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Forest sector governance refers to the ways in whichofficials and institutions (both formal and informal)acquire and exercise authority in the management of

the resources of the sector to sustain and improve the wel-fare and quality of life for those whose livelihoods dependon the sector.1 Good governance is fundamental to achiev-ing positive and sustained development outcomes in thesector, including efficiency of resource management,increased contribution to economic growth and to environ-mental services, and equitable distribution of benefits.

Good forest governance is characterized by predictable,open, and informed policy making based on transparentprocesses, a bureaucracy imbued with a professional ethos, anexecutive arm of government accountable for its actions, anda strong civil society participating in decisions related to sec-tor management and in other public affairs—and all behav-ing under the rule of law. Thus, key features of good gover-nance include adherence to the rule of law, transparency andlow levels of corruption, inputs of all stakeholders in decisionmaking, accountability of all officials, low regulatory burden,and political stability (see also World Bank 2000).

The rationale for the World Bank to engage in improvingforest governance in client countries is twofold. On onehand, broader governance reform processes, such as decen-tralization and devolution, and public sector reforms pres-ent direct opportunities to which the forest sector needs torespond. On the other hand, illegal logging, corruption, andother forest sector crimes, such as arson, poaching, landencroachment, trade in endangered fauna and flora, and

evasion of legal taxes and royalties, indicate weaknesses inforest sector governance that need to be addressed. In devel-oping countries, illegal logging in public lands alone causesestimated losses in assets and revenue in excess of US$10billion annually, more than six times the total official devel-opment assistance dedicated to the sustainable managementof forests. In addition, about US$5 billion per year is esti-mated to be lost to uncollected taxes and royalties on legallysanctioned timber harvests, as a result of corruption (WorldBank 2004). The global magnitude of the problem as esti-mated by its direct monetary impacts is staggering.2

The associated physical, environmental, and socialimpacts resulting from poor governance are even more exten-sive and serious. They are characterized by the following:

■ Violation of protected area boundaries threatens theconservation of forest resources and biodiversity.

■ More than 350 million rural poor rely heavily on forestsfor their livelihoods, while more than 60 million dependalmost exclusively on them for subsistence. Strong forestgovernance (including vesting tenurial rights with suchcommunities) is essential for protecting their livelihoodsand improving their well-being, and for protecting themfrom the consequences of illegal logging and unautho-rized removals from the forest (World Bank 2006).

■ Legitimate forest enterprises are subjected to unfair com-petition through price undercutting and discouragedfrom making socially and environmentally responsibleinvestments in the sector.

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IMPROVING FOREST GOVERNANCE C H A P T E R 5

■ Forests are a global public good, and their degradationimposes global costs, such as climate change, environ-mental degradation, and species loss. Improving gover-nance will help contain the negative environmental, eco-nomic, and social consequences at the global level.

■ There are less visible—though highly insidious—costsresulting from the erosion of institutions, the spread ofcorruption across the economy, and lower growth. Thesespillover effects are the most far-reaching and significantaspects of the problem of poor sectoral governance. Theproblem originates in the forest sector but the impactsare transmitted through the economy, weakening gover-nance and the rule of law, impeding investments in legit-imate commerce, and undermining the overall gover-nance structure.

Some of the complexities of these relationships and themagnitude of the task to improve forest governance are cap-tured in figure 5.1.

The box in the center of the figure lists “entry points,” oropportunities within the forest sector itself, directed towardreducing the means, motives, and opportunities for crimesand misdemeanors in the forest sector (see note 5.5, Address-ing Illegal Logging and Forest Crime). The surrounding boxesindicate the “embedded” nature of the problem in the econ-omy and of the need for other sectors, institutions, and actorsto support and complement the within-sector efforts atimproving governance and law enforcement. They elaborateon the roles of the overall political structure; of national andinternational checks and balances; and the contributions ofcivil society, media, the private sector, and local communities.

152 CHAPTER 5: IMPROVING FOREST GOVERNANCE

Figure 5.1 Identifying “Entry Points” and a Sustainable Reform Process to Improve Forest Governance

Political accountability

• Political competition, broad-based political parties• Transparency and regulation of party financing

• Asset declaration by legislators and parliamentarians

• Disclosure of parliamentary votes

Checks and balances• Independent,

effective judiciary• Independent

oversight institutions • Global initiatives:

UN, OECD Convention, anti-money laundering and asset forfeiture

Ownership and decentralization

• Property and access rights• Decentralization with accountability• Community driven development • Oversight by user groups and citizens organizations• Beneficiary participation in projects

Civil society and media• Freedom of press and

information• Civil society watchdogs• Participatory country

diagnostic surveys• Report cards, client surveys

Private sector interface• Streamlined regulation• Public-private partnerships• Corporate social responsibility

Building blocks for effective forest sector management

• Adequate legislative frameworks and law enforcement capacity

• Robust institutions with a service- delivery orientation

• Competent leadership based on meritocracy and technical skills

• Institutional oversight including an independent forests monitor

• Transparent forest fiscal systems based on easy-to-track revenue flows

• Sound sector policy conducive to competitive domestic markets and international trade

Improving forest governance and legislative compliancehas been the focus of international attention for a number ofyears. For maximum effectiveness, the World Bank’s effortsin this area need to be closely aligned with those of otherpartners, both in client countries and at the regional andinternational levels. This is especially important becauseeffective action in this area requires collaboration amonggovernments in producer and consumer countries, privatesector operators, and civil society. Since 2001, regional ForestLaw Enforcement and Governance (FLEG) ministerial con-ferences have been conducted in East Asia (2001), Africa(2003), and Europe and Northern Asia (2005). The resultingministerial declarations are important tools that can be usedin the dialogue with client governments, as well as in build-ing alliances with the private sector and civil society actors.The World Bank has had a key role in facilitating these con-ferences and supporting their follow-up. Several multilateral,bilateral, civil society, and private sector initiatives have alsooriginated from these efforts, which can provide traction forthe World Bank’s work in this area.

An independent and especially relevant initiative is theEuropean Union (EU) Regulation and Action Plan on ForestLaw Enforcement, Governance and Trade (FLEGT). An essen-tial part of the EU FLEGT is the negotiation of Voluntary Part-nership Agreements (VPAs) between the EU and interestedtimber-producing countries. VPAs aim to develop an agree-ment between producing and importing EU countries thatonly timber originating legally will be exported and allowed tobe imported. If successful, the implementation of the VPAswill result in increasing demand for country-level financing insuch areas as strengthening and reforming laws, regulations,and institutions in the forest sector; strengthening the capac-ity of indigenous and rural communities to manage forestssustainably; independent certification of sustainable forestmanagement; implementation of timber tracking systems;forest products and trade-related information and statistics;and monitoring of forest cover changes to detect illegal activi-ties. This will provide both the need and opportunities forimproved collaboration between bilateral and multilateralfinancing institutions, including the World Bank.

The FLEG initiative enables the World Bank’s projectmanagers and task team leaders to incorporate FLEG intotheir projects using the political momentum and stake-holder coalitions it creates.

PAST ACTIVITIES

A review by the World Bank’s Operations Evaluation Depart-ment of the performance of the World Bank’s 1991 Forests

Strategy (Lele et al. 2000) pointed to the failure to addressgovernance issues as a serious gap in the World Bank’s workin forestry and recommended that the World Bank helpreduce illegal logging by actively promoting improved gover-nance and enforcement of laws and regulations because poorlaws and legislation and poor enforcement are fundamentalfailings in the sector. As a result, the World Bank placed for-est governance and illegal logging high on the agenda in its2002 Forests Strategy. Indeed, the World Bank committeditself to collaborate with borrower countries and partners toreduce by half the estimated annual financial losses from ille-gal logging by 2013. Likewise, the World Bank’s 2001 envi-ronment strategy emphasizes the comparative advantage ofthe World Bank in supporting better governance, increasedtransparency, access to environmental information, andpublic participation in client countries (World Bank 2001).

The earliest explicit attention to forest crimes in Bankproject design was in the Philippines in 1983 in the contextof the Multisectoral Forest Protection Committees. Theseissues started to appear in a more systematic way in projectdesign in the 1990s. Adjustment operations in Papua NewGuinea in the 1990s supported the introduction of privatesector administration of log export taxation. Work in Cam-bodia in the late 1990s involved the first use by the WorldBank of forest law enforcement professionals in policyanalysis and project design. Experiments in third-partyindependent monitoring of forest crime reporting, supportfor case tracking systems, and recommendations for timbertheft prevention planning were among the innovations. InAfrica, similar work, including independent forest moni-tors, was developed in Cameroon, and timber and postcon-flict issues are now being addressed in Liberia (see box 5.7).

Country Assistance Strategies. To examine the extent towhich FLEG and related issues are taken into account inBank Country Assistance Strategies (CASs) today, a reviewof the most recent CASs for 18 forest-rich countries was car-ried out in 2006 (World Bank 2006). These 18 countriesrepresent 75 percent of all forests in developing countries.Of these 18 CASs, 17 mention forestry, with 11 containingexplicit forestry components. Nine CASs mention FLEGissues specifically, with at least seven outlining FLEG activi-ties (both lending and nonlending) to be undertaken. FiveCASs link deforestation to governance issues, and sixdescribe links between poverty and deforestation.

Lending operations. A review in 2006 (World Bank 2006)found there are currently more than 50 active forestry proj-ects in the World Bank’s lending portfolio, with a total cost of

CHAPTER 5: IMPROVING FOREST GOVERNANCE 153

US$2.7 billion and total Bank commitment of US$1.6 billion.A recent assessment of these projects showed that some 35projects have clearly identified FLEG components, totaling anestimated US$310.8 million. Thus, FLEG activities accountfor 11 percent of total project costs across all 51 forestry proj-ects and 22 percent of total project costs for the 35 projectswith forest governance components (also see table 5.1).

With regard to specific FLEG activities, some of the areasof forest governance addressed in World Bank projects includethe following (see box 5.1 for country-specific examples):

■ development of national-level forestry policies and man-agement plans;

■ capacity development for public agencies to betteraddress forest crimes;

■ support for public awareness activities;■ support for natural resource inventories, transparency in

concession allocation, forest certification, and chain-of-custody verification; and

■ development of forest law enforcement reporting andmonitoring systems and provision of equipment andcapacity development for staff responsible for manage-ment of protected areas.

Analytical and advisory activities and other non-lending activities. An essential and increasingly impor-


Table 5.1 FLEG Components in the World Bank Forestry Portfolio, by Region

Cost as % FLEG as Total Number of total Bank FLEG % of total FLEG as

number of FLEG Total cost forestry commitment amount forestry % of Region of projects projects (US$ million) portfolio (US$ million) (US$ million) portfolio total FLEG

EAP 8 7 772.9 29 431.1 40.3 5 13ECA 11 9 396.5 15 265.6 32.7 8 11LAC 19 13 691.9 26 328.8 123.1 18 40MENA 3 0 203.5 8 139.5 0 0 0SA 1 1 127.1 5 108.2 5.8 5 2SSA 9 5 515.1 19 289.7 108.9 21 35Total 51 35 2,707.0 102 1,562.9 310.8 57 101

Source: World Bank 2006.Note: EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa;SA = South Asia; SSA = Sub-Saharan Africa.

Examples of FLEG prevention activities in the WorldBank’s portfolio:

■ Legal and regulatory reform in forest sector(Argentina, Bolivia, Bosnia and Herzegovina, Croa-tia, Georgia, Madagascar, Mexico, Romania)

■ Improving revenue collection and concession sys-tems (Cambodia, Republic of Congo, Georgia,Ghana, the Russian Federation, Tanzania)

■ National-level forest management plans and pro-tected-area plans (Bolivia, Cambodia, Ghana)

■ Demarcation of protected areas (Argentina, Brazil,Honduras, Ghana, the Lao Peoples’ DemocraticRepublic [Lao PDR], Uganda, Vietnam)

■ Formalization of land tenure rights (Honduras,Vietnam)

■ Public awareness activities (Cambodia, Romania)

Examples of FLEG detection activities in the WorldBank’s portfolio:

■ Forest management information systems (Bosniaand Herzegovina, Georgia, Ghana, India, Lao PDR,Romania, Russia)

■ Certification systems (Armenia, Mexico, Russia)■ Monitoring in the field (Peru, Uganda)■ Guard houses, field inspection units, equipment for

patrols (Bosnia and Herzegovina, Ecuador, Georgia,Lao PDR, Mexico)

Box 5.1 Examples of Bank Support for Prevention and Detection Activities in Project Lending

tant part of the World Bank’s contribution to development isthe analytical and advisory activities3 carried out for clientcountries. These activities provide a foundation for definingstrategic priorities and informing policy dialogue and deci-sions on projects and programs and comprise economic andsector work, nonlending technical assistance, and knowledgemanagement, as well as training and research services.

The World Bank also has prepared country-level forestsector reviews in several countries with a focus on FLEG.Furthermore, as part of its analytical and advisory work andas an integral part of its strategic approach to forest gover-nance, the World Bank has actively supported internationaland regional initiatives on forest governance (see box 5.2),including the three regional ministerial FLEG conferences.At the country level, the World Bank has supported thedevelopment of national-level action plans related to con-trolling illegal logging and improving forest sector trans-parency for Albania, Armenia, Bosnia and Herzegovina,Indonesia, and Russia. In some cases, World Bank work

related to investments in other sectors also involves issues ofillegal logging and forest governance.

KEY ISSUES

Finding ways to improve forest governance is a challengingtask. In addition, poor governance in the sector is often symp-tomatic of poor governance in the overall economy, com-pounding the problem. For example, illegal money generatedfrom forest crimes often fuels “slush funds” for corruption inother sectors, including campaign financing, speculation,gambling, and human and drug trafficking, all of which havedeep negative impacts on the economy at large. This access toillegal money also creates powerful vested interests, bothwithin and outside the sector, which tend to benefit from thestatus quo and therefore strongly oppose any reforms.

Approaches to addressing forest governance and lawenforcement must deal with, among other things, issues con-nected to land tenure arrangements, access rights (see note 1.4,


The forestry portfolio is nested within the WorldBank’s overall approach to governance and anticorrup-tion and is consistent with a wide range of governancework being led by other sectors in the World Bank.

Some of the more relevant work of other parts ofthe World Bank Group on governance includes sup-port to Poverty Reduction Strategy Paper processesand the alignment of the World Bank’s CAS with theseprocesses, work on governance diagnostics and inte-gration of governance and anticorruption elements inthe CASs, and the design of specific capacity-buildingprograms based on the diagnostic surveys (PovertyReduction and Economic Management Network andthe World Bank Institute). Other relevant areas of theWorld Bank’s work focus on anti-money launderingand financial investigation, the Extractive IndustriesTransparency Initiative, Justice for the Poor, and cus-toms modernization. The World Bank’s legal depart-ment has carried out important work in developing abenchmark study for assessing the quality of legal andregulatory frameworks. The Department of Institu-tional Integrity’s investigative approaches to allega-tions of corruption in Bank-funded projects providepotentially powerful instruments to combat illegal log-ging and forest crimes. Similarly, some of the work

with corporate social responsibility and social andenvironmental issues in the operations of the Interna-tional Finance Corporation (IFC) (for example, invest-ment safeguard policies) is extremely relevant to FLEGissues (see note 3.2, Forest Certification Systems).

The forestry work of the World Bank Group needsto be more consciously informed by and aligned withthese initiatives. The expertise accumulated in thesespecialized fields is only now being brought to bear onthe problems of forestry. Where it has been applied, forexample, in anti-money laundering, it is clear thatthere is enormous potential to address problems in thesector. There are also potential advantages for thesespecialized initiatives to work with forestry becausethis can provide an important sectoral entry point onwhich to ground the specialized efforts.

Joint analytic work needs to be strengthened acrossthe World Bank’s organizational boundaries, specialistsfrom other areas need to be familiarized with the spe-cial circumstances of forestry, and understandingamong external stakeholders of the relevance of thesetools needs to be improved. Transaction costs involvedin working across sectoral lines can be significant andinternal incentives need to be aligned to encouragecross-sectoral collaboration.

Box 5.2 Finding Synergies Between the World Bank Group’s Efforts in FLEG and Its Broader GovernanceReforms for Greater Impact

Source: World Bank 2006.

Property and Access Rights), overly complex laws and regula-tions biased against the poor (see note 5.3, “StrengtheningLegal Frameworks in the Forest Sector), and transparency andstakeholder participation in decisions directly affecting theirlivelihoods. However, an increasing trend toward decentraliza-tion (both administrative and fiscal), coupled with increasedwillingness of governments to allow operation of multistake-holder processes, has created unique demands as well asopportunities for better and different forms of governance(see note 5.1, Decentralized Forest Management, and 5.2,Reforming Forest Institutions). These considerations havebeen complemented by the universal commitment to the Mil-lennium Development Goals dealing especially with issues ofequity and the rights of poor and indigenous forest commu-nities. Thus, decentralization and participation are crucialissues that are extensively discussed in this sourcebook (seenote 5.1, Decentralized Forest Management).

A forest fiscal system is needed that, in its broadest terms,influences revenue flows in and out of the sector as well asincome distribution across various stakeholder groupswithin the sector. A well-designed and well-functioning fis-cal system is an important instrument with which to addresssustainable resource utilization and equity and rural devel-opment issues, and to minimize the risks of corruption (seenote 5.4, Strengthening Fiscal Systems in the Forest Sector).

In addition, combating large-scale criminal activitiesrequires targeted action to directly improve forest lawenforcement so that criminals are apprehended and pun-ished. Combating large-scale criminal activities would alsoinclude more fundamental changes to improve the broadergovernance environment in the forest sector and in societyat large to help strengthen law enforcement efforts (see note5.5, Addressing Illegal Logging and Other Forest Crimes).

In many countries, law enforcement capacity and expert-ise exists in other sectors and needs to be marshaled in newways to support forest development. In others, specializedcapacity needs to be developed within forestry agencies.Exploitation of new enforcement innovations and opportu-nities, made possible, for example, by the introduction ofanti-money-laundering legislation, the adoption of the UNConventions against Transnational Organized Crime andCorruption, and by other new legal and judicial innova-tions, will require new skills and capacity.

FUTURE PRIORITIES AND SCALING-UPACTIVITIES

Support decentralization and devolution of forestmanagement responsibilities. Decentralization and

devolution based on the principle of subsidiarity, are meansto promote more democratic and equitable management offorest resources and increase the contribution of the sectorto poverty reduction. Decentralization and devolutionprocesses can create imbalances and unforeseen negativeconsequences if they are not carefully managed and accom-panied by sufficient capacity building, allocation of finan-cial resources, and creation of mechanisms for downwardaccountability at the decentralized levels. Bureaucratic resis-tance to change at the central level, as well as powerfulvested interests, can often swing the policy pendulum fromdecentralization and devolution back to re-centralization,reversing progress and resulting in incoherent policies andregulations.

Protect the rights of and empower indigenous andlocal communities through governance reformprocesses. Specific attention should be given to usinggovernance reform processes to protect the rights of andempower indigenous and local communities. This can pre-vent unintended and potentially adverse impacts on forest-dependent livelihoods and traditional rights (see also note1.3, Indigenous Peoples and Forests, and chapter 12, Apply-ing OP 4.10 on Indigenous Peoples).

Continue to engage in institutional and legal sys-tem reforms in the forest sector. The World Bank, withits engagement in diverse sectors, helps governments tailorforest sector reform processes to the country context andeffectively implement them. A model that works for a post-conflict country (for example, Liberia or the DemocraticRepublic of Congo) may be very different from what is pos-sible in a country in transition from a centralized, one-partygovernance structure to a democratic model (for example,the experience of the former communist countries of East-ern Europe). (See note 5.2, Reforming Forest Institutions,for discussion on key principles and structures.)

