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WORLD BANK; OPERATIONS EVALUATION DEPARTMENT (OED)

"THE CHALLENGES OF WORLD BANK INVOLVEMENT IN FOREST": INDONESIA CASE STUDY

Preliminary Report, Jan 6th, 2000


DOWN TO EARTH, March 2000


  1. Background

    This is one of six case studies carried out to evaluate the World Bank's 1991 forest strategy.

    The main objectives of this strategy focused on

    • institutional development
    • capacity building
    • conservation
    • sustainable management of forest resources.

    The World Bank has had little direct involvement in forestry projects in Indonesia until recently. Between 1988-94 there were only 2 forest sector projects (both with limited objectives), 1 GEF forest conservation project and tree-planting components in 6 other projects. There was also policy advice "economic and sector work - ESW" (sic).

    The World Bank's indirect involvement with forests in Indonesia has been much greater. The Bank has continued to fund programmes in other sectors intimately related to forests and forest peoples (e.g. agriculture, poverty reduction, roads) without even considering the potential impacts on forest peoples and environments. The Report criticises the Bank's Indonesia office for failing "to pursue key issues in an economically, environmentally and socially important sector" and for not learning from the disastrous effect of the Bank-funded transmigration programme in the 1980s on forests.

    The Bank has not funded any forestry projects since 1994. Relations between the Bank and the Indonesian Department of Forestry and Plantations broke down after the Bank called for policy and institutional reform in the forest sector. The last report (1993, unpublished) focused on:

    • economic efficiency
    • appropriate pricing of natural resources
    • equity
    • environmental sustainability
    • competitiveness in timber and processing industries
    • conflict resolution over tenure
    • community participation
    • administrative decentralisation.

    The Report concludes that the Bank's overall strategic direction on forestry issues (see above) was right, but has many stringent criticisms of the Bank's performance. "In terms of the results in the forest sector, the outcome (for Indonesia) is rated as highly unsatisfactory. The rapid pace of deforestation and highly inequitable distribution of the benefits have contributed to significant negative environmental and social impacts." A summary of the OED's evaluation is presented below.

    The Bank resumed its funding for the forestry sector as part of adjustment lending after Indonesia's economic crash in 1997. The OED Report considers it is too early to evaluate this aspect of the Bank's operations in Indonesia. There has been no public response from Indonesian civil society groups to the OED Report, partly because it has only just been translated into Bahasa Indonesia. One prominent forest campaigner has criticised the Report for not placing sufficient empasis on the problems of overcapacity of the wood processing industry and land tenure issues.

    In mid-March, a number of donor and NGO representatives - including WALHI, WWF, CIFOR, DFID, RMI, ICRAF and ICW held a meeting to organise a workshop where the World Bank is held to account for the OED Report (provisionally 22-24th April). The Report's main author (Uma Lele) should be present so that Bank representatives can hear inputs directly from Indonesian civil society groups and donors before the Singapore meeting (26-8th April) to review World Bank forestry projects in East Asia.

    It is obvious from the OED Report that the Bank has failed to learn the lessons of the 19980s. It cannot afford to ignore the key lessons of what it calls 'the lost decade' of the 1990s.

    WB assistance to forestry sector (OED criteria) Evaluation (Pre-1997)
    Relevance Satisfactory (i.e. policy advice & projects in line with Bank and GoI's stated objectives)
    Efficacy Negligible (lack of progress on institutional or policy reform; deforestation continues)
    Efficiency Negligible
    Overall outcome highly unsatisfactory
    Development impact negligible
    Bank performance at sectoral level satisfactory
    Bank performance at country level unsatisfactory - (Bank's country development failed to pursue key issues)
    Bank's overall performance marginally unsatisfactory
    Borrower performance (i.e. GoI, Forestry Dept highly unsatisfactory

  2. Strengths of the OED Report

    The OED Report helps to raise the status of forest issues in broader discussions of economic management in Indonesia and within the Bank. It points out that the Bank had, until recently, downplayed the importance of the forestry sector in its overall policy dialogue with the GoI.

    It presents a useful analysis of the problems driving Indonesia's rapid deforestation rates.

    Crucially, the Report finds that poor rural people and forest dwellers are not to blame for large-scale forest destruction. Commercial logging and government programmes (rather than shifting agriculture) are clearly identified as the major causes. Population pressure (formerly one of the Bank's major concerns) is hardly mentioned.

