Report No. 33537-GLB Development Policy Lending and Forest Outcomes Influences, Interactions, and Due Diligence May 2005 Agriculture and Rural Development Document of the World Bank Contents Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii 1 Backgroundand Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Forests, Economic Change, and Reform Programs . . . . . . . . . . . . . . . . . . . . . . . .. 2 The Conceptual Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Adjustment Lending`s Impacts on Forests and Economic Change . . . . . . . . . . . . . . . . . . . . . 4 The lmpacts of Economic Changes Closely Related to Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The lmpacts of Adjustment Lending and Infernational'Monetary Fund Programs on Forests . . . . . . .5 Studies of the Impacts of Broader Economic Changes on Forests . . . . . . . . . . . . . . . . . . . . . . . . . 6 The Natural Resources-Poverty Linkage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Forest-PoverfyLinkages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Trends in Communify Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Implications for DPL Operations' Design and Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . 8 3 Toward a Toolkit for Evaluating Forests and DPL`s Poverty Outcomes . . . . . .9 . Incorporating Forest Issues into DPL-The Story So Far . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Focusing Due Diligence and Identificationof Opportunities . . . . . . . . . . . . . . . . . . . . . . . . 10 Selection and Prioritization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 The lnitial Task: Prioritizing More DetailedAnalyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Characterizing Forest Significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Characterizing Foresf Significance Using Mulficountry Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Evaluating DPL Operations' Potential to Affect Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Linkages between Broad Economic Change and Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Evaluating the Potential of DPl to Affect Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 .Overlaying Forest Significance Informationwith Identified DPL Operations . . . . . . . . . . . . .14 4 Tools Available or Needed for Implementing Due Diligence . . . . . . . . . . . . . .17 OP8.60'~Environment, Forests, and Natural Resources Due Diligence Requirements . . . . . .17 The Resources Issue and the Applicability of CEAs and SEAS . . . . . . . . . . . . . . . . . . . . . . 18 Coordinating and Rationalizing the Due Diligence Resources . . . . . . . . . . . . . . . . . . . . . . 19 Financing Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Monitoring and Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20. Sequencing the Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Flexibili~for follow-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5 Findings and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 . Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Adapting the Current Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Financial Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Sequencing the Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Annex 1. Incorporating Forest Conditionalities into Large-ScaleIMF and Bank Adjustment Loans: Lessons Learned from the Indonesia Experience . . . . . . . . . . . . . . . . . . . . . . . . . 27 Annex 2. Details of Criteria for Forests Significance Using Available Cross-country Data . . .29 Annex 3. IllustrativeListing of Countries Using the Forest SignificanceCriteria . . . . . . . . . .31 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Boxes Box 1. UpstreamAnalyses Inform a LendingOperation in Azerbaijan . . . . . . . . . . . . . . . . . .13 Box 2. Use of the Rapid CEA Approach in Bosnia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 l ables Table 1. DPL Operations with Thematic Areas of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Table 2. Overlay of Forest-ImportantCountries and Pipeline DPL Operations . . . . . . . . . . . . . .16 iv Development Policy Lending and Forest Outcomes Acknowledaments J This report was prepared by a team under the This report was peer reviewedby Marjory-Anne overall guidance of Kevin Cleaver (ARD Sector Bromhead and John Mclntire. The team would Director) andSushma Ganguly (ARD Sector Man- like to thank the following for their inputs and ager), management of Gerhard Dieterle (Forest comments throughout the preparation of this Adviser, ARD), and the leadership of JamesDou- report: Kulsurn Ahmed, Kenneth Chomitz, Odin glas with contributions from Nalin M. Kishor Knudsen, Muthukumara Mani, David Wheeler, (ESSD Forest Team), Diji Chandraselharan Behr colleagues in the regions, PREM, DECRG and (ESSD Forest Team), and Daniela Gohler (Young OPCS, and members of the ESSD Forest Team. Professional, GTZ). The team is also grateful to internal Bank reviewers This report is based on extensive consultations and the External Advisory Group (who advise on with Bank staff and documents and information the implementation of the Forest Strategy) for available on Development Policy Lending and, theircommentsonboththe concept noteanddoc- more generally, the impactofmacro-policy changes ument draft. on natural resources, especiallythe forest sector. V Acronyms and Abbreviations BR Bank Report OPCS Operations Policy and Country CAS Country Assistance Strategy Services CEA Country environmental analysis PAL Programmatic Adjustment Lending CGE Computable GeneralEquilibrium P-E Poverty-environment CIFOR Center for International Forestry PEAC Public ExpenditureAdjustment Research Credit CPIA Country Policy and Institutional POVCAL Program for calculatingpoverty Assessment measures from grouped data CSA Country social analysis PPDC Prograinmatic Policy Development DECRG Development Economics Research Credit Group PPSAC Programmatic Policy Structural DFID Department for International Adjustment Credit Development PRSC Poverty Reduction Support Credit DPL Developmentpolicy lending PRSL Policy Reform Support Loans ERRC Economic Rehabilitation and PRSP PovertyReduction Strategy Payer Recovery Credit PSIA Poverty andsocial impact analysis ESW Economic and sector work RCEA Rapid country environment FA0 Food and Agriculture Organization analysis (United Nations) RECOFTC RegionalCommunity Forestry FAOSTAT FA0 Statistical Databases Training Center for Asia and the FY FinancialYear Pacific GDP Gross domestic product SAC Structural Adjustment Credit IBRD International Bank for SEA Strategic environmental analysis Reconstructionand Development SECAL Sector Adjustment Loan IDA International Development ssc Statistical Services Centre Association WRI World Resources Institute IMF International Monetaiy Fund W F World Wide Fund for IUCN World ConservationUnion Nature/WorldWildlife Fund OP Operational Policy vi Executive Summary A newWorld Bank commitment on Development institutional, policy and social conditions makes Policy Lending (DPL) and forests. In October the forest impact issue potentially more significant, 2002, the Bank's Board of Executive Directors so that more upstream analyses ahead of DPL approved the new forest strategy and a revision of implementation can be planned. It should b e the forests Operational Policy (OP) 4.36. During noted here that D P L also has the potential to bring Board discussion on this n e w approach the con- about highly positive outcomes for forests a n d for- cern was raised that, while Bank sector investments est people, a n d opportunities to do so m u s t also b e would be guided by the new policy, Bank adjust- sought. m e n t lending would not. As a result, the latter could, indirectly a n d inadvertently, lead to adverse Economic change, poverty, and forests: What is impacts on forests a n d forest-dependent people. known? It is evident that forests are extremely Bank management accepted that this possibility valuable to the livelihoods of large numbers of existed and decided that a n operational policy was poor people, and that this value is not fully fac- necessary to guide due diligence in adjustment tored into official economic statistics (and some- lending. Since adjustment lending at the time was times not even perceived as value at all). In such evolving toward the DPL framework, a policy to cases, when rapid economic change is occurring, guide the design a n d implementation of this form perverse incentives and misallocation of resources of operation was prepared, and has since been leading to forest removal or changes in the status approved by the Board a n d issued as OP 8.60. of use and ownership of forests will be risk factors from the poverty alleviation viewpoint. ImplementationofOP 8.60isachallenge. Linkages U n d e r such circumstances, D P L operations will between broad institutional and policy reforms need to tread carefully. This raises the question of under DPL, and outcomes at the forest level are how significant DPL's impact, ifshown to b e there, likely to be diffuse, indirect, and highly variable will be on forests and where this impact will be an from one situation to the next, which means issue. Of particular concern are effects on poverty implementing OP 8.60 is not straightforward. T h e alleviation, sustainable economic growth, a n d pro- first imperative is to develop an approach, or tection of global public goods and environmental toolkit, to identify what combination of economic, services-all of which are major objectives under vii the M i l l e n n i u m Development Goals. Another three-step approach to doing this is illustrated. The question is whether a generic predictive model first is the development of a set of forest signifi- could be developed to anticipate these impacts. cance criteria to rank Bank client countries in This document, in answer to the first question, terms of their forest sectors; their contribution to asserts that it is clear that relatively large-scale eco- the three criteria of sustainable economic growth, n o m i c changes can have significant impacts upon poverty alleviation, and protection of global and forests. However, there is great variability in out- local forest goods and services; and a fourth crite- comes in forests from such changes across the rion, governance. The second is a categorization of m a n y different countries and situations covered in forthcoming DPLoperations based on their poten- the studies reviewed. As a further complication, tial to have impacts on forests. The final step is the indicators used by the studies do not necessarily application of operations identified in step 2 as an reveal whether the impacts are adverse or not. It overlay on the ranked list o f countries produced also i s clear that the generic model referred to using forest significance criteria. above cannot b e built at this point. Further infor- The methodology uses a statistical approach m a t i o n on what is driving the observed changes that allows indexes for the four criteria to b e calcu- locally, and how these affect poverty alleviation, lated, and then combined into a single index. Since sustainable economic growth, and the protection the four criteria are themselves in some cases coni- of global and local forest values, is necessary. posites of factors, this provides broader a n d more Forest outcomes from major economic reform, analytical approach to the task of prioritization targeting poverty alleviation a n d sustainable than can be achieved through reference to single growth, will be highly dependent on prior condi- parameters, such as deforestation, the overall size tions of the sector. An appropriate response in offorests, poverty, output from the sector, the gov- terms of DPL program design will therefore need ernance measure, and so on. to take these conditions into account. Nextsteps. The final section ofthe document deals The needto focus the analytical effort. The critical with the instruments that have been identified in issue, based on the reasoning above, is to decide the Bank as having some role in the due diligence effectively cvheii and where more detailed analysis task for O P 8.60, a n d what further m a y need to be a n d information gathering will be needed to coin- considered. Country environmental analyses plete due diligence for a given DPLoperation, or to (CEAs) a n d strategic environmental analyses identify opportunities to use forthcoming DPL (SEAS) are two of the instruments explored as operations to achieve beneficial forest outcomes. It being appropriate to the task of due diligence. i s argued in this document that the analytical effort CEAs are typically carried out by the Bank. They that will be needed in such cases will b e significant are used for a variety of purposes, including as an a n d have serious implications for the Bank in input to CASs, PRSPs, donor coordination, due terms o f allocating resources a n d setting priorities. diligence on DPL programs and other objectives. There is currently no completed example of a CEA Toward a toolkit for prioritizing the analytical of a DPL program. Nevertheless, drawing upon effort. As argued, prior conditions in the forests previous and planned CEAs, this document argues sector are a major determinant of the outcome in that there will need to b e some changes in design forests and for forest people, under conditions of a n d allocation of CEAs of D P L programs-in par- large economic change. This offers a pathway to a n ticular in where a n d when they are done-if they initial determination of whether significant forest are to take a stronger role in the due diligence task impacts will result from a given set of reforms a n d for D P L operations, than is presently the case. changes in a D P L package. In this document, a They will need to b e aligned m o r e closely to the viii Development Policy Lending and Forest Outcomes DPL program, and in particular to those DPL related poverty implications) has been identi- operations identified in a process such as that out- fied. This would allow funds for CEA work to lined in this document as having particular poten- be distributed along more prioritized lines, tial to have significant impacts on forests. relatedto DPL operations. SEAs, on the other hand, are typically carried Country departments in their dialogue with out by the client country to integrateenvironmen- client countries could play a greater role in t`il considerations into policies, programs and helping to align country-planned SEAs more plans. A review of the use of SEAs for policies is directly with the DPL pipeline. currently underway, and it appears from more "Rapid CEAs" are already evolving in some recent consideration of this instrumentinthe Bank areas of operations in the Bank. This tool that there is greater flexibility to apply it beyond should be considered for broader application specific sectoral concerns, including an