Assist in enabling and designing fiscal systemreforms that are economically and administrativelyefficient. Fiscal system reforms that are economically andadministratively efficient allow for appropriate rent capture.As part of this process, the World Bank should assist gov-ernments in assessing the appropriateness of structuringforest fiscal systems to achieve secondary objectives, such asequity and sustainable rural development.

Center FLEG activities at the country level aroundmore effective integration of the work in the forest


sector with broader governance and anticorrup-tion efforts. Such instruments as anti-money-launderingand asset forfeiture laws, crime monitoring techniques, cus-toms modernization, and governance diagnostics need to bebrought into the picture to combat illegal logging and otherforest crime. This will require both helping client countriesto establish effective mechanisms for intersectoral coordina-tion and collaboration and joint action (such as dedicatedforest crime task forces) and joint work by the respectiveBank departments and units.

Work to move actions against forest crime forward.Given the importance of international demand as a driver ofillegal logging and other forest crime, the regional FLEGprocesses should continue to play an important role in cre-ating political commitment and joint action by producerand consumer countries to address these issues. This workincreasingly needs to become part of the agenda of existinginternational, regional, and subregional organizations andagreements to increase both its sustainability and impact.Significant work needs to be done to deepen the technicalcontent of these processes and help them move from politi-cal declarations, to effective support, to action at the coun-try level.

Explore and enhance the use of policy lending toenable forest sector governance reforms as discussedin this chapter and associated notes. (For more informationon the application of development policy lending for forest

sector reform, see note 6.2, Prospects for Using Policy Lend-ing to Proactively Enable Forest Sector Reforms.)

Identify necessary FLEG measures for enablingreduced emissions from avoided deforestation and degra-dation (REDD) while also exploring opportunities to main-stream FLEG considerations into country dialogue onREDD (see box 5.3).

NOTES

1. Officials and institutions may be either public or pri-vate, the first of which may be termed public sector forestgovernance and the latter corporate forest governance. Thisdistinction is useful in developing a typology of reformmeasures.

2. How might a policy maker assess the state of forest gov-ernance in his or her own country? Systematic and objectivequantitative and qualitative estimates of such activities canhelp benchmark the state of governance in the sector andidentify critical areas for reform and can contribute to mon-itoring the progress of efforts to improve governance.

3. Analytical and advisory activities refer to activities thatinvolve analytical effort with the intent of influencing clientcountries’ policies and programs and comprise formal andinformal studies of critical issues, either at the country levelor for specific sectors (for example, economic and sectorwork, policy notes, and the like). This work has traditionallyunderpinned lending and investment operations. Nonlend-ing technical assistance is the transfer of skills and knowl-


In response to growing awareness that deforestationand forest degradation are major sources of green-house gas emissions, many countries have expressed aninterest in implementing payments for forest protec-tion that achieves carbon storage. A UN FrameworkConvention on Climate Change (UNFCCC) mecha-nism to establish this is under discussion. The initiativeis known as REDD, for Reduced Emissions fromAvoided Deforestation and Degradation.

Proponents of REDD see it as a low-cost option forreducing global emissions that could also alleviatepoverty and protect biodiversity. However, while muchdeforestation is a rational response to global and localeconomics and is the result of government planning, asignificant proportion has been, and remains, illegal

and uncontrolled. Tackling this latter element of defor-estation and establishing basic rule of law in the sectorwill be a critical prerequisite for governments hopingto achieve reduced deforestation or attract private sec-tor investment in REDD projects, particularly in theearly stages of the market.

Previous to the REDD concept, establishing legalityin the sector has long been a priority for those workingin forests, and it is important that synergies are recog-nized, continuity is emphasized, and political processesand tools designed to support improved legality in pro-duction forests are also used in support of REDDstrategies where relevant. Beyond the need to establishlegal control of the forest resource, it will also be nec-essary to tackle systemic issues.

Box 5.3 REDD and Forest Governance

Source: Saunders and Nussbaum 2008.

edge for development purposes and a key instrument forimproving policies and project design, enhancing skills, andstrengthening implementation capacity.

SELECTED READINGS

Kishor, N., and R. Damania. 2006. “Crime and Justice in theGarden of Eden: Improving Governance and ReducingCorruption in the Forestry Sector.” In The Many Faces ofCorruption: Tracking Vulnerabilities at the Sector Level, ed.J. Edgardo Campos and Sanjay Pradhan. Washington,DC: World Bank.

Lele, U., N. Kumar, S.A. Husain, A. Zazueta, and L. Kelly.2000. The World Bank Forest Strategy: Striking the RightBalance. Washington, DC: World Bank.

Magrath, W. B., R. Grandalski, J. Stuckey, G. Vikanes, and G.Wilkinson. Forthcoming. Timber Theft Prevention andForest Resource Security. Washington, DC: World Bank.

World Bank. 2000. Anticorruption in Transition: A Contribu-tion to the Policy Debate. Washington, DC: World Bank.

———. 2000b. Reforming Public Institutions and Strengthen-ing Governance: A World Bank Strategy. Washington, DC:World Bank.

———. 2002. “A Revised Forest Strategy for the World BankGroup.” Draft April 2002. Washington, DC.

———. 2007. “Strengthening World Bank Group Engage-ment on Governance and Anticorruption.” Washington,DC. http://www.worldbank.org/html/extdr/comments/governancefeedback/gacpaper-03212007.pdf.

REFERENCES CITED

Saunders, J., and R. Nussbaum. 2008. “Forest Governanceand Reduced Emissions from Deforestation and Degra-dation (REDD).” Chatham House (The Royal Institute ofInternational Affairs), London, England.

World Bank. 2000. Reforming Public Institutions andStrengthening Governance: A World Bank Strategy. PublicSector Group PREM Network. Washington, DC: WorldBank.

———. 2001. Making Sustainable Commitments: An Envi-ronment Strategy for the World Bank. Washington, DC:World Bank.

———. 2004. Sustaining Forests: A Development Strategy.Washington, DC: World Bank.

———. 2006. “Strengthening Forest Law Enforcement andGovernance: Addressing a Systemic Constraint to Sus-tainable Development.” Report #36638-GLB, SustainableDevelopment Network, World Bank, Washington, DC.

CROSS-REFERENCED CHAPTERS AND NOTES

Note 1.3: Indigenous Peoples and Forests

Note 1.4: Property and Access Rights

Note 3.2: Forest Certification Systems

Note 5.1: Decentralized Forest Management

Note 5.2: Reforming Forest Institutions

Note 5.3: Strengthening Legal Frameworks in the ForestSector

Chapter 12: Applying OP 4.10 on Indigenous Peoples


Dissatisfied with centralized approaches to gover-nance, many developing countries and countries intransition—it is estimated that 80 percent of them

have embarked on some form of decentralization, transfer-ring authority and responsibility for government functionsfrom the central government to subnational governments orcivil society and private sector institutions.

Given the right conditions, decentralization of forest man-agement can lead to superior outcomes, improving the effec-tiveness of public forest institutions by matching the demandfor public forest services with their supply by local govern-ments. Decentralized local institutions of the public forestadministration can be closer to local people, their demands,and priorities, and thereby offer opportunities for govern-ment to become more relevant to local conditions. By empha-sizing subnational governmental autonomy, forest decentral-ization can promote democratic decision-making processesand free top executives of the public forest administrationfrom many routine decisions. If decentralization leads togreater local voice and participation, it can contribute togreater accountability and to reducing forest-related corrup-tion and government misuse of forest resources. Local partic-ipation can also induce design of and experimentation withcreative and innovative programs that make use of localknowledge and that are tailored to local settings, movingaway from the application of standardized actions designedby the central government. Furthermore, forest decentraliza-tion can help improve equity through greater capture andlocal retention, as well as democratic distribution, of forestmanagement benefits. Because of this, decentralization can beinstrumental in reducing local conflicts over the use of forestresources and the allocation of resulting benefits and costsamong institutions and local people. Thus, decentralizationcan lead to better governance and improved efficiency, equity,and environmental management outcomes.

However, there are potential risks associated withdecentralization. It is an extremely complex undertaking

involving multiple levels of government, agencies withdifferent functions, and stakeholders with diverse, some-times incompatible, interests. Authority, responsibility,and financial and human resources as well as a variety ofadministrative functions can be decentralized to differentdegrees, thus creating countless possible pathways todecentralized forest administration. Decentralized forestinstitutions often cannot function adequately if they arenot endowed with sufficient resources and authority.Imbalances in the allocation of authority and responsi-bility to the various levels of government, possiblybecause the process is still incomplete, also make efficientpublic forest service delivery difficult. Regardless of thepath to decentralization, inadequate subnational capacityis almost always a limiting factor.

Some obstacles to effective forest decentralization havetheir origins in the drastic changes in power structureswithin the government apparatus that are associated with,and required for, effective decentralization, and that occurduring the redistribution of authority and resources fromthe central government to subnational governments. Gov-ernment officials at the center often resist these realloca-tions of power. Furthermore, when powers are redistrib-uted to subnational levels, decentralization often alsoincreases the possibility of regulatory capture by localinterests. Local government officers and politicians can beeven more subject to corruption than those of the centralgovernment.

In addition, unless some key functions of governmentremain at the center, such as defining national forest pol-icy parameters, overall policy coherence in the sector maybe lost. The challenge for forest sector planners is to shapeand manage decentralization processes in a way thatsecures its potential benefits while avoiding associatedpitfalls. Some of the main promises of decentralizationand the corresponding limitations it faces are listed intable 5.2.

159

Decentralized Forest Management

N OT E 5 . 1

OPERATIONAL ASPECTS

With decentralization being such a multifaceted process,there is no single “model” for forest decentralization. Differ-ent degrees of responsibility and authority can be trans-ferred to one or more subnational units of government, and

the central government may choose to retain a large or lim-ited share of responsibility and authority. The potentialbenefits and disadvantages mentioned above will emergedepending on the functions being decentralized and on thelocal governance and institutional context.


Table 5.2 Forest Decentralization: Potential Advantages and Dangers

Potential advantages Potential dangers

There may be reduced bureaucracy and decision-making congestion Coordination, implementation, and monitoring of national policies may at the center. be more difficult.

Central government may be excessively weakened by the transfer of resources to subnational governments.

Unclear division of powers may lead to increased conflicts between tiers of government.

There may be faster decision making, particularly in the case of Economies of scale in implementing certain actions (for example,routine decisions. procurement) may be lost.

Subnational government decision-making capacity may be inadequate.Institution building at the local level may increase. The “bigger picture” of national forest management and development There may be better understanding of local conditions, needs, may be lost. Decisions may be conditioned by local objectives that

and constraints. may not coincide with national objectives.Information flows between tiers of government and between Decentralization may result in the allocation of central resources to

civil society, private sector, and governmental institutions regions, ethnic groups, or political associates, which may threaten may be enriched.There may be a better scope for social coherence.establishing partnerships with organizations outside the Decentralized organizations may have limited technical and managerial government. Local knowledge can be exploited more fully. knowledge and lack institutional capacity to manage forest

programs.If decentralization leads to increased reliance on subnational Decisions that are heavily influenced by financial considerations may

sources of financing, subnational forest institutions will have a not coincide with national or even local objectives, and financial greater incentive to function as separate profit centers with incentives for accelerated forest exploitation may increase.These decisions increasingly being subject to the discipline of the decisions may be socially or environmentally undesirable or market. Subsidized operations will tend to be eliminated. unsustainable. Noncommercial national policy objectives may be lost.

It is easier to involve local populations, particularly if actions Local elites may control and use decentralized institutions for their requested from them are linked to benefit sharing. own benefit. Decision making may be less transparent and less

responsive.If local governments do not produce a substantial economic surplus,

net transfers from the central government may be lost.There may be a greater sense of local ownership. Local ownership may be lost if benefit sharing becomes less equitable.

Decentralized forestry offices may be controlled by special interests.Decentralization may increase arbitrariness and corruption.

Decentralization can lead to larger share of benefits remaining Central government may lose essential revenues and manpower.in localities and communities that generate them. Local elites may gain control of benefits and create greater inequality

and increase poverty.There may be overwhelming pressure to “mine” the forest for

immediate local benefit.There is potential for harmonizing local traditions and rights If formal norms were previously ineffective and de facto informal

with formal governmental norms. norms prevailed, decentralization may increase conflict between formal and informal norms.

Political meddling by central powers may be more difficult. Local government officials with greater responsibility and power may use decentralized institutions for their own political and personal purposes. Political meddling by the central government may simply be replaced by local political interference and government capture by organized elites.

Decentralization may be a vehicle for central political parties to penetrate the rural and forest economy.

Corruption may decrease if the discretionary power of central If centralized monitoring and control are loosened, particularly if government officials is reduced.Those actions and powers of decentralization is not accompanied by citizen participation, there local officials can be more closely scrutinized, and downward may be more opportunities for corruption of local government accountability and transparency will tend to increase. officials by local elites.

Source: Contreras-Hermosilla. 2006.

Assess the overall decentralization context. Forestdecentralization will generally be part of broader decentral-ization initiatives involving the whole government, whichwill largely shape what can be done in the forest sector.Government-wide characteristics may impose limits as wellas offer opportunities to decentralization in the forest sec-tor. For example, some decentralized governments, such asthat of Switzerland, have strong locally elected bodies thatmake local participation and downward accountability oflocal public forest administration to local populations andelectorates easier to achieve. Other governments are notinclined to go this far and their levels of local participationand accountability may be lower. Project designers mustevaluate the relative strengths and weaknesses of public andprivate sector organizations and their capacity to performthe forest management functions before drawing plans forforest decentralization interventions (see chapter 2, Engag-ing the Private Sector in Forest Sector Development, andnote 2.1, Community-Private Partnerships).

Forest decentralization must be adequately linked tooverall decentralization processes because of the multidisci-plinary characteristics of forest administration and thenumerous cross-sectoral influences that shape forest gover-nance (see chapter 6, Mainstreaming Forests into Develop-ment Policy and Planning: Assessing Cross-SectoralImpacts, and associated notes). For example, in Albania, a

Bank intervention observed that the Forest Administrationwas unable to control illegal logging except in selected areaswhere it was able to establish operational links with otherdecentralized agencies. In this case, an interministerial taskforce of various stakeholders at the national level was com-plemented by the creation at the prefecture and district lev-els of intersectoral task forces to organize collaboration(World Bank 2004).

Get the legal framework right. A critical operationalconsideration to making forest decentralization work is theexistence of a clear and consistent legal framework guidingthe distribution of responsibilities, resources, and authorityat the different levels of government and the relationshipsbetween government and local communities and the privatesector (see note 5.3, Strengthening Legal Frameworks in theForest Sector). While this appears to be a self-evident aspectof good governance, experience shows that, in practice, for-est decentralization often takes place in an environment ofconsiderable legal uncertainty (see box 5.3). This legaluncertainty is a sure recipe for conflicts between tiers ofgovernment and government institutions as well as betweenpublic and private entities that defeat the potential gover-nance benefits of decentralization. Legal regimes shouldprovide local people and the private sector with enforceablerights to resources and enable them to play a meaningful

NOTE 5.1: DECENTRALIZED FOREST MANAGEMENT 161

In 1999 the Indonesian government approved legislationto decentralize government authority, resources, andresponsibilities to provinces (second tier government)and districts (third tier). Districts, considered closer tothe people and therefore more apt to promote democra-tization, were assigned primary responsibility for admin-istrative and regulatory functions. However, drafted inhaste, the decentralization laws were inconsistent or evencontradictory with other laws. And in the midst of theinstability that dominated the political scene after the fallof Suharto, corresponding operational regulations to thedecentralization laws were slow to come, leaving much tointerpretation and to the discretion of local public offi-cials who were often inadequately prepared.

In the same year, the Basic Forestry Law wasenacted. This law and its regulations contradicted sig-nificant parts of the decentralization legislation. A

decree issued a year later sought to clarify matters, lim-iting forest sector decentralization to marginal func-tions, and was resisted by some districts. Legal uncer-tainty surrounding the division of powers andresponsibilities created a de facto movement towardforest decentralization and intense conflicts betweenthe district governments and the center.

In these circumstances, and fearing appropriationor interference by other levels of government, forestresource–rich districts had a powerful incentive toaccelerate resource exploitation, giving only secondaryconsideration to the long-term consequences of unsus-tainable practices. In some cases, legal uncertaintyfavored the creation of local alliances between power-ful groups and government officials. To a great extent,the poor have yet to reap the benefits expected fromforest decentralization.

Box 5.4 Legal Uncertainty in Indonesia

Source: Contreras-Hermosilla and Fay 2005; Boccucci and Jurgens 2006.

role in decision making related to the management of forestresources. In most countries, the strength of legal frame-works is becoming more important as forest resourcesbecome increasingly scarce and thus the focus of conflictsbetween different stakeholders (Lindsay 2000).

General decentralization laws will provide most of thelegal framework for the forest institutions of government,which must become aligned with those broader laws. Anassessment of the legal frame of reference needed to makeforest decentralization effective may be required. In mostcases, the forest administration alone may be able to handlemany of the desired regulatory changes without resorting toparliamentary sanctioning.

Participation, empowerment, and poverty allevia-tion. An important requirement for decentralizationprocesses to succeed and ensure transparency is the abilityof local governments to work with local communities andother private sector and civil society stakeholders. The gov-ernment’s underlying political philosophy must allow localparticipation in the formulation of local plans and policiesand the local forest administration must have capacity tomanage these interactions. Government should be fullycommitted to involving local communities and other stake-holders in decisions related to implementation of forestprograms. Adequate management of the interactionsbetween local governments, communities, and private sec-tor entities that may participate in joint schemes for themanagement of forest resources requires, in addition tocapacity to handle technical matters, substantial changes toattitudes and institutional incentives. When these capabili-ties are not available, technical assistance to support inten-sive training of government officers, communities, andenterprises will be needed.

Participation mechanisms are likely to work better whengovernment institutions and bureaucracy are exposed toincentives that reward participation; this often meansaccountability to local institutions and populations ratherthan exclusively to higher levels of government. In thosecases where decentralization is based on local governmentsrun by officials democratically elected by local constituen-cies, participation and bottom-up approaches to forestmanagement are easier to integrate. But there are othercomplementary mechanisms as well, including joint proj-ects (for example, comanagement schemes), planning advi-sory groups, monitored self-regulation of forest-relatedactivities (particularly relevant for the private commercialsector), citizen appeals processes for government decisions,forest forums involving government and civil society, and

mandatory disclosure of forest administration records.Local citizen group participation, as observed in Bolivia,India, and Nepal, has contributed to ensuring that measuresimposed by higher levels of government take local condi-tions and traditions into consideration.

Participation by communities and local populations inlocal government decisions and implementation of forestprograms works better when there are clear and tangiblebenefits associated with such participation for all stakehold-ers. The flow of information between local governmentsand local groups must therefore be adequate to enable par-ticipatory decision making.

Adequate balance of responsibilities, powers, andresources at each level of government. To functioneffectively and efficiently, each level of government and cor-responding agencies must possess sufficient authority tofulfill the responsibilities allocated to them. While this bal-ance is hard to determine with precision in practice, author-ity without a corresponding measure of responsibility fos-ters mismanagement and creates opportunities forcorruption. In the same vein, responsibility without a mea-sure of power to command resources and implementactions cannot be adequately discharged.

