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Brazil: Forests in the Balance: Challenges of Conservation with Development 

Brazil 

Forests in the Balance: 

Challenges of 

Conservation with 

Development 

Evaluation Country Case Study Series 

The World Bank 

ISBN 0-8213-4761-6

OPERATIONS EVALUATION DEPARTMENT 

ENHANCING DEVELOPMENT EFFECTIVENESS 

THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION 

The Operations Evaluation Department (OED) is an independent unit within the 

World Bank; it reports directly to the Bank’s Board of Executive Directors. OED 

assesses what works, and what does not; how a borrower plans to run and maintain a 

project; and the lasting contribution of the Bank to a country’s overall development. 

The goals of evaluation are to learn from experience, to provide an objective basis for 

assessing the results of the Bank’s work, and to provide accountability in the 

achievement of its objectives. It also improves Bank work by identifying and 

disseminating the lessons learned from experience and by framing recommendations 

drawn from evaluation findings.

THE WORLD BANK OED EVALUATION 

COUNTRY CASE STUDY SERIES 

FORESTRY 

Brazil Forests in the Balance: Challenges of Conservation with Development 

China From Afforestation to Poverty Alleviation and Natural Forest Management 

Costa Rica Forest Strategy and the Evolution of Land Use 

India Alleviating Poverty through Forest Development 

Indonesia The Challenges of World Bank Involvement in Forests 

POST-CONFLICT RECONSTRUCTION 

Bosnia and Herzegovina 

El Salvador 

Uganda

W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T 

Brazil 

Forests in the Balance: 

Challenges of 

Conservation with 

Development 

Evaluation Country Case Study Series 

Uma Lele 

Virgilio Viana 

Adalberto Verissimo 

Stephen Vosti 

Karin Perkins 

Syed Arif Husain 

www.worldbank.org/html/oed 

2000 


Washington, D.C.

Copyright © 2000 

The International Bank for Reconstruction 

and Development/THE WORLD BANK 

1818 H Street, N.W. 

Washington, D.C. 20433, U.S.A. 

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ISBN 0-8213-4761-6 

Library of Congress Cataloging-in-Publication Data has been applied for. 

Printed on recycled paper.

Table of Contents 

Foreword 

vii 

Acknowledgments 

xi 

Acronyms 

xv 

Summary 

xix 

1. Introduction 1 

Scope of the Study 4 

Organization of the Report 6 

PART I: THE FORESTS AND FOREST SECTOR IN BRAZIL 7 

2. How Much Forest is There? 7 

The Amazon 7 

The Atlantic Forest 8 

Changes in Forest Cover 9 

3. The Economic Importance of Brazil’s Forests 13 

Size of the Forest Sector 13 

International Trade 14 

4. Pressures on the Forests 17 

Deforestation and Government Policies 19 

Forest Regulation 20 

Weak Institutional Environment and Enforcement 23 

Logging 24 

Agricultural Expansion 26 

Smallholder Agriculture in the Western Amazon 27

Agriculture Expansion in Parana 35 

Development 39 

Forest Fires 43 

Agricultural Credit 46 

5. Protecting Brazil’s Forests: The Role of Parks and Plantations 49 

Protected Areas 50 

Plantation Forestry 53 

6. Important Issues in the Forest Sector 57 

Costs and Benefits of Managed Forests in Brazil 57 

Conservation Solutions 60 

Certification 64 

Indigenous Communities 67 

Extraction of Non-Timber Forest Products 70 

Forest Research and Forest Technology 72 

The Changing Role of the Public Sector 74 

The Influence of Nongovernmental Organizations 77 

PART II: THE WORLD BANK AND BRAZIL 81 

7. Overview 81 

8. The Bank Program in Brazil 83 

Country Assistance Strategies 83 

New Environmental Strategy 87 

Economic and Sector Work Since 1991 88 

World Bank Lending Portfolio 90 

9. Evaluation of the Bank Program in Brazil 95 

Minas Gerais Forestry Development 95 

Northwest Region Integration Program (POLONOROESTE) 99 

Rondonia and Mato Grosso Natural Resource Management 

Projects 104 

Emergency Fire Prevention 109 

Land Management Projects 109 

Agriculture and Forestry Technology Development 112 

Global Environment Facility 113 

Pilot Program to Conserve the Amazon Rain Forest (PPG-7) 115 

Projects with Possible Impacts on Forests 118 

Transportation Projects and the Forests of Brazil 122 

Land Reform Projects 123 

10. Summary and Conclusion 125 

Summary Evaluation 126 

Conclusion 133

Annexes 135 

A. Supplemental Tables 135 

B. The 1991 Forest Strategy 141 

C. Economic Background 143 

D. World Bank Inspection Panel Findings for the 

PLANFLORO Project 146 

E. OED- and QAG-Evaluated Projects 148 

F. Summary of November 1999 Brasilia Workshop and 

Stakeholder Comments 160 

G. Summary of March 2000 Brasilia Workshop 174 

Endnotes 179 

Bibliography 185 

Boxes 

Box 1.1. Bank Forest Strategy: The 1991 Forest Strategy 

Paper and the 1993 Operations Policy Directive 2 

Box 1.2. The Operations Evaluation Department Review 

of the 1991 Forest Strategy and Its Implementation 5 

Box 1.3. The 1991 Forest Strategy and the Amazon 6 

Box 2.1 Availability and Quality of Data on Changes in 

Brazilian Forests 9 

Box 4.1. Zoning and its Potential Consequences 21 

Box 4.2. Where the Timber Goes 25 

Box 4.3. The Economic Power of Amazonian Timber 26 

Box 4.4. Modeling the Effects of Infrastructure and 

Agriculture on Deforestation 32 

Box 4.5. Land Tenure 34 

Box 4.6. Recommendations from the Paraná Study 36 

Box 4.7. Population in the Amazon 40 

Box 4.8. Brazil in Action 44 

Box 4.9. Carbon Emissions and Fires 45 

Box 6.1. Managed Forests 59 

Box 6.2. Sound Legislation, Weak Implementation: 

The Special Case of Riverbanks 61 

Box 6.3. Home-Grown Certification 65

Box 8.1. A World Bank “Green” Portfolio in Brazil 85 

Box 9.1. Lessons Learned in Minas Gerais 98 

Box 9.2. Lessons Learned from POLONOROESTE 103 

Box 9.3. Environmental Consequences of Resettlement 106 

Box 10.1. Safeguard Policies 132 

Tables 

Table 2.1. Deforestation in the Atlantic Rainforest, 

1990–95 (km 2 ) 11 

Table 2.2. Major Plantation Reforestation Efforts in Brazil 12 

Table 4.1. Relationship between Factors Driving Land 

Managers’ Behavior and Public Policies 38 

Table 4.2. Deforestation Along Major Road Networks in 

the Amazon, 1991–94 42 

Table 4.3. Descriptions of Largest Government Financing 

Programs that Have Direct Impact on Forests 47 

Table 5.1. Federal Protected Areas in Brazil 51 

Table 6.1. Changes in Carbon Stored with Forest Land-Use 

Conversion (tC/ha) 62 

Table 6.2. Indigenous Territories as of July 1999 68 

Table 8.1. World Bank Lending to Brazil by Sector, 1984–99 92 

Table 8.2. World Bank Lending to Brazil by Lending 

Instrument, 1984–99 93 

Table 8.3. World Bank Lending to Brazil by Primary 

Program Objective, 1984–99 94 

Table 9.1. PPG-7 Projects, Status, and Cost 115 

Table 10.1. Summary Evaluation of the Implementation 

of the 1991 Forest Strategy in Brazil 131 

Figures 

Figure 2.1. Deforestation in the Amazon, 1989–97 10 

Figure 4.1. Deforestation Pressures in Brazil 18 

Figure 4.2. Deforested Areas along Major Road Networks 

in the Amazon 42

Foreword 

This case study is one of six evaluations of the implementation of the 

World Bank’s 1991 Forest Strategy. This and the other cases (Cameroon, 

China, Costa Rica, India, and Indonesia) complement a review of the 

entire set of lending and nonlending activities of the World Bank Group 

(IBRD, IDA, IFC, and MIGA) and the Global Environment Facility (GEF) 

that are pertinent to the Bank Group’s implementation of the forest 

strategy. Together these constitute inputs into a World Bank Operations 

Evaluation Department (OED) synthesis report entitled The World 

Bank’s 1991 Forest Strategy and Its Implementation. This forest strategy 

evaluation was carried out under the overall direction of Uma Lele. 

The purpose of each of the six country studies has been to understand 

the implementation of the 1991 Forest Strategy in Bank operations 

and to obtain the views of the various stakeholders in the country 

about the involvement of the Bank. In doing so, the study team has not 

only examined the Bank’s forest program but also endeavored to place 

the Bank’s activities in the broader context of what the country and 

other donors have been doing in the forest sector. Therefore, each country 

study examined the overall development of the country’s forest sector. 

While this naturally includes environmental impacts on forests, such 

as degradation, biodiversity loss, and deforestation, it also encompasses 

the economic uses of forests, including the management of forest resources 

for production, the role of forest development in poverty alleviation, 

and the impacts of forest research and development. 

vii

Brazil: Forests in the Balance 

The evaluation of the Bank’s performance in these studies, as always 

in OED studies, seeks to judge whether the Bank has “done the right 

things” and “done things right.” Here, OED also seeks to judge whether 

the Bank has lived up to the commitments made in its 1991 Forest Strategy. 

The case studies do this by examining how the Bank, using the 

various lending and nonlending instruments at its command, has interacted 

with the sector’s development processes, with other donors, and 

with the broader government objectives of economic growth, poverty 

alleviation, and environmental sustainability. Thus, the studies focus 

on policy in the post-1991 period, but they also recognize that the Bank 

does not operate in isolation from its historical interactions with a country 

and its needs. These interactions include the Country Assistance 

Strategies or their predecessors, Economic and Sector Work, as well as 

all investments in all sectors and all policy dialogue that is pertinent to 

the Bank’s actions and their outcomes in the forest sector. Together, 

these activities constitute the Bank’s implementation of its forest strategy 

in a country. 

The important questions these country studies address are as follows: 

• How have the forces of development effected change in the 

country’s forest sector? 

• Did the Bank’s 1991 Forest Strategy make a difference to its forest 

strategy in the country, or was this strategy largely a result of the 

Bank’s historical relationship with the country, the needs articulated 

by the government, or a combination of both? 

• Regardless of how the Bank’s forest sector strategy evolved, how 

consistent was it with the Bank’s 1991 Forest Strategy? 

• How consistent was the country’s own forest policy/strategy with 

the Bank’s 1991 Forest Strategy? 

• Was the Bank’s overall and forest sector strategy in the country 

relevant to the country’s needs in the forest sector, as identified by 

the country? 

• Were the Bank’s overall and forest sector activities effective from 

the viewpoint of the intentions of its 1991 Forest Strategy? 

• Were the Bank’s activities efficient? 

• Did the Bank’s activities achieve policy and institutional development 

pertinent to forest sector management? 

• Are the Bank’s impacts likely to be sustainable? 

viii

Foreword 

• What impact has the Bank’s overall and forest sector strategy for 

the country had on forest cover and quality, poverty alleviation, 

and other key issues? What are the prospects for future Bankcountry 

interactions in the forest sector, and for outcomes in the 

sector? 

