World Rainforest Movement

Forests and Structural Adjustment: The World Bank’s Steamrolling of Stakeholders and its own Board

The World Bank held nine regional consultations with governments, industry and civil society organizations all over the world during 2000 and 2001. The stated purpose of this far-flung effort was to receive input into the development of the Bank’s new Operational Policy on Forests. In addition, the Bank set up a Technical Advisory Group (TAG) to advise it on the writing of the new policy.At the end there was one resoundingly clear and unanimous message to the Bank from both the regional consultations and the TAG: The Bank’s new Operational Policy on Forests must apply to the Bank’s lending for structural adjustment to prevent further loss and degradation of the world’s forests.

It is well-known today that the main causes driving deforestation are located outside of the forest sector. Chief among those external causes are ill-conceived economic policies which –sometimes inadvertently- provide incentives to clear or convert natural forest lands by promoting export-related industrial-type activities such as plantation forestry and industrial logging while weakening or dismantling government agencies responsible for the environment and social safety.

The World Bank’s own Operations Evaluations Department (OED) has identified trade liberalization and export promotion measures as important driving forces of deforestation. Yet these are precisely the type of economic policies that World Bank lending is actively promoting through structural adjustment loans without considering their environmental and social consequences. At present about one third of World Bank lending is for this type of fast disbursing loans in support of economic policies geared towards privatization of public enterprises, export promotion and the downsizing of government regulatory functions.

Over the past decade, structural adjustment has received an increasingly bad reputation for causing social hardship and for its failure to lead to economic development. In response to the growing lack of credibility of structural adjustment, the Bank has simply given it a new name: “Development Policy Lending” (DPL). DPL consists of essentially the same set of economic policies with the addition of a bit of rhetoric on ‘government ownership’ and the need for better institutions.

The need to pay attention to the impact of structural adjustment lending on forests is not a new issue. Already the Bank’s previous Forest Policy Paper of 1991 had promised to pay attention to the potential impact on forests in macro-economic planning. But as the Bank’s own evaluators concluded in 2000, adjustment operations put large pressure on forests but had rarely taken this into account, even in countries where forests are important in the macro-economy.

Despite the unanimous view of stakeholders, advisers and findings by the Bank’s own OED, the Bank did not include a reference to structural adjustment (or its heteronyms programmatic lending/ development policy lending) in its new Operational Policy on Forests which came into effect in November 2002.

The adoption of Operational Policy 4.36 on Forests was widely disappointing including to organizations that are usually supportive of the World Bank. The director-general of IUCN -the World Conservation Union, which had assisted the Bank in organizing the regional consultations- warned World Bank president Wolfensohn about the loss of credibility, as the consultations were being perceived as a superficial exercise with no real commitment on the part of the Bank to heed their findings.

The Bank argued that for efficiency-sake the on-going review of the Bank’s Policy on structural adjustment would address the possible impact on forests. Several members of the World Bank’s Board of Directors were voicing their own concerns about the possible impact of structural adjustment on forests. In order to reassure its own Board, the Bank promised that transparent arrangements would be put in place to screen adjustment operations when they were under preparation to identify potential harm and help governments to avoid or at least mitigate that harm.

There was much doubt that a new policy on structural adjustment would be able to deal adequately with a specific sectoral issue such as the direct and indirect impact on forests. Indeed, in December 2003, the first draft of the new structural adjustment policy –OP 8.60 on Development Policy Lending– did not even mention the word ‘Forests’.This little oversight was corrected in the final OP 8.60 of August 2004, but to what effect?The paragraphs on ‘Poverty and Social Impacts’ and ‘Environmental, Forests and other Natural Resource Aspects’ of OP 8.60 state that the Bank will determine if there is going to be significant impact on the environment, the poor and forests and assess the borrowers’ systems to address those impacts. If those systems have gaps, then the Bank commits itself to describing them. In other words, the Bank is not obliged to take action when its own lending hurts the poor, degrades the environment and devastates forests.

According to World Bank environmental staff,there have been few efforts to define how best to screen structural adjustment loans which nowadays often amount to general budgetary support –albeit with economic policy conditions. While some funding appears to have recently been committed to further study the matter, there is little evidence that Bank staff have the resources or expertise to even carry out their very limited mandate under the new Development Lending Policy.

The Bank’s new Operational Policy on Forests (OP 4.36) of November 2002 seriously weakened provisions for forest protection. The Bank promised that one of its main shortcomings –its failure to apply to structural adjustment lending– would be addressed by the new Operational Policy on Development Policy Lending (OP 8.60) of August 2004.This promise has been broken.

NGOs and other stakeholders, experts on the Technical Advisory Group and the Bank’s professional evaluators invested considerable time and resources to provide input into the Bank’s Forest Policy. Their unanimous recommendations on the need to ensure that structural adjustment policies do not negatively affect forests were brushed. The commitment made to the Bank’s own Board of Executive Directors to put in place transparent mechanisms to screen structural adjustment lending has not been kept.Fundamental questions of accountability are coming to light here.Addressing them is long overdue.

By Korinna Horta, Environmental Defense, e-mail:,

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