At the same time, power and responsibility are meaning-less unless each level of government and each agency cancount on adequate financial and human resources. There isno real local autonomy if higher levels of government haveexclusive control over what programs and projects willreceive financial support (see box 5.5). Transfers of financialresources to lower levels of government are normallyneeded to empower local levels of the public forest admin-istration to carry out management activities. In some cases,local autonomy may require retention of forest revenuescaptured by local governments.

Apply the principle of subsidiarity. Although there is noformula for deciding what degree of decentralization is opti-mal to ensure good forest governance, certain functions arebest left at the central level and others can best be carried outlocally. Subsidiarity, a fundamental concept behind decen-tralization, establishes that government functions should becarried out at the lowest possible level of government wherecapacity exists or can be readily created. The proper applica-tion of this principle requires an assessment of capacities atdifferent levels of government and of institutions of civilsociety and the private sector that could assume responsibil-ity for various forest management–related functions. Suchassessment is a useful tool for judging the relative desirabil-


ity of decentralization options and for helping determine theresponsibilities and powers of the various levels of govern-ment, including the central government (Anderson 1999).

Ensure transparency and accountability, particularlydownward accountability. Closely linked to effective localparticipation in decision making and implementation of for-est programs is the need to ensure that the actions of localgovernment officers are transparent and that the officersthemselves remain accountable to local populations for theiractions (see box 5.6). The transfer of powers to local institu-tions may have worse outcomes than centralized manage-ment if accountability mechanisms to local populations areweak. When accountability has been mainly or exclusively tohigher levels of government, local groups have no avenue tohave their views heard and no power to influence policydesign and program implementation. Local forest institu-tions are at risk of becoming simple extensions of the centralgovernment, which naturally tends to use them for promot-ing central agendas, thus defeating many of the opportunitiesof decentralization (Ribot 1998). Inadequate or nonexistentdownward accountability facilitates control by local elites,often operating in association with local government institu-tions. This is a real danger, particularly when electoral account-ability is weak and where there is a lack of nongovernmentalwatchdog organizations that can mobilize public opinion.

Indigenous Peoples and local communities. Forestdecentralization should include adequate measures toimprove community participation and to respect indige-

nous and traditional rights. In certain circumstances, trans-ferring additional powers to local governments enhancesthe reach of government in areas where government pres-ence was previously absent or weak. If government policyignores ancestral rights, local community institutions, andcommunity property, enhanced local government power islikely to lead to or exacerbate social inequality. Forest decen-tralization projects should therefore contain adequate mea-sures to avoid potentially adverse effects on Indigenous Peo-ples and other vulnerable communities (see also note 1.3,Indigenous Peoples and Forests, and chapter 12, ApplyingOP 4.10 on Indigenous Peoples).

Forest and environmental values. Forest decentraliza-tion may generate incentives for accelerated depletion offorest resources and loss of environmental values. Theseincentives are particularly intense if local governments areasked to raise a large proportion of their own financialresources to fund their operations and if rights of access toand control over forest resources by local governments, civilsociety, or the private sector are uncertain (see note 5.4,Strengthening Fiscal Systems in the Forest Sector).

LESSONS LEARNED AND RECOMMENDATIONSFOR PRACTITIONERS

Clarity of division of responsibilities and author-ity. Experience acquired in supporting forest decentraliza-tion programs indicates that clarity in the distribution of


The 1997 Law of Municipalities assigned considerablyexpanded responsibilities to municipalities, togetherwith greater administrative and political autonomy.However, municipal governments’ capacity to dis-charge responsibilities was limited by an imbalancebetween the new obligations and the financialresources allocated to them by the central government.

Municipalities were entrusted with developing, con-serving, and controlling the “rational use of the envi-ronment and natural resources…promoting local ini-tiatives in these areas and contributing to theirmonitoring, vigilance and control…” (Larson 2001:20). In addition, municipalities were to be consulted

before central government approval of resourceexploitation authorizations in both national and pri-vate lands. Also, municipal governments were to cap-ture at least 25 percent of the revenues originating inthese contracts.

Despite these formidable responsibilities, munici-palities complained that they did not receive the taxrevenues to which they were entitled. The central gov-ernment on many occasions failed to consult withmunicipalities in awarding exploitation contracts orsimply ignored them. In any case, the central govern-ment kept exclusive power to make key decisions overall natural resources.

Box 5.5 Nicaragua: Asymmetries Between Responsibilities and Resources and Resistance to Relinquishing Power

Source: Larson 2001.

responsibilities and commensurate resources and authorityare essential for quality decentralized governance. The prob-lems faced by the rapid forest decentralization processes inIndonesia illustrate the importance of achieving a clear dis-tribution of authority and responsibilities for various forestmanagement functions (licensing, forest concessions, classi-fication of forests) between the levels of government andbetween governments and civil society and private sectorinstitutions (Boccucci and Jurgens 2006.

Bureaucratic resistance to change. Decentralization inIndia (Madhya Pradesh and Andhra Pradesh), Guatemala(Elias and Wittman 2004), Nicaragua (Larson 2001), andother countries shows that government executives are gen-erally opposed to sharing power and resources with lowerlevels of government. Even when transfer of certain powersis mandated by law, in practice this has meant grantingautonomy to manage only the least significant resources,keeping decisions about the use of the most valuable ones athigher levels. Furthermore, higher levels of governmentcommonly have a tendency to maintain control over finan-cial resources, thus effectively shaping the actions of lowerlevels of government or of local communities and other

interest groups that require financial backing. This resis-tance to sharing power is one of the most critical threats toeffective forest decentralization. In most cases, tackling thisobstacle entails twin efforts aimed at (i) raising awareness ofgovernment officials based on clear and sound intellectualdiscourse and (ii) identification and support of key agentsof change, as in Indonesia. Systems of institutional incen-tives must be geared toward rewarding progress in decen-tralization processes. This can be facilitated by democraticdecision making schemes that enhance downward account-ability of local government officials to local populations.(Resistance to change is also addressed in note 5.2, Reform-ing Forest Institutions).

Capacity building. Another lesson of experience is that lackof local capacity is often used as an excuse for reducing the paceof forest decentralization or for recentralizing. However, localcapacity is unlikely to ever be created unless decentralizationtakes place. Thus, implementation of forest decentralizationprograms may require education and training programs forlocal governments and civil society institutions expected toplay a role in the decentralized management of forest resources(World Bank 2004). If significant responsibility for forestresource management is transferred to local institutions, as inIndonesia, technical assistance will be required. Planning suchassistance will require an institutional analysis of demands andcapacities of the various levels of government and a coherentplan to fill in gaps. Improving the knowledge base and mana-gerial capacity are long-term undertakings that may requiresustained support for extended periods. As emphasized by aproject in Nicaragua, World Bank interventions should pilotdecentralization initiatives and be designed as a series of se-quential building blocks as institutional and managerial capac-ity gradually develops over long periods (World Bank 1998).

SELECTED READINGS

Manor, J. 1999. The Political Economy of Democratic Decen-tralization. Washington, DC: World Bank.

Kaimowitz, D., C. Vallejos, P. Pacheco, and R. Lopez. 1998.“Municipal Governments and Forest Management inLowland Bolivia.” Journal of Environment and Develop-ment 7 (1): 45–59.

Larson, A., P. Pacheco, F. Toni, and M. Vallejo. 2006.Exclusión e Inclusión en la Forestería Latinoamericana.¿Hacia Dónde va la Decentralización? La Paz, Bolivia:CIFOR/IDRC.

Ribot, J. C. 2002. “Democratic Decentralization of NaturalResources. Institutionalising Popular Participation.”World Resources Institute, Washington, DC.


To ensure increased transparency in governmentdecisions, the Public Forest Administration isempowered to consult with various groups of civilsociety. After decentralization and the reorganiza-tion of the forest sector administration, forestresources decisions are no longer at the exclusivediscretion of bureaucrats, but are instead subjectto public scrutiny and made with public participa-tion. Thus, open auctions govern the allocation ofall new concession contracts. Open auctions alsorule the sale of confiscated forest products andequipment. Regulations allow the cancellation ofpreviously granted rights only with due process,guaranteeing people’s rights and fostering a bal-ance between regulators and the regulated. More-over, the forest administration must submitreports to the government twice a year, hold pub-lic hearings once a year to explain work carriedout, and provide an opportunity for the public toraise questions about performance. Any citizencan freely request copies of official documents.

Source: Contreras-Hermosilla and Vargas Rios 2002.

Box 5.6 Participation and Transparency in Bolivia

Parker, A. 1995. “Decentralization: The Way Forward forRural Development?” Policy Research Working PaperNo. 475, World Bank, Washington, DC.

Pierce Colfer, C., and D. Capistrano. 2005. The Politics ofDecentralization: Forests, Power and People. London:Earthscan.

REFERENCES CITED

Anderson, J. 1999. “Four Considerations for DecentralizedForest Management: Subsidiarity, Empowerment, Plu-ralism and Social Capital.” Food and Agriculture Organi-zation of the United Nations, Rome, Italy.

Binswanger, H. 1994. “Agriculture and Rural Development:Painful Lessons.” In International Agricultural Develop-ment, ed. C. K. Eicher and J. M. Staatz, 287–99. Balti-more, MD: Johns Hopkins University Press.

Boccucci, M., and E. Jurgens. 2006. “Reflections on Indone-sia’s Experience on Decentralization of Forest Manage-ment.” Unpublished. Jakarta, Indonesia.

Contreras-Hermosilla, A., and C. Fay. 2005. StrengtheningForest Management in Indonesia Through Land TenureReform: Issues and Framework for Action. Washington,DC: Forest Trends and the World Agroforestry Center.

Contreras-Hermosilla, A., and M. T. Vargas Rios. 2002.Social, Environmental and Economic Dimensions of ForestPolicy Reforms in Bolivia. Washington, DC: ForestTrends.

Contreras-Hermosilla, A. 2006. “Decentralized Forest Man-agement.” Note submitted to World Bank as input toForests Sourcebook. Unpublished. World Bank, Washing-ton, DC.

Elías, S. and Wittman, H. 2004. “State, Forest and Commu-nity: Reconfiguring Power Relations and Challenges forForest Sector Decentralization in Guatemala.” Paper pre-sented at Interlaken Workshop on Decentralization inForestry. Interlaken, Switzerland, 27–30 April 2004.

Manor, J. 1999. The Political Economy of Democratic Decen-tralization. Washington, DC: World Bank.

Larson, A. M. 2001. “Natural Resources and Decentraliza-tion in Nicaragua: Are Local Governments Up to theJob?” World Development 30 (1): 17–31.

Lindsay, J. M. 1999. “Creating Legal Space for Community-Based Management: Principles and Dilemmas.” Foodand Agriculture Organization of the United Nations,Rome, Italy.

Ribot, J. C. 1998. “Decentralization, Participation andAccountability in Sahelian Forestry: Legal Instruments ofPolitical-Administrative Control.” Center for Populationand Development Studies, Harvard University, Boston,MA.

World Bank. 1998. “Project Appraisal Document. Nicaragua.Sustainable Forestry Investment Promotion Project.”Report No. 18653-NI, World Bank, Washington, DC.

———. 2004. “Implementation Completion and ResultsReport.” Albania Forestry Project. Report No. 28783,Washington, DC.

———. 2006. Sustaining Economic Growth, Rural Liveli-hoods, and Environmental Benefits: Strategic Options forForest Assistance in Indonesia. Jakarta, Indonesia: WorldBank.



Chapter 2: Engaging the Private Sector in Forest SectorDevelopment

Note 2.1: Community-Private Partnerships



Note 5.4: Strengthen Fiscal Systems in the Forest Sector

Chapter 6: Mainstreaming Forests into Development Policy,and associated notes

Note 7.2: Establishing Forest Information Management Systems

Chapter 12: Applying OP 4.10 on Indigenous Peoples


The World Bank has increased its attention to theprocesses of building and rebuilding soundpublic institutions. With respect to forest man-

agement, institutional reforms supported by the Bankhave sought to take a broad view of the value of forestsfor the production of timber and nontimber products,as well as for biological diversity conservation and water-shed management.

Every country has a different scope, pace, and outcomeassociated with its reform. Reform takes time and is oftenimplemented in a step-wise manner to minimize risks andfrictions among parties. In most cases, reforms are intro-

duced within the context of revisions of forest policy,strategies, and legislation. The latter may be catalyzed byfactors outside the sector, including macroeconomic andstructural reforms, and should occur in a transparent andparticipatory manner. The second phase of reform focuseson institutional issues. Considerations in the second phaseinclude the capacity and functions of forest institutions. Atthis stage, as was done in many countries in westernEurope, the roles of forest administration and managementmay be separated.

Reform processes have covered all the key functions inthe forest sector (see box 5.7), including the following:

Reforming Forest Institutions

N OT E 5 . 2

166

When policy makers mandate that forest organizationsare to deliver on certain tasks, and when multifunctionalforest management is an explicit objective of policy, for-est organizations (broadly defined) can be expected tohave clear functions specific to the following areas:

Policy and legislation■ policy setting■ legislation and regulation■ enforcement of the legal framework

Forest management services■ forest management and planning■ fire and pest management■ forest inventory■ forest regeneration■ management for recreational uses■ management for conservation■ management for the provision of environmental

services, such as watershed protection

Other services■ sale of timber and timber products■ sale of nontimber products■ marketing services (both timber and nontimber

forest products)■ socioeconomic services to local communities,

derived from state-owned forests (fuelwood, non-timber forest products, grazing resources, and soforth)

■ forest extension services to private owners andusers

These functions can be provided by multipleorganizations, both within the public sector (forestdepartments, commissions, agencies, and state forestenterprises) as well as outside it, by the private sectorand by civil society organizations. In most countries,harvesting, transport, and processing services are pro-vided by the private sector, though often with mixedresults.

Box 5.7 Functions of Forest Organizations


■ Management of forests (state and nonstate forests)– Forest management operations (silviculture, regener-

ation, harvesting, planning, and control)– Sales of timber and nonwood forest products

■ Processing and marketing of timber and nonwood products■ Public forest administration

– Formulation of policy and legislation– Control and enforcement– Development of forest information systems– Education and research– Extension

OPERATIONAL ASPECTS

Reform processes vary. Specific steps in a reform processwill vary, depending on initial conditions. To initiatereform, all actors need to cooperatively create a basic under-standing of targets and strategy for forest sector manage-ment. This policy should focus on equity, sustainability, bio-diversity, and economics, and should include strategic

guidance for the main actors to determine their objectivesand operational methods for using the resource in a sus-tainable and cooperative way. The main actors are

■ national and local governments;■ commercial private sector;■ communities (including Indigenous Peoples) and small-

holders, including cottage industries;■ civil society; and■ technical and financial assistance institutions, including

research facilities.

Post conflict contexts require attention to capac-ity issues. In postconflict countries, the capacity of differ-ent groups to engage in dialogue may need to be strength-ened. This dialogue may need to be facilitated to ensure thatall stakeholders start on a level playing field; thus, theprocess may need to be adapted accordingly (see box 5.8).

The major implementation challenges in reforming for-est institutions include organizing a temporary minimalauthority structure to deal with short-term necessities,

NOTE 5.2: REFORMING FOREST INSTITUTIONS 167

In April 2004, the U.S. government sent a team toLiberia to initiate discussions with the provisional gov-ernment and civil society representatives, and came tothe conclusion that Liberia’s forest sector was “utterlydysfunctional” (McAlpine, O’Donohue, and Pierson2006) and that the Forest Development Authority(FDA) required a complete overhaul and adequatecapacity and resources. The unique feature of the mul-tidonor effort that followed was that although donorroles were coordinated to avoid duplication and ensurea strategic approach, each donor maintained a highdegree of sovereignty over the allocation of its funds.

The Liberia Forest Initiative (LFI) was designed topromote and assist reforms in Liberia’s forestry sectorto create management transparency and ensure thatforest resources are managed in an economically, envi-ronmentally, and socially sustainable way, to the maxi-mum benefit of all Liberians, in accordance withLiberia’s national policies and laws, and consistent withits international legal commitments. Although it wasinitiated by the U.S. Department of Agriculture in 2004in response to concerns that proceeds from unsustain-able logging were fueling the ongoing civil war, the LFIquickly came to involve a wide range of governmental

and nongovernmental organizations,a and has come toencapsulate a broad mandate. From the outset, the LFIrecognized that thorough and effective reforms wouldrequire cross-cutting attention to the “3 C’s” of forestryin Liberia: the commercial sector, conservation, andcommunity forestry. As a priority focus, however, theLFI identified a few major components as critical tobringing the commercial sector back on line andaddressing essential concerns of the UN SecurityCouncil:

■ Financial management and accountability. There wasa critical need to restore transparent financial man-agement policies and practices as well as accounta-bility in the forest sector (in particular, to timberproducts) and to implement transparent and equi-table allocation of resources generated by the forestsector.

■ Institution building. An FDA with the staff, skills,and means (financial and physical) to carry out itsmandate needed to be established.

■ Forest allocation policy and practice. There was a needto plan and initiate formal forest use in a balanced,

Box 5.8 The Liberia Forest Initiative: Institutional Reform in a Postconflict Country

(Box continues on the following page)


transparent manner consistent with official Liberianpolicy and laws as well as with international obliga-tions, including conservation and extractive uses,that is, sustainable forest management.

■ Legitimacy. Legitimate Liberian authorities neededto be helped to establish control over forestresources.

The institutional reforms were part of a broader for-est sector reform process under way in Liberia. Recentachievements of this process include the cancellation ofall concessions, preparation of a Forest Policy, prepara-tion and ratification of a completely revised Forest Law,a vision for a long-term governance structure, and thecreation of the Forest Reform Monitoring Committee.

The World Conservation Union (IUCN) took thelead in consulting civil society organizations in develop-ing a public communications strategy, involving work-shops and various media, which proved effective in con-veying the importance of the work of the LFI andgarnering support for measures taken. Meanwhile, theUN Security Council renewed sanctions and passed aresolution that the LFI reform recommendations beadopted. This gave impetus to reform of the concessionsystem, and triggered a multistakeholder review com-mittee involving civil society. Similarly, a Forest ReformMonitoring Committee was also established, with a widespectrum of stakeholders. However, this progress wasstymied by the unwillingness of the provisional govern-ment to implement the committee’s recommendations,and in response the donor community developed a Gov-ernance and Economic Management Assistance Plan forstate-owned enterprises, including the FDA, that wouldimpose outside controls and transparency.

The election of Ellen Johnson Sirleaf as presidentwas a pivotal event. On February 6, 2006, soon after herinauguration, she adopted the recommendations andreforms proposed by the LFI, including the cancella-tion of existing concession permits.

With support from the LFI, the FDA started to reducestaff and select key personnel for carrying out high pri-ority tasks, such as organizing and implementing a newconcession and forest management system with the help

of foreign expertise; designing the structure of commu-nity forests; implementing conservation activities; andsetting up the long-term reform process for the FDA,beginning with providing crucial analytical and organi-zational know-how for strategic planning. In addition,financial and technical services required as supportingelements for the reform needed to be identified andquantified. To initiate these activities and raise knowl-edge and consciousness, three workshops were held oncommunity forestry, forest policy, and institutionalreform.

The activities in Liberia are a work in progress facedwith enormous political and human resource obsta-cles. The future concept and structure of the FDA, pro-posed in October 2006 (see figure in this box) is gener-ally accepted, but has yet to be finalized.