ongoing to meet the provisions of OP 8.60. effort to develop a framework for policy SEA that Even with the rationalization and prioritiza- focuses more effectively on a country's institution- tion of due diligence that the above adapta- al and governancecapacityto manage the potential tions would promote, aided by the selectivity effects of policy reforms in a DPL operation. If so, that would be afforded from developing and this would make it a possible vehicle for the due applying the methodology outlined in this diligence and opportunity identification task for report, the costs of effective due diligence forests (and the broader natural resources group) should be carefully considered. in the context of forthcoming DPL operations. To address DPL operations' inadvertent However, the resource allocation and prioritiza- impactson forests and realize the potential for tion issue as raised for CEAs above would also beneficial impacts, three basic steps would be apply in this case, but in the context of country needed: upstream analysis for identifiedcoun- client resources. tries and DPL operations; monitoring of out- comes during implementation; and follow-up Recommendations investment lending, technical assistance, and analysis, or sectoralDPL operations. To facilitate dealing effectivelywith these sorts Consideration shouldbe given to partitioning of eventualities,there will needto be consider- the CEA process into two phases-the first able flexibility built into the Bank`s CAS pro- serving the generalpurpose for Country Assis- gram. Flexibility will be equally important in tance Strategy (CAS) formulation (but at a the relationship with other donors involved, to reduced scale of effort). This would be fol- ensure that sector investments,technical assis- lowedlater in the CAS cycleby more field level tance, ESW or, in relevant cases, follow-up analyses focused on the specific content ofDPL special-purpose DPL operations focused on operations underwayincases where the poten- one or a related group of sectors (forests; the tial for significant impacts (on forests, for the broader group of natural resources; develop- purposesofthis document, but ineffect on any ments in rural space) can be designed and sectoral or thematic area where potential implemented in a timely fashion. impacts with significant eiivironmental and Executive Summary IX Background and Rationale InOctober 2002, the World Bank's Board of Exec- pared, a n d has since been approved by the Board utive Directors approved the n e w Bank forest strat- and issued as O P 8.60. egy, and a revision of the forests Operational Poli- It is important to recognize that the purpose o f cy (OP) 4.36. O n e of the m a i nconcerns raised dur- developing better approaches in this area is n o t ing Board discussion was that in some cases Bank simply to avoid doing harm inadvertently: the adjustment lending might-indirectly and inad- same tools offer the potential to identify elements vertently-have adverse impacts o n forests and in a policy lending instrument that could effect forest-dependent people, through large economic positive outcomes for forests and forest people. forces created by the reforms implemented under Implementing the due diligence requirements adjustment. for forests under OP 8.60 is not straightforward. As Initially it was proposed, by external groups and willbeshown next, results from quantitative analy- some Board members with concerns about this ses on this general subject vary widely, indicating matter, that the revision of OP 4.36 include safe- that given current data availability, there is n o guard measures to ensure that adjustment opera- prospect of generically predicting the-sometimes tions did not h a r m forests. Bank management significant-impacts of a given set of broad eco- responded that the precise a n d detailed safeguard n o m i c reforms on forests and forest people in a policies of the Bank are directed at the impacts of specific country a n d lending situation. Given this, specific sectoral investments on natural habitats, the first imperative must b e to develop an forests, indigenous people, a n d other subjects cov- approach, or toolkit, to identify what combination ered by these policies. As such, they cannot effec- of economic, institutional, policy, and social con- tively b e applied t o the m o r e diffuse a n d indirect ditions makes the impact issue potentially more influences that could come from adjustment oper- significant, so that more upstream analyses ahead ations. However, management did accept that this of DPL implementation, aimed at clarifying the form of lending might have adverse and significant specific due diligence issues a n d opportunities for impacts on forests, a n d agreed that an operational beneficialimpacts that are present, can b e targeted policy that cozild guide due diligence in a range of a n d prioritized. areas for adjustment lending was needed. Since This paper sets out to initiate the development adjustment lending at the t i m e was evolving o f a suitable approach for implementation of OP t o w a r d the development policy lending (DPL) 8.60 for forests.' I t s intended audience includes framework,' a policy to guide the design and multilateral lenders and other organizations that implementation of this form of operation was pre- are involved or have strong interest in DPLactivity. 1 Forests, Economic Change, and Reform Programs Large-scale economic change in any country- These factors are crucial when considering the whether induced in specific reform programs or link among sustainable economic development, inflicted through exogenous forces beyond the poverty alleviation, a n d the state o f natural control of that country-has the potential to bring resources. T h e studies and information cited in about major changes in the condition of natural thischapter showthat poor people living inor near resources and the environment. Especially in the forests depend on them for their livelihood, and case of developing countries, natural capital plays a that the values they derive from these forests are significant role in economic growth and develop- rarely fully incorporated into official economic sta- ment, a n d is crucial to the sustainability of these tistics and decision making. Further, there are processes; it is therefore of central interest when global public goods issues involved in addition to considering large-scale economic structural adjust- national a n d local ones: the loss of biodiversity and ment. the significant role of forest destruction in global Two key factors ofconcern arise when consider- carbon emissions are of concern to the Bank a n d ing the full range of natural resources-but espe- the international community. These are reasons cially those related to forests a n d woodlands. The why local, national, and global forest issues were all first is irreversibility. Poor outcomes from a given major elements in the n e w forests strategy and pol- set of policy changes that have a n impact on agri- icy (OP 4.36), which now guide the organization's culture, economic development, or social pro- sectoral investments in terms of their impact on grams can b e identified through monitoring a n d forests, a n d also for their incorporation into provi- then in most cases corrected within a reasonable sions dealing with forests, natural resources, and t i m e frame. However, impacts causing loss of the environment in the n e w policy guiding DPL forests or woodlands, a n d watersheds that depend (OP 8.60). on this form of vegetation, usually cannot b e ame- Since, as n o t e d in chapter 1, the linkages liorated so easily. The second is the temporal fac- between the b r o a d reforms, institutional changes, tor. It is well known that the impact of large eco- a n d policy developments that result under DPL, n o m i c a n d other changes that affect forests m a y a n d outcomes at the forest level, are likely to be dif- take a considerable number of years to become fuse, indirect, a n d highly variable from one situa- evident at the field level-long after the comple- tion to the next, some basic questions need to be tion of disbursements under a DPLthat m a y have addressed before considering a n approach to been a factor in the changes. examining these linkages. First, what is the evidence 2 that large-scale economic changes, of the type usu- crops, grazing and expansion in the coinniercial ally being pursued under adjustment forms of logging sector itself-all o f w h i c h can place lending, actually do have significant impacts on increased pressure on forest land and resources. forests? Second, if the answer to this is that insome T h e same effect, obviously, can result from cases these impacts are significant, is there a possi- increases in the relative prices of the same tradable bility that a generic predictive model could be outputs for reasons other than a currency depreci- developed to anticipate such impacts once the ation. High real interest rates shorten optimal for- nature of the intended D P L is known?Third, if the est rotation periods, and tend to increase the rela- case is made that impacts on forests are likely to b e tive attractiveness of holdingwealth in the form of significant, is it also likely that this m i g h t also financial assets instead of natural assets. Decentral- involve significant effects on poverty alleviation, ization policies, which are generally seen as advan- sustainable economic growth, a n d protection of tageous to governance in terms o f increasing global public goods and environmental services- accountability and transparency, could trigger the all of which are major objectives under the Millen- irreversibility risk in forests rapidly under condi- nium Development Goals? tions of poor sector governance-especially if This chapter explores these questions using a insufficient attention is paid to the revenue incen- conceptual base before presenting a review of liter- tives for increasing the rate of forest exploitation ature on attempts to quantify the impacts of eco- that can arise when control over resource decisions n o m i c change on natural resources ( m a i n l y i s passed to a level o f government where other rev- forests). This is followed by a discussioii of the enue opportunities are limited, a n d where sustain- implications of information and results derived able and multiple-use forest management expertise from the above steps for the due diligence issue, as i s also limited. This effect could b e compounded framed in the three questions above. by nationally determined public expenditure goals that can further constrain the availability of such The Conceptual Basis expertise. It could be argued that this has actually occurred in recent years in Indonesia, following the introduction of a broadly based decentraliza- There are valid conceptual reasons to expect cross- tion program several years ago. sectoral impacts on forests arising from macroeco- As noted in chapter 1, the nature of economic n o m i c adjustment. T h e simplest economic models adjustment financing from the Bank has evolved, of natural resources management strongly suggest from the structural adjustment loans of the past to that m a n y of the changes in the macroeconomic DPL, much ofit focused on poverty reduction sup- incentive environment t h a t have frequently port programs. However, it seems likely that there accompanied stabilization a n d structural adjust- is potential under newer D P L operations for signif- m e n t episodes in the past could have h a d potent icant impacts on forests a n d forest-dependent peo- effects on natural resources. ple-and indeed on the broader group of natural Examples of measures that could have such resources. impacts are currency depreciation, tighter mone- Even within the forest sector itself, policies deter- tary controls and higher real interest rates, altered m i n e d at the national and economy-wide scale that trade dynamics and tariff or non-tariff barriers, favor the development of large-scale commercial programs that encourage investment in extensifi- forest enterprises over local or community manage- cation o f agriculture a n d tree crops without m e n t m a y significantly alter the forest landscape accompanying land zoning a n d tenure provisions, a n d its potential to produce the f~ill range o f forest public sector expenditure reform, and decentral- a n d non-forest goods and services, a n d thus affect ization. Currency depreciation can lead to expan- the livelihoods of significant numbers of people sion in export of tradable goods in agriculture, tree who depend on them. The speed, direction, and Forests, Economic Change, and Reform Programs 3 inagnitude of the impact depend on factors such as little policy value. Moreover, deforestation figures the size o f the country's forest sector, the extent of do not measure forest degradation untiland unless its commercialization and export orientation, the it progresses to the point of forest loss-but m u c h strength of institutions dealing with the forest sec- of the value of a forest can be lost well before that tor, the magnitude o f the distortions operating in point is reached. the economy, and the nature and size of the adjust- Forest production figures are not in themselves m e n t lending operation. an accurate indicator of the condition of forests and forest-dependent people: an increase in forest Adjustment Lending's p r o d u c t i o n m a y indicate overexploitation of forests, or it m a y simply indicate a n economically Impacts on Forests and desirable and environmentally acceptable outcome Economic Change such as rising production toward a n optimal a n d sustainable level of output. There is a growing body of work examining the That said, relatively high levels of deforestation, relationship between economic growth and forests: or high rates of change in forest commercial forest the m a i n findings from this work are suminarized output, can be taken as indicatorsthat something of later in this section. Efforts to assess the impact of significance is occurring in forests-something b r o a d economic growth include empirical correla- that m a y warrant closer examination inthe context tion analyses, theoretical studies, and simulations of large forthcoming economic policy reforms. u s i n g computable general e q u i l i b r i u m (CGE) models. The purpose of reviewing the broad find- ings of some of these studies here is to build some The Impacts of Economic Changes understanding of the potential for economic Closely Related to Forests change to have impacts upon forests, and to gain There have been a n u m b e r of studies that attempt perspective on the impacts measurement problems to model the influence (primarily on deforesta- that are inherent in this task. tion) of economic or cross-sectoral changes close- O n e of the major constraints on this work, from ly related to forests. Some of these studies