sustainable economic development,and protecting the vital local and global environmental services and values provided byforests. The strategy emphasizes government and local ownership of forest policies andinterventions, development of appropriate institutions to ensure good governance, and themainstreaming of forest concerns into national development planning. The strategy alsoaims to support ecologically, socially, and economically sound management of productionforests by ensuring good management practices through the use of safeguard proceduresand independent monitoring and certification.

This book is accompanied by a CD containing background materials on how the strategywas developed, including the stakeholder consultative process, as well as information onforests’ role in poverty reduction, economic development, and the provision of environmentalservices that helped to shape the strategy. World Bank safeguard policies relevant toforests and a short video highlighting the strategy’s objectives are also included on the CD.

In implementing this strategy, the World Bank will build and strengthen its partnershipswith governments, forest-dependent people, the private sector, nongovernmental organizations, and other donor agencies. Sustaining Forests: A Development Strategy will beof interest to all institutions that share the World Bank’s goal of promoting improved forestconservation and management at both the country and global levels.

IISSBBNN 00––88221133––55775555––77

Documents

Sustaining Forests - ISBN: 0821357557documents1.worldbank.org/curated/en/424531468781760578/...e-mail [email protected]. Library of Congress Cataloging-in-Publication Data Sustaining