There are many aspects of the LFI model that couldbe used to create similar change in other countries,including the integration of forest sector reforms intobroader governance and cross-sectoral reforms, the useof a diverse but coordinated partnership of donors,and provision for a strong role for civil society.

Box 5.8 The Liberia Forest Initiative: Institutional Reform in a Postconflict Country (continued)

Source: Authors’ compilation using material from http://www.fao.org/forestry/site/lfi/en/.a. Organizations involved included the US Forest Service, the US Agency for International Development, and the US TreasuryDepartment, as well as such NGOs as Conservation International and the Environmental Law Institute. Several multilateralorganizations subsequently joined, including the World Bank, the European Commission, the Food and Agriculture Organiza-tion, the International Monetary Fund, IUCN, Centre for International Forestry Research (CIFOR), and World AgroforestryCentre (ICRAF) (LFI Web site).

ORGANIZATIONAL SCHEME

Board of directors

Managing director

Strategic servicesStrategic planning

Think tankfunctions (strategic

functions)

Regional subjectmatter operations

Central operations

Advisorycommittee

Administration, humanresources, and finance

Service andmonitoring

Parks andwildlife

Commercialforestry

Communityforests, smallholders,and cottage industry

such as designing a transparent concession system; estab-lishing an accounting system; defining the role of eachstakeholder in the sector; and setting up a strategic plan-ning process to provide guidance for a future forestresource management system that is transparent, participa-tory, and analytical.

Separating administrative and management func-tions. Efforts should be made to eliminate potential con-flicts of interest and to ensure independence, transparency,and neutrality of the public forest administration. This canbe done by removing direct administrative and financiallinks between entities responsible for public functions andstate forest management (see box 5.9).

Accountability of forest institutions. A mechanismfor ensuring accountability of forest institutions should becreated, perhaps through the creation of a managementboard that supervises the activities of the entity managingstate forests. The board should include representatives fromdifferent relevant government agencies or ministries, as well

as professionals with qualifications in forestry, environmen-tal conservation, and corporate management.

Accountability also requires transparent budget proce-dures and accounting systems that match corporate stan-dards (see box 5.10). These procedures, however, should beachievable and realistic.

Change management. A good strategy and structure are notsufficient to guarantee successful reform; it also requires peo-ple to align with the new direction, to bring life into the newstructures, and to commit to strive for new goals. A strategicchange-management approach can be a valuable investmentfor the future of an organization. Change management is asystematic approach to dealing with change from the verybeginning of a change program and during all planning andimplementation stages. Change management links the per-spective of the organization with the perspective of the indi-vidual employee. Change management can increase the speedof implementation of a change project and decrease the costs.Effective change management requires that


In several countries in transition in Europe and Cen-tral Asia, earlier institutional arrangements in theforests sector suffered from conflicts of interestbecause the same body was both supervising and con-trolling its own operations. To remove this conflict,the proposed institutional structure separated thesetwo functions. With this arrangement, forest adminis-tration, as part of its enforcement function, supervises

and controls how forests are managed, whether ownedby the state (and managed by the state forest enter-prise) or by private forest owners (see box figure). Aseparate control activity for financial flows should alsobe maintained or set up, either through an independ-ent government body or accredited private auditors,which typically are used in many Western Europeancountries.

Box 5.9 Reducing Conflict of Interest in Forest Management: An Example from Countries in Transition


Ministry of Agriculture, Environment,or Natural Resources

ForestAdministration

AuditorState ForestEnterprise

Financialcontrol

Control offorest

management

Board

Separation of Supervision and Control

■ the transformation process has leadership, top-levelmanagement commitment, and broadly based stake-holder participation;

■ implementation is carried out through an independentand influential change team or steering committee;

■ structure follows strategy: careful planning should set thefoundation, but determination and speed are necessaryfor success during implementation;

■ “quick win” achievable subtargets are set to help createand maintain momentum;

■ people are actively engaged to build ownership from thevery beginning of the change journey;

■ second- and third-level management, key to success, ade-quately buy in; and

■ communication and information, essential for both inter-nal and external audiences, are professionally prepared.

Capacity considerations. Reforms of forest institutionsmust be linked to building necessary capacity. The manage-ment objectives for service delivery organizations are toprovide forest goods and services for forest industries andfor households while maintaining the forest’s ability to pro-vide public goods (such as watershed protection and biodi-versity conservation). Implicit in the idea of forest organi-

zations as service delivery institutions is that their servicesare provided to meet the demands of both private and com-munity forest users. Some forest institutions may have thenecessary capacity and simply require redeployment ofthese capacities. In most cases, however, the requisite capac-ity is not available, underscoring the importance of appro-priate training.

Assessing success. Measures should be in place to assessthe success of institutional reforms. Measurement of successcould be based on overall sectoral performance, includingimproved forest management, greater investment and jobcreation in the industry, stronger financial performance ofboth private and public institutions, better environmentalprotection, improved protected area management, andgreater benefit for civil society. However, even in the best-run forest management organizations, these parameters areseldom assessed in any systematic way. Thus, innovativeapproaches to assessing performance must be introducedthat enable policy makers to determine whether publicexpenditures are achieving desired outcomes (see box 5.11).

LESSONS LEARNED AND RECOMMENDATIONS


Measures proposed for countries in transition inEurope and Central Asia to increase transparentbudget procedures and enhance accounting systemsinclude the following:

■ To assign the responsibility for controlling forestharvesting and management to state forest adminis-tration.

■ To determine appropriate funding for state forestmanagement, physical targets for forest manage-ment and environmental conservation should bedefined, and necessary investment requirements andoperational costs assessed. Funding requirementsmay include ensuring cost efficiency of forest oper-ations by using subcontractors from the private sec-tor when possible; carrying out independentresearch on efficiency factors; establishing the trans-fer to the state budget based on a residual amountdetermined by deducting estimated costs from total

revenue (allowing efficiency gains to remain in theorganization as an incentive for improved perfor-mance).

■ Financial auditing through accredited third-partyauditors should be arranged.

■ An independent budget for the entity managingstate forests should be established (to assist inincreasing productivity and efficiency in state forestmanagement). The budget should be associatedwith well-defined obligations toward the statebudget, and development of salary schemes shouldbe based on staff performance to reduce incentivesfor corruption.

■ Marketing of timber and nonwood forest productsbased on competitive bidding should be arranged toestablish fair, market-based prices; ensure open andequal access to timber and nonwood resources forpotential beneficiaries at equitable conditions; andlimit monopolistic features in resource supply.

Box 5.10 Measures for Transparent Budget Procedures

Source: PROFOR 2003.

FOR PRACTITIONERS

There are a number of lessons learned that merit attentionin the implementation of institutional reforms:

■ The context should define the process of reform. Accord-ingly, it is important to distinguish between situations incountries in economic transition (for example, theEurope and Central Asia region, and China and otherparts of Asia); countries recovering from crises (theDemocratic Republic of Congo, Liberia), and countriesresponding to recent developments and having forestsserve multiple functions (Kenya, Tanzania).

■ National forest policy and strategy should be the basis ofinstitutional reforms—not vice versa.

■ Markets can be the best drivers toward sustainable forestmanagement, but reliance on markets can be devastatingif not coupled with necessary safeguards.

■ Sustainable forest management provides an appropriateframework for the assessment of policy options. Impacts

should be quantified and properly evaluated beforeselecting the most desirable option.

■ Stakeholder participation and transparency are essentialin assessing policy options and implementing institu-tional reforms.

■ Experience in large countries like the United States andCanada shows that decentralization in forest administra-tion is an appropriate strategy within an adequatenational legal and institutional framework, and thatforestry development is best addressed at the local level(see note 5.1, Decentralized Forest Management).Decentralization reforms have to be coupled with strongorganizations at the regional level and effective monitor-ing and control systems to prevent short-term politicaland economic interests from making uncontrolled use offorests and to reduce the potential for elite capture.

■ Where forests are large and diverse, a combination ofinstitutional arrangements for forest management may


The Citizen Report Card (CRC) is a simple but power-ful tool used to provide public agencies with systematicfeedback from users of public services through samplesurveys on service quality to enable public agencies toidentify strengths and weaknesses in their work.

CRCs provide an empirical, bottom-up assessmentof the reach and benefit of specific reform measures.CRCs identify the key constraints that citizens (espe-cially the poor and the underserved) face in accessingpublic services and benchmark the quality and ade-quacy of those services as well as the effectiveness ofthe staff. CRCs aid in generating recommendations onsector policies, program strategy, and management ofservice delivery.

Citizen report cards can accomplish the following:

■ Help to convert individual problems facing the var-ious programs into common sector issues.

■ Facilitate prioritization of reforms and correctiveactions by drawing attention to the worst problems,and facilitate cross-fertilization of ideas andapproaches by identifying good practices.

■ Provide a benchmark on quality of public services asexperienced by the users of those services. Hence,CRCs go beyond the specific problems that individ-ual citizens may face and view each issue from the

perspective of other elements of service design anddelivery, as well as in comparison with other services,so that a strategic set of actions can be initiated.

■ Suggest that dissatisfaction has causes that may berelated to the quality of service (such as reliability ofwater supply), the type of difficulty encounteredwhile dealing with the agency to solve service prob-lems (such as complaints of water supply break-down), and hidden costs in making use of the pub-lic service (such as investments in filters to purifydrinking water). Therefore, CRCs delve into differ-ent aspects of performance to provide indicators ofproblem areas in public services.

■ Test out different options that citizens wish to exer-cise, individually or collectively, to tackle currentproblems (for example, whether citizens are willingto pay more, or be part of a group that has theresponsibility for managing public water sources).Hence, CRCs are also a means for exploring alterna-tives for improvements in public services.

CRCs have gained credibility because the methodol-ogy involves systematic sampling across all subsectionsor segments—including those who are satisfied as wellas the aggrieved—and presents a picture that includesall opinions.

Box 5.11 Citizen Report Cards: Benchmarking Public Service Delivery

Source: Public Affairs Foundation 2004.

be required, including, among others, lease rights, con-cessions, and privatization of forest land.

■ Transaction costs tend to be high in countries where mar-kets do not yet work effectively, corruption is common,risks and business protection costs are high, and otherstructural issues (uncertainties and frequent changes intaxation and other rules) increase costs to economic oper-ators. High transaction costs significantly reduce the inter-national competitiveness of the forestry sector and impedeprivate investment. Institutional reforms should pay atten-tion to the potential for reducing transaction costs.

REFERENCES CITED

McAlpine, J. L., P. A. O’Donohue, and O. Pierson. 2006.“Liberia: Forests as a Challenge and an Opportunity.”International Forestry Review Vol. 8 (1): 83–92.

LFI. 2007. The Liberia Forest Initiative Web site. http://www.fao.org/forestry/site/ lfi/en/.

PROFOR (World Bank Program on Forests). 2003. “Institu-tional Changes in Forest Management: Experiences ofCountries with Transition Economies, Problems andSolutions.” Workshop proceedings. World Bank, Wash-ington, DC.

Public Affairs Foundation. 2004.“Benchmarking Public Ser-vice Delivery at the Forest Fringes in Jharkhand, India.”A pilot citizen report card. Unpublished. PROFOR,World Bank, Washington, DC.

World Bank. 2005. “Forest Institutions in Transition: Expe-riences and Lessons from Eastern Europe.” Workingpaper no. 35153. ECSSD/PROFOR, World Bank, Wash-ington, DC.




The law is a powerful tool for shaping forest sectorgovernance. Laws can create institutions anddefine institutional powers and responsibilities.

Laws can set the bounds of acceptable behavior and set thepunishment for crossing those bounds. Laws can changethe allocation of money among government programs,and shift control over forest resources between central andlocal government and between government and otheractors. Laws can define and strengthen property interests.Law can be part of the healing process that follows years ofconflict (see box 5.12). In short, law plays a role in everyforest governance issue (see chapter 5 for a definition ofgovernance).

The legal framework applicable to forests has at least twoareas that the World Bank may help to strengthen. The first,and most obvious, is the law itself—usually statutes and reg-ulations—and the instruments created to operate under thelaw, for example, contracts. The second is the technicalcapacity to work within the legal system. This includes thelegal knowledge of forest officers and the forest-relatedknowledge of legislators, prosecutors, judges, and otherswho help shape and implement forest laws. It also includesthe capacity of citizens to understand and work under thelaw. Making communities, enterprises, and civil societyeffective users of law and active participants in its develop-ment boosts the rule of law and amplifies the benefits ofimproving the laws.

The usual focus of World Bank and donor legal frame-work projects is on the first of these areas, aiming to reformand strengthen the law. In the process, however, the projectsalso can strengthen capacity. For example, compiling anaccurate set of the existing forest law is a first step towardwriting new law, but the compilation process itself can alsostrengthen implementation of the present law. Public vet-ting of drafts of new laws is a way to improve the substanceof reforms. It also gives officials hands-on training in deal-

ing with the public, and gives stakeholders practical experi-ence in policy making.

Strengthening forest legal frameworks typically requireslegal advisers, but the task calls for skills that go beyondknowledge of the law. Lawyers working in concert withforesters, economists, policy experts, government officials,and stakeholders can build frameworks that promote bothsustainable development and the rule of law.

OPERATIONAL ASPECTS

The ultimate goal of designing legal frameworks is toensure the creation of responsive structures that arecapable of adapting to changing needs and conditions.Writing a law that works is no easy task, and the stakesare high. A really bad effort can leave the country with alaw that looks impressive but is of little practical use andmay promote cynicism about government and dampencommitment to the rule of law. A really good effort canset the stage for more effective forest administration.More important, it can improve the transparency of for-est governance, motivate under-represented stakeholdersto get involved in forest policy, and encourage respect forthe law.

Working with the law

Writing forest laws. A good way to start is to consult tworecent references on writing forest law. One, from the WorldBank in collaboration with the Food and Agriculture Orga-nization (FAO), is Forest Law and Sustainable Development:Addressing Contemporary Challenges Through Legal Reform(Christy, Di Leva, and Lindsay 2007). It is a comprehensivemonograph on drafting forest law, with practical knowledgefrom experienced forest law drafters. Annex 5.3A to thisnote contains an outline of the monograph’s contents that

173

Strengthening Legal Frameworks in the Forest Sector

N OT E 5 . 3

can serve as a checklist of topics for the drafter to consider.The other reference, from the Development Law Office ofFAO, is a paper listing six basic principles for forest lawassistance projects (Lindsay, Mekouar, and Christy 2002).Annex 5.3B to this note contains a list from that paper of sixprinciples for effective forest law. The ideas offered herelargely come from those two sources.

Another important first step is to consider the dynamicsof working with the lawyers and within a legal paradigm(see box 5.13).

Another challenge is to eliminate unnecessary regulationand circumscribe the discretion of forest officials. The motivegoes both to improving governance and to reducing con-straints on forest use. Layers of regulation and large amounts ofofficial discretion create opportunities for waste and corrup-tion. The ideal level of regulation conserves the resource whileallowing people broad opportunities to enjoy resource benefits.

Limiting power exertions. A further step toward goodgovernance is to create checks on power exertion. These mayinclude

■ increased transparency, so that the press and public opin-ion can have a stronger influence on forest management;

■ watchdog institutional structures, such as advisoryboards, ombudsmen, or inspectors general;

■ allowing citizen or community access to the courts toenforce rules or collect payments due the government;

■ procedural steps, such as environmental impact assess-ments, that require the government to make a reasonedreview of alternatives before taking action; and

■ substantive standards in the laws to limit agency discretion.

Practical reforms. Finally, the legal adviser routinelyfaces the problem of making reforms practical. A systemthat is too elaborate risks overtaxing the technical capacityof a country and tying the forests down in lengthy proce-dures. The results may be frequent government shortcuttingof the laws and resulting loss of the rule of law. Alternatively,the government could try to live by the letter of the law andend up mired in process, leading people to seek access to theforest through illegal means (see note 5.5, Addressing IllegalLogging). Practicality may demand simpler requirements or


The World Bank has supported modernization of for-est law frameworks in several postconflict countries,including Cambodia, the Democratic Republic ofCongo, Liberia, and Sierra Leone.

The task is sensitive because armed factions can,and do, divert forest income to support conflict. Forexample, in Cambodia during the early 1990s, theKhmer Rouge financed themselves through timberexports. In Liberia, the sale of timber and diamonds tofuel war was so notorious that the United Nations Gen-eral Assembly placed sanctions on exports until thegovernment could put appropriate financial controlsin place (see box 5.8 in particular).

The task is challenging because it involves social aswell as legal change. People who have known war andauthoritarianism must embrace new ways to settleconflicts over resource use.

There are three broad avenues for settling conflicts:resort to power, as is typified in war; resort to rights, asis typified in litigation; and resort to interests, as is typ-ified in voluntary negotiation. In most conflicts, power,rights, and interests all play some role. But in war-torncountries, rights and interests have taken a backseat topower.

Part of the healing process involves reviving theroles of rights and interests. This means promoting therule of law, to allow people to appeal to the govern-ment to defend their rights, and it means promotingtransparent and participatory government, to allowpeople to freely and fairly advocate their interests.

In Liberia, for example, the World Bank continues tobe part of the LFI, which is assisting the government inforest sector reform. LFI supported the government’sopen review and resulting cancellation of existing forestconcessions. Now the LFI is supporting governmentefforts to establish a chain-of-custody system for forestproducts. The system will track timber from harvest toexport dock, to ensure the government collects allappropriate revenues. The LFI is also supporting devel-opment of a transparent planning system to allocatepublic forests among conservation, commercial, andcommunity uses. A multistakeholder Forest ReformMonitoring Committee is vetting all reforms. The legalwork includes drafting an amendment to the nationalforest law and regulations to support the chain-of-cus-tody and land-use allocation systems, a new model for-est concessions contract, and a model contract for com-munity benefit sharing.

Box 5.12 Reforming Forest Law in Postconflict Countries

Source: Rosenbaum 2006.

NOTE 5.3: STRENGTHENING LEGAL FRAMEWORKS IN THE FOREST SECTOR 175

Team leaders unaccustomed to working on laws withlawyers may wonder what to expect. Here are a few notesbased on project experience.

Legal projects often require more than one lawyerbecause projects cross legal disciplines. A national consult-ant typically supplies essential knowledge of the existingnational legal framework, while an international consult-ant brings knowledge of other areas, such as internationalstandards, approaches to forest law reform, or legislativedrafting.

Plan to give the lawyers some time to build working rela-tionships with each other and with the team. The interna-tional consultant will need to learn about the existingnational legal framework. The national consultant may needto learn about forest law. Both will need to gain a full graspof the local forest context and the policy that the team isadvocating that the government adopt.

Some team leaders worry whether lawyers will workwell with technical advisers. Usually this is not a problem.The lawyer’s role in society is to bridge people and the law,and to do that, the lawyer must be able to work with oth-ers on their own terms.

Still, technical advisers may find the process of legalreform to be novel and challenging. Just as writing a tech-nical paper requires the writer to come to terms with theexact ideas that the writer wants to convey, writing a lawrequires the policy maker to come to terms with exactlywhat the policy means. Writing a law demands detailedconsideration of practicalities and processes that might beglossed over in discussing the broader outlines of a policy.

Also, the law may require technical advisers to learnnew terms and use old terms in new ways. A commonexample is the word “forest.” To the forester, this maymean land bearing or capable of bearing tree cover.Strangely, the scientific definition may have little utility inthe law, which might define forests in terms of land thatthe government has reserved or has placed in a particularclass in a cadastral survey. In the end, these definitions arejust tools for the accomplishment of particular tasks, andeach task calls for the appropriate tool. The task of scien-tific forest management calls for the science-based defini-tion, whereas efficient governance calls for the adminis-tratively derived definition.