    The Report emphasises the inter-sectoral nature of forests. This means that, even if the World Bank decides it will not fund any more 'forestry projects', the Report strengthens the case for a complete revision of Bank policy on forests and forestry since the many other kinds of Bank programmes have such important impacts on forests and forest peoples.

    It draws attention to

    • the unreliability of all data relating to Indonesia's forests
    • the role of the Department of Forests and Plantations (MOFEC) in controlling about 3/4 of Indonesia's land
    • denial of access to forest resources as creating a major problem in Indonesia
    • the large number of people living in or dependent on forests: approx 30 million (p.24)
    • the role of local communities as a "key interest group"
    • the palm oil and pulp & paper industries and their part in forest destruction
    • illegal logging as a governance issue
    • the powerful commercial forces which act against sustainable forest management
    • the need to take a long-term view of the full economic value of sustainable forest management practices, including indirect benefits to agriculture etc..

    It also recognises that perpetrators of forest fires are rewarded because damaged forests can then be cleared for more plantations.

    It makes 3 major criticisms about the 'economic and sector work' underpinning the Bank's policy advice in Indonesia:

    1. Forest peoples have not been properly considered in the Bank's Country Assistance Strategy (CAS) or overall poverty reduction strategy even though the Bank believes they are among the poorest groups in Indonesia.
    2. The Bank has not assessed the potential impacts on forests of the Bank's "assistance" (ESW & CAS) to other sectors e.g. agriculture; poverty reduction; transmigration. This was recognised as a weakness pre-1991, but has not been addressed. So the effects on forests and forest people of promoting economic growth by exploiting natural resources have not been considered. "The manner in which the exploitation has taken place has not only been inequitable, but has also compromised the long-term sustainability of the economic growth based on natural capital" (p.x).
    3. The Bank has spent relatively little effort on validating the assumptions underlying its policy advice on sustainable forest management (SFM).