Gregory Ingram 

Director 

Operations Evaluation Department 


Director-General, Operations Evaluation Department: Mr. Robert Picciotto 

Director, Operations Evaluation Department: Mr. Gregory Ingram 

Task Manager: Ms. Uma Lele 

ix


This study is a collaborative effort between Uma Lele and Brazilian 

researchers Virgilio M. Viana and Adalberto Verissimo, with contributions 

from Claudia Sonda, Eugenio Arima, Carlos Souza Jr., Diogenes 

Alves, Isabel Strada, Sandra Faillace, Carlos Bacha, and Marcelo 

Marquesini, a bioeconomic modeling team (Chantal Carpentier, Stephen 

Vosti, and Julie Witcover), and Karin Perkins and Syed Arif Husain of 

the Operations Evaluation Department (OED) of the World Bank. The 

report was prepared under the editorial direction of William Hurlbut. 

The OED Review of the 1991 Forest Strategy and Its Implementation, 

of which this study is part, has been conducted under the direction of 

Uma Lele. 

In conducting this study, the Brazil team prepared a number of background 

papers (many of which are listed in the bibliography) and consulted 

extensively with a range of stakeholders. The team interviewed 

more than 30 representatives of NGOs, academic, governmental, and 

private institutions. These interviews included top government officials, 

NGOs leaders, and grassroots organizations. The team also used the 

Internet to reach more than 260 NGOs, academic, governmental, and 

private institutions. As this approach yielded a low response rate (5 

percent), a number of field activities were used to present preliminary 

findings to people directly involved in projects in the Amazon and Atlantic 

forests. This proved to be a more efficient method for collecting 

input. In addition, the team held more than 10 meetings with Bank staff 

xi


in Brasilia and Washington. All contributions were incorporated into 

the various versions of the manuscript. The views expressed in this report 

of the Brazil team are those of the authors and not necessarily of 

those who participated in the process. 

EMBRAPA (Empresa Brasileira de Pesquisa Agropecuaria), Brazil’s 

national agricultural research institute, financed a number of background 

studies in support of the OED review. The modeling team has had a 

long-standing collaboration with the Acre and Rondonia research centers 

of EMBRAPA. Uma Lele visited Brazil in August 1998 and October 

1998 and held discussions with government, NGO, and donor (World 

Bank, GTZ, DFID, European Union) representatives, EMBRAPA, and 

the World Wide Fund for Nature. Ms. Lele and Karin Perkins also interviewed 

the World Bank’s Brazil country team and various task managers. 

OED would like to thank Dr. Alberto Portugal, President of 

EMBRAPA, and Dr. Francisco Reifschneider, Head of the International 

Cooperation, for their research support as well as for facilitating a number 

of stimulating discussions between Uma Lele and EMBRAPA, university 

research scientists (in Curitiba, Sao Paulo, Manaus, Belem, 

Brazilia, Rio de Janeiro, and Santa Catarina), and land managers. 

An earlier draft of this report has benefited from detailed comments 

by Dennis Mahar and Robert Schneider, the two lead environmental 

economists in the Brazil country team, and David Kaimowitz of the 

Center for International Forestry Research (CIFOR). The views expressed 

in this report are, however, those of the authors alone and not of those 

assisting in the conduct of this study. Background reports produced for 

this study by the Brazil and bioeconomic modeling teams are available 

on request. 

OED, in collaboration with the Government of Brazil, EMBRAPA, 

and the World Bank country office, held a workshop in Brasilia on 

November 18-19, 1999. The purpose of the workshop was to discuss 

the contents of this evaluation with the various in-country stakeholders 

including representatives from Government of Brazil, the forest industry, 

NGOs, EMBRAPA, indigenous peoples, and the World Bank. The 

workshop was inaugurated by World Bank Country Director Gobind 

Nankani and the Brazilian Secretary of Environment José Carlos 

Carvalho. The results of the workshop are summarized in Annex F. 

The case study was discussed at the global meeting on the Preliminary 

Synthesis Report of A Review of the 1991 Forest Strategy and Its 

implementation held in Washington during January 27-28, 2000. The 

country study was also placed on the web as part of the OED-ESSD 

xii


web based consultations during January and June 2000, including the 

regional consultation for Latin America and the Caribbean Region held 

in Quito during May 3-5, 2000. A separate country workshop to consult 

on the World Bank Forest Policy Implementation Review and Strategy 

led by ESSD was held in Brasilia on March 15, 2000. The results of 

this latter workshop are presented in Annex G. 

This report was produced as part of the OEDPK publication series 

by a team under the direction of Elizabeth Campbell-Pagé (Task Manager). 

Caroline McEuen (editor), Kathy Strauss and Aichin Lim Jones 

(graphics and layout), Diana Qualls (editorial assistant), and Juicy 

Qureishi-Huq (administrative assistant) comprise the publishing team. 

xiii

ABNT 

ANFPC 

APL 

BNDES 

CAS 

CIFOR 

CVRD 

DFID 

EMATER 

Acronyms 

Brazilian Association of Technical Standards (Associacion 

Brasileira de Normas Technicas) 

National Association of Paper and Pulp Producers 

(Associacion Nacional dos Fabricantes de Papel e Cellulose) 

Adjustable Program Loan 

Banco Nacional de Desenvolvimento Econômico e Social 

Country Assistance Strategy 

Center for International Forestry Research 

Rio Doce Valley Company (Companhia Vale Do Rio 

Doce) 

Department for International Development 

Technical Assistance and Extension Corporation 

(Empresa de Assistencia Tecnica e Extensao Rural) 

EMBRAPA Brazilian Corporation for Agricultural Research 

(Empresa Brasileira de Pesquisa Agropecuaria) 

ESSD Environmentally and Socially Sustainable 

Development Network 

ESW Economic and sector work 

FAO Food and Agriculture Organization 

FASE Federação de Órgãos para Assistência Social e Educacional 

FSC Forest Stewardship Council 

xv


FUNAI 

GDP 

GEF 

GNP 

GOB 

GTA 

GTZ 

IBAMA 

IBRD 

ICMS 

ICR 

ICV 

IDA 

IFC 

IMA- 

FLORA 

IMAZON 

INCRA 

INPE 

IPR 

IRR 

ISA 

ISO 

ITERON 

IUCN 

KfW 

MIGA 

National Foundation for the Indigenous (Fundacao 

Nacional do Indio) 

Gross domestic product 

Global Environment Facility 

Gross national product 

Government of Brazil 

Amazon Working Group (Grupo de Trabalho Amazonico) 

German Agency for Cooperation (Deutsche Gesellschaft 

fuer Technische Zusammenarbeit) 

Brazilian Environmental Institute (Instituto Brasileiro do 

Meio Ambiente) 

International Bank for Reconstruction and Development 

Value-added tax 

Implementation completion report 

Instituto Centro e Vida 

International Development Association 

International Finance Corporation 

Institute for the Management and Certification of Forests 

and Agriculture (Instituto de Manejo e Certificacao 

Florestal e Agricola) 

Amazon Institute of People and the Environment 

(Instituto do Homem e Meio Ambiente da Amazonia) 

National Institute of Resettlement and Agrarian Reform 

(Instituto Nacional de Colonizacao e Reforma Agraria) 

National Institute of Space Research (Instituto Nacional 

de Pesquisas Espaciais) 

Intellectual property rights 

Internal rate of return 

Instituto Socioambiental 

International Standards Organization 

Rondônia State Land Institute (Instituto de Terras de 

Rondônia) 

International Union for the Conservation of Nature 

German Bank for Reconstruction (Kreditanstalt für 

Wiederaufbau) 

Multilateral Investment Guarantee Agency 

xvi

Acronyms 

MMA 

NEP 

NGO 

NTFP 

OED 

OP 

PAIC 

PLANA- 

FLORO 

Ministry of Environment 

National Environment Project 

Nongovernmental organization 

Non-timber forest product 


Operational policy 

Program of Support to Community Initiatives 

(Programa de Apoio as Iniciativas Comunitarias) 

Rondonia Natural Resource Management Project 

POLONO- Northwest Regional Integration Program 

ROESTE 

PPAR Project Performance Audit Report 

PPG-7 Pilot Program to Conserve the Brazilian Rain Forest 

PRODE- Mato Grosso Natural Resource Management Project 

AGRO 

PROMA- Project to Support Forest Management in the Amazon 

NEJO 

PRON- National Biodiversity Project 

ABIO 

PTMF Primary tropical moist forest 

QAG Quality Assurance Group 

R$ Brazilian dollars (Rials) 

SBS Sociedad Brasileira de Silvicultura 

SEDAM Rondônia State Secretariat of Environmental Develop 

ment (Secretaria de Estado de Desenvolvimiento 

Ambiental) 

SGA Environmental Management System 

SUDAM Superintendency for the Development of the Amazon 

(Superintendencia do Desenvolvimento da Amazonia ) 

TJLP Long-term interest rate tax (Taxa de Juros de Longo 

Prazo) 

TMF Tropical moist forest 

UNDP United Nations Development Program 

USAID US Agency for International Development 

US$ U.S. dollars 

xvii


US$M 

WTO 

WWF 

U.S. dollar millions 

World Trade Organization 

World Wide Fund for Nature 

xviii

Summary 

Brazil contains some 3.7 million km 2 of tropical moist forest—almost 

27 percent of the remaining global stock. Its tropical forest endowment 

and its importance to global biodiversity are unparalleled in 

the world. Brazil is also the world’s largest consumer of tropical wood 

products and consumes about 86 percent of its own production. Further, 

Brazil has been one of the World Bank’s largest borrowers, with 

loans totaling US$9.3 billion between 1992 and 1999 (average US$1.2 

billion/year), although relative to Brazil’s annual GNP of US$760 billion, 

this sum is still a small amount. 

The environmental aspects of the World Bank’s lending to Brazil in 

the 1980s were assessed in OED’s seminal 1992 study, World Bank 

Approaches to the Environment in Brazil: A Review of Selected Projects 

(Redwood 1992). This report, among others, shaped the World Bank’s 

thinking on primary tropical forests, including its 1991 Forest Strategy. 

Bank studies, however, have had little impact on Brazil’s forest policies 

until recently. The future of the Amazon continues to be debated, while 

other Brazilian forests are more threatened and need urgent attention. 

The debate over the future of the Amazon, in light of Brazil’s 500th 

anniversary, was vigorous at the time of this review’s publication. The 

National Environment Council (CONOMA) approved the proposal of 

a forestry law in March 2000, which was to be presented to the National 

Congress by the Ministry of Environment. This draft law resulted 

from numerous meetings attended by organizations representing an array 

of stakeholder groups. Earlier, a congressional committee had presented 

an alternative version of this legislation to the Ministry. The 

xix


committee’s version differed considerably from CONOMA’s. For example, 

according to the committee’s proposal, 50 percent of the Amazon 

and 20 percent of the Cerrados region would be set aside as legal 

reserves; according to CONOMA’s proposal, 80 percent of the Amazon 

would become a legal reserve and 35 percent of the Cerrados region. 

On May 17, the National Congress shelved the committee’s bill in exchange 

for a pledge from President Cardoso to oppose any reduction in 

the legally protected Amazon reserve area. The outcome of this debate 

and its consequences for the Amazon’s future are too early to predict. 

Changes in Brazil’s Forest Cover 

Analysis of Brazil’s forest cover shows that while average annual forest 

loss in the Amazon (some 13,000 km 2 /year in the post-1991 period) 

has slowed compared to the pre-1991 period, the precise extent of the 

loss, as well as the causes of these changes, remains ambiguous. Subsidies 

for agricultural expansion have declined, but other factors contributing 

to deforestation persist, including strong domestic and international 

demand, continued agricultural expansion, and investment in 

extensive transportation networks. Globalization, liberalization of trade 

policy, currency devaluation, and technological advances have led to a 

booming agricultural sector, including a substantial increase in exports 

and increased profitability of agriculture. Improved agricultural prospects, 

including new technologies, in combination with the country’s 

historically acute income and land inequalities, continue to provide 

strong incentives for agricultural expansion in the Amazon. At the same 

time, democratization and decentralization of power to the state level, 

the growing economic and political influence of the logging and agricultural 

interests at the local level, and the increasing importance and 

value of forest-sector revenues all contribute to intensifying political 

and economic pressure on the Amazon’s forest resources. 