Technical advisers may find legal language complex orawkward. At times, a legal drafter will sacrifice clarity inpursuit of precision. A good lawyer, with enough time, canbe simple, clear, and precise. A lawyer faced with deadlines,

or one who needs to follow old, complex phrasing toensure that the local courts will interpret the new wordslike the old, may fall short of the ideal. Lawyers can be par-ticular about language—words are their stock and trade.During training and practice, a lawyer encounters dozensor even hundreds of examples of inadvisably chosen wordsleading to legal disputes. Do not be surprised if a lawyerheavily edits any nonlawyer’s attempts at legal drafting orif the lawyer suggests to others that they simply explain thepolicy more fully and leave the legal drafting to thelawyers.

Finally, some scientifically trained advisers are takenaback by the way lawyers think:

■ A scientist is trained to look for truth, derived fromobjective facts. A lawyer is trained to advocate for whatis good, often influenced by subjective values. Anypractical adviser knows that good policy requires con-sideration of both facts and values. But the lawyer’sfocus on what is good can sometimes make the lawyerseem callous to the facts, just as a scientist’s focus onwhat is true can sometimes make the scientist seemcallous to human values.

■ A scientist is taught to see the world through a lens oflogic: induction and deduction. A lawyer is taughtlogic but also learns that law grows out of history:from precedent, politics, and practical experience. Infact, to the law, sometimes “a page of history is wortha volume of logic.”a

■ A scientist is taught to look for the mean: the averageor expected. A lawyer is taught to think about the out-liers: the criminal in society, the loophole in the law,the rare contingency that the law must anticipate, aprecedent that might be set.

■ A scientist sees proof as a matter of statistics. Thatwhich, 19 times out of 20, cannot be the result ofchance alone is considered a significant event. A lawyersees proof as a function of legal context. Some thingsmay be presumed true before knowing any facts; somemay be taken as true if they are more likely than not;some may only be considered true if they cannot rea-sonably be considered false.

These disciplinary differences are usually not as dauntingas the cultural differences that project teams must bridge. Aswith cultural differences, the key is to be aware of your ownpractices and to be open to the practices of others.

Box 5.13 Working on the Law with Lawyers

Source: Rosenbaum 2006.a. United States Supreme Court Justice Oliver Wendell Holmes, Jr., writing the opinion of the Court in New York Trust Co. v.Eisner, 256 U.S. 345, 345 (1921).

requirements that phase in over time, so that the govern-ment and forest users have the opportunity to adapt to thenew regulatory system.

Improving capacity and law through good process

The process of reforming the law often gives the World Bankopportunities to address the other avenue of strengtheninglegal frameworks: increasing the legal capacity of govern-ment and stakeholders. These activities can be synergistic.

Compiling existing forest laws. A first step in legalreform is to compile the texts of the existing forest laws and,often, also property, administrative, criminal, and othergeneral laws that affect forest management. In some coun-tries, no one will have seen such a collection before. The for-est laws may have been amended many times over the years,but no one may have published a version with all theamendments. The government may have produced manyforest regulations but never have organized them into a sin-gle collection. The officials in the field charged with imple-menting and enforcing the law may have little idea what itlooks like, and the forest-dependent people affected by thelaw may have no easy way to know what the law is.

Understand legal context and legal practice linkedto forests. A second step is to investigate the legal contextof the country and the legal practices associated with theforests. This may expose any number of legal capacityissues, directly or indirectly linked to reform of the law. Forexample, forest officers may lack an understanding of basicpolicing skills and may not be properly preserving evidenceof unlawful activities. Prosecutors and judges may lack abasic understanding of forest issues and may not be givingproper weight to the suppression of forest crimes. Landrecords may be incomplete or nonexistent, making it diffi-cult to determine tenure rights. A law reform project is sel-dom tasked with addressing problems like these, but it canflag them for other projects and donors to address.

The most important capacity-building effort of a lawreform project is typically also the most important step inimproving the substance of the law: vetting proposals for thenew law with government officials and local stakeholders.


The forest legal framework must be responsive tochange. History teaches that the social demands on the for-

est are slowly but constantly changing, and no one can pos-sibly anticipate all the situations that will come before thelaw. It follows that for the legal framework to function, itmust have flexibility.

Incentives and feedback mechanisms. Experience hasdemonstrated that the best legal systems achieve their goalsthrough structures that contain incentive and feedbackmechanisms. The hallmarks of those systems are trans-parency, accountability, and public participation. The trueart of legal reform is to create a framework that is consistentwith social change but that also drives institutions tochange, striving for better governance of the forest.

Reflecting current values is important. Forest lawreform efforts typically share some common challenges.One is incorporating modern values into forest laws.Forestry as a profession has long embraced sustainability,but notions of what resources the forester must conservehave changed as society’s knowledge and interests havechanged. Now society may be as interested in biodiversityconservation and carbon sequestration as in fuel and fiberproduction, and ideally governments want their laws toreflect current values.

Values determine not only what resources the forestershould conserve but who should have access to thoseresources. The present trend is greater recognition ofindigenous, aboriginal, traditional, and community uses,which centralized forest management agencies have oftenmarginalized. Writing modern standards that can coexistwith uncodified traditional rights and expectations can bedifficult. The drafter is often tempted to focus on commer-cial, large-scale forest use, but slighting traditional uses canpromote conflict and disrupt forest-dependent communi-ties. A project that hopes to combat poverty and promotethe welfare of rural forest communities must consider theirexpectations and rights, including the particular rights ofIndigenous Peoples (see note 1.3, Indigenous Peoples andForests).

Involve stakeholders. Involving the public almost alwaysstrengthens the legal framework. Reviewers with multipleinterests and perspectives shed new light on problems,exposing issues that a drafter listening only to governmentforesters might miss. Involvement also gives the public asense of ownership of the law. A group that participates inthe democratic process of lawmaking is more likely torespect the law than a group that has the law imposed uponthem without consultation.


In addition, the process of public vetting builds capac-ity, both in the government and among stakeholders. Leg-islators and other elected officials bolster their knowledgeof forest policy. Forest administrators, who often carryresponsibility within the government for producing thefirst formal drafts of the law, learn how to tap stakeholderinput. Being able to conduct a meeting where citizens feelrespected and heard is a surprisingly rare skill. The techni-cal skills of foresters often outweigh their social skills, butforest administrators have to master the social and politi-cal demands of public outreach. For their part, citizens,businesses, and civil society organizations must learn howto be effective participants, and like the government offi-cials, they must learn to listen and not just make speeches.In the best of circumstances, all sides build trust, forgelines of communication, and learn patterns of dispute res-olution that will continue to serve them for years after thenew law is enacted, while the government implements thelaw (see box 5.12 for more about conflict and legalreform).

SELECTED READINGS

Christy, L., C. Di Leva, and J. Lindsay. 2007. Forest Law andSustainable Development: Addressing ContemporaryChallenges Through Legal Reform. Washington, DC:World Bank, in collaboration with the Food and Agricul-ture Organization of the United Nations.

Lindsay, J., A. Mekouar, and L. Christy. 2002. “Why LawMatters: Design Principles for Strengthening the Role ofForestry Legislation in Reducing Illegal Activities andCorrupt Practices.” FAO Legal Papers Online #27, FAO,Rome, Italy. http://www.fao.org/legal/prs-ol/lpo27.pdf.

REFERENCES CITED

Christy, L., C. Di Leva, and J. Lindsay. 2007. Forest Law andSustainable Development: Addressing ContemporaryChallenges Through Legal Reform. Washington, DC:World Bank, in collaboration with the FAO.

Lindsay, J., A. Mekouar, and L. Christy. 2002. “Why LawMatters: Design Principles for Strengthening the Role ofForestry Legislation in Reducing Illegal Activities andCorrupt Practices.” FAO Legal Papers Online #27, FAO,Rome, Italy. http://www.fao.org/legal/prs-ol/lpo27.pdf.

Rosenbaum, K. 2006. “Strengthening Legal Frameworks inthe Forest Sector.” Note submitted to World Bank asinput to Forests Sourcebook. Unpublished. World Bank,Washington, DC.



Chapter 5: Improving Forest Governance


Note 5.5: Addressing Illegal Logging


Note that in a given project, not every issue will rise to the point of demanding legal reform. This annex is based on Christy,Di Leva, and Lindsay (2007).

Tenure

Recognizing traditional and customary rightsProviding for rapid adjudication of disputed

boundaries and claimsDelineating private property rights

Public forest management

Setting primary management goals beyond production of economic goods

Establishing inventory and planning requirements, with environmental impact assessments

Controlling concessions

Private forest management

Simplifying commercial regulationSetting environmental standards

Decentralization and devolution of authority

(See note 5.1, Decentralized Forest Management)Setting rules for community forestryDelineating powers of local governments over forests

Public participation and transparencyRequiring public access to agency plans, rules, and

guidanceAllowing public participation in agency planning,

rule-making, and enforcementCreating efficient conflict resolution mechanismsRequiring public officials to disclose financial

interests

Sustainability and environmental protection

Promoting noncommercial uses and values, such as environmental services

Creating reserves and parksCreating standards or incentives for private forest

stewardship

Commerce and trade

Regulating domestic transport and salesRegulating mills and other processing of forest productsRegulating international trade associated with forests

Finance and taxation

Setting taxes and feesProviding for collection of taxes and feesEstablishing dedicated uses of forest income, such as

forest funds

Institutional reform

Establishing roles of ministerand forest agencyAssigning roles among competing ministries Enhancing the public’s roleEstablishing commissions and advisory bodiesDefining the role of state forest corporations

Offenses and enforcement

Delineating the enforcement powers of officersDefining criminal offenses and determining associated

penaltiesDefining civil wrongs and setting the associated

measures of damagesSetting the process for prosecuting or compounding

offenses Setting rules of evidence and proof


ANNEX 5.3A A CHECKLIST OF POTENTIAL ISSUES FOR THE FOREST LAW ADVISER

Principle 1: Avoid legislative overreach

The new law should match the capacity, needs, and socialcontext of the country.

Principle 2: Avoid unnecessary, superfluous, orcumbersome licensing and approval requirements

These can stifle private sector forest use. Do not create thesewithout good cause.

Principle 3: Include provisions that enhance thetransparency and accountability of forest decision-making processes

A broad range of mechanisms are available to accomplishtransparency and accountability, including specific limitson the exercise of government discretion, requirements toseek public comment on plans and decisions, access toinformation rules, oversight bodies, and citizen access tothe courts.

Principle 4: Enhance the stake of localnongovernment actors in the sustainablemanagement of forests

The trend around the world is toward more local control offorest resources. The law can guarantee local actors securerights while also granting them some flexibility in how theyexercise those rights.

Principle 5: The drafting of law needs to be a broadlyparticipatory process

Public participation improves the substance of law, and theprocess helps build support for law.

Principle 6: Increase the effectiveness of direct lawenforcement mechanisms set forth in forestrylegislation

Reformers should pay attention to both the penalties andthe processes of law enforcement.


ANNEX 5.3B SIX DRAFTING PRINCIPLES FOR CREATING BETTER FOREST LAWS

From Lindsay, Mekouar, and Christy (2002).

Fiscal instruments encompass a wide range of mech-anisms by which money flows between public andprivate sector institutions involved in the forestry

sector. Flows from the private sector to the public sector(forest charges) can be broadly categorized as taxes, royal-ties, fees, and fines. Financial flows in the other direction(incentives) include tax incentives, grants, subsidies, andsubsidized loans. Other fiscal instruments include tempo-rary measures (such as performance bonds) and directintervention by the state (for example, joint ventures, pub-lic shareholding, state marketing boards, and price restric-tions). All of these instruments have different strengths and

weaknesses (see box 5.14) and deciding on the right mix ofinstruments depends on the objectives that the forestry pol-icy maker wishes to achieve.

The main objectives of fiscal instruments in the forestrysector are the same as in other parts of government. Thetwo most important are to raise money for the state and tocover the costs of forest administration. In addition, a dis-tinction should be made between raising revenue from theuse of the forest resource (royalties) and general revenuecollection (taxes).

Fiscal instruments (charges and incentives) can also beused as tools for policy implementation, either to promote

Strengthening Fiscal Systems in the Forestry Sector

N OT E 5 . 4

180

Fiscal systems in the forestry sector generally sufferfrom three similar problems:

Inadequate rent capture. Charges for the harvestingof publicly owned forest resources often do not capturethe full commercial value of the harvested products.Charges are often set administratively and are notupdated frequently, so they rarely reflect true marketvalues. The main consequence is that these artificiallylow prices distort markets, discourage efficient use ofthe resource, and result in lost revenues to the state.Inadequate charges may also encourage corruption, ifgovernment officials can capture some of the uncol-lected rent for themselves during the process of moni-toring, controlling, and approving forestry activities.

Complexity. Fiscal systems in the forestry sector areoften complicated, as a result of administrativeprocesses (setting and collecting forest charges, forinstance) that attempt to replicate market forces by the

use of detailed schedules of charges according to prod-uct type, tree species, forest location, and total area ofproduction. The main consequence is that such sys-tems are often expensive to administer and administra-tion costs can account for a high proportion of totalrevenue collected. Complexity may also present moreopportunities for corruption.

Perverse or unintended effects. Fiscal systems alsooften have unintended effects, particularly withrespect to environmental and social aspects of forestmanagement. Incorrect pricing often leads to poorharvesting practices (for example, selective harvestingrather than harvesting of all commercial trees, thusleaving large amounts of roundwood as waste in theforest). Fiscal systems are also sometimes inequitable,especially where harvesting activities impose costs onpeople living in and around forests but provide themfew benefits.

Box 5.14 Common Problems with Fiscal Systems in the Forestry Sector

Source: Whiteman 2006.

forestry policy or to promote other government policies.Forestry policy objectives largely center on sustainable for-est management (that is, the promotion of good forest prac-tices and deterrence of bad practices). Broader policy objec-tives can include income redistribution, correction ofexternalities (nonmarket costs and benefits), strengtheningof legal compliance, and encouragement of economic devel-opment (for example, through the creation of income,employment, and value added).

Three other issues should also be considered in thedesign of any system of fiscal instruments:

■ Economic efficiency. Fiscal instruments often result inmarket distortions (they alter the costs and prices ofinputs and outputs in the sector). These should be mini-mized wherever possible, unless introduction of suchdistortions is a specific policy objective.

■ Administrative efficiency. The public costs of enforcementand the private costs of compliance with the fiscal policyshould be appraised and minimized wherever possible.

■ Equity. The impact of fiscal instruments on differentincome groups should be considered. All groups shouldface the same set of charges and incentives, unless incomeredistribution is an objective of the fiscal policy (to assistwith poverty reduction, for instance) (see box 5.15).

OPERATIONAL ASPECTS

Technical and policy considerations can shape fis-cal instruments. Fiscal instruments employed in theforestry sector encompass a wide range of different types offorest charges (see annex 5.4A to this note) and incentives.Operational aspects of the design of fiscal systems in theforestry sector fall into two broad categories. The firstincludes technical considerations, such as setting the correctlevel of charges and incentives and designing a system thatis efficient and equitable. The second includes policy-relatedconsiderations: Does the system promote good forest man-agement, good governance, and poverty alleviation? Box5.16 presents a brief summary of some of these issues,which are further elaborated upon in this note.

Setting forest charges correctly. To ensure that forestcharges are economically efficient and do not introduce unin-tended distortions in the markets for forest products, the cor-rect levels of forest charges must be established. Becausecharges for services and materials (fees) should reflect theircosts, and general taxes are largely outside the control offorestry administrations, the main concern of forestryadministrations is usually to establish the correct level of roy-alty payments (that is, payments for the use of the resource).

NOTE 5.4: STRENGTHENING FISCAL SYSTEMS IN THE FORESTRY SECTOR 181

Most natural forest resources in Fiji are owned by localcommunities (native landowners), but monitoring andcontrol of forest harvesting is performed by theForestry Department. The Forestry Department, alongwith the Native Land Trust Board, assesses and collectsa variety of royalties and fees. Some of this revenue isretained by the two organizations to cover their admin-istrative costs, but the majority of the revenue collectedis distributed to individuals in local communitieswhere harvesting has occurred.

To gain access to forest resources, forest operatorshave to obtain a license from the Forestry Departmentand (at least informal) approval from local communi-ties where they wish to harvest. As part of the negotia-tions with local communities, it has become commonpractice for potential license holders to offer additionalbenefits (monetary or in kind, known as “commis-sions” or “goodwill”) to communities where the har-vesting will occur. Because of the infrequent revision of

royalty rates, these additional payments can be almostas much as the revenue collected through the royaltysystem.

Analysis of the total amount of revenue collectionhas shown that almost all the rent from forest opera-tions is collected and that about 85 percent of this ispaid to local communities (with the remainderretained equally between the Forestry Department, theNative Land Trust Board, and the forest operator). Thishigh level of rent collection is no doubt due to the pres-ence of the informal market mechanism on top of theofficial forest revenue system.

The success of this system is due to the followingfactors: a high level of competition for the resource;well-informed communities with a long tradition ofcommunity rights; a strong legal framework and insti-tutions to support local communities; and the creationof an established norm to make informal payments ontop of official royalties and fees.

Box 5.15 Informal Competition for Harvesting Rights in Fiji


In theory, the royalty payment for roundwood harvestedfrom the forest should equal the price that would be paid forstanding trees (stumpage value) if they were sold in a com-petitive market. This price can be calculated as the value ofthe roundwood at the port or processing plant (determinedby species, quality, product prices, and the efficiency of pro-cessing plants), less the costs of harvesting, extraction, andtransport (determined by the efficiency of the producer andlocation-specific factors, such as terrain, forest stocking, andtransport distance).

Royalty payments can be established through competi-tive means, such as competitive bidding in auctions or ten-ders, or they can be set by the forestry administration. In thelatter case, consultation, negotiation, or calculation of thestumpage value (as described above), can be used to set thepayment.

Because of the effort involved, infrequent revaluation ofroyalties is a major problem in many countries, althoughsome countries regularly alter royalties according to prede-termined formulae (for example, taking into account priceindexes for the main operational costs and forest productprices). Another difficulty with setting royalties administra-tively is obtaining reliable information about costs andprices for the calculation of stumpage values. In addition,information about forest stocking is sometimes needed tocalculate appropriate royalties (especially where royaltieswill be collected using area-based charges).

Traditionally, competitive mechanisms have mostly beenused to establish royalties for relatively small, short-termsales of standing trees (especially from forest plantations).Royalties on production from longer, large-scale forest con-cessions have more commonly been established usingadministrative means. However, it is possible to combineboth methods for forest concessions by, for example, settingvolume- and area-based charges according to a predeter-mined formula and using a bidding process to set a licensecharge (World Bank 2003).

Fiscal incentives. Fiscal incentives are a subset of a broadrange of measures that encourage others to act (FAO 2004).Incentives are most commonly used to promote activitiesthat result in net nonmarket benefits (that is, production ofgoods and services, usually social and environmental, thathave no value in the marketplace and are not, therefore, asource of revenue for the forest owner). In many countries,incentives are used to promote tree planting and afforesta-tion in general, with a broad assumption that these actionswill usually lead to net nonmarket benefits. However, withthe development of payments for environmental services(PES) and funding mechanisms to support internationalconventions, incentives are gradually becoming more accu-rately targeted toward specific activities that result in specificnonmarket benefits (for further details, see note 2.3, Innov-ative Marketing Arrangements for Environmental Services).