focus the viewpoint of policy guidance, is that the meas- on the impacts of trade-related variables or the ures of forest outcomes that are generally available impacts of log export bans on forests (Capistrano a n d that have been used inm a n y of these studies- 1990; Barbier et al. 1994; Vincent 1994). These deforestation, and forest production-are not reli- studies concluded that such policies promoted able indicators of the group of forest outcomes that only modest expansion of domestic processing are of interest. capacity while encouraging overexploitation of Deforestation i s a complex phenomenon, and forest resources by depressing domestic l o g while there is general agreement that it is strongly prices. A recent study (Kishor, Mani, and Constan- influenced by economic change arising from out- tino 2004) for Costa Rica shows that repealing a side the forest sector itself, its specific causes (and, b a n on log exports can result in significant eco- equally important, its economic a n d social effects) n o m i c efficiency gains. Cropper, Griffiths, and vary widely between-and even within-coun- M a n i (1999) and Schneider et al. (2002) show that tries.3 In practical, analytical terms these findings logging and other forest exploitation is unlikely to suggest that aggregate deforestation figures will lead to permanent forest loss unless land prices are conflate undesirable forest loss with economically so low as to encourage agriculture or grazing as a legitimate loss and environmentally benign con- fo1low-up. version to other forms of l a n d use, and in such Some studies have examined specific cross-sec- cases the observed aggregate result will have very toral issues in relation to forests' outcome. For 4 Development Policy Lending and Forest Outcomes instance, Soares-Filho et al. (2004) produced a of analysis. Data scarcity and the absence of previ- quantitative m o d e l linking governance a n d ous research often forced the authors to make changes in forest cover a r o u n d the BR-163 corri- untested assumptions about the causality of adjust- dor of Central Aniazonia in Brazil; the model ment in terms of forest and environmental impacts. shows that forest losses over the 30-year projection Some studies have focused on a program of IMF period used under improved governance scenarios a n d follow-up Bank adjustment lending imple- will be about half those projected under business- mented in Indonesia in 1998-99, following the as-usual conditions. An empirical study by Bhat- financial collapse in that country-the only exam- tarai and H a n i m i g (2004) shows that the impacts ple to date of where both the initial IMF program of income change on forests vary widely, depend- a n d the supporting Bank adjustment operations ing on the quality and nature of institutional have included specific forest sector measures in arrangements a n d governance in place. While this their reform agendas (see Seymour and Dubash i s not surprising, it confirms t h e need to deal very 2000, Barr 1999, Maiiihardt 2001). Annex 1 out- specifically with such matters at the forest-sector lines this program's history, its lessons learned, a n d level when it is expected that income changes reviews the commentary on it. (which can be expected to b e a major objective of a T h e relationship between structural adjustment development policy loan) will play out in some sig- loans and the environment remains widely debat- nificant way in the forests. Finally, Chomitz a n d ed in both the development and conservation are- Thomas (2003) have developed a m o d e l that shows nas, a n d a n u m b e r of newer studies have focused that the probability of forest l a n d being cleared for specifically on the impact of adjustment programs agriculture or cattle farming in Brazil declines sig- on forest resource use a n d deforestation nificantly in higher rainfall zones. This result also (Angelsen, Shitindi, and Aarrestas 1999; Gloni- demonstrates the highly site-specific nature of for- strod, Monge, a n d Vennemo 1999; Benhin and est loss, which may b e an issue under certain types Barbier 2000; Pandey and Wheeler 2001; Wuiider of adjustment operation. 2003; Kishor, M a n i , and Constantino 2004). These studies have attempted to trace the impacts on The Impacts of Adjustment Lending and deforestation through changes in relative prices, International Monetary Fund Programs exchange rates, conversion of forested lands, and collection of fuelwood. Pandey a n d Wheeler, for on Forests example, use a 38-year socioeconomic database for A number ofearlier studies ofthis subject attempt- 112 developing countries in their analysis, and e d to either qualitatively or quantitatively analyze conclude that although the impact o f structural the impacts of IMF stabilization operations and adjustment on domestic deforestation is neutral, Bank adjustment lending on forests (see Reed there is a displacement of domestic deforestation 1992; Repetto and Cruz 1992; Young a n d Bishop to other countries, which may be a policy concern. 1995; Glover 1995; WWF 1994; W a r f o r d et al. Further, their analysis of macro-policy variables 1994; Munasinghe a n d C r u z 1994; Persson a n d reveals that the terms of trade have a significant Munasinghe 1995). M o s t of these studies set out t o effect on forest resource use. test the hypothesis that stabilization a n d structural Gueorguieva a n d Bolt (2003), in a review o f adjustment programs are h a r m f u l to the environ- studies, s h o w t h a t the various relationships ment, but the results derived are highly variable. In between the environment a n d structural adjust- reviewing these studies, Dixon (1995) a n d Panay- m e n t are indirect a n d complex. T h e authors high- otou and Hupe (1996) suggest that their results light the potential for maximizing positive out- often depend on geographic or sectoral coverage, comes a n d mitigating negative impacts of adjust- differences in motivating assumptions, and depth m e n t operations on the environment. Forests, Economic Change, and Reform Programs 5 Studies of the Impacts of Broader Eco- forests for production, therefore reducing biodi- nomic Changes on Forests versity loss. A large study by W u n d e r (2003) examines how changes in exchange rates, government budgets, The Natural Resources- and consumer spending resulting from oil and Poverty Linkage mineral exports b o o m s influenced deforestation. The results reveal that the impact depends on how T h e Millennium Development Goals have driven governments spend the additional revenue, con- the Bank's-and others'-design of economic sumer spending, and changes in exchange rate. In adjustment interventions toward prioritization of Gabon, o i l revenue resulted in appreciation of real poverty alleviation. This in effect raises the stakes exchange rate a n d growth in nontraded sectors. In for natural resources, because the rural poor tend contrast, in Ecuador, deforestation accelerated dur- to be more heavily dependent on the condition of ing the oil boom. This is associated with govern- natural resources, a n d m o r e vulnerable to adverse m e n t expenditure of a large share of oil revenues in changes in this condition, than are others in the ways that p r o m o t e d extensive land use. Also, community. In the case of marine resources, the demand for cattle-derived proteins was important. poor are more dependent on the retention of pro- The study concludes that increases in the export of ductivity of coastal fisheries as opposed t o deeper oil in resource-rich countries will not have a nega- ocean resources, a n d therefore more exposed to tive impact on forests if labor and other resources problems of coastal pollution, outwash from ero- are drawn away from the forest and agriculture sec- sion of upland sites, larger-scale commercial oper- tors into the exporting sectors, reducing pressure ations that are based on unsustainable catch quo- on forests (see also Wunder and Sunderlin 2004). tas, and so on. Cattaneo (2001) uses computer modeling to The rural poor are usually located in more mar- examine the relationship between deforestation in ginal lands, which by definition are more easily the Amazon a n d macroeconomic shocks resulting degraded than other areas, and they are m o r e fromstructural adjustment. The simulation reveals dependent on rain-fed agriculture. A forthcoming that changes in the exchange rate affect the relative paper on rural development a n d pro-poor growth prices of goods, a n d a balanced reduction of pri- (World Bank/DFID 2005) examines the contribu- vate consumption, government demand, a n d tion of agriculture and rural development to pro- investment would lead to reduced deforestation. poor development, based on 12 countries spread This is because the region allocates a small share of through Africa, Southeast Asia, and Latin America. its production to exports, a n d i s therefore affected T h e study notes that while rural poverty has fallen by contractions in private domestic consumption. inall 12countries throughthe 199Os, ithasdone so Benhin and Barbier (2000) have used a dynam- m o r e slowly than u r b a n poverty. Responses of the i c optimal control approach to address the forest sector to trade liberalization measures a n d other biodiversity loss issue m o r e directly. They develop economic reforms have laggedbehind those for the a species-forest relationship to explain the link economy as a whole, a n d this tends to become even between policy a n d price changes a n d forest a n d m o r e pronounced in remote or marginal areas. biodiversity loss in Ghana from 1965 to 1995-a T h e study confirms the idea that secure a n d equi- period that included adjustment lending activity. table access to assets-which requires development In terms o f biodiversity, while losses continued of property rights and efficient land administra- during that period, the rate of loss was higher in tion-is critical to pro-poor growth in the rural the pre-adjustment period than the post-adjust- areas. It concludes that r u r a l development remains nient period. T h e authors conclude that structural critical to reducing poverty a n d inequality, a n d adjustment has in this case led to less reliance on that unevenness in growth a n d growing inequality 6 Development Policy Lending and Forest Outcomes in the sector must be addressed through effective world earn 10-25 percent of their household poverty-oriented rural development strategies. income f r o m non-timber forest products, inany of which, as noted above, are either undervalued or Forest-Poverty Linkages omitted completely from conventional economic income statistics (see Ndoye, Ruiz-Perez, and Forests tend to b e more remote, and the agricul- Eyebe 1999). Studies of income f r o m indigenous tural and other opportunities around t h e m m o r e natural resource management and small-scale local marginal, compared to the average in rural space; forest enterprises in a number of countries in consequently people living in or near them tend to Africa, a n d joint forest management in iwadhya b e poorer. They are often highly dependent on Pradesh state in India, bear out the significant non-timber resources and basic fuelwood. These impacts on income of poor people of these activi- resources are typically undervalued in traditional ties (see Monela et al. 2004; Angelsen and W u n d e r economic analyses, when compared to commodi- 2003; M a l l i k 2000 as cited in Scherr, White, and ties that enter formal markets (commercial agri- Kaiinowitz 2004). cultural a n d tree crops, and large-scale timber-har- W h i l e the general case for the significance of vesting operations). W h e n competition from such forests' contribution to poverty alleviation i s activities exists, the access of the p o o r to forest strong, it is evident from case study information resources tends to b e under high risk owing to the that poor households' reliance on forests varies prevalence of state-imposed tenure in m a n y natu- considerably based on context. Accordingly the ral forest areas. impact of broad economic policy measures, such Inthe Bank's forest sector strategy paper (World as barriers to local market participation or transfer Bank 2002) itwas estimated that more than 1.6 bil- of management rights, on the role o f forests in lion people globally depend on forests to some poverty alleviation will vary from country to coun- extent for their livelihoods; 60 million indigenous try. Making any further assessment of the effect of people are thought to.be almost wholly dependent macro-changes on the poverty-environment link- on forests; a further 350 million people living inor age is constrained by the lack of data on the role of near forests are significantly dependent on t h e m forests inpoverty alleviation. Since most studies on for subsistence and income. Figures cited in Cali- such changes on forests have focused on forest b r e and SCC (2000) and Krishnaswamy a n d Han- cover or deforestation, the scope will have to b e son (1999) as cited in Scherr, White, and Kaimo- extended to adequately understand h o w economic witz (2004), provide some support for these esti- change affects the poverty-environment linkage mates, indicating that 0.955-1.455 billion people a n d biodiversity. are estimated to b e forest-dependent poor. It is also estimated that globally 17.4 million people (full-time equivalents) earn their living Trends in Community Forestry from formal sector forest-based employment (that An important element in the forest-poverty nexus, is, enterprises with over 20 employees) in forestry, a n d one that in some cases will merit specific con- wood industries, furniture, and pulp and paper sideration in the policy discussion in DPL, is com- (Poschen a n d Lougren 2001, as cited in Scherr, munityforestry. There is clear evidence that natu- White, a n d K a i m o w i t z 2004). Poschen a n d r a l forests in the developing world-especially in Lougren estimate that an additional 30-35 million the tropics-are increasingly managed by c o m m u - are employed-most of them in China, Indonesia, nities. RECOFTC (2004) finds, for example, that Brazil, India, and Malaysia-in the i n f o r m a l a n d about 11 percent of forests under management subsistence sectors. globally now have significant community involve- Case study data have shown that smallholders ment-a m u c h higher share than that of the forest living in forest margins in diverse parts of the industry, and about the same as the total share of Forests, Economic Change, and Reform Programs 7 all private forest holders. `The percentage is pre- significant impacts. This in turn implies that in dicted to grow to 45 percent by 2015. some cases further analysis o f what these changes T h e literature on coinmunity forests cites many m a y be, and how they will impact upon poverty examples of the iniproved incentives for sustain- alleviation, sustainable