In fact, Brazil’s biodiversity-rich Atlantic Forest is far more threatened 

than the Amazon, with as little as 7 percent of the original forest 

remaining, and is in urgent need of attention and conservation efforts. 

Nevertheless, concern for this highly fragmented and degraded forest 

tends to be eclipsed by the international attention to the massive Amazon 

to its north. Important similarities exist between the processes that 

have caused the loss of the Atlantic Forest and those currently degrading 

the Amazon. 

The growth of Brazil’s plantation forest sector, one of the most advanced 

in the developing countries, has slowed since 1988, when credit 

xx

Summary 

subsidies were eliminated as part of economic reforms and general reductions 

in subsidies. This study explores the potentially synergistic relationship 

between plantation forests and natural forests, as a majority 

of Brazil’s wood consumption is domestic and a large portion is used in 

the urban manufacturing sector, creating a continued demand stimulus. 

Unlike other countries with tropical moist forests, Brazil exports a small 

share of its annual harvest, about 14 percent. Increased investment in 

plantations in the southern part of Brazil would provide an important 

supply substitute for wood from natural forests. 

Potential Impacts of Policy Reform 

Two quite different themes emerge from the analysis of Brazil’s forest 

sector in this report. One, which analyzed the profitability of smallholder 

agriculture in the Western Amazon, emphasizes the extent of 

tradeoffs between the developmental and environmental objectives in 

the short and medium term at the farm level, highlighting the central 

issue of the presence of externalities acknowledged but not addressed in 

the Bank’s 1991 Forest Strategy. It concludes that reform in forest policies 

would marginally slow deforestation—but not stop it altogether. 

Indeed, returns to managed forests (on which the 1991 Forest Strategy 

itself contained three widely different definitions, with no clarity as to 

which one of those was to be applied in Bank operations) do not compare 

with the prevailing interest rates or with the opportunity costs of 

alternative land uses. Returns to agriculture in the Western Amazon are 

so powerful that land conversion is likely to continue even if forest 

policies are modified to improve the profitability and sustainability of 

forest management. 

Government investments in Brazil’s transportation infrastructure reinforce 

these returns. Economic and sector work discussed with the government 

in the early 1990s had reached a similar conclusion and suggested 

that only “economic protection” of forests, caused either by remoteness 

or inaccessibility or both, would result in forest protection, 

stressing the need for an intensive rather than an extensive transportation 

network. 

The extent of payments to landowners not to convert forests (in return 

for the globally beneficial environmental services of carbon sequestration 

and biodiversity conservation), and the mechanisms to 

achieve this remain a matter of much debate. Similarly debated is whether 

the Brazilian government or other agents within Brazil can afford the 

annual per-hectare payments, or if the international community would 

xxi


have to provide the necessary funds. Even if funds for such payments 

were to materialize, it would be, institutionally, a highly demanding 

effort in a remote and inaccessible area, where monitoring and enforcement 

are difficult. Others have argued that, in any case, it would be in 

the interest of the global community to pursue such transfers. 

The OED study’s Brazilian team suggests a second, complementary 

interpretation. They make the case for a far more proactive forest strategy 

in the Amazon, including a more “hands-on” role for the World 

Bank. The team’s work emphasizes a growing environmental consciousness 

in the Brazilian civil society, increased NGO capacity, and an active 

and progressive private sector as assets that offer promise for future 

World Bank involvement in Brazil’s forest sector. They suggest that 

the Bank may have a strategic role in the design of appropriate development 

policies for the Amazon while that forest is still in early stages of 

degradation or conversion. They also recommend that the Bank become 

involved in developing financial incentives to conserve forests; 

work with the Government of Brazil to promote forest conservation 

through sustainable management and use of forest products; work with 

the government to legalize existing land tenure regimes (a recommendation 

others say may not necessarily lead to a slowing of deforestation); 

and support research and extension in managed forests. 

The Brazilian study team urges the Bank to reconsider the logging 

ban component of the Bank’s 1991 Forest Strategy, since it appears to 

have prevented the Bank, GEF, and IFC from getting involved in the 

Brazilian forests. They argue that the cautious approach charted by the 

1991 Forest Strategy has inhibited the Bank from promoting conservation 

of Brazil’s forests by, for example, not supporting experiments in 

improved forest management. Bank staff, however, say that the lack of 

Bank involvement in the tropical moist forests of Brazil has primarily 

resulted from a lack of government demand for such involvement. 

The Bank’s Approach and Involvement 

The World Bank has largely skirted the issue of deforestation in Brazil 

since 1991, although some of the best economic and sector work on 

the economic and political causes of tropical deforestation has been 

conducted by Bank staff working on Brazil. The Bank has learned some 

of its most important lessons on the economics and politics of deforestation 

through its project experience in Brazil. The Bank has deployed 

some of its most qualified and dedicated sector strategists to work on 

Brazil. There has been greater continuity of Bank staff input at the stra- 

xxii

Summary 

tegic level in Brazil than in other countries, or even at the project level 

within Brazil. But this has not led to a sustained productive dialogue 

with the Brazilian government on the future of the Amazon. The Government 

of Brazil has perceived the Bank’s and the international 

community’s objective of conserving the Amazon forest without commensurate 

financial transfers as being fundamentally at odds with national 

economic and political development objectives. It has therefore 

preferred to keep the Bank and the international donor community at 

arm’s length on issues that, for understandable reasons, it considers to 

be of internal concern. 

The interests of indigenous populations do not always coincide with 

those of non-indigenous populations, nor do those of the poor nonindigenous 

coincide with those of the well-off, even within the Amazon. 

The same applies for the Amazon vis-à-vis the rest of Brazil, making 

these interactions even more complex and highly dynamic. At the 

same time, however, the government has been keen to project a “greener” 

image, particularly since agreeing to host the high-profile 1992 Earth 

Summit, when it began making policy changes. Macroeconomic difficulties 

also made it necessary for the government to remove subsidies. 

The Government of Brazil has recently become more proactive in enforcing 

laws with regard to forest protection. In this context, the Bank’s 

non-lending activities may have helped move along processes of policy 

reforms that were underway in Brazil for other reasons. 

In project financing, the World Bank has largely taken a less direct 

approach since 1991. It has financed poverty alleviation and land reform 

projects in northeast Brazil that might slow migration to the Amazon, 

but these are pilot efforts. The Bank has not proactively involved 

itself directly in addressing the issues of poverty or land tenure in the 

Amazon. Indeed, the Bank has consciously avoided covering the Amazon 

region in its land tenure and rural development activities. This may 

be because it is not clear that security of tenure or increased access to 

rural credit, even to small farmers, would help slow deforestation. The 

Bank has been out of the business of giving credit to large farmers and 

ranchers altogether. The Bank’s project experience with regard to zoning 

in coping with the powerful political and economic forces at the 

municipal and state levels in Rondonia and Mato Grosso has prompted 

it to operate more cautiously. The Rondonia project, PLANAFLORO, 

has built on lessons learned in the POLONOROESTE projects of the 

1980s, but has had problems of its own. 

xxiii


Since the Bank’s 1991 Forest Strategy went into effect, the strategic 

victory for the Bank has been to avoid criticism for doing the “wrong” 

things. The Bank is not convinced, for example, that road investments 

such as those undertaken in the 1980s can be avoided altogether if land 

reform and the associated credit were to be undertaken in the Amazon 

without deforesting land. This “hands-off” approach is consistent with 

the 1991 Forest Strategy’s prescription regarding the treatment of areas 

with primary tropical moist forests. The World Bank’s natural resource 

management projects in southern Brazil have included small forest components. 

By neglecting this area, the Bank may have missed important 

opportunities to divert the demand for forest products away from the 

Amazon and to reforest the devastated Atlantic Forest. 

The one successful forest plantation project, in Minas Gerais, did 

not lead to a follow-on project. Unexpected macroeconomic instability 

had led to a drop in the demand for credit for plantations except from 

a few very large planters that the Bank was not willing to support. 

Given the higher risks of investing in plantations compared to annual 

crops (similar to those articulated in OED’s China case study), stimulating 

demand from small planters in a period of high inflation and 

economic uncertainty would have required subsidies (or what have increasingly 

been called “payments for environmental services”) to small 

producers. It would have also required dealing with complex issues of 

tenure, market information, and marketing for small farmers. Investment 

in such a project would have had to be justified largely on grounds 

of national and international externalities and would have complicated 

project processing. In the meantime, fiscal difficulties of the state rendered 

further discussion of such investments fruitless even though the 

state was interested in a follow-on project and had strong leadership. 

The post-1991 period has, in some ways, witnessed a clear shift in 

approach for the World Bank, moving away from direct involvement in 

forest-related projects as in the 1980s to acting as an implementing 

agency. The thrust of the Bank’s forest-related activity in Brazil now is 

centered on the US$300 million Rain Forest Trust/Pilot Program (PPG- 

7) to Conserve the Brazilian Rain Forest and on the Global Environment 

Facility funded by international donors. The World Bank is also 

participating in an alliance with the World Wide Fund for Nature 

(WWF). 1 The alliance is encouraging countries, including Brazil, to set 

aside a global total of 50 million hectares of tropical forests by 2000, 

and bring an additional 200 million hectares under sustainable management. 

xxiv

Summary 

A recent evaluation of the PPG-7 by a blue-ribbon external panel 

concludes that while many interesting ideas have been piloted at the 

micro level (for example, in agroforestry, fire prevention, and certification), 

the PPG-7 had failed to articulate the strategic objectives of the 

program. The review criticized the program and the World Bank as its 

coordinator for its lack of an agreed pilot program strategy, weak program 

management, inability of the participants to address fundamental 

program issues, complex project design and financing plans, and slow 

coalition building with Brazil’s civil society and private sector. It also 

criticized bilateral donors for failing to take an active part in project 

management. The review argued for stronger government ownership of 

the program as being a key to its success. It outlined three options for 

strengthened institutional operation and recommended the creation of 

a “managed partnership,” which it argued would establish an enabling 

framework for government leadership and ownership of the program, 

with donors and the World Bank joining as partners to manage the 

PPG-7 as members of a Joint Program Steering Committee. While discussing 

lack of Brazilian ownership of the program, the report pointed 

out that the PPG-7 was an entirely donor-driven exercise involving small 

amounts of money (US$62 million disbursed through March 1999) at a 

time when the government faced major macroeconomic and fiscal problems, 

and had very little interest in engaging the international community 

in strategic issues. It is difficult for the World Bank to craft a successful 

strategic agenda for the Amazon without government invitation 

for such an undertaking. Steps have already been taken to increase government 

ownership by involving it in the program’s management. 

Likewise, the World Bank/WWF alliance is driven by the two external 

institutions. Although Brazil’s President Cardoso pledged to protect 

an additional 25 million hectares of forest, progress has been slow. The 

president’s rather sudden pledge generated widespread internal debate 

in Brazil. Many Brazilian NGOs opposed the idea because of the lack 

of consultation with important domestic constituencies and the possible 

adverse effects on protected areas and the communities that depended 

on them for their livelihoods. They also criticized the move as a 

source of budgetary competition at a time of severe fiscal pressure. The 

financial crisis and budget cuts of 1999 raised further questions about 

priorities between developmental and environmental expenditures. The 

government was much criticized for cutting allocations to the Ministry 

of Environment, and the World Bank helped restore some of the cutbacks. 