A brief, simple summary of some remedies to theproblems raised in box 5.14 include the following:

Market mechanisms. Greater use of market mecha-nisms (competitive tendering and bidding) can reducesome of the problems of complexity and inadequaterent capture in fiscal systems by using the market toestablish the true value of the resource.

Improved data and information. Increasing the relia-bility of and access to information about the forestresource and markets supports the greater use of mar-ket mechanisms. Public reporting of production, rev-enue collection, and the results of monitoring and con-trol activities can also reduce the scope for corruption.

Greater consultation. Providing opportunities for allstakeholders to comment on fiscal policies should leadto better outcomes. Public input can include discussion

of both technical and policy-related issues and shouldexamine who gains and who loses from existing andproposed arrangements. Reforms of fiscal systems inthe forestry sector are frequently opposed by vestedinterests and their influence may be reduced withgreater consultation and open discussion and debateabout who will lose and who will benefit from reform.

Decentralization. Forestry activities are often criti-cized for imposing costs on local people without pro-viding them any benefits. If carefully designed—takinginto account the capacity of local institutions—fiscalsystems can share the benefits of forestry with localpeople, compensating them for any costs they mayincur and encouraging them to participate in the man-agement and protection of forests (see note 5.1, Decen-tralized Forest Management).

Box 5.16 Solutions to Problems with Fiscal Systems in the Forestry Sector


The most common fiscal incentives in the forestry sectorare reductions in forest charges (for example, provision ofmaterials or services by the forestry administration at lowcost or reductions in taxes and forest charges if operatorsbuild processing facilities). Other incentives include directtransfers from the public to the private sector if operatorsundertake certain activities (grants or subsidized loans forafforestation, training, or forest industry development, forinstance). As with forest charges, effectiveness, efficiency,and equity are important issues that should be addressed aspart of the design of any forestry incentive scheme.

Targeting incentive schemes. With respect to effective-ness, incentive schemes should be properly targeted towardboth the objectives that it sets out to achieve and the indi-viduals or institutions that it aims to influence. In thisrespect, it is generally better to offer direct transfers to sup-port specific activities in the forestry sector rather than toreduce forest charges as an incentive.

Targeting and establishing the correct level of incentivesare also important to achieving economic efficiency. Incen-tives should only be offered to support activities that resultin net nonmarket benefits and the efficient level of incen-tives will be that which reflects the level of those benefits (asopposed to the cost of the relevant activities). Commonproblems in this area include the following:

■ Overpayment of incentives. Overpayment occurs where aflat-rate subsidy or grant payment is used to encouragean activity. Inevitably, some recipients of such paymentswill receive more than would be necessary to make themundertake these activities. The difference between what ispaid and what would be required is sometimes referredto as the deadweight of the incentive. This can be mini-mized by using competitive tendering for specific activi-ties rather than flat-rate grant schemes.

■ Non-additionality. This is an extreme form of dead-weight, where recipients are paid to do something thatthey would have done anyway (without any incentive).This often occurs where an incentive is given to do some-thing that is already required by law (for example, fiscalincentives to promote industry development where con-cessionaires are already required to build processingfacilities as part of their concession agreements).

■ Displacement. Displacement occurs when an incentiveresults in a change in behavior but little or no increasein the total amount of the desired activity. It is oftenassociated with location-specific incentives, such asgrants for tree planting that result in changes in the

location of tree planting but little increase in total treeplanting.

The issues just mentioned are starting to gain the atten-tion of policy makers (for example, in the rules and proce-dures for investments for credits under the Kyoto Protocol)and again, direct transfers (as opposed to forest chargereductions) are likely to offer a better opportunity toimprove targeting and efficiency.

Political considerations. Fiscal policies in the forestrysector have a huge impact on the success of forestry policy.In addition, the administration of fiscal instruments oftenaccounts for a significant proportion of the forestry admin-istration’s functions. Consequently, it is essential that fiscalpolicies support policy objectives and are administrativelyfeasible.

Political consensus and broad stakeholder support mustbe built for fiscal policies in the forestry sector to be suc-cessfully reformed. An approach to revenue collection basedon a social contract between government and the public,rather than coercion, is likely to be more sustainable in thelong run. Consultation, transparency, and public disclosureof information during the establishment and collection offorest charges is likely to build support for the process andreduce the possibility for vested interests to block reforms.Coordination with policy makers in other parts of govern-ment should also assist in this respect.

Administrative considerations. Administration of fiscalinstruments should be based on a stable framework, sup-ported by legislation, that establishes the basic principlesand procedures for forest charges and incentives but, at thesame time, allows the forestry administration the flexibilityto revise the instruments when required (in response tochanging market conditions, for instance). The infrequencyof revisions to forest charges is often a result of the require-ment that the changes only happen through legislation.Thus, it is better to use primary legislation to establish themechanisms and procedures that will be used to set forestcharges, with appropriate mechanisms for regular reviews,oversight, and consultation.

In practical terms, fiscal instruments should be simple toadminister and easy to enforce, and should minimize theneed for discretion or judgment by forestry administrationstaff. A simple forest revenue system that can be easilyenforced will be better than a more complicated system thatis easy to evade. Where evasion is high, the partial enforce-ment of revenue collection can have a significantly detri-


mental impact on the equity of the forest revenue systemand is likely to result in little public support for the forestryadministration.

Poverty alleviation considerations. Because povertyalleviation is a major national priority in most developingcountries, forestry policy (including fiscal systems in theforestry sector) should be designed with this in mind (seechapter 1, Forests for Poverty Reduction, and associatednotes). Subsidies and other fiscal policies for nonforestactivities can distort the incentive structure for community-based forest management. Government policies regardingrevenue from taxes and fees on forest products and conces-sions can also undermine indigenous communities’ inter-ests in and claims on forest resources.

To make fiscal systems more advantageous to poor peo-ple, decision makers should gather and analyze informationon the impacts of various policy and management optionson the livelihoods of people living in and around the forest,for example,

■ the ways in which commercial forest harvesting affectsthe availability of wildlife, nonwood forest products, andother forest services used by local people;

■ the effect of protected areas or bans on hunting and col-lection of nonwood forest products on local livelihoods;

■ the value of fuelwood and nonwood forest products lostif a degraded forest area were to be converted to plantedforest; or

■ the beneficiaries of financial incentives with regard toplanted forest development.

Nonfinancial considerations: In addition to the finan-cial costs and benefits to forest owners and other stakehold-ers, nonfinancial aspects must also be considered. Many ofthese are local and can be detrimental to poor people,including degradation of soil and water resources, loss ofaccess, and degradation or loss of forests that have culturalor spiritual value.

Fiscal systems that appear to be fair to stakeholders atthe national level may have negative effects on poor com-munities if those communities bear the burden of somecosts, but do not share the benefits of forest management.Thus, fiscal systems can attempt to compensate for some ofthese effects through revenue- or benefit-sharing arrange-ments (see below) or can be combined with incentives tosupport local participation in forest management or regu-lations to minimize the negative impacts of forest manage-ment on communities.

Revenue sharing. A recent trend in many countries is thedevelopment of revenue sharing or revenue retention mech-anisms, or both. Revenue sharing occurs when part or all ofthe public revenue from forest operations is shared withindividuals or local levels of government (usually in loca-tions where production occurs). Revenue retention occurswhere the forestry administration keeps some or all of therevenue collected and uses it to fund their operations.

The earmarking or hypothecation of government rev-enue is generally not recommended because it goes againstthe principle of good public financing that public revenueshould be collected according to ability to pay and disbursedaccording to need. However, revenue sharing is often pro-posed as a mechanism to generate local support for forestprotection and use. Revenue sharing and revenue retentionare also suggested in situations where disbursement of pub-lic funds is slow and unpredictable.

Although the use of revenue sharing should generally beminimized, the above arguments may sometimes be valid. Ifso, the following should be considered:

■ Governance and administrative capability. Any decision toautomatically share revenue with lower levels of govern-ment (or communities) should consider whether thescheme will result in the desired effect. Lower levels ofgovernment are likely to have less capability to managefunds and, in particular, may be less qualified to properlyassess and collect forest charges. In addition, it shouldnot be automatically assumed that lower levels of gov-ernment are more responsive to local people’s needs (seenote 5.1, Decentralized Forest Management).

■ Property rights. In some countries, forest resources aremanaged by the government on behalf of local people(for example, where local communities own the landunder forests or own the forests entirely). In such cases,revenue sharing is appropriate and the amount of rev-enue shared with local people should be determined onthe basis of the value of their property rights.

■ Community forest management. In some countries, com-plete (or nearly complete) control over forest manage-ment has been delegated to local communities. In suchcircumstances, the role of the forestry administrationshould be as a facilitator, to ensure that best practices inrevenue collection are followed and to build capacity inlocal governance and administrative capability (see note1.2, Community-Based Forest Management).

■ Forest administrations as service providers. If the forestryadministration is providing a good or service, it is per-forming the function of a state-owned enterprise and it


is reasonable to allow the administration to retain therevenue from charges it collects from such activities.Similarly, it is acceptable for forestry administrations toretain some revenue to cover the costs of administeringthe forest revenue system, when the costs of doing so canbe clearly identified and quantified.

Revenue sharing is not a panacea for problems of weakgovernance and administration in the forestry sector at thenational level. As with other aspects of fiscal policy in theforestry sector, any decision to implement revenue sharingshould be based on a robust appraisal of what the problemsare and how revenue sharing might address these problems.


Based on the lessons learned from countries’ experienceswith fiscal instruments, the following are recommendationsfor best practice in this area.

Policy and administration

■ Fiscal policies in the forestry sector should supportforestry policy objectives and the broader objectives ofgovernment. Negative impacts on efficiency and equityshould be minimized.

■ Fiscal policy reform requires political support and somedegree of consensus and should not be viewed as a purelytechnical issue. Open debate and transparency in theprocedures for revising and implementing fiscal policyare necessary to build this support.

■ Administration of fiscal instruments should be as simpleas possible and calculation of forest charges should bebased on objective criteria. The need for discretion orjudgment by field staff responsible for assessing and col-lecting charges should be minimized.

■ The general framework for fiscal policies should be estab-lished in primary legislation, but forestry administrationsshould be empowered to revise the details of implementa-tion. Automatic and regular reviews of fiscal instrumentsshould be implemented according to clearly defined, rig-orous, and objective processes and procedures.

Defining the mixture and level of fiscal instruments

■ Wherever possible, market mechanisms should be usedto establish the levels of charges and incentives ratherthan administrative means.

■ When charges and incentives are set administratively, theyshould be based on a rigorous and objective calculation ofcosts and benefits. In particular, forest charges should bebased on independent or aggregate information aboutforest product prices, and charges levied on individualoperators should not be based on stated prices. Incentivesshould be based on the benefits of activities that are beingencouraged rather than their cost.

■ Incentives should be used to achieve clearly defined policy objectives; they should be properly targeted andregularly evaluated. Incentives in the form of directtransfers will generally be more successful than reduc-tions in forest charges. Incentives should also be struc-tured to maximize net benefit and minimize deadweight,nonadditionality, and displacement.

■ There is a tradeoff between administrative efficiency andeconomic efficiency in fiscal instruments. More compli-cated instruments tend to be more economically efficientbut more expensive to administer. Numerous chargesshould be avoided (especially where they are levied onthe same item). However, in general, a mixture of differ-ent types of charges may be optimal. Thus, countriesshould not rely on volume-based charges alone, butshould consider greater use of area-based charges andlicense charges.

Revenue sharing

■ In general, hypothecation of forest revenue is not goodpractice in public finance and should be avoided. How-ever, under some specific circumstances it can be justi-fied. The first is where local people or communities haveclearly defined property rights over some or part of theforest resource. The second is where the forestry admin-istration is collecting charges to recoup costs for the pro-vision of a good or service (which can include the cost ofadministering the forest revenue system). In such cases,revenue sharing should be based on an objectiveappraisal of the amount of revenue that should be sharedor retained.

■ Little evidence supports the hypothesis that revenuesharing alone will result in improved forest protection bylocal communities. In situations where conflict with localcommunities is an issue, it may be preferable to devolvecomplete responsibility for forest management (includ-ing revenue collection) to local communities. In suchcases, the forestry administration’s role becomes that of aservice provider, to ensure that best practices in revenuecollection and administration are followed.


■ Any proposal to implement revenue sharing should con-sider local governance and the administrative capabilityof local communities or lower levels of government toimplement such systems. Where governance and admin-istration at the national level are weak, the situation islikely to be even worse at lower levels of government.

SELECTED READINGS

Gray, J. A. 1983. Forest Revenue Systems in Developing Coun-tries: Their Role in Income Generation and Forest Manage-ment Strategies. Forestry Paper No. 43. Rome: Food andAgriculture Organization of the United Nations.

IUCN. 2000. Financing Protected Areas: Guidelines for Pro-tected Area Managers. Best Practice Protected AreaGuidelines Series No, 5. Gland, Switzerland: IUCN.

World Bank. 2003. “Proceedings of the International Work-shop ‘Reforming Forest Fiscal Systems to PromotePoverty Reduction, and Sustainable Forest Manage-ment.’” Washington, DC, October 19–21. PROFOR at theWorld Bank, Washington, DC.

REFERENCES CITED

FAO (Food and Agriculture Organization). 2004. What Doesit Take? The Role of Incentives in Forest Plantation Devel-opment in Asia and the Pacific. RAP Publication 2004/27.Bangkok: FAO.

Gray, J. A. 1983. Forest Revenue Systems in Developing Coun-tries: Their Role in Income Generation and Forest Manage-ment Strategies. Forestry Paper No. 43. Rome: FAO.

Whiteman, A. 2005. “A Review of the Forest Revenue Systemand Taxation of the Forestry Sector in Fiji.” ForestFinance Working Paper FSFM/MISC/10. FAO, Rome.

———. 2006. “Strengthening Fiscal Systems in the ForestrySector.” Note submitted to World Bank as input to ForestsSourcebook. Unpublished. World Bank. Washington, DC.

World Bank. 2003. “Proceedings of the International Work-shop ‘Reforming Forest Fiscal Systems to PromotePoverty Reduction, and Sustainable Forest Manage-ment.’” Washington, DC, October 19–21. PROFOR atthe World Bank, Washington, DC.


Chapter 1: Forests for Poverty Reduction, and associatednotes

Note 2.3: Innovative Marketing Arrangements for Environ-mental Services



Gray (1983) lists different types of forest charges commonlyused in the forestry sector. In addition to these, fines canalso be considered a type of forest charge. A summary of themain features of 12 different types of forest charges is givenbelow:

■ License charges. License charges are a type of royalty orfee to cover the administrative cost of issuing licenses.They are usually lump-sum payments that may vary bythe license area or duration and can be collected at thestart of a license or annually. To be economically effi-cient, license charges should reflect the value of the secu-rity of wood supply conferred to the license holder orshould cover the cost of administering the license (or acombination of the two). They may also be used to cap-ture some of the value of production (that is, they may bepart of the royalty on production) if this is not fullyreflected in other charges. The costs of collection andadministration are low and these charges are difficult toevade, so they are administratively efficient. Licensecharges tend to have little impact on equity, but they canbe used to redistribute income (by setting lower licensecharges for smaller operators, for instance). Licensecharges are quite common in the forestry sector.

■ Annual area charges. These charges are usually a type ofroyalty and are calculated as a fixed amount multipliedby the whole license area. Annual area charges are gener-ally easy to administer and have little impact on equity.They can be economically efficient (that is, they canreflect the value of wood production), but it is often dif-ficult to assess the correct level of charges because of theneed for detailed information about forest stocking.Consequently, area charges are often used in combina-tion with volume-based charges to collect royalties.

■ Charges based on standing volume, allowable cut, or prop-erty values. These charges can be a type of royalty or canbe used for general tax collection, or both. They are usu-ally calculated as a fixed amount multiplied by standingvolume or allowable cut or are related to property values.They are generally administratively efficient and have lit-tle impact on equity, but economic efficiency suffersfrom the same problems noted with annual area charges.The use of such charges as a component of royalty col-lection is not common, but these charges are sometimesused as a form of income tax on forest owners (mostly indeveloped countries).

■ Charges based on the area logged. These charges are verysimilar to annual area charges, but are based on the arealogged rather than the total license area. The main dif-ference is that it is sometimes difficult to determine thearea that has been logged. These charges are not com-monly used.

■ Volume-based charges. Volume-based charges are themost common type of royalty and are calculated by mul-tiplying the volume harvested by a price. The prices usedin this calculation can be derived in a variety of ways. Asimpler version of this is per tree charges (where thenumber of trees is multiplied by a price). These chargescan be economically efficient if the price reflects the truevalue of the wood produced, which is often not the case.The administrative efficiency of volume-based charges isoften low because considerable effort (and cost) isrequired to monitor the level of production and to estab-lish the correct price levels to use. Volume-based chargescan be inequitable because they are often the same for allproducers and do not account for location-specific dif-ferences in production costs (such as terrain or distanceto market). However, they can be used as a policy tool, byadjusting charges to reflect policy objectives (for exam-ple, by deliberately lowering charges on lesser knownspecies to encourage their use).

■ Charges on production of forest products. These charges aresimilar to volume-based charges but are charged on theoutput of processed forest products and nonwood forestproducts. They are common and can be collected in addi-tion to or in place of volume-based charges on round-wood. They can be used to support policy objectives (bydeliberately setting low charges for nonwood forest prod-ucts to promote rural income generation, for instance).

■ Charges on exports. Charges on exports can be collectedfrom exports of roundwood or processed forest productsand are used in many countries. They have similarstrengths and weaknesses to the charges on productionof forest products but are generally more administra-tively efficient (because monitoring is usually easier andcosts less). The purpose of such charges can be to collectadditional royalties or general tax collection. A combina-tion of low volume-based charges and export charges onroundwood is frequently used to promote domestic pro-cessing of roundwood by deliberately distorting the mar-ket (that is, reducing the domestic roundwood price toless than the international trade price).


ANNEX 5.4A A SUMMARY OF THE DIFFERENT TYPES OF CHARGES USED IN FISCAL SYSTEMS IN THE FORESTRY SECTOR

■ Fees for services or materials provided. These charges arecommon and are payments for services or materials pro-vided by the forestry administration. They may or maynot be voluntary, depending on whether the operatorhas a choice to request the service or materials. Theirpurpose should be to cover the costs of providing theseservices or materials, but they are sometimes used tocollect additional revenue. They are generally adminis-tratively efficient and have little impact on equity(unless a significant proportion of these charges are paidby small, low-income producers). They can be econom-ically efficient if they reflect the true value or cost of theservices or materials provided, which is often not thecase. They can also be used to promote other policyobjectives.

■ Charges on equipment or workers. Specific charges onequipment or workers are uncommon, but a number ofcountries collect charges for registration or permits totrade in forest products or to operate processing plants.

■ General taxes. Companies operating in the forestry sectorare also usually required to pay the same taxes as otherindustries (corporate taxes, income taxes, sales taxes,

value-added taxes, and so forth). Their purpose is to col-lect government revenue, and responsibility for suchtaxes is usually outside the control of the forestry admin-istration. However, in some countries, tax incentives areused to encourage certain forestry activities (afforesta-tion, for example).

■ Profit-based royalties. These types of charges (sometimescalled “resource rents”) are usually calculated as a pro-portion of the profits earned by companies working inthe sector. They are common in other extractive indus-tries (mining, for instance) but have rarely been used inthe forestry sector.