economic growth and the able management that are transferred to commu- protection of global a n d local forest values, will be nities when they receive rights to utilize forests for necessary. their own benefit, rather than having to exploit The high variability of outcomes in forests froin them illegally, as is the norm when tenure and specific economic changes suggests that with cur- access issues are less favorable (see W h i t e a n d M a r - rent data limitations there is little prospect of devel- tin 2002). Some of the most important basic gov- opment of such a generic model that would allow ernance measures needed to encourage the move impacts to be predicted in a specific country situa- toward community ownership o f forests are with- tion. The above review o f studies shows that forest inthe policy reach of DPL. For example, the insti- outcomes of major economic reform, targeted at tutional arrangements needed to stimulate com- poverty alleviation and sustainable growth, will b e munityinvolvement inthe forests sector, the regu- highlydependent on the conditions that exist inthe latory framework for forest management; a n d the sector, and a n appropriate response in terms of fiscal a n d revenue implications of a change toward D P L program design will need to take these into c o m m u n i t y forest management. account. How well forests are managed, for what objectives, with what involvement of local popula- Implications for DPL tions, with what exposure to loss or damage from Operations' Design and other land uses (and whether the associated regula- tory and market environment is neutral or biased), Due Diligence and a range of other issues will all b e relevant to major decisions on the content of D P L operations. Now that we have determined that large-scale eco- The current situation could be exacerbated by n o m i c changes can have significant impacts on broader policy measures in a D P L designed with- forests, the next question is whether there i s a pos- out the necessary knowledge in these areas. sibility that a generic predictive m o d e l could b e W h i l e it is true that improving the availability of developed to anticipate such impacts once the information on how forests contribute to poverty nature of the intended D P L is known. alleviation is a high priority task for improving Itis clear, froin an overview of the studies cited understanding o f the indirect a n d direct effects of in this paper, that relatively large scale economic large economic changes on the role of forests in changes can have significant impacts upon forests. poverty alleviation, it is already clear from what Because these impacts are measured (for the most has been reviewed in this chapter that forests are part) through the highly limited variables of defor- extremely valuable to the livelihoods of large num- estation, or forest output, it is not possible to assert bers of poor people. It is equally clear that m u c h of that all such impacts would b e classified as bad, this value i s not factored into official economic sta- from the overall economic growth and sustainabil- tistics on livelihoods, nor, in m a n y cases, even per- ity viewpoint, nor indeed froin the biodiversity ceived as value at all. U n d e r such circumstances, viewpoint - these are matters which are highly perverse incentives a n d misallocation of resources context-specific. Nevertheless, the fact that leading to forest removal or changes in the status observed forests impacts can b e linked to econom- of use and ownership of forests will be a risk factor ic change i s sufficient to conclude that the kinds of from the poverty alleviation viewpoint. The next economic changes that are sometimes incorporat- chapter explores the possibility of creating a toolk- ed as goals into D P L have the potential to cause it based on this understanding. 8 Development Policy Lending and Forest Outcomes 3 Toward a Toolkit for Evaluating Forests and DPL's Poverty Outcomes In the previous chapter, a number of risks and cially by examining the content of PRSPs.* The uncertainties regarding the influences that large Bank published a major paper on forests and economic change m a y have on forests were point- poverty in 2004 (Comting 011 the Environment, ed out. N o n e of this, however, is intended as a n Vedeld et al, 2004), which showed based on a argument against implementation o f broad policy meta-study of 54 case studies that 22 percent of reforms, under development policy lending. In total household income in the rural households m a n y cases, there will b e little risk of DPL opera- included in the sample was forest environmental tions causing serious h a r m to forests or forest peo- income. T h e study concluded that the significance ple, and as was noted in chapter 1, there will in of forest income in rural areas is such that leaving some cases b e significant potential for betzefcinl it out of poverty assessments in the countries sur- impacts. T h e key initial requirement, at this stage, veyed will cause serious underestimation of rural is to develop the means to identify countries and incomes. By the same token, ignoring the serious situations where more needs to be known about .problems of securing the forest resource base, con- the prior conditions surroundingforests and forest t i n u e d access to it, and tenure for the m o s t people, in order to design DPLoperations that will dependent communities will have significant con- minimize the likelihood of significant adverse for- sequences for poverty alleviation. est outcomes and maximize the opportunities for The Overseas Development Institute has used using the DPL instrument to produce favorable the results of a n examination of the coverage of outcomes for sustainability, poverty alleviation, forest issues in I-PRSPs a n d PRSPs for 16 forest- and global forest goods a n d services. This chapter r i c h countries, in West-Central Africa, the presents an approach to this screening task. Neotropics, a n d Southeast Asia (Dickson a n d Bird 2004) to draw some general conclusions about the Incorporating Forest Issues treatment of forest issues in these PRSPs. T h e study suggests that while most of the documents into DPL-The Story So Far m e n t i o n e d forests, the treatment was m o s t l y b r i e f a n d general, without significant policy It is useful to examine briefly the extent to which implications that could b e incorporated into the DPLhas dealt with forest issues. A number of stud- resulting PRSC operations. Inparticular, the sensi- ies address this matter for some recent DPL-espe- tivity of issues such as public goods management 9 and forest tenure are n o t adequately addressed, Focusing Que Diligence and the study suggests that undervaluation o f non- and Identification of timber forest products and the participation issue-both of t h e m major concerns for the Opportunities poor-have been suppressed in the dialogue Without necessarily endorsing all the views and around the PRSP. conclusions drawn in the studies referred t o imme- A study by Oksanen and Mersmann (2003) diately above, it seems clear that to satisfy the con- examined a large n u m b e r of I-PRSPs, PRSPs and cerns expressed by the Bank Board on the potential JointStaff Analysis documents for a group of sub- impacts o f DPL on forests, a m o r e rigorous Saharan countries, on the basis of four criteria: the approach to anticipating where potential signifi- extent to which forest issues were included in the cant forest impacts (adverse a n d beneficial) might assessinents a n d analyses done for these programs, arise is needed, so that analytical a n d design efforts the extent to which causal links between forests to deal with this can be focused. and poverty were considered, the degree of defini- tion of actions and responses included in the doc- uments, a n d the extent to which linkages between Selection and Prioritization the PRSPs a n d forest-related policy a n d planning This chapter proposes an approach to initiate this were described. T h e study found that a significant expanded effort. First, it develops criteria for scor- majority of the documents did m e n t i o n forests, ing the significance (in the context of potential but most were weak in terms of the criteria used in impacts from DPL) of forests in a given country. the study to evaluate them. It also found that Joint Second, it compiles data on current a n d projected Staff Analysis a n d progress report documents DPL operations (the list is constrained by confi- made little or no m e n t i o n of forests. dentiality requirements a n d data limitations in Tharakan a n d MacDonald (2004) have applied some cases) including available information on qualitative a n d quantitative techniques to a n their likely nature and content. T h e two data sets examination of the extent to which poverty related are then overlaid to provide a prioritized listing of to environment (the P-E dynamic) issues have countries where the highest potential for forest been incorporated into the design of PRSPs initiat- impacts in the current and near-term D P L pro- ed by the Bank a n d the IMF in four countries grams are identified. This will help to develop (Cameroon, Nicaragua, Sri Lanka, a n d Vietnam). approaches to m o r e closely analyze and identify The authors conclude that all the PRSPs contained the necessary actions at field level in these coun- some reference to P-E issues, but with great vari- tries initially, a n d then to apply what has been ability in the extent and quality of such inclusions. learned from this to n e w DPL projects in the M o n i t o r i n g a n d evaluation frameworks are limit- pipeline, as these emerge. ed, and none of the PRSPs assessed the risks to the This stepwise approach to prioritizing where P-E context. They argue that more attention t o deeper analysis m a y b e needed is suggested at this these issues is required if PRSPs are to be more stage, for two pragmatic reasons: since resources effective in addressing the P-E dynamic effectively. needed to implement field analyses will b e limited, Taken in the broader DPL impact context, the it is unrealistic to propose a general application of study contains an interesting listing of the drivers analytical work to this task inall possible cases; a n d of the P-E nexus that were used as a basis for eval- since a degree of uncertainty will inevitably sur- uating the content of the PRSP documents on this round the analytical process itself, at least in the matter: the linkages between natural resource early stages of application, it will b e necessary to degradation and poverty, and between energy and learn from a n d refine initial approaches along the the P-E dynamic. way. 10 DevelopmentPolicy Lending and Forest Outcomes Ultimately, it i s hoped that development of this Characterizing Forest Significance approach will become possible through a combi- Using Multicountry Data n a t i o n o f existing instruments a n d analytical approaches with n e w ones, a n d w i t h revised sys- Datasets that are readily available with adequate tems for prioritization, rationalize and prioritize data to capture the four dimensions of country d u e diligence a n d opportunity identification activ- characteristics,( actually, proxies for these, as out- ity along the whole continuum from Country lined immediately below) are available for 82 Assistance Strategy (CAS) design, through individ- countries. The Food and Agriculture Organization u a l DPLprograms, to the logical follow-up to DPL. (FAO), the World Bank, a n d World Resources Institute (WRI) maintain the data that are widely The Initial Task: Prioritizing More used to capture changes in forest and forest out- Detailed Analyses comes.6 T h e following variables have been identi- fied as proxies for the different dimensions. T h e review of literature in chapter 2 indicated that Governnnce-Rule of law, which is a measure there is little possibility of developing a formal and from Kaufinann, Kraay, and Mastruzzi's (2004) generic modeling approach to determining likely corruption indicators, a n d presence of demo- forest outcomes, from specific economic change, cratic institutions. These are well-known a n d doc- across the range of situations in countries where umented measures of governance. Their limitation forests matter. Since prevailing institutional, as a proxy in this context is that they do not policy, and governance conditions will significant- necessarily reveal the state of governance in the ly influence forest outcomes f r o m economic forests sector itself, nor do they shed any light on change, a heuristic approach should b e taken, to how that is influenced by broader trends in the identify a set of suitable initial conditions that will economy. indicate cases where forests should b e recognized Contribution of forests to the econorny-Produc- as significant in the design of forthcoming D P L tion ofwoodfuel (2000) and production of round- operations. wood (2000), both from the FAOSTAT online sta- tistical services, 2004. This measure picks up an Characterizing Forest element of forest output beyond the conventional measure of commercial logging-the large amount Significance of fuelwood that i s used by local communities and frequently does not enter formal markets. T h e findings from literature reviewed in chapter 2 Forest-conservntion linkage-Pe rcentage of underscored the importance of governance in threatened bird species (2000), percentage of countries when assessing the significance of forests threatened m a m m a l species (2000), and rate of issues for DPL purposes. In.the Bank's forest sector change in forest cover (1990-2000). These vari- strategy, approved by the Board in 2002, three ables provide some reflection of biodiversity loss, m a i n pillars of strategy (each of which is strongly as well as a gross measure of forest loss. T h e latter linked to specific requirements under the Millen- will have some relationship with the contribution nium Development Goals) were identified: har- of forests to the economy, in that it will provide a nessing the potential of forests to reduce poverty, measure of whether the contribution, as currently integrating forests into sustainable economic constituted, is sustainable. Eventually, a m o r e rig- development, and protecting vital local a n d global orous approach to estimating the sustainability of environmental services a n d values. These three ongoing forest operations would be a useful ingre- objectives, plus governance, provide a logical basis dient in this overall measure, but it i s not possible for developing criteria for forest significa~ice.