But administrative constraints within the Ministry do not typi- 

xxv


cally enable it to spend the existing allocations and international grants 

fully. Implementation of the World Bank/WWF alliance is reportedly 

on track once again, with greater consultation and involvement of both 

the Bank’s country office in Brasilia and the local institutions than occurred 

initially. Preparation is under way for a possible US$165 million 

project, partially funded by the GEF, for a larger policy and strategyoriented 

program. This program is currently being discussed between 

the World Bank and Government of Brazil, and its preparation includes 

local NGOs and the WWF. The lessons learned from these initiatives is 

leading to a more active involvement of Brazilian civil society, the private 

sector, and NGOs in the debate about the forests. Some of this 

activity has also been stimulated by the Bank’s Forest Strategy review. 

But basic questions remain: Who will pay to save the Amazon and 

Atlantic Forests, and how much are they willing to pay? Will the international 

community help Brazil preserve the rainforest for the global benefits 

of climate change and biodiversity conservation, as the 1991 Forest 

Strategy acknowledged? Will the Government of Brazil demonstrate the 

political will to make long-term investments in conservation? Will it be 

able to do so when the perceived benefits, including environmental benefits, 

are so small and distant? Will it be able to do so when the private 

sector and municipal and state governments have strong incentives to 

deforest? Will it be able to resist its own strong incentive to maintain the 

existing fragile political balance of power between the federal and state 

governments and bring the macroeconomy back on track through budget 

cuts? How much external involvement will the Government of Brazil 

wish the international community to have in these issues, particularly if 

the amounts of funds coming through such efforts as PPG-7, the World 

Bank/WWF alliance, and even the GEF are a trickle compared to the 

expectations of the international donor community in terms of outcomes? 

These are questions the international community must face if it is interested 

in “saving” the Amazon and what is left of the Atlantic Forest. 

OED, in collaboration with the Government of Brazil, EMBRAPA, 

and the World Bank country office, held a workshop in Brasilia on 

November 18–19, 1999, to discuss the contents of this evaluation with 

stakeholders. Participants, who included representatives from the Government 

of Brazil, forest industry, NGOs, EMBRAPA, indigenous 

peoples, and the World Bank, generally agreed with the conclusions 

drawn in this study. A summary of the workshop, together with detailed 

comments from representatives of the government, industry, and the NGOs 

are presented in Annex F. 

xxvi

Summary 

In the year 2000, the Government of Brazil intends to issue a major 

forest policy. That policy will likely include an improved conservation 

effort, improved enforcement of forest regulation to address the extent 

of “irregular” harvesting of forests, a plantation strategy focused on 

small farmers to reduce pressure on natural forests, as well as an export 

strategy that proposes to meet the growing import demand for tropical 

timber in Asia. The response of the Government of Brazil (see Annex F) 

also makes it clear that the government does not approve of international 

compensatory mechanisms that the OED review suggests as a 

way of meeting the gap between the global and national (including local) 

benefits because they would place an “unnecessary burden on Brazil’s 

national forests.” 

At the Brasilia workshop, Brazil’s Executive Secretary of the Ministry 

of Environment stated that the Bank’s presence in the country’s forest 

sector is limited not by the Government of Brazil but by the Bank’s forest 

strategy, which is conservation-oriented and does not support production 

activities. The Bank’s policy against financing production activities, 

he said, has left little room for negotiations in the forest sector and resulted 

in widening the gap between modernization/development and conservation 

activities. Brazil’s forest policy targets the economic use of resources 

and the government could use assistance with funding sustainable 

development in the context of conservation. The Government of 

Brazil is willing to accept help in the development and implementation of 

such a model. The Executive Secretary concluded by saying that Brazil’s 

efforts in the forest sector are not just on paper but have actually become 

a part of the fiscal budget and that the Bank can help in several aspects of 

the country’s forest sector but has chosen to “keep its hands clean.” 

A representative of the National Confederation of Industry also emphasized 

the need to find a balance between conservation and development. 

Sustainable forest management, he said, is essential for the survival 

of the forest industry—and the Bank can play a very important 

role. He considered the potential shortage of raw material, the fact that 

market prices do not include reforestation prices, and the high interest 

rates as some of the key issues facing the forest industry. 

An NGO representative said at the workshop that the key issue is the 

sustainability of the forests and the risks involved in forest management. 

She further said that NGO contributions have been very effective 

in terms of coordination between various agents in the forest sector. 

The EMBRAPA representative emphasized the need for development 

of an interface between environment and agriculture involving a holistic 

xxvii


approach that can ensure sustainable development. He argued that the 

so-called conflict between conservation and development can be used in 

better ways to create win-win situations. 

The OED Workshop in Brazil was followed by an ESSD Workshop 

on March 15–16, 2000 to discuss the Bank’s future involvement in the 

forest sector. It involved many of the same participants (see Annex G). 

The various stakeholder groups had begun to coalesce and the certification 

debate had advanced considerably with several private operations 

having already entered into the process. The Government of Brazil has 

engaged in a program of macroeconomic stabilization involving major 

fiscal retrenchment to keep its macroeconomy in balance. Therefore, 

whether the government would request a forest sector loan from the 

Bank remained unclear at the time of the publication of this review. 

xxviii

Introduction 

1 

Brazil contains some 3.7 million km 2 of tropical moist forest—almost 

27 percent of the remaining global stock. The country’s tropical 

forest endowment and its importance to global biodiversity are thus 

unparalleled in the world. Brazil is also the world’s largest consumer of 

tropical wood products. It has been one of the World Bank’s largest 

borrowers, with loans totaling US$9.3 billion between 1992 and 1999. 2 

Finally, lending, the rate of deforestation, and policy analysis in Brazil 

have heavily influenced not only the World Bank’s 1991 Forest Strategy 

(box 1.1) but also its lending and guidelines on environmental protection, 

indigenous peoples, and involuntary resettlement (Redwood 1992). 

This review will argue that, while World Bank learning and policy 

analysis has shaped Bank policy in the forest sector, it has had limited 

influence in Brazil until recently. The situation may now be changing. 

Endowed with abundant forest resources and competing demands on 

resources for development, the state and provincial governments, ranchers, 

and loggers have viewed forests and land conversion as sources of 

income and employment to be exploited for profit rather than preserved. 

The Government of Brazil has been too preoccupied with other pressing 

domestic economic and political issues to translate its environmental concerns 

into a concrete, actionable program. And when there are tradeoffs 

between immediate income or financial benefits to state and local actors 

and long-term environmental benefits to the nation that are difficult to 

detect and that either require fiscal resources or sacrificing revenues, the 

Government of Brazil has opted for the former. The government has also 

1


Box 1.1. Bank Forest Strategy: The 1991 Forest Paper and the 1993 Operational Policy Directive 

The 99-page World Bank publication The Forest Sector: A World Bank Policy Paper was published in September 

1991. This paper (henceforth referred to as the 1991 forest paper) represented the initial comprehensive statement 

of a new direction for the Bank’s forest strategy. A two-page Operational Policy directive (OP 4.36, produced in 

1993) reflected the policy content of the paper, and a Good Practices summary (GP 4.36) provided operational 

direction to Bank staff. The 1991 forest paper, the OP, and the GP are together the subject of OED’s evaluation. 

In today’s Bank terminology, the 1991 forest paper sets out a Bank strategy and the OP defines the policy. The 

1991 forest paper gave guidance on policy directions, programmatic emphases, and good practice, and it 

specified principles and conditions for Bank involvement in the forest sectors of its client countries. It was the 

first instance of significant outside stakeholder participation in the formulation of a Bank sector strategy, and it 

is this document which the public considers the embodiment of the new direction for the Bank’s forest strategy. 

Both the Bank’s Board and civil society were referring to this document, as well as OP 4.36, when they asked OED 

for an independent evaluation of the Bank’s forest policy. Although the Foreword for the 1991 forest paper was 

signed by then Bank President Barber Conable, the Board was not asked to, nor did it, comprehensively approve 

the 1991 forest paper. However, it did discuss the paper and endorse specific aspects of it. 

The Board-endorsed principles contained in the 1991 forest paper included the ban on financing commercial 

logging in primary topical forests; incorporation of forest sector issues into the general policy dialogue and 

country assistance strategy; and promotion of international cooperation, policy and institutional reform, 

resource expansion, and forest preservation. The endorsed principles also included the statement that “in 

tropical moist forests the Bank will adopt, and will encourage governments to adopt, a precautionary [sic] policy 

toward utilization…. Specifically, the Bank Group will not under any circumstance finance commercial logging in 

primary tropical moist forests. Financing of infrastructural projects … that may lead to loss of tropical moist 

forests will be subject to rigorous environmental assessment as mandated by the Bank for projects that raise 

diverse and significant environmental and resettlement issues. A careful assessment of the social issues involved 

will also be required” (p. 19). The Board also approved a specific section on conditions for Bank involvement. 

Both the 1991 forest paper and the OP emphasize that the Bank will not finance commercial logging in primary 

tropical moist forests, and in addition, the 1993 OP adds that the Bank “does not … finance the purchase of 

logging equipment for use in primary tropical moist forests” (para. 1a). The OP also states that “in areas where 

retaining the natural forest cover and the associated soil, water, biodiversity, and carbon sequestration values 

is the object, the Bank may finance controlled sustained-yield forest management” (para. 1f). The 1991 paper, 

however, had stressed a lack of agreement on what constitutes sustainable forest management and offered 

three different definitions of it. However, all definitions of sustainable forest management typically include 

management of forests for multiple uses as distinct from timber production alone, to which logging normally 

refers. Although this provision in the OP to finance forest management under controlled sustained-yield 

conditions allows forest management under specific conditions (and the drafters of the OP thought this 

introduced some flexibility for the Bank), a survey indicates that the staff have not considered the OP to be 

flexible on this point. The Bank will need a clearer policy if its future lending and non-lending activities are to 

address issues of improved forest management relative to current logging practices in many countries, which 

this report argues often tend to be environmentally destructive and socially inequitable. What constitutes 

“sustainable” forest management will, in all likelihood, remain unresolved and specific to each location. 

Based on the larger policy statement, the OP also states that “the Bank distinguishes investment projects that 

are exclusively environmentally protective … or supportive of small farmers … from all other forestry 

operations.” It goes on to say that projects in the latter category “may be pursued only where broad sectoral 

reforms are in hand, or where remaining forest cover in the client country is so limited that preserving it in its 

entirety is the agreed course of action” (para. 1c). The main report for this study finds that the Bank could more 

usefully and proactively work with stakeholders sympathetic to reforms in borrowing countries in ensuring that 

reforms are in hand, rather than wait for them to occur before getting engaged in the forest sector. 

2

Introduction 

been reluctant to engage donors as partners in this complex and sensitive 

area. Only recently has the general populace become conscious of the 

implications of reconciling the management of Brazil’s rich heritage with 

other priorities. The government, too, has perhaps become more proactive 

in the enforcement of laws and receptive to outside initiatives, albeit 

of a limited scope. The World Bank may have also become risk averse, 

and by being consistent with its strategy may have avoided active engagement 

in the forest sector and missed opportunities to help Brazil manage 

its huge forest resources more effectively for fear of being criticized. But 

the government’s reluctance to be engaged, which may itself have been 

prompted by the Bank’s strategy, makes it difficult to identify the more 

overwhelming factor. From this larger perspective, the ban on Bank financing 

of logging was irrelevant, given the extent of illegal logging, but 

the Brazilian authors of this study consider it to have constrained useful 

involvement by the Bank, the International Finance Corporation (IFC), 

and the Global Environment Facility (GEF). 