  3. WEAKNESSES IN THE OED REPORT

    1. Political The Report does not pay attention to the political context of forestry in Indonesia. The World Bank remained silent for many years about the control of the forestry sector by a small powerful elite, the use of patronage to extend political (and economic power), the role of the military in forestry and the corruption endemic in the whole forestry management system throughout the 1980s & 90s. The failure of the Bank's policy dialogue with the GoI in the 1990s is hardly surprising since it turned a blind eye to the prevailing political realities. This is still the case. For example, the Bank may have been pushing for greater decentralisation behind the scenes, but has not contributed to the debate on local autonomy and natural resource use in terms of policy analysis or case studies from other countries.
    2. Economic The Bank also turned a blind eye to the economic realities which prevailed during the 1990s. It praised Indonesia as a development success story, while ignoring fundamental structural weaknesses in Indonesia's financial system. It still perpetuates the Suharto era myth that Indonesia's "economic miracle" brought large-scale poverty reduction. The OED Report admits that the Bank ignored the long-term economic sustainability of the forestry sector (in addition to ignoring the ecological and social stability). However, it is in danger of creating a new myth: that forest peoples are among the poorest groups in Indonesia. While it is true that many forest peoples live at subsistence level and are not part of modern Indonesia economy, many have livelihoods that are economically, socially and ecologically sustainable. However, these livelihoods depend on access to forest resources and maintaining traditional management systems. The point the Bank has missed is that forest peoples are not poor per se: they became poor when they are denied their land rights and/or access to their resource base.
    3. Land Rights. The Bank still sees the problems of forest people and forest conservation in terms of top-down technical fixes: ..."integrate the forest dwelling poor fully into the Bank's poverty reduction strategy". (pix). The Bank could do much more to recognise and promote traditional sustainable forest management systems. It is still not addressing the fundamental issue of legal recognition of customary rights, land ownership and access to forest resources. At best it talks vaguely about "resource transfer" or compensation to local communities and regional government to keep Indonesia's forests intact. There is no mention in the Report of the Bank's Land Administration Project (LAP), (intended to promote land certifications) or the Bank's Operational Directives on Indigenous Peoples (OD 4.20) and Resettlement (OD 4.12) despite the OED's criticism of the Bank for not taking a cross-sectoral approach. The OED Report misses the fundamental contradiction of the Bank financing any programmes in Indonesia at all since the GoI has never accepted OD 4.20. As we understand it, there is a requirement for the government of any country receiving Bank funding to accept, in principle, the Bank's ODs prior to negotiation of any programme funding. The need for EIAs as part of all Bank projects is also not mentioned. These are very serious omissions.
    4. Contradictions in the evaluation The OED Report states that the GoI would not accept any World Bank forestry sector loans as it considered its reform proposals unacceptable. These proposals were based on an unpublished Bank report. The Bank did not achieve these objectives. It did not interact, let alone build up support, with potential allies for reform inside and outside government circles. It is therefore hard to see how the OED justifies its evaluation of the Bank's performance at sectoral level as "satisfactory", on the grounds that "it engaged the government in a serious policy dialogue and maintained its position". The reality is that the Bank did not give forest or corruption issues enough priority and so chose to back off from a firmer engagement with the government.
    5. The World Bank as a motivator for forest reform. The OED presents the Bank as a leading voice for forestry reform in Indonesia over the past decade. This is not true: the Bank has failed to grip the opprtunities for reform. The OED Report still seems to see the key issue in its forestry advisory work as the 'sequencing' of the reforms, rather than the nature of the reforms which the Bank is promoting. These show signs of being a repackaging of the old (1993) proposals, rather than a new approach which takes account of the changes in forests and Indonesian politics which have occurred over the past 7 years. It continues to underply the need the fundamental issue of land rights (see above) and has been active in creating some of the key problems in Indonesia's fores sector (see below).
    6. The Bank's emphasis on 'supply' in the forestry sector: The Bank has consistently focused on timber production and economic efficiency. Multiple uses of forests and the importance of non-timber forest products (NTFPs) have been neglected, although the 1991 Forest Paper which was the basis of the OED evaluation did not define sustainable forest management in terms of timber production alone. The focus of policies has been institutional capacity and incentives for controlling the supply of timber. Even the 1997/8 MoU conditionalities were timber supply-orientated. The demand side of the equation (both for exports and domestic use) have received much less attention. This was a grave mistake in view of the gross imbalance between the sustainable productive capacity of Indonesia's forests and the expansion of Indonesia's timber processing industry (plywood, pulp etc.). Indeed, the World Bank helped to create this situation by promoting increased forest production and the development of the wood processing industry during the 1980s (see CAS advice).
    7. Conditionalities and Participation. The Report is very complacent about improvements in the Bank's approach, post 1997, despite its own evidence to the contrary. For example, the OED recognises that there is a critical problem with the 'ownership' of Bank reform policies. The Bank only became involved in the IMF economic rescue package at the last minute when offered the opportunity to introduce forest society groups, apparently because there was no time. But there has been no consultation over the Policy Reform Support Loans either. The sham consultation over the new Forestry Act did not fulfil the terms of PRSL I, yet PRSL II was brought in immediately as a 'single tranche' loan. There has been no public consultation in Indonesia over a proposed PRSL III. Draft documents are not made available in Bahasa Indonesia.
    8. Top-down planning. The OED's observation that the Bank has few supporters among stakeholders (especially civil society) is hardly surprising. The Report recognises that the Bank's reform proposals have little credibility, but attributes this to "lack of investment in building a domestic constituency" due to a failure to properly disseminate the Bank's ESW and strategy. In other words the Bank still sees the problem as people not listening the Bank instead of the reverse. The OED has not commented at all about the lack of integration of the spirit of Agenda 21 into the Bank's operations. The Bank needs to change this mind-set and listen to civil society groups especially to forest peoples - with an open mind, not with a ready-made policy or project document waiting in the wings. The Bank still has a long way to go to make its policy and decision-making genuinely transparent, participatory and consultative.
    9. Post-1991 Forest Component Projects. Information about projects involving forestry and forest peoples is tucked away in Annex E and is brief. Only five projects are covered and these are on the whole a catalogue of failures: the Tree Crop Smallholders project; the Integrated Swamp Development Project in Sumatra where settler communities involved in setting up coconut plantations have been encroaching on surrounding forests; the Nusa Tenggara Agricultural Area Development Project which may soon be cancelled due to poor progress; the Sulawesi Agriculture Area Development Project also threatened with cancellation for the same reason; the Maluku Regional Development Project which involves coconut and coffee plantations but has no forestry department input whatsoever.


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