~ to implement this approach at present. Toward a Toolkit for Evaluating Forests and DPL's Poverty Outcomes 11 For-est-poverty linkage-The annual rate of (It is important to note that while these criteria change between 1990 and 2001 in the (headcount) attempt to approxiniate a measure of the current percentageof poor living below a dollar a day, and losses of forest area and biodiversity, and also the the level of percentage poverty in 1996. Both of poverty link, they also reflect the contribution of these measures use the Poverty Calculator (POV- forests to the economy: they are not, therefore, CAL) approach developedby the Bank. The vari- focusedonly on riskfactors, but also on the relative able is the weakest proxy for what is of interest importance of forests.) here-which i s some estimate of the prevalenceof A illustrative listing based on the above scoring poor peoplewho live inor near forests and depend procedureof all 82 countries for which the data for on them greatly. The reason a rate of charge of the the criteria above are currently available has been poor as a proportion of the whole population was made, and is shown in annex 3. The listing of included is that it has been observed (see World countries in the overlay table (table 2 in this chap- Bank/DFID 2005) that persistence of ruralpoverty, ter) uses the same aggregate index produced with in comparison to overall poverty reduction, is this approach, but includes only those countries associated with lower responses in the rural sector from the full list that have DPL operations cur- to trade liberalization and other economic rently scheduled (and for which information can reforms, and that where poverty levels remain rel- be publicly released at this stage) in financial years ativelyhigh, strategies heavilyoriented toward alle- 2005 and 2006. viating poverty, and dealing with some of the important underlying causes-notably access to land and other assets-will be essential to a solu- Evaluating DPL Operations' tion. Inpoorer countries, rates of change inpover- Potential to Affect Forests ty incidence overall are a reasonably good indica- tor of the state of rural poverty, because in these As notedabove, the secondpart ofthe task of iden- countries rural populations tend to constitute a tifying and prioritizing situations where more .highproportion of total population. As the overall intensive due diligence on forest outcomes under income status of the country rises, this is less and DPL will be needed is to examine the specific less the case, andthe variable becomes less usefulas nature of those DPL operations in the pipeline. an indicator. The variables for each of the four forest signifi- cance criteria have been converted into z-scores Linkages between Broad Economic and averaged for each dimension. This involves Change and Forests two steps. The first is differencing the value of the The Operations Policy and Country Services variable by the mean and dividing by the standard (OPCS) Good Practice Note on Environmental deviation. Second, the z-scores for each of the vari- and NaturalResource Aspects providesa summary ables associatedwith a dimension are summedand of potential linkages between typical sectors for divided by the total number of variables for that policy-based operations and the environment dimension. The average z-score per dimension (2004b, 13-14). The information in the OPCS provides information on how a country performs table provides a starting point for identifying along each of the four dimensions. potential cross-sector linkages7For example, the Itis alsopossibleto sum the averagez-scores for table shows that agricultural reforms, such as each of the dimensionsand divide by four to attain reforms in land markets, improved rural finance, an average z-score for all four dimensions. The and reform of government institutions such as aggregate value enables the ranking of countries marketing boards can potentially strengthen basedon the overall forest significance conditions. resource management. In contrast, changes in 12 Development Policy Lending and Forest Outcomes prices of inputs can increase the adoption o f man- reforms do n o t result in the protection o f public agement strategies that may be detrimental to the environmental expenditure during major fiscal environment. Similarly, price-induced reduction consolidation. of demand for energy, as well as environmental The sectors in which m a n y DPL operations are regulatory regimes in the energy sector, can ensure concentrated (such as Central Government that e n e r g reforms result in improved environ- Administration and General Public Administra- mental health. Energy sector reforms could also tion Sector) do not immediately suggest a direct or result in negative eiivironinental and health effects indirect linkage with forest outcomes. However, a ifthedifferential pricingresultsinhouseholdssub- closer examination of the thematic orientation of stituting clean fuels with dirty fuels (see box 1). At the DPLoperations can reveal areas of intervention the macro-policy level, when reforms in public inthese categories that could potentiallybenefitor expenditures a n d public sector management result adversely affect forests. For example, 100 percent in priority setting and efficient allocation of public of the DPL operation proposed for Guatemala (in expenditures, there are potential environmental FY05) is allocated under the sector of Central Gov- benefits. Negative consequences can result if such ernment Administration. Thematically, this lending I I Box 1. Upstream Analyses Inform a lending Operation in Azerbaijan Recently several lending operations in Europe and Central Asia (Armenia, Azerbaijan, Georgia, Hungary, Kazakhstan, Moldova, and Poland) have focused o n sector reforms to improve the efficiency and effectiveness of service delivery in the region. One sector that has been subject to this change is the power sector. A review of the World Bank's activities in terms o fthe fiscal, efficiency, social, and environmental dimensions o f reforms inthe energy sector inseven countries in the region (Lanipietti 2004) provides food for thought regarding the potential environmental impacts. The environmental impacts considered in the study were those associated with human health benefits resulting from reduced pollution from the electricity sector. However, the study also discussed the possibility that the reforms have damaged health because households switched to dirty fuels (such as wood, coal, or kerosene). The study lacked adequate data to evaluate the impact o f reforms o n he1 switching, energy use, substitution effects, and health and social impacts; however, findings such as the follow- ing raise concern: "In Armenia 80 percent o f households and 95 percent o f poor households reported using alternative fuel sources to reduce reliance o n electricity (primarily wood (60 percent) and/or gas (24 percent)." The study also highlights t h e possibility that fuelwood use may cause deforestation, although this could not be proven owing to inadequate data availability. Such a study justified the poverty and social impact analysis (PSIA) undertaken prior to an energy reform operation in Azerbaijan (World Bank 2005). This study used spatial information to assess the environmental impact o f enerby reform. The methodology enabled identifying where households (due to poverty level) may switch to dirty fuels. Overlaying this information with data o n forest cover revealed where the risk o f increased residential wood use is greatest. With this information it was possible to consider promoting access to alterna- tive energy sources and more efficient wood stoves in high-risk areas, as well as preparing and implementing spatially explicit forest management plans and encouraging participatory forest management to reduce this risk. The data collection process for this study was done with extensive in country collaboration. I Toward a Toolkit for Evaluating Forests and DPl's Poverty Outcomes 13 operation will focus on macroeconomic manage- Applying these selections to some" forthcoming m e nt a nd tax po1icy a nd adininistration-t hemes DPL operations listed for 2005-06 (since there is that could impact forest outcomes. sufficient inforimtion available on the content of these operations) results in the identification of 21 Evaluating the Potential of DPL to operations (out of a total of 82) as having potential Affect Forests to have a significant impact on forests. These oper- ations and their proposed lending amounts are The Bank classifies its delivery o f operations under listed in table 1. two basic headings: theme codes, and sector codes. A second listing could be produced by usingthe The 11 theme codes are based on objectives of same criteria and approach for the sector codes: Bank activities, consistent with the organization's information on the results of doing so for DPL corporate advocacy a n d global public goods prior- operations for which information can be released ities, and support for the M i l l e n n i u m Develop- at this time can be obtained from the Bank. ment Goals: economic management, public sector governance, rule of law, financial and private sec- tor development, social protection and risk man- Overlaying Forest agement, social development, gender a n d inclu- Significance Information sion, h u m a n development, urban development, trade a n d integration, rural development, a n d with Identified DPL rural and natural resources management.8 T h e 10 Operations sector codes are high aggregated groupings of eco- n o m i c activities based on the types of goods a n d Table 2 combines the information on countries services produced: agriculture, fishing, and ranked on the basis of the aggregate index of prior forestry; l a w and justice and public administration; conditions with the proposed DPL operations of i n f o r m a t i o n a n d communications; education; thematic importance, as identified in the previous finance; health and other services; industry a n d sections. trade; energy a n d mining; transportation; a n d This exercise gives a n initial idea of how the water, sanitation, a n d flood p r o t e ~ t i o n . ~ process of prioritizing due diligence efforts for As a first cut, a review of which elements of the forests includes identifying the countries where thematic codes of activity h a d most potential to forests are likely to come under most stress. It also stimulate impacts on forests and forest people at is helpful in strategically deploying important the field level was made: it was concluded that the instruments such as country environment analyses thematic codes reveal more, in terms of instru- (CEAs), strategic environmental analyses (SEAS), ments a n d activities likely t o be employed in their rapid CEAs (RCEAs), a n d so on. T h e potential of implementation, than do the sector codes, w h i c h these is discussed in the next chapter. can encompass widely differing aspects of invest- Obviously, given all the caveats related to the m e n t in a given sector, from one location to anoth- reliability of data on which this is based, this exer- er. For this reason, the screening process undertak- cise must also b e seen as preliminary: it is indica- en in this paper focuses on thematic divisions. tive of an approach, but also of a need to improve Aspects from the 11 theme codes that could have the availability and reliability of the information implications for forests were identified next.'O used to apply it. 14 Development Policy Lending and Forest Outcomes Table 1. DPL Operations with Thematic Areas of Interest Fiscal I6RD/'lDA yeor Counfry Project title lending leve/a Themes oi concern ossociated wi/h the lending operation FY05 Benin PRSC I1 1 Rural services and infrostructure, rural policies and institutions FY05 Brazil Programmatic Fiscal 3 Macroeconomic management Refoim Ill FY05 Burkina Faso PRSC 5 2 Poverty strategy, analysis and monitoring, decentralization FY05 Colombio Finance and Business 2 Regulation and competition policy, small and medium-size Growth enterprise support, trade facilitation ond market access FY05 El Salvador (CRl2IProgram 2 Macroeconomic management, tax policy ond Broad-BasedGrowth DP1 administration FY05 too PDR PRSC-1 1 Macroeconomic management FY05 Niger PEAC 111 1 Public expenditure, financial management and procurement, infrastructureservices for private sector development FY05 Sierra leone ERRC IV 1 Macroeconomic management, rural policies and institutions FY05 Vietnam PRSC IV 2 Regulation ond competition policy FY06 Cambodia Poverty Reduction 1 Public expenditure, financial management, and Support Credit procurement FY06 East Timor Fourth Transition 1 Macroeconomic management Support Program FY06 Georgia PRSC 1 Public expenditure, financial monagement, ond procurement FY06 Mozambique PRSC 2 (FYO6J 3 Macroeconomic monagement FY06 Pakistan PRSC /I 3 Macroeconomic managemeni FY06 Pakiston Sindh SAC II 2 Macroeconomic management FY06 Senegal PRSC 2 1 Poverty strategy, analysis, and monitoring FY06 Tanzania PRSC 3 3 Environmental policies ond institutions, regulation ond competition policy, rural policies and institutions FY06 Turkey PPDPL 2 3 Rural policies and instituiions FY06 Uganda PRSC 5 (FYO6j 3 Rural policies and institutions FY06 Ukraine PAL 3 3 Macroeconomic managemeni, environmental policies, and institutions FY06 Vietnom PRSC V 3 Regulation and competition policy Source: World Bonk staff compilation based on data in April 2005 Monthly Operational Summary (htip://web.worldbonk.org/ WBSlTE/EXTERNAl/PROJECTS/PROCUREMENT/O,,contentMDK:5000450 1-pogePK: 84269-piPK:6000 1558-theSitePK: 84266,OO.htmlJ 0. Lending Level 1 5 $50 million; $50 million < tending level 2 2 $100 million; lending level 3 > $ 100 million. Note: See the acronyms and abbreviations list for definitions Toward a Tookit for Evu/uating Forests and DPL's Poverty Outcomes 15 Table 2. Overlay of Forest-importantCountries and Pipeline DPL Operations index of Forest Pipehe IFY0.5 & FY06I DPl operations oi Jbematic Importance COUNTRY Signihcance for forests and the IDA//BRD olloco/ions in poreniheses Brazil -0.906 Fiscal Reform Ill 15001 Burkina Faso -0.050 PRSC 5 155) Colombia 0.130 Finonce and Business Growth j 1001 El Solvodor 0.009 Growth DPl ( 100) Mozambique 0.151 PRSC 2 160) Niger -0.496 PEAC Ill 140) Pakislan -0.329 PRSC /I(2001;Sindh SAC I/ (1001 Senegal 0.141 PRSC 2 (30) Tonzonio -0.026 PRSC 3 ( 175) Turkey -0.208 PPDPL2 14001 Ugondo -0.380 PRSC 5 [ 150) Ukrarne -0.01 1 PAL 3 1250) Vietnam -0.701 PRSC IV ( 100);PRSC V 1200) Source: World Bank staff compilation. Note: See the acronyms and abbreviations list for definitions 16 Development Policy Lending and Forest Outcomes 4 Tools Available or Needed for Implementing Due Diligence T h e challenge for the Bank and other organizations diagnosis of the problems a n d sufficient clarity on a n d groups involved in DPL is now to implement solutions. In particular, PSIA and, where relevant, an effective process for targeting where due' dili- environmental impact analysis should underpin gence or DPL operations with regard to forests is important policy measures, and measures should needed, a n d in the same process identify opportu- b e taken