The protection of Brazil’s Amazon forests beyond the short term requires 

three fundamental conditions: an increase in the value of standing 

forest; an increase in the costs associated with unsustainable logging 

practices; and an increase in the incentives for and profitability of 

sustainable (or improved) forest management. That is, it must become 

profitable to keep trees and other forest products in the forest and to 

improve management practices, and the predatory exploitation of timber 

must become unprofitable. In evaluating measures that might address 

these challenges, it is useful to distinguish between the processes 

taking place at and beyond the forest-agriculture frontier. At the frontier, 

agriculture, logging, and road building create a mutually reinforcing 

system of forest conversion. Beyond the frontier, deeper in the forest, 

illegal logging of higher-value tree species threatens protected areas 

and the livelihoods of indigenous communities and extractivists. 

At the frontier, the value of standing forest can be increased in part 

through restricting access to it. This can be addressed through reforming 

road-building strategies to avoid extensive road networks that open 

forests to new economic pursuits and by improving environmental assessment 

and mitigation procedures associated with road building. The 

value of standing forest also can be increased through promotion of nontimber 

forest products and agroforestry systems among smallholders, 

though neither activity on its own will likely have a large impact on forest 

conservation under current circumstances. Transfer schemes that essentially 

pay people to keep their land in trees is another important av- 

3


enue of increasing the value of standing forests, one to which smallholders 

will respond (Carpentier et al. 1999). But this will require large transfers, 

which neither federal nor state governments of Brazil can afford. Increasing 

the value of standing forest by managing for timber production combined 

with non-timber forest products can have an impact on forests, 

particularly for indigenous communities which do not farm. 

This study explores the processes of land use changes associated with 

forest degradation and conversion to other uses. It is not the first contribution 

the World Bank’s Operations Evaluation Department (OED) 

has made to understanding the environmental aspects of the Bank’s activities 

in Brazil. In a 1992 study (Redwood 1992), OED examined deforestation, 

forced resettlement, and the impacts of infrastructure development 

on indigenous and other vulnerable populations. It is in the 

tradition of such in-depth and independent assessment of topics of direct 

relevance to the review of the Bank’s 1991 Forest Strategy (box 

1.2) that this case study has been undertaken. 

Scope of the Study 

The focus in this report on the Amazon, the Atlantic Forest, and 

plantation forestry is partly a matter of availability of time and resources. 

But there are also several other reasons for choosing this scope: 

• The Bank’s 1991 Forest Strategy gave particular attention to deforestation 

in the Amazon for reasons of global environment (box 1.3). 

• Some of the pressures and causes of the loss of forest cover in the 

Amazon are the same as those encountered earlier in the Atlantic 

Forest. The lessons of the earlier experience should prove useful in 

shaping the future strategic approach to the Amazon. 

• The Atlantic Forest is severely depleted and therefore currently in 

more urgent need of attention than the Amazon. 

• The synergistic relationship between the development of plantation 

forestry and the protection of natural forests has been ignored by 

Bank operations in Brazil. Interestingly, although the 1991 Forest 

Strategy also ignores this relationship, Bank operations in China 

have successfully addressed it (Rozelle et al. 1999). Understanding 

how the relationship operates in Brazil can help improve both the 

Bank’s Brazilian operations and strengthen its overall forest strategy. 

• Plantation forests serve many of the same functions as natural 

forests, particularly with respect to carbon sequestration, 3 soil and 

moisture conservation, and other environmental services. But they 

4

Introduction 

Box 1.2. The Operations Evaluation Department Review of the 1991 Forest Strategy 

and Its Implementation 

OED’s review of the Bank’s 1991 Forest Strategy 1 has been undertaken to assess Bank experience 

in the forest sector—particularly since 1991—to gauge its policy intentions, implementation, and 

impacts. The review also examines whether the Bank’s strategy remains relevant and can embrace 

a strategy attuned to the current realities of the forest sector. In addition to briefing the Bank’s 

Board of Executive Directors, the review will be used as an input to an ongoing Bank-wide review 

of its forest sector activities being lead by the Bank’s Environmentally and Socially Sustainable 

Development Network (ESSD). 

Brazil was selected for evaluation because it has the largest tropical moist forest in the world and 

the future of that forest has been at the heart of the Bank’s 1991 Forest Strategy. The strategy 

recommends that Brazil should be among the 20 countries with threatened tropical moist forests 

that should receive attention from the Bank. 

All of the case studies in this review consist of two parts—the first focusing on the extent and 

causes of changes in the forest sector, and the second on how the entire set of Bank instruments 

has interacted with the processes of the changing forest cover, and with what impact. 

To the extent possible, the performance of the Bank has been assessed based on outcomes and 

impacts. Six classes of outcome are considered: 

• Improvement in country policies and strategies with direct and indirect impacts on forests 

• Institutional development including improvement of the legal framework, a redistribution of 

roles between the public and private sectors, and participatory approaches to decisionmaking 

• Improvements in technologies 

• Capacity building and human capital formation 

• Improvement in the incentive structure 

• Improved information, monitoring, and evaluation systems. 

1. The strategy is summarized in Annex B. 

are not efficient in other functions such as the conservation of 

biodiversity, cultural diversity, and ethnoecological knowledge 

(especially of traditional forest peoples). 

• Although plantations are poorer in biodiversity, by relieving 

pressure on natural forests, they can help conserve biodiversity. 

• Brazil has vast tracts of degraded forest land that are prime candidates 

for reforestation. 

• The plantation forest sector in Brazil is among the most advanced 

in the world in research and technology and has a progressive, 

well-established private sector that is ready to address some of the 

problems in the natural forests. 

5


Box 1.3. The 1991 Forest Strategy and the Amazon 

The World Bank’s 1991 Forest Strategy, concerned about the rapid loss of tropical primary moist 

forests, emphasized the necessity of maintaining the forest cover in the Amazon. In making its 

case, the strategy not only stressed the global benefits of carbon sequestration and biodiversity, 

but also recognized the difficulty of achieving this objective given the divergence between global 

and national benefits. While benefits such as soil and water conservation accrue to the nation, the 

benefits of biodiversity and climate change are global. Global interests, the paper argued, generally 

call for greater preservation of forests than national interests. This makes it difficult to incorporate 

global interests in national decisionmaking without a transfer of payments to compensate the 

agents involved for their lost profits. The strategy outlined the difficulties in estimating an 

appropriate level of compensation and the absence of a delivery mechanism—except for the 

nascent Global Environment Facility. Since 1991, the international community has formally 

recognized the loss of biodiversity as a serious cause by ratifying the Convention on Biodiversity. 

Discussion of these issues has advanced considerably through the Kyoto conference of the UN 

Convention on Climate Change, the Clean Development Mechanism, and a variety of other 

avenues. But financial mechanisms to save biodiversity remain minuscule. The experience the 

Bank has gained by implementing its 1991 Forest Strategy in Brazil offers important lessons that 

are pertinent to the future Bank policy and strategy in the forest sector, as well as for its global role. 

• It may be possible, through improved policies and strategies, to 

slow the rate of deforestation in the Amazon and the consequent 

loss of livelihoods for the poor and the indigenous peoples, but 

because selectivity, priorities, and a focus on realistic targets for 

implementation are of utmost importance in conservation efforts, 

the analysis presented in this report will show that deforestation 

cannot be stopped altogether. 

• The World Bank/WWF alliance poses a variety of problems. As 

currently conceived, it is unlikely to be a viable strategy for the 

protected areas by itself. But it can become an important part of an 

integrated land use strategy considered here. 

• A far more integrated strategy toward forest sector management is 

essential both in Brazil and in the Bank’s interventions in Brazil 

than is envisaged by the Bank’s 1991 Forest Strategy. 

Organization of the Report 

This report is divided into two parts. Part I focuses on the factors, processes, 

and stakeholders affecting Brazil’s forest cover. Part II examines 

World Bank operations vis-à-vis the findings of Part I, evaluates whether 

and how the Bank’s 1991 Forest Strategy has influenced Bank activities, 

and assesses whether it has promoted forest conservation in Brazil. 

6

PART I: THE FORESTS AND 

FOREST SECTOR IN BRAZIL 

2 

How Much Forest Is There? 

Brazil is richly endowed with forest resources. Forests cover more 

than 65 percent (5.51 million km 2 ) of the country’s total land area of 

8.5 million square kilometers. This vast resource accounts for 59.8 percent 

of the forests of tropical South America and 26.6 percent of the 

world’s tropical forests. 4 About 90 percent of the country’s remaining 

forest cover is in the Amazon and the cerrado (World Bank 1994a), a 

broad savanna in central Brazil where much of the agricultural development 

of the past decade has taken place. The rest of the country’s 

forest resources are located in several areas. Stretching along Brazil’s 

Atlantic coast are the remains of the Atlantic Forest, as well as coastal 

restinga and mangrove vegetation. Behind portions of the Atlantic Forest 

are deciduous seasonal forests, and in northeastern Brazil lies the 

semi-arid caatinga. In addition to these natural resources, Brazil has 

about 55,000 km 2 of plantation forest. 

The Amazon 

The Legal Amazon has an area of 5 million square kilometers. 5 About 

75 percent of that area is under forest, representing a commercial stock 

of 60 billion cubic meters (Kaufman et al. 1990). About 87 percent of 

the Amazon’s original forest cover is thought to remain, though estimates 

vary. Savannas and natural grasslands occupy about 14 percent 

of the territory, while some 13 percent has been deforested for cattle 

pasture and agricultural pursuits (Alves and Escada 1999; Fearnside 

and Ferraz 1995). The Amazon’s forests are endowed with vast timber 

7


resources, large stocks of carbon (140–350 tons/hectare), and possibly 

more than 50 percent of the world’s biodiversity (Kaufman et al. 1990; 

Fearnside 1999). 

The forests of the Amazon basin contain at least half of the world’s 

species, thought to be between 5 and 30 million, of which 1.5 million 

have been classified. Within Amazonian forests reside an estimated 2.5 

million species of arthropods, more than 60,000 plant species, over 2,000 

fish species, and more than 300 species of mammals. The number of 

microscopic organisms is unknown (Government of Brazil 1997). 

The Atlantic Forest 

The Atlantic Forest has among the highest levels of biodiversity recorded 

globally, and a large number of its native species are in danger 

of extinction. It includes several unique tropical and subtropical forest 

formations, according to the International Union for the Conservation 

of Nature (IUCN 1988). The level of species endemism is high, particularly 

for mammals, birds, amphibians, reptiles, and butterflies. For example, 

39 percent of the estimated 130 mammal species in the region 

are endemic. Mammalian fauna is still relatively poorly known, other 

than the primates, of which 80 percent are endemic. The Atlantic Forest 

is unusually rich in endemic bird species, with at least 146 bird species 

and 68 subspecies being endemic. The Atlantic Forest is thus one of 

the most threatened tropical forest ecosystems in the world, and has 

become a top priority for conservation in the American tropics. What 

remains of the forest is highly fragmented, with most remnants in areas 

unsuitable for agriculture due to steep slopes, poor drainage, or high 

transportation costs (Viana et al. 1997). It is generally believed that 7.3 

percent (SOS Mata Atlantica, INPE and ISA 1998) of the original 1.3 

million km 2 of forest still remains. According to one estimate (SOS Mata 

Atlantica 1998), more than 5,000 km 2 of Atlantic coastal forest was 

lost between 1990 and 1995. 