■ Fines. The main purpose of fines is to deter illegal activi-ties in the forestry sector. Fines are usually fixed in legis-lation or regulations and are usually not based on anyeconomic criteria, although they are sometimes based ona multiple of the value of illegal products seized or iden-tified by the forest administration (called “compound-ing”). The administrative and economic efficiency offines is generally low and could be improved in manycountries. Similarly, if law enforcement is weak, theimposition of fines can be inequitable.


Forest crime—including illegal logging—and cor-ruption are present throughout the world.1 It isparticularly troubling in developing countries,

where illegal logging in public lands alone causes esti-mated losses in assets and revenue in excess of US$10 bil-lion annually, more than six times the total official devel-opment assistance dedicated to the sustainablemanagement of forests (World Bank 2004). Governmentslose as much as US$5 billion annually from evaded taxesand royalties on legally sanctioned logging. 1.6 billion peo-ple depend upon forests for part of their livelihoods, andas many as 350 million people living in and around forestsare heavily dependent on forests for their livelihoods andsecurity (see chapter 1, Forests and Poverty Reduction, andassociated notes). These vulnerable groups are at risk fromillegal logging and removal of timber and nontimberproducts from the forests. Moreover, violations of pro-tected area boundaries threaten the conservation of forestresources and biodiversity.

Illegal logging also subjects legitimate forest enterprisesto unfair competition through price undercutting and dis-courages them from making socially and environmentallyresponsible investments in the sector. There are less visi-ble—though highly insidious—costs resulting from the ero-sion of institutions, the spread of corruption across theeconomy, and reduced growth. Finally, forest crime createsnegative environmental, economic, and social consequencesat the global level as well. Forests are a global public good,and their degradation imposes global costs, such as climatechange and species loss.

While illegal logging and other forest crime can, from anational point of view, be important in both small and largeand high-forest and low-forest countries, from a global per-spective it is possible to indicate where these impacts arelikely to be most harmful. It is also possible to establish thatthe problems in the forest sector are closely linked tobroader issues of governance (figure 5.2).

Trade has been identified as an important driver of ille-gal logging and other forest crime. The value of suspiciouswood products worldwide may be as high as US$23 billion.Out of the total of illegal timber, it is estimated that aboutUS$5 billion enters world trade, representing as much as 10percent of the value of global trade in primary wood prod-ucts. Trade in timber products is often routed through thirdcountries, adding another trade-related dimension to theproblem (China, for example, reexports about 70 percent ofits timber imports). An economic analysis based on simula-tions from the Global Forest Products Model suggests thatthis illegal material depresses world prices by 7–16 percenton average (Seneca Creek Associates and Wood ResourcesInternational 2004).

Forest crime ultimately results from a failure of therule of law. Two types of failure in the legal system lead tocriminal behavior: failures of law and failures of imple-mentation (see note 5.3, Strengthening Legal Frameworksin the Forest Sector). When laws themselves are flawed orcontradictory, the focus of combating illegal logging andother forest crime should be on legal reform, whereaswhen the “right” laws are in place the focus should be onenforcement.

Fuelwood accounts for the largest single use of wood (byvolume) around the world. In developing countries, mostfuelwood is consumed for domestic and small-scale indus-trial uses and comes from family labor or informal supplysystems that are often based on sources of supply outsideofficially recognized forest areas, such as farmland, brushand scrubland, and other scattered trees. A substantial por-tion of fuelwood collection takes place outside formal forestmanagement and in some, perhaps in many, circumstances,is in violation of the law.

Other illicit activities are also associated with timberharvesting and trade, beyond cutting trees where andwhen it is proscribed. Such activities include irregulartimber sales; corruption in the award of concessions and

189

ADDRESSING ILLEGAL LOGGING AND OTHER FOREST CRIME

N OT E 5 . 5

service contracting; evasion of taxes, royalties, and otherfees by enterprises or by communities or private forestowners; circumvention of labor laws; and unauthorizedwood processing. Although no reliable estimates are avail-able, anecdotal evidence and stakeholder interviews sug-gest that in state-owned forests, financial losses from cor-ruption can be as high as or even higher than those fromstolen timber (Savcor Indufor Oy 2005). In practice, thedistinctions between illegal logging and other timber-related crime become blurred. The same perpetrators maybe responsible for outright theft or corruption-relatedillegal logging.

Corruption and other financial crimes often involvemoney laundering, adding another dimension to theconstellation of what should be considered forest crime.In addition to the timber-related crimes, forest crimealso includes such illegal activities as wildlife poaching,arson, and unlawful conversion of forest lands for otheruses.

Despite the magnitude of the problem and existing mea-sures to combat corruption (see box 5.17), there are fewinstances of prosecution and punishment. In fact, if thereare prosecutions, it is the poor, looking to supplement theirmeager livelihoods, who are victimized and sent to jail,while large-scale operators continue with impunity.Arguably, this is the worst form of violation of equity andjustice, arising from a clear failure of governance, and itneeds to be addressed.

OPERATIONAL ASPECTS

Understanding causes of illegal logging and otherforest crime

Reducing illegal logging and other forest crimes throughBank operations requires understanding the underlyingcauses and implementing actions that address these causesand complement national and local contexts. The ways thatdrivers behind illegal logging and forest crime operate arehighly country and location specific, and depend on eco-nomic, social, and cultural factors as well as the type of for-est resource and its ownership or tenure arrangements. Anappropriate set of responses can only be defined at thecountry level in processes involving the key stakeholderswho interact with the forest resources.

Means, motive, and opportunity construct. The“means, motive, and opportunity construct” (see annex 5.5Ato this note) is useful to analyze the causes of crime. In thisframework, persons motivated by greed, need, or otherdesires employ the tools (means) available to them to exploitthe existing vulnerabilities (opportunities). Illegal loggingand other types of forest crime take place when these threefactors are in place simultaneously (that is, when there is amotive to act illegally, the potential illegal operators have themeans to do so, and the context in which they operate pro-vides an opportunity for illegal action) (figure 5.3). Theresponses to illegal logging and other forest crime then need


Figure 5.2 Illegal Forest Activity and Its Link with Corruption

0

5

10

Russia

High % suspicious log supply

Hig

h co

rrup

tion

(TI)

Brazil

AccedingEU

Japan

USA

Canada EU-15

Malaysia

Oth L Am

China

Oth AsiaW/C Africa

Indonesia

More than 50%More than 20%

–10 0 10 20 30 40 50 60 70 80

to focus on reducing the motivation for unlawful action, fore-closing the opportunities, and eliminating the means avail-able to those operating outside the boundaries of the law.

The means, motive, and opportunity construct is of par-ticular value in suggesting areas of comparative advantage

across potential partners in improving forest law enforce-ment and governance. For example, consumer countriesand industry occupy particular niches in helping to reducethe motive for illegal logging by reforming markets andpublic procurement policies that discriminate against stolen

NOTE 5.5:ADDRESSING ILLEGAL LOGGING AND OTHER FOREST CRIME 191

Several types of tools can be used to combat forest sec-tor corruption in addition to the more standard insti-tutional and administrative safeguards (for example,those related to procurement and institutional struc-tures). Some of the more promising of these follow:

Diagnostics, such as (i) creating a forest sector cor-ruption perception index; (ii) creating a forest corrup-tion risk map; (iii) producing a forest sector citizens’report card; (iv) documenting government perfor-mance on forest-related tasks; and (v) creating a score-card on forest law enforcement including arrests, pros-ecutions, convictions, and sentencing.

Awareness raising and access to information, such as(i) developing an internet-based clearinghouse forinformation on forest sector corruption; (ii) briefingand educating journalists on forest-related corruption;(iii) anti-forest-corruption advertisements and othermedia campaigns; (iv) creating a Web site on forestconcessions and related information; (v) compiling aforest law and regulation reference book and making itavailable on paper and on the internet; and (vi) train-

ing law enforcers and judges on technical issues relatedto forest corruption.

Public institutional and business ethics, such as(i) establishment and implementation of model forestintegrity pacts related to public contracting; (ii) defin-ing and agreeing to codes of conduct through businessassociations; (iii) promoting forest certification; (iv)implementing whistleblower encouragement and pro-tection programs; (v) establishing a safe channel forcitizens’ complaints and producing a public report oncomplaints received; (vi) developing a professionalethics pledge and encouraging public officials to signit; and (vii) rewarding outstanding public service, per-haps through an awards program.

Structures and events for stakeholder participationand dialogue, such as (i) representative local andnational stakeholder committees; (ii) specific confer-ences and workshops on professional responsibilityand ethics; and (iii) best practices to combat forest sec-tor corruption or any other key issues emerging fromthe above.

Box 5.17 Measures Specific to Combating Corruption in the Forest Sector

Source: Adapted from Rosenbaum (2005).

Eliminating means

Reducing motive

Foreclosing opportunity

Crime

• Financial due diligence• Anti-money laundering• Asset forfeiture

• Rural development• Penalties• Enforcement

• Export market reform• Public procurement policies

• Mutual legal assistance• Financial due diligence and anti- money laundering• Asset forfeiture

• Improve forest management• Legal and judicial reform• Anticorruption

• Customs cooperation• Voluntary partnership agreements

National International



Figure 5.3 National Action and International Cooperation for Controlling Forest Crime

material. Governments and financial institutions can helplimit the development of excess wood-processing plants andequipment by requiring and exercising due diligence inassessing wood supply and land availability in considerationof wood-based and agro-industrial investments. Producercountries have obvious priority with respect to improvingforest management and control as an approach to reducingthe opportunities available for illegal activities.

Need-based versus greed-based causes. Differentiatingbetween illegal activities motivated by poverty (such as fuel-wood and fodder collection needs, for example) and thoseresulting from outright greed and that often involve organ-ized criminal activity (such as commercial logging in pro-tected areas) is also helpful in formulating effective andequitable responses to address these complex problems.

Framework to combat illegal logging and otherforest crime

An effective strategy to combat illegal logging and other for-est crime combines elements of prevention, detection, andsuppression in a way that helps to achieve both short-termgains (such as increases in forest revenue, or the apprehen-sion and conviction of the most flagrant violators of laws)to maintain the momentum of the process, and longer-termsystemic changes (legal and institutional reforms and reduc-tion of possibilities for corrupt behavior).

Prevention. Prevention combines the promotion of goodgovernance in and outside the forest sector in general withmore specific actions focused directly on forest crime. Linksto broader development (poverty reduction, land use, indus-trial development, rural development, institutional reform,and the like) and forest sector policies, strategies, and pro-grams (such as national forest programs) are evident, as arelinks to legislation in other sectors. These links require coor-dination to avoid overlaps and missed opportunities.

Effective prevention of forest crime may need to addressthe following issues:

Supply-demand imbalances■ Improving the availability of legal wood (fuelwood, char-

coal, and building materials) or substitutes (kerosene,solar energy, gas) to meet basic needs of rural and urbanpopulations

■ Improving the availability and reducing the cost of legalindustrial roundwood (for instance, through industrialplantations; see note 3.3, Forest Plantations)

■ Ensuring that proper due diligence on the availability oflegal timber is carried out before authorizing or financ-ing forest industry capacity expansion (see note 5.4,Strengthening Fiscal Systems in the Forest Sector)

■ Restructuring industry and downscaling excess capacity

Quality of legal and regulatory frameworks within and out-side the forest sector■ Securing forest land tenure and access rights of the local

or indigenous communities to timber and wildlife (seenote 1.4, Property and Access Rights)

■ Ensuring recognition of the legitimate needs of differentstakeholders in forest concession agreements

■ Simplifying overly complex laws and regulations that are not in line with the capacity of the different groups of forest users to comply with the legal requirements(especially for community and small-scale private forest owners)

■ Identifying and resolving conflicting legislation and reg-ulations (central vs. decentralized levels, different sec-tors) (see note 5.1, Decentralized Forest Management)

■ Reducing unreasonably high costs of compliance for legaloperators (by streamlining administrative procedures andreducing processing time of contracts and permits)

■ Increasing costs of illegal operators through adjustmentsin penal codes to ensure that these constitute effectivedeterrents to forest crime

■ Including appropriate means to prevent crime in forestmanagement plans in commercial concessions (forexample, by closing roads after harvesting, employingroutine patrols, and determining what sort of tree mark-ing and log labeling systems are used)

Institutional structures and incentives■ Addressing broader governance failures, such as lack of

transparency and accountability, and corruption (forexample, by reorganization of the public forest adminis-tration, improvements in procedures for concessionaward and timber sales, improvements to financial auditsystems and staff incentive systems)

■ Promoting independent forest certification schemes andother demand-side measures related to corporate socialresponsibility (for example, third-party audited systemsfor verification of legal wood origin), especially in caseswhere demand for timber and other forest products isdriven by export markets (see note 3.2, Forest Certifica-tion Systems)

■ Creating positive incentives for those complying withlegal requirements, especially in situations where they


initially have to compete with illegal operators (forexample, reduced concession fees for producers certifiedby an independent third-party)

■ Promoting partnerships with civil society, such as con-sultative groups and joint government–civil societystructures for monitoring forest activities

■ Creating and strengthening high-level, intersectoralcoordination mechanisms to harmonize policies, mini-mize negative cross-sectoral impacts (for example, withagricultural policies), and ensure that broader reformshave important and positive law enforcement benefits inthe forest sector

■ Collaborating with financial institutions to establishmeans to foreclose opportunities to launder profits fromillegal forest operations

Forest monitoring and information■ Improving information on forest resources and legal

harvest at the forest management unit level (for example,forest inventories and management plans that are ofappropriate technical quality and detail, and log-trackingand chain-of-custody systems) (see note 7.2, EstablishingForest Information Management Systems)

■ Publicly disclosing information on forest cover change,forest concessions, management plans and harvestingquotas, logging and timber transport, and forest rev-enues; and making such information accessible (forexample, by posting it on the internet) to minimizemanipulation, self-censorship, and physical risk to thoseinvolved in law enforcement

Capacity building and awareness■ Improving capacity of both forest and judicial authori-

ties to enforce forest legislation from detection to con-viction, thus establishing an effective deterrent

■ Conducting campaigns that inform the public about theprovisions of forest law in local languages, thereby ensur-ing that users are at least aware of rights, restrictions, andprohibitions

■ Indicating actions that the public can take to support lawenforcement efforts (for example, ways to report illegalactivity)

Because preventive measures target the fundamentalproblems underlying illegal logging, many of them can beexpected to take effect only in the medium and long term.

Detection. Detection refers to various methods of collect-ing and processing information on forest crime and related

trade with the objective of identifying illegal activities andfacilitating the design of improved policies. Detection canentail the following:

■ Monitoring and surveillance to determine if and wherecrime is occurring, to set priorities, and to evaluate otherelements of the enforcement program. The kinds of infor-mation that are needed include the geographic incidenceof different crimes, the types of crimes that are occurring,the types of perpetrators, and the apparent levels of crime.

■ Using systems that include satellites, aircraft, and groundmonitoring and surveillance personnel to document thelocation, type, volume, and if possible, the identity ofviolators involved in illegal logging activities. The proce-dures used to draw inferences for use with the rest of thelaw enforcement program are just as important as thesophistication of the data collection processes.

■ Employing indirect methods to assess the prevalence ofillegal activity (for example, comparisons of data on pro-duction, consumption, and trade in forest products oftenshow significant disparities between trading partners’recorded exports and imports. These differences canindicate the potential magnitude of timber theft, smug-gling, and transfer pricing).

■ Establishing a process to determine if any institutionalweaknesses exist that can create opportunities for timbertheft (such as opportunities created by inadequateboundary marking, product marking, product measur-ing, product tracking, or an inadequate process of check-ing for revenue payments).

■ Collecting evidence and documentation on a specificincident as the basis for arrests, judicial proceedings,fines, or other action. Specialized expertise is needed toemploy techniques that are appropriate to the suspectedcrime and the national legal system.

■ Establishing crime monitoring systems that collect datafor evaluating the enforcement program’s impact and effi-ciency, and for providing feedback to program planners.

■ Increasing forest transparency and crime detectionthrough independent forest monitoring, especially incountries with weak government systems prone to cor-ruption.

Suppression. Suppression of illegal activity should be thelast recourse in a forest law enforcement program, becauseit almost inevitably involves the use of force. Suppressionmeasures pose risks to agency personnel, the public, and thelawbreaker. The indiscriminate use of force also poses risksto the public at large. Because the people involved in crimi-


nal activity at the field level are often simply laborers (andusually poor people with few alternatives) working at thedirection of others, genuine ethical reasons exist to questionthe use of force. In any responsible suppression program,these risks need to be systematically considered in light ofthe probability of success, the accountability and trans-parency of the suppression effort, and the skills and trainingavailable to law enforcers. In addition, suppression is an areafor which the World Bank has strict guidelines based on itsmandate that define its level of involvement.

Effective suppression may require the following:

■ Developing risk-success matrices to make appropriatepreparations for safe conduct of suppression operations,or to determine when safe operations are a practicalimpossibility. Such matrices should be developed by lawenforcement practitioners.

■ Tailoring institutional arrangements for major suppres-sion efforts or crackdowns to local circumstances (seenote 5.2, Reforming Forest Institutions). However, thesearrangements also clearly need to incorporate adequateprovisions for accountability and transparency commen-surate with the likely use of force and the need for secu-rity and confidentiality.

■ Developing interagency arrangements in which thepolice, military, customs, and other law enforcementagencies frequently and effectively work together withnatural resource agencies. These arrangements requireresources, budgets, planning, and reporting provisions tobe in place.

■ Training staff members at all levels where extraordinarysuppression efforts are needed, for example, in special-ized skills such as investigating criminal activities, docu-menting crimes, handling evidence, and preparing judi-cial proceedings. In highly dangerous or specializedinvestigations, training appropriate for undercover oper-ations, firearms safety, and other special expertise may beneeded.

The complexity and risk of suppression efforts under-score the value of measures to avoid the emergence of a seri-ous law enforcement problem through sound preventionand detection efforts. Where such efforts fail, or are notmade, the problems of suppression can rapidly becomenearly insurmountable.

Many of the specific interventions and tools discussedabove can simultaneously contribute to more than one ofthe enforcement functions of prevention, detection, or sup-

pression. Issues of cost, risk, capacity, and commitmentneed to be addressed in the design of these programs.

Annex 5.5B to this note brings the drivers of forest crime(motive, means, and opportunity) together with the preven-tion-detection-suppression framework in several typicaltypologies of forest crime, and can be used as a tool to facil-itate discussion in country contexts (for example, in thecontext of national-level action plans as discussed below).

National-level processes to combat illegal loggingand other forest crime

National and local level forest law enforcementprogram. Forest law enforcement programs need to be for-mulated at the national and local levels, building on estab-lished laws, institutional arrangements, and the interestsand capabilities of different stakeholders, and need toaddress the specific crime problems being encountered.

As a consequence of the FLEG processes (see chapter 5),some countries are beginning to address forest crimethrough concerted, coordinated, multistakeholder, national-level FLEG processes, resulting in national-level FLEGaction plans. Experience with these processes has demon-strated that combating illegal logging and other forest crimeis as much a political process as it is technical, and involvesreconciliation of the various stakeholder interests in a man-ner that enables change. Where the economic stakes in ille-gal activities are high, powerful interest groups can force-fully protect the status quo even if the outcome is clearlynegative from society’s point of view.

Stakeholder coalitions. Rarely is one stakeholder groupable to push through a major change in the establishedpower balance. Instead, successful change processes rely oncoalitions of several interest groups with different capaci-ties. Local and international NGOs have often managed tobring the problem of illegal logging out in the open andraise awareness among politicians and the general public ofthe need to act. Representatives from interest groupsdirectly involved in timber production can wield consider-able influence among their peers and colleagues. High-levelpolitical champions are also required who are able to fendoff efforts to slow down the implementation of the pro-posed measures through behind-the-scenes maneuvering.