to ensure that environmental considera- nities for using DPL operations to bring about sig- tions are adequately incorporated into the design nificant improvements in forests' contribution to of the DPL operation. poverty alleviation, sustainable economic growth, a n d global public goods. Good practice generally reflects the confluence How well the Bank is equipped to deal with o f a number o f favorable factors: (a) environ- these tasks can b e determined by examining the mental issues that are large scale; (b) relatively extent to which its current tools and approaches direct linkages between environmental man- are-or could be-effective in developing the agement and development outcomes; (c) a information and analysis needed in a timely fash- sound body o f analytic work to guide the ion, for due diligence. design o f the operation; and (d) a client and country department that is aware o f these con- OP8.60'~Environment, ditions and is willing to embrace environmen- tal reforms as part o f the larger reform pro- Forests, and Natural gram. (p.19) Resources Due Diligence Requirements Country-level analytical or diagnostic work is a sound basis for ensuring that environmental considerations enter the development planning T h e network of the Bank has produced a good process at an early stage. Priorities, including practice note (OPCS, 2004a) on designing DPL the costs of environmental degradation, identi- operations. T h e note discusses the importance of fied by an existing country led environmental the quality of the analytic underpinnings for DPL work, as well as assessmentsby t h e World Bank design, a n d emphasizes that reform programs can and development partners, are important to b e designed in detail only when there is adequate inform and deepen understanding of key 17 environmental challenges, particularly in con- assesses institutional capacity; and may nection with the preparation of PovertyReduc- make recommendations for reforms ofpoli- tion Strategy Papers (PRSPs) and Country cies or institutions. Policy SEA is an evolv- Assistance Strategies (CASs). An assessment of ing tool with few examples of application in environmental policy, regulatory, and institu- the World Bank's work to date. tional capacity is also essential to gain an under- standing of institutional capacity strengths and In the absence of any useful analytic work, challenges in order to ensure that environmen- however, there may be a need to initiate such tal implications o f lending programs are prop- work, either to study issues linked to the oper- erly considered, including monitoring of envi- ation or to better understand issues at the level ronmental trends with specific attention to of the country program. In all cases, there is a resourcesat risk. general set of questions that need to be posed: Appropriate analytic instruments for assessing What are the priority environmental prob- the effects ofdevelopment policy operations on lems in a country or a region?I s there a dan- the environment include country environmen- ger of these problems getting exacerbatedby tal analysis (CEA) and strategic environmental ongoing reforms in the country? assessments (SEAs) since development policy Do the environmental and natural resource lending involves economy wide or sector wide management institutions have the capacity policy programs rather than physical invest- to identify environmental priorities, moni- ments. tor the priority environmental problems, and respond accordingly? Do these institu- Country environmental analysis covers tions have the policy framework and legisla- countrywide policies and institutions deal- tive authority to act when problems arise? ing with the environment forests and natu- Do governmental organizations have the ral resources. The CEA focuses on the major capacity to respond to environmental prob- environment issues ina country; reviews the lems? Are there conflicting or unclear policy and institutional framework; assesses responsibilities across governmental organi- institutional capacity to implement the zations? (p 9) framework; and makes recommendations for priority reforms. I t does this all at the level of the country or, in large countries The Resources Issue and such as India, a state. The CEA i s a relative- the Applicability of CEAs ly new approach, with five full CEAs having been delivered to the client, including rec- and SEAs ommendations on which both the World The DPL policypaper (Mani, 2004) outlinesa five- Bank and the country agree. year program of implementation ofenvironmental Strategic environmental assessment con- analytical work to support DPL operations. This centrates more on policies, plans, and pro- includes conducting CEAs and SEAS or other grams within a specific sector. Policy SEA appropriate economic and sector work (ESW) considers the linkages between a given sec- where the volume of development policy lending is tor (energy, for example) and the environ- large, where adjustment lending makes up a large ment and naturalresources; reviews thepol- share of the country's gross domestic product icy and institutional framework for dealing (GDP), or where reforins are proposedinenviron- with environmental issues within the sector; mentally sensitive sectors such as forests, agricul- 18 Development Policy Lending and Forest Outcomes ture, natural resources, energy, mining, transport, Policy SEAs, in particular, are a less well-defined and water supply a n d sanitation (OPCS 2004b; entity at this stage, and therefore offer potential for M a n i 2004). modification to serve due diligence needs. While T h e good practice note for O P 8.60 suggests that some have been designed to address environnien- CEAs a n d SEAs are appropriate instruments for tal and natural resource issues related to a given assessing the effects of development policy opera- sector (energy, for example), it appears from more tions on the environment. However, some varia- recent consideration of this instrument in the Bank tion in their design and allocation may be required that there is greater flexibility to apply it beyond for them to be effective for the purposes of early specific sectoral concerns. SEAs, as defined above, identification of situations where D P L operations can b e useful in evaluating how a country's institu- have significant potential to affect forests a n d for- tional capacity and governance structures affect its est people, a n d then for implementing the neces- ability to manage the potential physical impacts of sary upstream analyses. policy changes likely to be undertaken in a D P L Country environment analyses serve the broad environment. The Environment Department of purpose of evaluating the environmental priorities the B a n k i s currently completing an analysis o f a of development in client countries, the implica- policy SEA approach to formulate a framework for tions of key policies, and the capacity of those this assessment, and will pilot this approach in one countries to address these. This information is or two priority countries. This development will assembled so that it can b e used as a guide in for- make SEASa possible vehicle for the due diligence mulating the content of the CAS. This is a m o r e a n d opportunity identification task for forests (and general purpose than the D P L due diligence task, the broader natural resources group) in the con- a n d to achieve this broader purpose, it m a y b e nec- text of forthcoming D P L operations. Again, the essary to schedule a CEA prior to the CAS devel- resource allocation a n d prioritization issue as opment program, or as part of it. This would b e raised for CEAs above would apply in this case, but too early to assist in implementing DPL impact in the context of client country resources, because analyses, since the nature and timing of DPL oper- typically SEAs are undertaken by countries. ations will not b e clear prior to finalization of the CAS. There is also a question of selectivity a n d pri- oritization involved here: if CEA resources are to Coordinating and be applied effectively to the DPLdue diligence task, Rationalizing the Due a significant proportion of those resources can only be committed to this task once the priority Diligence Resources countries a n d forthcoming DPL operations are Some options exist for applying selectivity and pri- identified, using a process along the lines o f that oritization in this area, while keeping in mind the described in the previous chapter. This is not the multiple objectives for environmental due dili- case right now: currently three CEAs have been gence activity in the Bank. completed, 10 m o r e are ongoing, a n d 10 m o r e are First, it m a y be possible to partition the CEA planned. In addition, the majority of these CEAs process into two phases. The first phase m a y serve do not focus specifically on DPLprograms, but are the general purpose for CAS formulation, but at a being conducted for other purposes. Nevertheless, reduced scale of effort, perhaps relying m o r e on on the basis o fthe sample ofcountries examined in desk analysis of existing policy, institutional a n d this paper, relatively few ongoing or forthcoining regulatory issues linked to policy formulation a n d CEAs seem to have been planned for countries implementation. This would b e followed in the with higher indexes for forest significance. CAS cycle by m o r e field-level analyses focused on the specific content of DPL operations under way Tools Available or Needed for Implementing Due Diligence 19 (which usuLdlywill not be known in any detail at effective due diligence-especially when extended the time of preparation ofthe CAS), in cases where to cover the full range of environmental and natu- the potential for significant impacts (on forests, for ral resourceoutcomes-will exceed present opera- the purposesofthis paper, but in effect on any sec- tional budgets. Some estimates of CEA implemen- toral or thematic area where potential impacts with tation costs will provide some perspective on the significant environmental and related poverty level of incremental funding that may be neededto implications) has been identified. This would allow implement due diligence along the lines put for- funds for CEA work to be distributed along more ward in this paper: prioritized lines related to DPL operations. An estimate made in the Environmentally and Second, country departments could initiate a Socially Sustainable Development Network (M. dialogue with client countries with large DPL pro- M a n i 2004) of costs associatedwith applying CEAs grams on aligning their SEASmore directly with incountries with a lendingvolume exceeding$500 the DPL piyeline, and the definition of what SEAS million for FY05 is $3-4 million. This amount is can cover could be broadened to allow a focus on based on the estimate that to apply the CEA all potential impacts from a given DPL, where approach in any such country would cost any- needed, instead of retaininga specific sectoral out- where between $200,000 and $400,000 (excluding come focus. the cost of staff resources). And third, "rapid CEAs" are already evolving in Furthermore, meeting due diligence require- some areas of operations in the Bank, and are ments in an SEA candidate country (that is, a being seen as a means of meeting the provisions of country where the Bank's key sectoral reforms are OP 8.60. The case of Bosnia (see box 2) is interest- planned in the environmentally sensitive sectors) ing, in that it proposes (a) to use historical data on may range from $100,000 to 200,000 (excluding the performance of previous structural adjustment the cost of staff resources) (Mani 2004). It maybe operations, in the area of environmental impacts, possible to reduce the cost associated with and then recent enviranmental plans and (b) to upstream analyses by linking these studies with quickly identify which policies and sectors sup- those required for the social due diligence (Bojo ported by the development policy credits pose sig- 2005). The latter, which is often addressedthrough nificant risks to the environment, forests, and nat- a country social analysis (CSA), costs approxi- ural resources. This would appear to be precisely mately$150,000. Some of the costs associatedwith the objective of due diligence in these circum- the environmental due diligence may be covered stances. by reallocation of existing country programbudg- etary resources, but it is clear that these program resources would have to be significantly supple- Financing Implications mentedto finance the above program. All three of the above suggestions are based on the central idea that, given the significance of develop- Monitoring and Follow-Up ment policy lending in the Bank, and other agen- cies, the pipeline of such projects provides the best Sequencing the Process organizing basis for planning environmental due In the initial discussions within the Bank in reac- diligence. It is unlikely, however, that even with the tion to issues raised during Boardconsideration of rationalization and prioritization of effort that this the forest sector strategyandpolicy, itwas suggest- would promote, aided by the selectivity that would ed that to be confident that inadvertent impacts on be afforded from developing and applying the forests that might result from DPL operations methodology outlined in chapter 3, the costs of could be identified and dealt with, and the poten- 20 Development Policy Lending and Forest Outcomes Box 2. Use of the Rapid CEA Approach in Bosnia A World Bank workshop on CEAISEA in January 2005 recognized that a rapid form of CEA should be exam- ined as one option for meeting the new provisions of OP 8.60 in Bosnia. The core of the RCEA will be a prior- itization of policies and sectors that will be supported by the Prograniniatic Policy Development Credits (PPDCs) regarding environmental implications and risks; an assessment of state, entity, and local capabilities to mitigate negative effects; recommendations to fill key gaps; and a small set of recommended key indicators to track progress. This RCEA will be carried out in parallel with the final stages of fiscal year 2005 Prograni- matic Policy Structural Adjustment Credit (PPSAC) preparation, and would be amenable to updating as need- ed in subsequent Fiscal Years. According to the National Environmental Action Plan," freshwater and air quality in rural areas are in fair- ly good condition, but with wastewater management, waste disposal, and industrial controls generally below internationalnorms, environmental risks are increasing. Bosnia's goal of meetingthe requirementsof the envi- ronmental acquis comniunitaire of the European Union means that considerable investment inboth the tech- nology for pollution control, and institutions for monitoring and compliance will be required. The United Nations Economic Commission for Europe's Environmental Performance Review for Bosnia (2004)boutlined deficiencies