Despite heavy deforestation and fragmentation, the Atlantic Forest 

nevertheless maintains rich biological and cultural diversity, including 

indigenous populations, and has a high capacity for CO 2 

storage. This 

forest also provides environmental services, particularly watershed protection, 

to more than 100 million Brazilians and is a potential candidate 

for reforestation under the newly emerging carbon credit schemes. 

Conservation efforts have made the Atlantic Forest a priority not 

only because of the extent of its degradation but also because of its high 

level of biodiversity and high degree of species endemism. 

8

How Much Forest is There? 

Changes in Forest Cover 

Brazil has one of the most advanced satellite monitoring systems in 

the developing world, and the aggregate data published by the National 

Institute of Space Research (INPE, Instituto Nacional de Pesquisas 

Espaciais) on forest cover changes are widely accepted. This is a major 

improvement over the situation in the 1980s and needs to be built upon. 

However, information on the sources and causes of those changes is 

much less clear and hampers policy formulation (box 2.1). 

Box 2.1. Availability and Quality of Data on Changes in Brazilian Forests 

Information concerning the causes of changes in natural forest cover is limited in Brazil. 

While various studies, including many referred to in this paper, discuss factors 

influencing deforestation, it remains difficult to draw more than a few concrete 

conclusions. For example, it is still not known with certainty whether land conversion is 

being undertaken largely by small- or large-scale agriculturists. The answer would 

clearly have strategic implications. 

Much of the data on causes of deforestation is out of date or inconsistent, making 

analysis of the current situation difficult. Brazil conducts excellent agricultural and 

demographic censuses, however, and two data sets are now available from the mid- 

1980s and the mid-1990s. Analysis of these sets would provide insights that could 

inform the debate in the parliament and the country on the extent to which continued 

deforestation is a result of agricultural frontier settlement, the role of large and small 

farmers in that process, and the extent to which policy factors (such as easy availability 

of credit for agriculture, land settlement policies, and investment in infrastructure) are 

causing deforestation. Had these issues been at the center of a government policy for the 

Amazon region, such analysis would already have been conducted. Although Brazil has 

the human capital and financial resources to conduct such analysis, there apparently has 

been no demand for it from the government; therefore, none has been conducted. 1 

1. OED commissioned such an analysis of the data, which was to be funded by EMBRAPA (Empresa Brasileira 

de Pesquisa Agropecuaria), but the analysis could not be completed in time for this study. 

Amazon Forests 

Deforestation was proceeding rapidly in the Amazon in 1978 (Annex 

A, table A.1). The loss of 20,000 km 2 /year coincided with ambitious 

government-sponsored regional development programs for the 

Amazon region and wide availability of credit and other financial incentives. 

After a substantial decline over the period 1989–1991, deforestation 

appears to have shown a sharp upward trend, with a “spike” 

in 1995. There is some debate, however, about whether deforestation 

rates did indeed “spike” in 1995. Economists argue that forest losses 

9


Figure 2.1. Deforestation in the Amazon, 1989–97 

10 

9 

Percent change in deforestation 

8 

7 

6 

5 

4 

3 

2 

1 

0 

1989 1990 1991 1992 1993 1994 1995 1996 1997 

Source: INPE, 1989. 

that had taken place over the previous two years or so did not register 

on aerial images due to cloud cover or other complexities of interpretation. 

If this is the case, then what is perceived as a rapid rise in deforestation 

in 1995 would instead be a cumulative effect. Officials in charge 

of satellite monitoring in INPE, on the other hand, stand by their observations 

and say that the rapid increase in deforestation in 1995 was a 

consequence of the 1994 Real Plan for economic stabilization. If this is 

the case, then the stabilization effort merits further study. Another explanation 

is that the increase in deforestation during 1993–95 was mainly 

due to accidental forest fires (POLEX 1999). 

Annual deforestation rates in the Amazon have oscillated in the 1991– 

98 period. In 1991, 11,000 km 2 of forest was converted to other uses; 

in 1995, some 29,000 km 2 was deforested. The annual average loss of 

forest for 1991–98 was 13,000 km 2 , well below the 21,000 km 2 reported 

between 1979 and 1981 in the World Bank’s 1991 Forest Strategy. 

In 1997, total deforestation exceeded 530,000 km 2 , or more than 

13 percent of the original forest cover of 4 million square kilometers. 

Most of this deforestation has occurred in an arc on the southern Amazon 

basin, since the agricultural frontier is shifting northward (INPE 

1999). 

10

How Much Forest is There? 

Table 2.1. Deforestation in the Atlantic Rainforest, 1990–95 (km 2 ) 

Area Area of AF1 Forested area Deforestation 

State Area mapped mapped 1990 1995 % 2 Area % 

Rio de Janeiro 44,081.11 44,081.11 44,081.11 10,692.30 9,288.58 21.07 1,403.72 13.13 

Mato Grosso 357,424.10 47,573.15 18,428.21 437.52 395.55 2.15 41.97 9.59 

Goias 340,165.90 39,187.11 30,556.77 71.19 64.71 0.21 6.48 9.1 

Minas Gerais 587,172.00 433,391.65 275,397.09 12,140.59 11,251.08 4.09 889.51 7.33 

Espirito Santo 46,115.22 46,115.22 46,115.22 4,097.41 3,873.13 8.4 224.28 5.47 

Rio Grande 278,946.64 161,286.95 87,585.33 5,352.55 5,064.62 5.78 287.93 5.38 

Parana 198,086.03 198,086.03 193,156.64 18,151.37 17,305.28 8.96 846.09 4.66 

Santa Catarina 95,716.47 95,716.47 95,716.47 17,291.60 16,662.41 17.41 629.19 3.64 

Sao Paulo 241,752.11 241,752.11 195,958.99 18,589.59 17,915.59 9.14 674.00 3.63 

TOTAL 2,189,459.58 1,307,189.80 986,995.83 86,824.12 81,820.95 8.29 5,003.17 5.76 

1. The Atlantic Forest (AF) domain is defined legally. 

2. Percentage of remaining forest area in 1995 relative to the area of AF mapped. 

Source: SOS Mata Atlantica, INPE & ISA, 1998; Viana et al. 1998. 

Atlantic Forest 

Deforestation of the Atlantic Forest has been going on much longer 

than it has in the Amazon. The area has continued to lose tree cover into 

the 1990s; however, between 1990 and 1995, more than 5,000 km 2 of land 

(5.76 percent of the total) was deforested in the nine-state area (table 2.1). 

Most deforestation in the Atlantic Forest occurred several decades 

ago, with the rate varying among states and following different phases 

of agricultural frontier expansion (Dean 1997). Where economic returns 

to agriculture were higher, deforestation was more rapid. This 

was particularly the case in areas suitable to coffee plantations in Sao 

Paulo, Minas Gerais, and Parana. Where economic returns to agriculture 

were lower, as in Espirito Santo and Bahia, logging helped finance 

agricultural expansion. 

Plantations 

In addition to vast natural forests, there are 55,000 km 2 under plantation 

reforestation in Brazil, primarily comprised of eucalyptus and 

pines. Demand from major industries is a major driving force in the 

plantation sector in Brazil. The pulp and paper industry, and the iron 

and steel industry (which requires large quantities of vegetable charcoal) 

have been particularly active in reforestation (table 2.2). In recent 

years, the Bank-funded Minas Gerais reforestation program has also 

made a major contribution to plantation development. 

11

World Bank Forestry Case Studies: Brazil 

Table 2.2. Major Plantation Reforestation Efforts in 

Brazil 

Minas Gerais 

Pulp and Iron and reforestation 

Year paper steel program Subtotal 

1982 775.03 - - 

1983 654.03 - - 

1984 772.95 - - 

1985 832.82 - - 

1986 815.97 - - 

1987 834.24 58.49 - 141.91 

1988 991.35 54.35 3.37 156.86 

1989 1,160.04 88.36 9.99 214.35 

1990 1,319.25 125.00 12.38 269.30 

1991 742.33 51.31 7.98 133.51 

1992 826.53 80.07 13.24 175.96 

1993 892.03 46.65 7.56 143.42 

1994 837.03 37.03 6.50 127.23 

1995 945.40 30.35 6.32 131.21 

1996 1,125.42 32.75 5.83 151.13 

1997 1,017.23 30.76 6.54 139.02 

Source: Bacha and Marquesini 1999. 

12

3 

The Economic Importance 

of Brazil’s Forests 

The Bank’s 1991 Forest Strategy identified smallholder farming as 

the most important source of deforestation. This was based on an assumption 

that much of the urban industrial demand for wood products 

would be met by imports from temperate countries. Unlike the Bank’s 

1978 forest strategy, this assumption underestimated the power of domestic 

urban and manufacturing demand for wood products and its 

implications for forest policy. Most of Brazil’s domestic needs for wood 

products have been filled from its own forests. 

Size of the Forest Sector 

Brazil is a larger consumer of timber than all of western Europe, 

with much of the timber going to the manufacturing sector. In 1997, 

Brazil was the largest consumer of tropical wood in the world (34 million 

m 3 in logs), followed by Japan (28 million m 3 ), Indonesia and Malaysia 

(19 million m 3 ), and China (11 million m 3 ). The forest sector, 

though, is only 6.9 percent of Brazil’s GNP. This figure includes silviculture 

and extraction from natural forests (0.32 percent), processed 

wood and furniture (0.86 percent), iron and steel (0.89 percent), 6 and 

pulp and paper (1.06 percent). The overall forest sector (forest production, 

services, equipment, and industry) generated an estimated annual 

revenue of US$53 billion in 1993–95 (Bacha and Marquesini 1999). 7 

13


Forest-based industry represented 10.79 percent of the total revenue 

from the Brazilian transformation industry in 1994, down from 13 percent 

in 1970. Within the sector, iron and steel production has the highest 

revenues, followed by the pulp and paper segment, timber, and finally, 

the furniture industry. In 1985, these activities generated 62.6 

percent, 21.3 percent, 9.5 percent, and 6.6 percent, respectively, of total 

forest-based revenues. In 1994, these proportions were 45 percent, 

31.2 percent, 11.6 percent, and 12.2 percent, respectively, indicating a 

decrease in the importance of production for the iron and steel industry 

relative to the furniture and pulp and paper segments. Until the early 

1980s, annual revenues from natural forest extraction were greater than 

those from plantation forests; this relationship has since reversed (IBGE 

1997). 

Brazil’s forest sector employed 1.5 million people in the 1993–95 

period, most of whom were involved in the extraction of natural forest 

products. From 1970 to 1985, the forest-based industry employed 

roughly 14 percent of the total transformation industry; in 1994, forest-based 

employment had dropped to 11 percent of that total (Bacha 

and Marquesini 1999). Within the forest sector, timber milling generates 

the most employment, followed by iron and steel, furniture, and 

pulp and paper. In 1985, these segments accounted for 30.5 percent, 

29.3 percent, 21.6 percent, and 18.6 percent of employment, respectively. 

In 1994, these figures were 29.2 percent, 24.2 percent, 25.6 percent, 

and 21 percent, respectively. 

International Trade 

Macroeconomic policies and development strategies have had a profound 

impact on Brazil’s forests. (Annex C describes the macroeconomic 

situation in Brazil.) From an economic standpoint, Brazil pursued an 

aggressive postwar policy of import-substitution industrialization, in 

which industrial and manufacturing sectors were promoted and protected 

to the disadvantage of other economic sectors, including agriculture. 