Partners willing to support FLEG can be found amongmany stakeholder groups. Ministries of finance and localmunicipalities are interested in the increased tax revenuethat reduction of illegal activities could bring about. Forest


enterprises may be motivated to join the effort because ofmarket pressure or ethical reasons. Local people whoserights are trampled by illegal loggers are potential partners,as are NGOs concerned about protection of the environ-ment, human rights, and democracy. In addition, there arealways individuals in all stakeholder groups and institu-tions, including public forest administration, who need noother motivation than pursuit of fairness and justice. Exter-nal partners can reinforce and support these progressivegroups and, within the boundaries of their mandates, facil-itate their work at the political and technical levels.

FLEG processes should bring partners together. Theaim of a national FLEG process should be to bring all thesepartners together to enable them to reinforce each other.Although it is evident that there will not and should not beany standard model for such processes, some common ele-ments seem to characterize the more promising initiativescurrently under way:

■ Establishment of a mechanism for interministerial coor-dination, and a forum for stakeholder participation

■ Use of an analytical process for assessing the magnitude,scope, and dimension of the problems related to lawenforcement and governance

■ Creation of awareness, information sharing, and if nec-essary, whistle blowing, to “name and shame” the worstperpetrators of forest crimes

■ Use of a consultative and consensus-building process todefine the scope of actions and priorities

■ Detailed definitions of the actions, responsible stake-holders, mechanisms of implementation, and financing(both internal and possible external sources)

■ Obtaining political endorsement and support for theFLEG actions


General lessons

Successful change processes rely on coalitions ofseveral interest groups with different capacities.Partners willing to support FLEG can be found among manystakeholder groups, such as ministries of finance and localmunicipalities, forest enterprises, local people, and NGOs. Inaddition, all stakeholder groups and institutions, includingpublic forest administrations, house individuals who need

no other motivation than the pursuit of fairness and justice.External partners can reinforce and support these progres-sive groups and, within the boundaries of their mandates,facilitate their work at political and technical levels.

■ Where the economic stakes in illegal activities are high,powerful interest groups can forcefully protect the statusquo even if the outcome is clearly negative from society’spoint of view.

Country-level lessons

Address key drivers both within and outside theforest sector. Some governance issues relating to forestcrime lie entirely within the forest sector while others affect-ing forests and forest-dependent people extend beyond thissector. Some of the governance work of other parts of theWorld Bank Group may help address these nonforest-sectorissues, including support to Poverty Reduction StrategyPaper processes and the alignment of the World Bank’sCASs with these processes, work on governance diagnosticsand integration of governance and anticorruption elementsin the CASs, and the design of specific capacity-buildingprograms based on the diagnostic surveys (Poverty Reduc-tion and Economic Management Network and the WorldBank Institute). Other relevant areas of the World Bankfocus on anti-money laundering and financial investigation(Financial Market Integrity group, Extractive IndustriesTransparency Initiative, Justice for the Poor, and customsmodernization). The World Bank’s legal department is car-rying out important work in assessing the quality of legaland regulatory frameworks. Similarly, some of the work oncorporate social responsibility and social and environmen-tal issues in the operations of the International Finance Cor-poration (for example, investment safeguard policies) isextremely relevant to FLEG issues.

Combine actions with both short- and long-termimplications in a realistic, step-wise plan. Visible short-term impacts are often needed to create and maintain momen-tum, whereas long-term work on the structural drivers is nec-essary to ensure that these efforts are sustainable over time.Early “wins” (for example, significant increases in forest rev-enue) are important to motivating continued efforts.

Address both failures of law and failures of imple-mentation. First, ensure that the correct laws and policiesare in place. Second, work to enforce the law. This two-


pronged approach to legal compliance is the only way toensure that the full range of motivations, opportunities, andmeans for illegal behavior are addressed.

Strengthen supply-side measures with measures tocontrol imports of illegal timber and wood prod-ucts. This is especially important in countries where exportdemand is a significant driver of illegal activities in the for-est sector. It should be noted that—at least in principle—these measures could also be extended to other products(for example, wildlife or products derived from illegal con-version of forest lands).

Integrate anti-money-laundering and asset forfei-ture laws into the fight against forest crime andrelated corruption. These tools, along with the UN Con-ventions Against Corruption and Transnational OrganizedCrime, provide strong and effective regimes that govern-ments can use to fight forest crime and related corruption.

Risks

Focusing more directly on illegal logging and other forestcrimes will not always be a natural or comfortable role fordevelopment agencies, including the World Bank.Inevitably, development agencies will become involved incomplex and controversial issues regarding the quality oflaws, and at times these institutions will be put at odds withpowerful interest groups, including high-level governmentofficials, defending the status quo for personal gain. Conse-quently, there are two potential areas of risk for the devel-opment community:

■ As with any complex and controversial issue involvingdifferent interests and actors, there are reputational risksrelated to work with FLEG. The World Bank and its part-ners need to be especially sensitive to issues related tohuman rights and equity in their work. Transparency andadvocacy and support for participatory approaches areimportant means to avoid these types of risks.

■ A more vigorous engagement with FLEG will alsoinevitably involve difficult issues related to national sov-ereignty in the management of natural resources. Thispolitical risk needs to be carefully managed.

Opportunities

Specific opportunities for action by the international com-munity include the following:

■ Address critical gaps in the understanding of the natureof the governance challenge. An illustrative list of impor-tant areas for focus follows:– Development of diagnostics to benchmark forest crime

and the state of forest governance in high-prioritycountries, and identification of indicators to monitorthe progress of proposed interventions

– Advancements in the role of independent monitors inmaking forest operations more transparent and inproviding legal operators with positive incentives

– Institutional (and incentive-compatible) reforms offorestry agencies in Bank client countries that includegaining a better understanding of the role of incen-tives (including salary structure and so on) for civilservants

– Development approaches to forest industry restruc-turing and retrenchment that will efficiently andeffectively help address imbalances in wood supplyand demand

– Establishment of information management systemsand use of geographic information systems for overallmonitoring of the forest resource

■ Deepen the technical content of FLEG processes at theinternational and national levels, mobilize opportunitiesfor multilateral enforcement action, and integrate theregional FLEG processes into existing structures forregional cooperation

■ Promote collaboration between the progressive elementsof the industry, international financing institutions, andinternational NGOs involved in the FLEG process todevelop, improve, and harmonize safeguards and duediligence on forest investments (see note 5.4, Strengthen-ing Fiscal Systems in the Forest Sector). The aim shouldbe both to ensure the legality of the timber used and tomitigate the risk for other forest crimes, such as poach-ing, arson, and encroachment of forest areas, resultingfrom forest industry investments.

■ Ensure effective coordination between the implementa-tion of the FLEGT Regulation and Action Plan and otherFLEG efforts. The aim should be to strengthen the linksbetween the voluntary partnership agreements envi-sioned in the FLEGT action plan and the lending andadvisory operations of the international financing insti-tutions, especially the World Bank.

■ Explore the potential for initiatives similar to the Extrac-tive Industries Transparency Initiative (EITI)2 to increasetransparency of forest sector financial flows in some keyforest countries, especially where a relatively small num-ber of companies operate large forest concessions.


NOTES

1. This note is based on World Bank (2006).

2. See EITI’s Web site for more information: http://www.eitransparency.org/.

SELECTED READINGS

Kishor, N., and R. Damania. 2006. “Crime and Justice in theGarden of Eden: Improving Governance and ReducingCorruption in the Forestry Sector.” In The Many Faces ofCorruption: Tracking Vulnerabilities at the Sector Level, ed.J. Edgardo Campos and Sanjay Pradhan. Washington,DC: World Bank.

Magrath, W. B., R. Grandalski, J. Stuckey, G. Vikanes, andG. Wilkinson. 2007. Timber Theft Prevention and ForestResource Security. Washington, DC: World Bank.

REFERENCES CITED

Magrath, W. B., R. Grandalski, J. Stuckey, G. Vikanes, and G.Wilkinson. 2007. Timber Theft Prevention and ForestResource Security. Washington, DC: World Bank.

Puustjarvi, E. 2006a. “Guidelines for Formulating andImplementing National Action Plans to Combat IllegalLogging and Other Forest Crime.” Draft. Indufor,Helsinki, Finland.

———. 2006b. “Proposal for Typology of Illegal Logging.”Draft. Indufor, Helsinki, Finland.

Rosenbaum, K. L. 2005. “Tools for Civil Society Action toReduce Forest Corruption: Drawing Lessons from Trans-parency International.” PROFOR at the World Bank,Washington, DC.

Savcor, I. O. 2005. “Ensuring Sustainability of Forests andLivelihoods Through Improved Governance and Controlof Illegal Logging for Economies in Transition: WorldBank Discussion Paper.” Helsinki, Finland.

Seneca Creek Associates and Wood Resources International.2004. “ ‘Illegal’ Logging and Global Wood Markets: TheCompetitive Impacts on the U.S. Wood Products Indus-try.” Report prepared for the American Forest & PaperAssociation by Seneca Creek Associates, Poolesville, MD,and Wood Resources International, University Place,WA.

World Bank. 2004. Sustaining Forests: A Development Strat-egy. Washington, DC: World Bank.

———. 2006. “Strengthening Forest Law Enforcement andGovernance: Addressing a Systemic Constraint to Sus-tainable Development.” Report No. 36638-GLB, Wash-ington, DC.


Chapter 1: Forests for Poverty Reduction, and associatednotes

Note 3.2: Forest Certification Systems

Note 3.3: Forest Plantations in World Bank Operations

Chapter 5: Improving Forest Governance




Note 5.4: Strengthening Fiscal Systems in the Forest Sector

Note 7.2: Establishing Forest Information Management Systems


Using the motive, means, and opportunity elements to ana-lyze illegal logging and other forest crimes illuminates fun-damental drivers of the problem (Magrath et al. 2007). Thisannex presents an overview of some of these drivers derivedfrom a set of country-level studies and assessments.

Motive■ Overriding need to generate foreign exchange ■ Imperative to finance military operations■ Poverty and lack of alternative income■ Lack of affordable fuel alternatives■ Denial of access by local people to resources they need

for subsistence or livelihoods■ Indiscriminate (regarding legality of origin) demand for

timber in neighboring countries■ Indiscriminate international demand for timber■ Economic factors and policies favoring forest conversion ■ Low cost of illegal timber (that is, ineffective sanctions)

and rent-seeking business culture in the forest sectorcompanies

■ Overcapacity in the wood processing industry■ Difficulty complying with legal regulations (especially by

small-scale producers, concession holders, communities,and private forest owners)

■ Bureaucratic laws related to forest management (cost ofcomplying with laws is too high)

Means■ Roads, navigable rivers, harbors, and other transport

infrastructure ■ Labor in forest areas (often without alternative sources of

livelihoods)■ Capital to finance illegal logging and other forest crime

■ Equipment for logging and transport of timber andwood products

■ Opportunities for money laundering to hide financialproceeds

Opportunity■ Weak governance in parts or all of the country (includ-

ing areas affected by conflict and war)■ Breakdown of institutional controls and lack of account-

ability of public officials■ Rapid and disorganized decentralization and lack of

institutional capacity at decentralized levels (see note 5.1,Decentralized Forest Management)

■ Ambiguous forest land tenure (that is, lack of legal defi-nition, overlapping uses, conflicting laws, and so on) (seenote 1.4, Property and Access Rights)

■ Inadequate or inappropriate legal framework (not basedon a social contract with key forest users) (see note 5.3,Strengthening Legal Frameworks in the Forest Sector)

■ Lack of or weak recognition of customary rights (of localand indigenous communities)

■ Weak internal organization of these communities ■ Inadequate or inappropriate prescriptions for forest

management and use (regulations)■ Lack of reliable and up-to-date information on forest

resources and their use■ Weak, poorly managed, or corrupt forest administration ■ Ineffective or corrupt law enforcement■ Ineffective or corrupt judiciary ■ Weak governance or contradictory policies in sectors

related to forestry■ Weak control of illegal exports in producing countries or

imports in purchasing countries


ANNEX 5.5A DRIVERS OF ILLEGAL LOGGING AND OTHER FOREST CRIME: MOTIVE, MEANS,AND OPPORTUNITY

Source: Modified from Puustjarvi (2006b).


ANNEX 5.5B TYPICAL CONTEXTS OF ILLEGAL LOGGING: DRIVERS AND POTENTIAL RESPONSES

Typical contexts Potential drivers Potential responses Type(motive, means, opportunity)

Illegal loggingIllegal logging • People unable to meet their basic needs • Legalize illegal use or simplify regulations Pfor securing subsistence concerning access to public forest or wildlife

resources• Create opportunities for income generation P

• Lack or high cost of alternative energy • Offer alternatives to fuelwood as source of energy PSmall-scale illegal • Poverty • Create opportunities for income generation Plogging to enhance • Complex legal procedures related to • Reduce bureaucracy and fees associated with Plivelihoods by harvesting and access to forest resources legal timber harvesting• people without legal • Disputes over land tenure rights • Clarify land tenure, consider establishing local P

access to forest land tenure of forest land• managers or owners • Poorly organized, under-resourced, and • Strengthen forest law enforcement D+S

of community forests corrupt forest law enforcement • Improve internal control on law enforcement staff D+S• private forest owners • Corrupt community leaders • Improve internal control in communities D+S

• Criminal groups organizing illegal logging by • Strengthen cooperation with police force and D+Srecruiting rural poor judiciary and target the organizers or financiers

behind these activities• Inefficient legal procedures • Amend forest-related legislation and penal code P

• Use money laundering and asset forfeiture lawsLarge-scale commercial • Poorly motivated staff in public forest • Reorganize public forest administration to Pillegal logging administration or enterprises increase staff motivation

• High cost of legal timber • Reduce bureaucracy and fees associated with Plegal timber harvesting

• Capacity of wood processing industries • Embark on phased program of capacity reduction Pexceeding legal supply in wood-processing industries

• Increase supply by establishing plantations or Padjusting forest management regulations

• Export demand insensitive to legality • Collaborate with governments and private sector Pof timber in importing countries to increase demand for

legal timber and deter imports of illegal timber• Poorly organized and corrupt forest law • Increase resources and enhance independence D+S

enforcement and auditing system of forest law enforcement• Enhance effectiveness of financial audits on D

public forest administration or enterprises• Provide support to patrolling networks among D

private forest owners• Use anti-money-laundering laws

• Inadequate monitoring data on timber flows • Promote independent forest monitoring Dand origin of timber • Improve data management and transparency P

in public forest administration or enterprises• Promote responsible business practices (chain-of-

custody systems, certification) in private industries• Inefficient legal procedures • Strengthen cooperation with police force and S

judiciary• Provide owners or managers of community and S

private forests with legal services• Amend forest-related legislation and penal code P

Conflict timber • High cost of armed conflict • Focus on conflict resolution and management P• Poor control of timber imports in recipient • Improve controls on origin of timber D

countries • Promote international collaboration in sanctioning S• Ineffective international sanctions conflict timber

(continues on the following page)



Other forest crimeIrregular timber sales, • Low risk of sanctions • Improve procedures for timber sales and awarding Paward of concessions concessions to increase transparency and and service contracting accountability

• Increase proportion of timber sold or concessions Pawarded through competitive bidding

• Poorly motivated staff in public forest • Reorganize public forest administration to Padministration and enterprises increase staff motivation

• Poorly organized and corrupt financial • Enhance effectiveness of financial audits on Daudit system public forest administration or enterprises

• Improve data management and transparency in Dpublic forest administration and enterprises

• Inefficient legal procedures • Strengthen cooperation with police force Sand judiciary

• Amend penal code PEvasion of taxes, • Unreasonably high tax burden in relation to • Adjust taxes as appropriate Proyalties, and other timber price and general tax level • Impose sanctions on enterprises found guilty Sfees by enterprises of tax evasion

• Poorly organized and corrupt financial • Enhance effectiveness of financial audits on Daudit system enterprises

• Inadequate accounting systems in private • Oblige enterprises to provide required information Denterprises in an easily accessible form

• Inefficient legal procedures • Strengthen cooperation with police force and Sjudiciary to achieve minimum acceptable level of compliance

• Amend penal code PEvasion of taxes, • Low risk of sanctions • Adjust taxes, royalties, and other fees to levels at Proyalties, and other which most communities or private forest owners fees by communities would make the payments voluntarily Por private forest owners • Inadequate accounting systems in private • Promote sound accounting practices in community D

enterprises or communities forestry• Enhance effectiveness of external financial audits D+S

on community forests and private woodlots within the limits of available resources


• Amend penal code PCircumvention of • Indifferent attitude in enterprises toward • Impose sanctions on enterprises found guilty Plabor laws labor laws of circumventing labor laws

• Poorly organized and corrupt oversight • Impose sanctions or disciplinary actions on Dcompanies proven to circumvent regulations


• Amend penal code PUnauthorized wood • Strong domestic and export demand • Enable an increase in authorized processing Pprocessing encouraging unauthorized wood processing capacity by increasing legal timber supply

and illegal logging• Excessive bureaucracy related to licensing • Simplify licensing procedure P• Poorly organized and corrupt oversight • Impose sanctions or disciplinary actions D

on companies proven to circumvent regulations• Inefficient legal procedures • Strengthen cooperation with police force S

and judiciary• Amend penal code P

Wildlife poachingWildlife poaching for • People unable to meet their basic needs • Legalize illegal use or simplify regulations Psubsistence needs • Lack of or high cost of alternative sources concerning access to wildlife resources

of food • Create opportunities for income generation P• Offer alternative sources of food P



Wildlife poaching to • Poverty • Create opportunities for income generation, Pengage in trade in • Complex legal procedures for reduce bureaucracy and fees associated with animals and animal hunting of wildlife legal timber harvestingparts • Disputes over hunting rights • Clarify hunting rights with focus on rural poor P

• Poorly organized, under-resourced, and • Strengthen wildlife law enforcement D+Scorrupt wildlife law enforcement • Improve internal control of law enforcement staff D+S

• Corrupt community leaders • Improve internal control in communities D+S• Criminal groups organizing illegal hunting • Strengthen cooperation with police force and D+S

by recruiting rural poor judiciary and target the organizers or financiers • Inefficient legal procedures behind these activities

• Amend forest-related legislation and penal code D+S• Use anti-money-laundering and asset forfeiture laws D+S

ArsonArson associated with • Poverty • Land tenure reform Psubsistence-level slash- • Lack of viable alternative agricultural • Agricultural intensification Pand-burn agriculture systems • Legal reform to decriminalize slash-and-burn P

• Marginalization and disempowerment of agricultureIndigenous Peoples

Arson associated with • Biased policies and incentives • Policy reform based on strategic environmental Plarge-scale land clearing • Weak regulatory controls of assessmentfor commercial agriculture land development • Regulatory reforms to monitor and control land P+D

developmentEncroachmentConversion of forest • Poverty • Land tenure reform Pland associated with • Cyclical unemployment • Agricultural development Psubsistence-level slash- • Stabilization policies Pand-burn agricultureConversion of forest • Distorted policies • Policy reform Pland associated with • Corrupt land access arrangements • Anti-money-laundering and asset forfeiture laws Slarge-scale land clearing for commercial agriculture

Source: Adapted from Puustjarvi (2006a).Note: P = prevention; D = detection; S = suppression.

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