and needs for improvements in the policy, legal, and institutional framework; public participation and access to information; water resources management (including drinking water quality); landuse; agriculture and biodiversity; management of waste sites; and environmental aspects oftourism and energy development. The RCEA will first "look back" to frame how past adjustment operations have examined environmental implications. I t will then "look forward" by building on the National Environmental Action Plan, the Environ- mental Performance Reviews, and other studies to quickly identify which policies and sectors supported by the PPDCspose the more significant risks to the environment, forests, and natural resources. New data will be col- lected by Bank staff and consultants on specific privatizations, new government permit programs, and the like, The RCEA proposes a three-tiered approach, first reviewing what are felt to be weak institutions in Bosnia for addressing the environment in privatizations. The second tier of analysis will look at implications from PPDCBusinessEnvironment Reform on environmental management systemsinthe country. And the third tier will look at policies and sectors that the PPDCs will support that pose less risk or are mitigated by other Bank operations (such as Health). One important outcome will be the identification of a few suggested indicators of progress. a. littp:ll~v.esiweb.org/bridges/bosnia/BiH~Nat_Environnient~Plan~2OO3.pdf. b. http:ll~~.uiiece.orglenvleprlstudies/bosnia_and_herzegovinalwelcome.htm. tial for beneficial impacts o n forests and poverty in condition of the forests themselves, would forest-dependent populations froin DPL could be need to be done. realized, three basic steps would be needed: Duringpreparation and implementationofthe DPL, a system for monitoring outcomes for In advance of preparation of the DPL itself, forests and forest-dependent people would upstream analysis of the potential linkages have to be designed and implemented. between measures and reforms that would be In some (perhaps most) cases the manifesta- implemented under the DPL, and outcomes tion of outcomes at the field level in forests for forest-dependent poor people and for the may occur over a muchlonger period than that Tools Available or Needed for Implementing Due Diligence 21 of DPL implementation. Moreover, in the effort should not be ad hoc, but rather a part of the course of implementation, it is likely that a overall environmental managementcapability that number of specific policy, institutional, and DPL fosters, and also address the specific issues technical issues at the sectoral level may have identifiedin upstreamanalyses, which would build arisen, or at least been brought into sharper toward a shift from project-specific safeguards to relief. These should be considered integral to in-country environmental management.Therewill the DPL implementation process. be implications for support and capacity building for national or regional agencies capable of moni- Monitoring toring, evaluation, and policy analysis, and possi- bly for building this capacity in advance of major Insituations where upstreamforest impact analy- policy lending. ses are undertaken in preparation for a DPL, it will be essential to leave flexibility and room in the process so that monitoringof outcomesduringthe Flexibility for Follow-Up implementation of the DPLoperation itself (based The processes of upstream analyses of possible on a listing of issues to watch from the analysis) is impacts on forests from DPL operations, and incorporated into the design of the DPL. results from monitoringduring implenientation of The Bank's Development Economics Research the operation, may point to a need for longer-term Group (DECRG) has investigated recent develop- follow-up to deal with issues, problems, and ments in monitoring technology and believes that opportunities that arise. To facilitate dealingeffec- it is now technically feasible to monitor proxies for tively with these sorts of eventualities, considerable poverty and for forest cover, in near-real time and flexibility will need to bebuilt into the Bank`s CAS at relatively low cost. DECRG has a number of program, as well as into the relationshipwith other projects under way related to the global and donors involved, to ensure that sector investments, national-scale mapping of population, poverty, technical assistance, ESW, or, in relevantcases, fol- forest cover, and biodiversity. Results from the low-up special-purpose DPL operations focused application of this technology could be used to on one or a related group of sectors (forests, the institute "no-fault" monitoring during the iniple- broader group of natural resources, developments mentation of the loan and, in some cases, beyond in rural space) can be designedand implemented that period. Inthe event of a poverty or deforesta- ina timely fashion. Inprinciple,where CAS docu- tion spike, a rapid response could be prepared. If ments proposeone or a number of DPLoperations no spike is observed, that too is valuable informa- in a given country, sufficient flexibility inthe pro- tion and could help defuse controversy or anxiety gramming of investment lending (and ESW) about these loans. should be incorporated to allow for adequate While such monitoring is technically feasible, response to outcomes in the forest, or major thechallengeis to mainstreamit into Bankpractice prospects for improving outcomes there, that and client institutions. Ideally the monitoring might arise during implementation. 22 Development Policy lending and Forest Outcomes Findings and Recommendations Findings T h e poverty alleviation goal at the heart of D P L will, in many cases, also be highly relevant in T h e findings from individual studies of the poten- impacts on forests from broad-based economic tial impacts of large-scale economic change, and change. As the statistics in the section on the "Nat- m o r e specifically adjustment or development poli- u r a l Resources-Poverty Linkage" show, a large cy lending on forests (and m o r e broadly on envi- proportion of people who are poor and marginal- r o n m e n t a n d natural resources) vary widely, as do ized living in and near natural forests depend to a the methodologies and focus of the work done. significant extent for their livelihoods on these However, taken as a whole the literature suggests forests. These numbers bear out the conclusions that macroeconomic changes and associated cross- that forests are m a k i n g a m u c h larger contribution sectoral flows can have a strong impact on forests. to subsistence and income opportunities for poor Ifthese outcomes includesignificant damageto people than is evident in formal poverty calcula- forest resources, in many countries this could have tions a n d survey results, and that loss of forests, or serious implications for sustainable economic significant changes in how they are used (and by growth, especially in cases where the forest whom), can have serious implications for poverty. resources being lost are undervalued in the econo- T h i s implies both a caution for DPL a n d a n oppor- my-which, as noted, is quite c o m m o n because of tunity for adding to its poverty alleviation impacts. the wide range of forest goods a n d services that do This paper has argued that determining whether not enter formal, monetized markets. Further- significant forest impacts will result from a given more, forests play a vital role in sustaining the nat- set of reforms a n d changes in a D P L package will ural resource base underpinning economic growth not be easy. In cases where impact is identified as in many other sectors. The irreversibility of such likely, major analysis will b e needed to explore the losses, once incurred, adds to the significance of implications, a n d to develop offsetting measures this issue, for local, national, and global public where necessary. This work will need to b e initiat- goods reasons. Long periods that might elapse e d well ahead of preparation of the DPL itself, and before adverse impacts become evident further outcomes will need to b e monitored during imple- complicate due diligence for (relatively short- mentation. Additional follow-up m a y b e needed via term) DPL. investment lending, technical assistance, or even 23 special-purpose D P L operations. This' clearly has some cases other analytical work m a y need to be serious financial implications for the Bank: present undertaken to address the due diligence issues. budgets for project preparation and management This paper argues that the design and allocation could not support the application of this approach o f CEAs need to be revised if they are to make a to every case where D P L and forests coexist. stronger contribution to the due diligence task for This emphasizes the need for careful selection D P L operations than is now the case. They will and focusing of this m o r e intensive due diligence need to be aligned m o r e closely to the D P L pro- task onto situations where there is expected to be a gram, a n d in particular to those D P L operatioils higherlikelihood ofsignificant forest outcomes. In identified as having potential to have significant this paper, a three step approach to this has been impacts on forests. illustrated. First, a set of forest sigiiificance criteria Inthe case of SEAs it appears from more recent was developed to make a preliminary ranking of consideration of this instrument in the Bank that Bank client countries on the basis of the signifi- there is greater flexibility to apply it beyond specif- cance of their forest sectors, in terms o f sustainable ic sectoral concerns. Ifso, this would make the SEA economic growth, poverty alleviation and protec- a possible vehicle for the due diligence and oppor- tion of global and local forest goods and services. tunity identification task for forests (and the These factors feature strongly in the M i l l e n n i u m broader natural resources group) in the context of Development Goals, a n d the n e w Bank forests sec- forthcoming D P L operations. tor strategy. A fourth factor-governance-was added to the significance calculation, based on the Bank's experience in the forest sector, and strong Recommendations indications from literature reviewed in this paper, that the state of governance in a country will b e an Adapting the Current Instruments important determinant o f forest outcomes. Consideration should b e given to partitioning The second step was to categorize forthcoming the C E A process into two phases-the first D P L operations for which adequate information is serving the general purpose for CAS formula- available and able to be released, on the basis of tion purposes. This would be followed in the their likely potential to have impacts on forests. In CAS cycle by m o r e field level analyses focused this case the thematic codes for DPL operations on the specific content of DPL operations were used to determine which ones might have underway in cases where the potential for sig- such impacts. nificant impacts has been identified. The third step was to overlay the list of countries Country departments in their dialogue with produced using forest significance criteria with the client countries could play a greater role in list o f forthcoming DPL operations assessed as helping to align country-planned SEAs m o r e having the potential to impact on forests. Table 2 directly with the DPL pipeline. at the end of chapter 3 shows the result of this RCEAs, which are already evolving in some process. areas of Bank operations, and their potential as The final section of the paper deals with the a means of meeting the provisions of OP 5.60, instruments that have been identified in the Bank shouldb e considered for broader application. as having some role in the due diligence task for OP 8.60, and what further may need to be consid- ered. The good practice note for O P S.60 identifies Financial Implications CEAs and SEAs as being appropriate to the task of Even with the rationalization and prioritiza- due diligence, although it acknowledges that in tion o fdue diligence that the above adaptations 24 Development Policy Lending and Forest Outcomes would promote, the costs of effective due dili- realized, three basic steps would be needed: gence will exceed present operational budgets, upstream analysis for identified countries and and this issue will need to be considered by DPL operations as outlined above; monitoring management in the budgetarycontext. of outcomes during implementation; and fol- low-up investment lending, technical assis- Sequencing the Process tance, andanalysis, or sectoralDPLoperations. Considerableflexibility shouldbebuilt into the To be confident that DPLoperations' inadver- CAS program, as well as into the relationship tent impactson forests couldbe addressed, and with other donors involved, to facilitate deal- the potential for beneficial impacts could be ing effectively with these sorts of eventualities. Findings and Recommendations 25 Endnotes 1. Adjustment lending has evolved since its introduc- are focused chiefly on social sectors and public sector tion. At first it provided temporary balance of payment management themes. financing to member countries while stabilization and 5. A potential alternative to this approach to character- adjustmentmeasures took effect. In the 1990s, it took a izing forest significance is using elements of tlie revised more development-oriented perspective, focusing on Country Policy and Institutional Assessment (CPIA) medium-term structural, social, and institutional index. Specifically, this system uses certain variables issues. This was the move toward DPL, a fast-disbursing that are measured as part of tlie revised environment lending instrument that does not identify a particular iHdicators. The index is a blend of objective and subjec- policy area for reform, allowing countries to tailor their tive information. Country officers use assistance from policy program to their specific needs and circuni- experts in the subject area, available data, and/or per- stances. Inthis study DPL operations and DPL projects sonal experienceand knowledge of the country to com- refer to specific lending activities, and DPL programs plete the CPIA questionnaire. This information is also refer to a set of (or series of) DPL operations. updated periodically and widely used throughout the 2. There is a Good Practice Note on Development Poli- World Bank. Efforts to expand the scope of the CPIA to cy Lending OP/BP 8.60 specific to Environmental and gather additional information relevant to the criteria Natural ResourceAspects (OPCS, 2004b) mentioned inthe section on "Focusing Due Diligence" 3. A comprehensive survey of analyses of deforestation are under way, and details are available from the Bank. can be found in Angelsen and Kaimowitz (1999). Mar- 6. As discussed in Angelsen and Kaimowitz (1999), gulis (2004) and Geist and Lambiii (2001) review coun- there are limitations to these data sets. try- and regional-level studies of deforestation, and 7. The information, however, extends beyond those reveal significant variation in cause-and-effect across associatedwith forests. differentsituations. 