This strategy, based as it was on unsound fiscal and monetary 

policy, led to impressive economic growth through the 1970s but ultimately 

left Brazil highly vulnerable to the oil shocks of that decade, 

leading to stagnating economic growth and rampant inflation in the 

1980s (Maddison and Associates 1992). 

In the 1990s, under the administration of President Fernando Collor, 

rapid trade liberalization began. Almost all non-tariff barriers to trade 

were removed in four years. Import tariffs were lowered, reducing the 

14

The Economic Importance of Brazil’s Forests 

cost of inputs and machinery, and leading to rapid forest conversion. 

Trade liberalization has supported Brazil’s comparative advantage in 

agriculture and livestock, and has stimulated expansion of the service 

and durable goods sectors (EIU 1999b) as well as growth of agriculture 

along the forest margin. 

International trade has been a small share of the market for forest 

products, unlike in Indonesia. 8 Although forest-related exports in Brazil 

grew from US$100 million in 1985 to about US$500 million in 1997, 

Brazil currently supplies only 4 percent of the global market for tropical 

wood (Barreto et al. 1998). Since 1980, the relative importance of 

the forest sector to Brazil’s international trade has increased only slightly. 

In that year, it accounted for 5.42 percent of total exports and 1.2 percent 

of imports. In 1998, these values had risen to 7.14 percent and 

1.98 percent, respectively. 9 About 50 percent of exports are cut wood, 

25 percent are plywood, and 12 percent are laminates (Verissimo and 

Lima 1998). The modest size of the export market, therefore, may mean 

that certification, which has begun to attract much attention in Brazil 

and internationally will have less impact than its proponents hope. However, 

this situation could well change in the future. 

Trade liberalization, which began in earnest in the early 1990s and 

received a major boost with the 1995 implementation of Mercosul and 

recent currency devaluations, has already boosted exports, including 

the export of forest products. Brazil is therefore poised to increase its 

supply of wood products on the global market as other traditional suppliers 

of tropical timber, such as Indonesia and Malaysia, exhaust their 

resources. 

15

4 

Pressures on the Forests 

There are three major pressures on the forests of Brazil: logging, agricultural 

expansion, and development (particularly roads). But the 

causes of deforestation are highly intertwined, and it is difficult to distinguish 

their relative impacts. Moreover, the impacts vary geographically. 

To fully understand forest cover changes, it is necessary to look at 

both sides of the forest margin. While forests are cleared as a result of 

agricultural frontier expansion and land-extensive agricultural activities, 

unsustainable logging practices within the forests also contribute 

to net forest loss. Bridging and facilitating the two processes are roads, 

from major highways to small, unimproved logging roads, which open 

the forest to development and settlement. 

The direct contribution of logging to deforestation is significantly 

less than the effect of agriculture and cattle-raising, but the indirect 

contribution of logging is large. Roads opened for logging stimulate 

colonization, which in turn brings agriculture and subsequent deforestation 

to the area. Furthermore, farmers who sell extraction rights to 

the logging industry invest this money in agriculture, typically extending 

the agricultural frontier rather than intensifying existing agriculture 

(Arima et al. 1999). Logging, therefore, is a critical link in the network 

of pressures to deforest. Logging is becoming much more intensive and 

less selective than it was 20 years ago. 

Until the 1980s, most domestic wood consumption was met by logging 

in the Atlantic Forest. In the 1970s and 1980s, timber production 

from the area declined sharply due to high levels of deforestation, low 

17


reforestation rates, and unsustainable management practices. This began 

to increase the demand pressure on Amazonian timber supplies. Today, 

nearly all the original forest cover in the Atlantic Forest has been altered, 

but the processes driving forest cover change will continue to affect the 

Amazon for some time to come. As many of the processes currently affecting 

the Amazon mimic those that transformed the Atlantic Forest 

several decades ago, it is essential to understand the interplay of logging, 

development, and agricultural expansion. The interplay between the various 

forces of deforestation is illustrated in figure 4.1. 

In fact, timber extraction in the Amazon is predominantly (97 percent) 

done without management due to poor enforcement, low technological 

availability, and high economic returns. Only in a few cases are 

management plans approved by the Brazilian Environmental Institute 

(IBAMA, Instituto Brasileiro do Meio Ambiente) actually implemented. 

Figure 4.1. Deforestation Pressures in Brazil 

Timber demand 

The Pressure Network 

Logging 

Atlantic Forest 

Land tenure 

conflicts 

HIgh deforestation 

Unsustainable logging 

Low reforestation 

Forest 

impoverishment 

Roads and 

capital 

Low timber supply 

increases demand on 

Fires 

Agricultural 

expansion 

Amazon Forest 

Deforestation 

18


Independent verification has found only a few operations that can be 

qualified as “well-managed forests.” 

In 1996, Brazil’s federal government placed a moratorium on new authorizations 

for mahogany exploitation. At the same time, IBAMA conducted 

a review of all forest management plans in Amazon. However, 

some 70 percent of these management plans were rejected—50 percent 

suspended and 20 percent cancelled. A “mahogany oligopoly” formed 

by five companies in Para controls 81 percent of the timber activity authorized 

under the management plans. These companies also have a history 

of noncompliance. However, stopping the authorization of additional 

concessions will only raise the value of those already in possession and may 

open the door for corruption within governmental agencies, since it will 

determine which companies can continue to operate legally (GTA 1998). 

Deforestation and Government Policies 

Underlying the infrastructure development and economic activity that 

has taken place in the Amazon since the 1960s is a set of governmentinstituted 

policies and programs that have systematically sought to open 

the Amazon to settlement and economic activity. 10 Public policies and 

legislation historically have been biased against forests in favor of other 

land uses for obvious reasons. Forested areas are considered “undeveloped” 

and generate few revenues compared to other activities that are 

associated with the investment in physical and social infrastructure of 

the type that the non-indigenous populations living in the Amazon desire. 

Compounding this issue, the seemingly endless supply of cheap 

land in the Amazon has made land-extensive activities economically 

more attractive than land-intensive investments. Studies show that relatively 

forest-friendly pursuits such as agroforestry and extractivism based 

on non-timber forest products cannot match the profitability of agriculture 

on smallholdings (see, for example, Carpentier et al. 1999). 

A result of the policy environment and the Amazon’s endless supply 

of cheap land has been what Schneider (1994) terms “nutrient mining,” 

or the process by which a progression of economic activity exhausts the 

natural resource base. Schneider notes that “the process of nutrient mining 

varies from region to region along the frontier, depending on the 

quality of soils, ease of forest access, availability of labor, credit, and 

land tenure relationships. As long as forest access is not limited and 

land prices do not reflect the true value of forest resources (biodiversity, 

carbon sequestration, etc.), intensification of land use and more sustainable 

management practices will not be economically attractive.” 

19


In addition to a policy environment that encourages development in 

the Amazon, an insufficiently targeted and unclear regulatory environment 

and lax enforcement of restrictions governing logging have long 

served as strong disincentives against more ecologically sound logging 

practices. Indeed, over 80 percent of logging in the Brazilian Amazon is 

illegal. Brazil’s thriving plantation forest industry can relieve pressure 

on the country’s natural forests only when access to natural forests is 

restricted through careful policymaking, road planning, and enforcement 

of forest regulations. 

The Brazilian government has recently shown signs of taking a stronger 

stance on enforcement 11 and has become increasingly sensitive to 

ecological issues concerning development of the Amazon’s resources, 

reversing or eliminating many of the policies and programs contributing 

to deforestation and taking important steps to increase forest protection. 

Nevertheless, the government continues to view the Amazon as 

an opportunity for economic growth that can aid in its fight against 

poverty. As a result, current government efforts, such as the “Brazil in 

Action” plan, 12 which includes significant road building in the Amazon, 

will continue to threaten the region’s forests. Many of these investments 

in transportation are undertaken with little or no consultation 

with the Ministry of Environment, in much the same way that agricultural 

expansion generally involves little attention to the issues of zoning 

called for by the Bank’s 1991 Forest Strategy, an activity from which 

the Bank has learned valuable lessons (box 4.1). Trade liberalization 

and a devalued currency have already driven increased exports of primary 

products, including soybeans, whose production is rapidly expanding 

into the Amazon, adding to pressure on the forests. Thus, the 

situation appears to be stacked against Brazil’s forests from all sides. 

While changes in policy might be expected to reduce pressure on the 

Amazon, background papers for this study (Carpentier et al. 1999 and 

Sonda 1999) found that the dynamics of farm-level decision-making 

cast doubt on the efficacy of current approaches. These studies are discussed 

below in the section on agricultural expansion. 

Forest Regulation 

Brazil’s forest sector is extensively regulated, both upstream and downstream. 

Regulations governing the exploitation of natural forests generally 

fall into six areas: environmental impact assessments, burning and 

clearing permits, property-specific cutting restrictions, geography-specific 

cutting restrictions, forest management requirements, and restric- 

20


Box 4.1. Zoning and its Potential Consequences 

Many regions, including the World Bank’s projects in Rondonia and Mato Grosso, use 

some type of agroecological zoning to avoid conflicts between agricultural development 

and biodiversity conservation. Agroecological zoning tends to push development in 

areas of high agricultural potential, while restricting land use in ecologically sensitive 

areas. However, zoning regulations can be inefficient when they do not allow for any 

substitutability between plots in meeting conservation goals; when assessment of the 

opportunity cost of conservation is based on technical soil quality measures rather than 

market values; when they tend to reduce private land values therefore faces landholder 

opposition; and when there is simply noncompliance because the government is 

reluctant or unable to enforce regulations. Chomitz (1999) argues that in many ways 

agroecological zoning is reminiscent of command-and-control approaches to industrial 

pollution control. 

Chomitz (1999), therefore, examines an approach that is similar to zoning but not as 

rigid. It takes biodiversity conservation as an intrinsically valued goal and allows for 

substitutability between areas used to meet these goals and provide incentives for 

compliance. Transferable development rights (TDRs) are used to meet the objectives in a 

cost-effective and incentive-compatible way. In comparison to the command-and-control 

approach of zoning, the flexibility of the TDRs’ approach in achieving conservation goals 

makes it possible to encourage conservation on lands with low agricultural opportunity 

costs, while providing appropriate incentives to the affected landholders. 

tions on exports of forest products (World Bank 1994). These regulations 

have evolved, in part reflecting attempts by the Brazilian government 

to incorporate growing knowledge about the ecological and social 

nature and the importance of tropical forests. 

The Brazilian government’s commitment to preserve forests is evident 

from its 1965 Forest Code, 13 which requires that each property maintain 

a reserve of native forest. In southern Brazil, the law states, each property 

must have at least 20 percent in reserves. Also, no primary forest can be 

cleared in the developed parts and no more than 50 percent of primary 

forest may be cleared in undeveloped areas of the region. 

However, in the northern (Amazonian) region, 14 the minimum requirement 

for the reserve ranges from 50 percent to 80 percent depending 

on the local vegetation cover. In addition, property owners must 

also maintain “areas of permanent protection” on riverbanks, steep 

slopes, hilltops, and around lakes and ponds. In the past few years, 

enforcement of this regulation appears to have intensified. The increase 

in enforcement may be related in part to a revamping of the property 

tax law (Imposto Territorial Rural, ITR). New regulations require land- 

21


holders to file a declaratory statement with federal authorities. The declaration 

includes a statement of the area of the forest reserve, which is 

exempt from property tax. 