8. For details, see littp://siteresources.worldbank.org/ 4. Poverty Reduction Strategy Papers (PRSPs) docu- PROJECTS/Resources/WBthemes~eff~OCT03.doc. ment a government's poverty reduction strategy for its 9. For details, see http://siteresources.worldbank.org/ country. These papers reveal the priority concerns of PROJECTS/Resources/WBsectors~eff~OCTO3.doc. tlie government and inform Poverty Reduction Strategy 10 Details on the elements selected are available from Credits (PRSCs), which are a form of adjustment lend- tlie Bank. ing that is fully subject to the provisions of OP 8.60. 11. Information on some projected DPLs for 2005-06 PRSCs differ from DPL operations in that the former cannot be publicly released until further processing and negotiation on them have beencompleted. 26 Annexes ANNEX 1. followed by a secondPRSLinthe following year. A Incorporating Forest more detailed history and timeline of the events Conditionalities into Large- that took place in this period, and the tumultuous political environment in which they occurred can Scale IMF and Bank be found in Seymour and Dubash (2000). The Adjustment loans: lessons PRSL loans added details to the reform of regula- Learned from the Indonesia tions and legislation governing the award and managementof concessions; an interim moratori- Experience um on any further conversion of forested lands to other uses; and moves toward stronger participa- InOctober 1997, following the Asian financial cri- tion of local communities in the managementand sis and its major impact on the Indonesianecono- protection offorests (andultimately recognition of my, the IMF began negotiations with the Govern- traditional title to forest). m e n t of Indonesia on an assistance package. The The Bank-among many others-recognized Letter of Intent focused on banking sector reform that a great deal of follow-up activity would be and other financial sector issues, and initially did needed to bring the full force of reform into the not includeenvironmental provisions. By January forests sector, and a broad-based dialogue with 1998, it hadbecome a $43 billion assistance pack- stakeholders on this subject was initiated in June age, which did include a set of environmental and 1998. Initially, a large sector adjustment loan forest sector reforms aimed at dismantling the for- (SECAL) was considered as the most appropriate est product marketing monopolies that had domi- way to support a longer-term process of reform nated the sector. The package committed the Gov- following the IMF and Bank PRSLs. This would ernmentto implementinga series of forest conces- have includedstronger performance criteria, and a sion managementreforms that the Bank and other more intensive focus on the introduction of coin- development agencies had been promoting in munity-based forest protection and management. Indonesiafor a considerable period of time. As conditions in Indonesia continued to deterio- InApril 1998, the Bank followed up on the IMF rate, ultimately leadingto a significant reduction in package with the first of two Policy Reform Sup- overall Bank lending to the country, and dialogue port Loans (PRSLs), with a loan value of $1 billion and consultation intensified on the major reform 27 issues, the SECAL proposal was dropped, and a Inaddition to reviewingthe meritsof the specif- major consultative exercise on forest sector issues, ic forestry measures that were included in this spearheaded by the donor-based Consultative package of assistance in Indonesia, the studies all Group on Indonesiabut including participation by raise the matter o f a provision in the IMF program a wide range of local stakeholders was launched. that called for removal of a restriction of foreign Compliance with forest sector conditionalities investment in o i l p a l m production in the country. established under the I M F and Bank adjustment A number of commentators have concluded that programs, under a series of subsequent regimes, this measure m a y have accounted for a n increase was incomplete a n d insome cases overwhelmed by in oil palm planting in Indonesia in the following subsequent Government policy changes, such as period, some of which was found to have occurred the introduction of a highly flawed devolution of on naturally forested areas, rather than on degrad- authority over forest resources to district-level ed o r otherwise unforested lands in Kaliinantan governments. T h e Indonesia forest sector remains a n d Sumatra. However, this example illustrates the unreformed in some critical ways, but the dialogue difficulty of assigning cause and effect in this area: and consultative processes that have emerged-at other causes may have accounted for the upswing least in part as a result of the reform measures the given the massive economic trauma that was Bank has sought to introduce-have certainly been afflicting Indonesia at the time. Large numbers of vigorous and representative, a n d offer some prom- people were leaving the major cities and returning ise that beneficial change will eventually occur in to their villages, owing to loss of employment, and the sector. A large-and largely critical-literature the oil p a l m sector was one of very few that were o n the appropriateness of the Bank's adjustment able to maintain external markets a n d profitability based activities in the forest sector in Indonesia has during the crisis. It is quite possible that the entry emerged (see Seymour and Dubash 2000; Barr of foreign investors into the sector at this difficult 1999; Mainhardt 2001). The criticism is that the time m a y have at best been a marginal cause of the IMFand the Bank tried to do too much in the sec- rise in oil p a l m production. tor, invery restricted time frames for implementa- For present purposes, the lessons learned from tion, and in some cases (such as requiring the the Indonesian experiences are that the use of the introduction of an auctioning system and per- adjustment instrument for forest sector reform formance bonding into the concession manage- will be more effective when done o n the basis of ment system) this was probably true. The studies good up-to-date analysis, which will allow the link- also argue that the Bank h a d not done the neces- ages between reforms introduced a n d outcomes sary advance analytical preparation and consulta- for forests and forest-dependent people to be tive work to ensure that the measures proposed assessed; a n d that the. adjustment instrument i s were optimal, a n d accepted by all stakeholders- limited by time frames a n d the necessarily broad again true, but in this case mitigated by the fact focus of the reforms. Careful monitoring of actual that this group of interventions were genuinely outcomes a n d follow-up with m o r e focused a n d emergency measures, and the option to reschedule longer-term operations (which were proposed but the loans to allow for m o r e analysis and consulta- not pursued in the Indonesia case) are essential to tion did not exist. good results. 28 Development Policy Lending and Forest Outcomes ANNEX 2. wood uses. Commodities included in this clas- Details of Criteria for sification are sawlogs and veneer logs, pulp- Forests Significance wood, other industrial roundwood, and fuel- wood. Other industrial roundwood includes Using Available Cross- roundwood used for tanning, distillation, Country Data match blocks, piling, posts, pitprops, gazo- genes, etc. All wood production data refer to both coniferous and non-coniferous species. For governance: Roundwood comprises all wood obtained from tree removals, including the quantities Ruleof law is a measure from the KKZ indica- removed from trees both inside and outside tors (see discussion above). This variable forests. Wood recovered from natural, felling includes several indicators that measure the and logging losses during the period are also extent to which agents have confidence in and included. (data is from FAOSTAT online sta- abide by the rules of society. The variable tistical services, 2004) includes perceptionsof the incidence of crime, the effectivenessandpredictability of the judi- ciary, and the enforceability of contracts. For forest-conservation linkage: Together, these indicatorsprovide information Percentage threatened bird species (2000): on the effectiveness of a society in developing 2000 IUCN Red List, http://www.redlist.org/ an environment in which fair and predictable info/tables/table3,html, and World Resources rules form the basis for economic and social Institute, World Resources 2000-2001, Wash- interactions, and the extent to which property ington, DC: WRI, 2000. Original sources: rights are protected (Kaufmann et al., 2004). World Conservation Monitoring Center, Presenceof democratic institutions: this meas- IUCN-The World Conservation Union, Food ureisbasedon the Polity IV Projectofthe Uni- and Agriculture Organization of the United versity of Maryland. It ranks countries accord- Nations and other sources. http://earthtrends. ing to a scale from -10 (autocratic) to +IO wri.org. The numberofbirdspeciesthreatened (democratic) based on the presence of demo- divided by known bird species in the country, cratic institutions. This variable is used in the expressed as a percentage. The percent of CIESEN as part of their Environmental Sus- breedingbirdsthreatened gives an estimate ofa tainability Index (see: http://www/ciesin. country's success at preservingits biodiversity. columbia.edu/Indicators/ESI/) Percentagethreatened mammalspecies (2000): The source for this information is 2000 IUCN For forests contribution to economy: Red List, http://www.redlist.org/info/tables/ table3.htm1, and World Resources Institute, Production of woodfuel (2000): This is infor- World Resources2000-2001,Washington, DC: mation from the FAOSTAT online statistical WRI, 2000. Original sources: World Conserva- services, 2004. It is the aggregation of wood tion Monitoring Center, IUCN-The World fuel from coniferous and non-coniferous tree Conservation Union, Food and Agriculture areas. The unit of measure is production in Organization of the UnitedNations and other cubic meters. sources. http://earthtrends.wri.org. Number of Production of roundwood (2000): Round- mammal species threatened divided by known wood production refers to all wood in the mammalspecies in the country, expressed as a rough, whether destined for industrial or fuel- percentage. The percent of mammals threat- Annexes 29 ened gives an estimate of a country's success at hectares.Tree height at maturity should exceed preserving its biodiversity. (World Economic 5 meters. (source: Earthtrends, WKI) Forum et al., 2002) Rate of change in forest cover (1990-2000): Estimated by calculating the change in forest For the forest-poverty linkage: area. Total forest area, average annual percent The annual rate of change between 1990 and change, 1990-2000, as definedby the Food and 2001, in the (headcount) percentage poor liv- Agriculture Organization of the United ing below a dollar a day (using the POVCAL Nations, is the average annual percent change approach developedby the Bank) inbothnaturalforests andplantations between The level of percentagepoverty in 1996 (using 1990 and 2000. Total Forest is defined as land the POVCAL approach developed by the with tree crown cover of more than 10 percent Bank) of the ground and area of more than 0.5 30 Development Policy Lending and Forest Outcomes ANNEX 3. Illustrative Listing of Countries Using the Forest Significance Criteria ~ Governance Economic Environment Poveriy Aggregate COUNTRY index Index Index index Index Algeria -1.093 0.351 0.462 0.598 0.08 Argentina 0.128 0.382 0.002 -0.3 12 0.05 Armenia -0.34 0.555 0.825 -0.276 0.191 Botswana 0.737 0.287 0.455 -0.045 0 358 Brazil 0.395 -4.051 -0.5 19 0.553 -0.906 Bulgaria 0.187 0.475 0.004 -1.157 -0.123 Burkina Faso -0.736 0.337 0.652 -0.453 -0.05 Cameroon -1.406 0.275 0.162 -0.041 -0,253 Chile 0.778 -0.003 -0.452 1.012 0.334 China -1.306 -4.46 -0.026 0.15 -1.411 Colombia 0.12 0.229 0.088 0.082 0.13 Costa Rica 0.858 0.439 0.288 0.739 0.581 Croatia -1.188 0.491 0.334 0.46 0.024 Ecuador -0.045 0.405 -0.124 -0.687 -0.1 13 El Salvador 0.088 0.42 -0.349 -0.123 0.009 Estonia 0.456 0.454 0 681 1.147 0.685 Ethiopia -0.567 -1.88 -0.03 0.151 -0.582 Ghana -0.396 -0.05 I 0.134 -0.427 -0.185 Guatemala -0.249 0.303 0.302 0.582 0.235 Honduras -0.207 0.351 0.376 0.182 0.176 Hungary 0.873 0.451 0.312 -0.05 1 0.396 Indonesia -0.137 -2.415 -1.248 0.591 -0.802 jomaica 0.407 0.537 - 1 . 1 17 0.643 0.117 Kazakhstan -1.189 0.555 0.839 0.964 0.292 Kenya -0.978 -0.012 -0.007 0.082 -0.229 Latvia 0.133 0.4 0.704 -0.786 0.113 Lithuania 0.583 0.48 0.548 1.008 0.655 Madagascar -0.074 0.277 -1.801 -0.648 -0.56 1 Malawi 0.168 0.408 -0.019 -0.349 0.052 Malaysia 0.273 0.298 -0.572 -0.433 -0.109 Mali -0.282 0.416 0.277 -0.972 -0.14 Mexico 0.021 -0.396 -0.308 0.569 -0.028 Moldova -0.034 0.556 0.621 -1.03 0.028 Mongolia 0.493 0.537 0.16 0.39 0.395 Mozambique -0.104 0.054 0.907 -0.252 0.151 Nicaragua 0,047 0.4 -0.057 -0.491 -0.025 Niger -0.827 0.327 -0.485 -1.001 -0.496 Nigeria -0.5 17 -1.252 -0.242 -1.047 -0.764 Pakistan -1.445 -0.338 -0.294 0.761 -0.329 Panama 0.033 0.519 -0.034 0.538 0.264 Paraguay -0.319 0.3 0.367 -0.205 0.036 Peru -0.244 0.301 0.074 -0.5 14 -0.096 (Annex continues on next p g e ) Annexes 31 ANNEX 3 continued Governance Economic Ewironmenf Poverty Aggregote COUNTRY Index Index Index Index Index Phiiippines 0.148 -0.657 -3 218 0.303 -0 856 Poland 0.813 0.282 0 094 0.672 0.465 Romania 0.033 0.375 -0 116 -0.087 0051 Ser,egaI -0.671 0.401 0 443 0.39 0.141 Sierra leone -0.052 0.37 -0 308 South Africa 0.617 0.025 -0 019 0.316 0 021 Tanzanio -1 . O l 1 -0.066 0 02 -0.536 -0 026 Thailond 0.387 -0.1 -0 221 0,954 0 1 1 Trinidad and Tobago 0.823 0.555 0 673 0.374 0 639 Turkey 0.088 0.312 0 106 0.504 -0 208 Ugando -0.786 -0.46 0 059 -1.339 -0 38 Ukraine -0.284 0.413 0 126 -0.331 -001 1 Venezueia, R.B. de -0.097 0.442 0 428 -0.3 0 451 Vietnam -1.326 -0.256 -0 137 1.032 -0 701 Zambia -0,652 0.34 -0 045 -1.086 -0 282 Zimbabwe -1.22 0.313 0 226 -0.769 -0 363 Source: World Bank staff compilation Note: Countries such os Bolivia, India, ihe Russian Federation, Cambodia, Papua New Guinea, and Lao PDR are not included in this table because of dato unavailability For Sierra Leone, poverty data were unavailable. 32 Development Policy Lending and Forest Outcomes References Angelsen, A., and D. Kainiowitz. 1999. "Rethinking the Adjustment inGhana." InCharles Perring, ed., The Causes of Deforestation: Lessons from Economic Economics of Biodiversity Conservation in Strb-Snhn- Models." 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