The government attempted to expand its Forestry Code in 1977 with 

the Pandolfo Proposal by the Superintendency for the Development of 

the Amazon (SUDAM, Superintendencia do Desenvolvimento da 

Amazonia). This was the government’s first attempt to develop a forest 

policy for the Amazon based on the idea that the region’s poor soils 

were better suited to timber production than agriculture. This initiative 

resulted in the eventual creation of a 500,000 km 2 network of national 

forests in the Amazon for managed timber concessions. Despite the availability 

of SUDAM-backed fiscal incentives, investor interest was low. 15 

Nascimento (1985, cited in Schneider 1992) suggests that this was due 

to the relative attractiveness of fiscal incentive programs for cattle ranching 

as an alternative investment. Schneider also points out that it was 

unlikely that investors in this program could compete under managed 

conditions with those extracting timber without management constraints. 

Following more than two decades of development in the Amazon, in 

1988 the government launched Nossa Natureza (“Our Nature”), an 

environmental policy initiative aimed at fortifying forest protection efforts. 

Finally addressing environmental concerns of government policies, 

this program, among other things, suspended fiscal incentives for 

agro-ranching activities in forested parts of Amazonia and intensified 

government efforts to monitor and control burning (Redwood 1992). 

Then, in 1996, the government instituted an ecological package of 

legislation (GTA 1998). This initiative consisted of Provisional Measure 

(MP) 1511 and Decree 1963, both of which directly affect the 

logging of natural forests. MP1511 modified the original Forestry Code 

and required that 80 percent of forested area on private lands must 

now remain under forest cover, as opposed to 50 percent of total land. 

However, in states with approved zoning plans, smallholders are exempt 

from this requirement. Decree 1963, on the other hand, in recognizing 

the seriousness of illegal harvesting of mahogany, called for a 

two-year moratorium on new forest management plans for exploitation 

of mahogany and virola. Under the decree, IBAMA also was to investigate 

existing concessions and anticipated canceling 70 percent of them. 

The decree also established priorities for the use of financial incentives 

and required IBAMA to submit proposals for new national forests (GTA 

1998). 

22


Weak Institutional Environment and Enforcement 

Regulations governing the natural forest sector, while well intentioned, 

have been problematic and largely ineffective. A 1994 World Bank study 

summarized the principal shortcomings of regulatory policies: 

• The objectives underlying the regulations are often unclear. 

• Regulations are often designed to serve two conflicting purposes: 

protection and production. 

• Regulations that are appropriate in one region of the country may 

be inappropriate in other regions. 

• Regulations are seldom targeted at specific externalities. 

• Regulations are frequently in direct conflict with the economic 

incentives driving the private sector, making them difficult to enforce. 

• The government has few incentives or rewards to offer. Other than 

incentives for forest plantations used in the past, there are no other 

market-based incentives that could help bring private sector 

actions in line with public objectives. 

In addition to the challenges of clearly and appropriately defining 

regulatory measures, enforcement has been difficult historically. Indeed, 

according to Schneider (1992), “the most consistent encouragement to 

all sectors of the lumber industry … has been the relative freedom with 

which it has been allowed to exploit the public forest resources through 

near total absence of forest management guidelines or enforcement of 

existing regulations. This situation has been exacerbated by the numerous 

agencies (state and federal) charged with different aspects of forest 

supervision and management as well as the low levels of human and 

capital resources allocated for the task.” 

Schneider (1992) suggests that issues of local political economy are 

partly to blame. Regulations governing the logging of natural forests 

are an implicit tax on the industry. Given the mobility of the industry in 

Brazil, local governments—keen to attract and maintain investment in 

their jurisdictions—therefore have an incentive to be lax on enforcement 

of any restrictions on such economic activity. Further, given the 

typical time horizon of local political careers, politicians may have additional 

incentive to maximize economic activity over the short term, 

rather than promoting longer-term, more stable logging practices. In some 

instances, local politicians have directly allied themselves with the logging 

sector, for example, to protest the moratorium on new concessions 

for virola extraction. The increased political power of the forest sector is 

further evident in the election of loggers to local posts (Arima et al. 1999). 

The combination of disincentives on the part of local governments to 

23


enforce regulations and the gross understaffing of enforcement agencies 

has made evasion of regulations in the timber industry, and of taxes, 

commonplace. 

Tax evasion in the forest sector is very high. From the US$2.2 billion 

in annual production, the sector paid taxes of US$340 million, with 

ICMS (i.e., a state tax on production) representing the bulk of these 

taxes. For example, an estimated 88 percent of taxes went uncollected 

in the state of Para between 1984 and 1987. If tax evasion occurs on 

this level in the entire Amazon, 1998 losses would be on the order of 

US$225 million (Barreto et al. 1998). Most businesses are exempt from 

income taxes. Only about 13 percent of the value of fines assessed for 

noncompliance with environmental laws in the Amazon were actually 

collected in 1996 (i.e., R$4 million from a total of R$31.2 million; Arima 

et al. 1999). Reasons underlying tax evasion include corruption and a 

system structure that represents low risk for tax evaders. 

The development of appropriate policy instruments to improve monitoring 

and tax revenue collection in the forest sector is important. The 

state green tax, “ICMS ecologico,” a success story from southern Brazil, 

merits further attention and refinement. This initiative allows a small 

percentage of state taxes (the percentage varies from state to state, but 

averages about 5 percent) to be distributed to municipalities on the 

basis of the existing forest cover. The tax serves as an incentive, at the 

local level, for forest protection. This study’s Brazilian team recommends 

that this and other policy instruments should be improved and widely 

disseminated. The World Bank can play an important role here 

(Nascimento et al. 1999). 

What can be done to address the situation? Nascimento et al. (1999) 

suggest that taxing unmanaged timber operations might improve the 

situation, promoting forest conservation and increased public revenues 

simultaneously. The practicality of this, given the already high incidence 

of tax evasion and the disinclination of local governments to impose 

restrictions on logging, is questionable, however. Is there a role for the 

World Bank? 

Logging 

Exhaustion of Brazil’s southern forests, the opening of roads and 

other infrastructure, plus lax environmental oversight all have contributed 

to rapid growth of the timber industry in the Amazon (Verissimo 

and Amaral 1998): Between 1976 and 1998, forest production (in logs) 

in the Amazon increased from 4.5 million m 3 to 28 million cubic meters. 

24


Growth is expected to continue at a rate of 5 to 7 percent yearly, due to 

continuing increases in domestic and international demand (Barreto and 

Verissimo 1999; Stone 1997) and declining supply from the Atlantic 

Forest (Arima et al. 1999). 

Timber Production 

Most of the production—86 percent—goes to the domestic market; 

only 14 percent is exported. 16 The states of Rondonia, Mato Grosso, 

and Para provide 93 percent of the production. Amazonian wood accounted 

for 38 percent of total wood exports in 1997, with 71 percent 

of Amazonian exports originating in the states of Para, Mato Grosso, 

Amazonas, Rondonia, and Amapa, each of which account for 6 percent 

to 8 percent of remaining Amazonian wood exports. About 90 percent 

of wood exported leaves from the port of Belem (Arima et al. 1999). 

Predatory extraction is widespread, and the intervals between extraction 

cycles are getting shorter and shorter, leaving about 41 species currently 

at risk of extinction due to 

poor management (Verissimo et al. 

1998; Martini et al. 1994). 

High-value timber, some of it 

destined for the export market, is 

extracted from deep inside the forest, 

well beyond the agricultural 

frontier. Timber feeding the domestic 

market, on the other hand (primarily 

less valuable species used in 

processed products, see box 4.2), 

generally is logged from the frontier, 

where the synergistic processes 

of logging, road building, and agriculture 

compound forest loss. 

Politics and Wood 

The rapid growth of timber production 

in the Amazon and the increasing 

economic importance of 

the Amazonian timber industry, in 

turn increased the political influence 

of the timber sector at the municipal, 

state, and federal levels 

Box 4.2. Where the Timber Goes 

About 2,500 businesses among 75 production 

centers produce approximately 9.7 million m 3 of 

processed wood annually, 63 percent of which 

goes to civil construction and the remaining 37 

percent to the higher value-added products: wood 

laminates (18 percent); plywood (10 percent); and 

flooring, doors, room dividers, and other 

improved wood products (9 percent). Capital 

investment costs can be as low as US$3,000 for a 

micro sawmill, increasing to US$300,000 for a 

mill with a band saw, and as much as US$1.9 

million for plywood and laminates operations 

(Verissimo et al. 1992; Barros and Uhl 1995). 

For every cubic meter of log, some 32 to 40 

percent is transformed into sawn wood, plywood, 

or laminate, representing wastage of 60 to 68 

percent. Obsolete equipment, storage of cut logs, 

as well as a thin market for short/small pieces of 

wood all contribute to this low productivity. 

However, there are indications that, as wood 

becomes regionally scarce, productivity is 

improving by means of investments in better 

processing technology (Arima et al. 1999). 

25


(box 4.3). Mahar (1999) points out, for example, that timber industry 

interests play an increasingly important role in state politics in Rondonia 

and thus are influencing the design of state policies. These influences, in 

turn, have affected the efficacy of World Bank projects, including landuse 

zoning undertaken through the PLANAFLORO project. 

Implications of Tree Species Diversity for Degradation 

The Amazon forest has a far greater diversity of tree species than, for 

example, the forests of Indonesia. The diversity of species leads not 

only to more selective harvesting than in Indonesia but also to the harvesting 

of larger areas. The Amazon has a commercial stock of 350 tree 

species of an aggregate 60 billion m 3 (Kaufman et al. 1990). The number 

of species exported from the Amazon has increased from just a few (principally 

mahogany and virola) in the 1980s to more than 20 species in 

1995 (Bareto et al. 1998). This appears to be associated with the depletion 

of natural populations of mahogany and virola in the Amazon. About 

90 percent of the commercial species 

have values of less than US$60/ 

Box 4.3. The Economic Power of Amazonian 

Timber 

In the Amazon region (i.e., Para, Mato Grosso, and 

Rondonia), even though a very small share of the 

revenue generated goes into public coffers, the 

forest industry generates 15 percent of GDP and 5 

percent of employment. In 1998, the forest sector 

in the Amazon generated an estimated US$2.2 

billion in sales. The timber sector contributes 

about 10 percent of total taxes collected in the 

Amazonian states of Para and Mato Grosso 

(Barreto et al. 1998). Overall, direct and indirect 

employment in forest activities amounted to 

510,000 in 1998, with the majority of these 

receiving from R$240 to R$420 monthly in 1998 

(US$218 to US$381). For each direct job created, 

another two indirect jobs also are created (e.g., 

transport, service, and forest consultants). About 

70,000 people work directly in extractive activities, 

with another 107,000 working in the processing 

subsector. Sawmills comprise 70 percent of 

industrial employment in the region, followed by 

plywood manufacturers (16 percent), laminate 

production (8 percent), and processors (6 percent) 

(Verissimo and Lima 1998). 

m 3 , compared with mahogany 

(mogno), which has a value of more 

than US$200/m 3 (Verissimo et al. 

1998). 

Agricultural Expansion 

Large-scale migration into the 

Amazon began in the 1960s following 

the government’s regional 

development efforts and resulted in 

the establishment of large ranches 

based on generous subsidized 

credit schemes (Dean 1993). From 

the beginning, these development 

schemes included major agrarian 

reform and resettlement programs 

that sought to address the country’s 

regional disparities in wealth and 

land distribution. Resettlement 

continues in the 1990s. According 

to one report, the Government of 

Brazil claims to have met a target 

26


of resettling 280,000 families between 1994 and 1998, at a cost of US$7 

billion—nearly double its total spending on agricultural reform in the 

previous three decades (The Economist 1999). 

Based on the World Bank’s economic and sector work in the 1980s, 

the World Bank’s 1991 Forest Strategy identified agricultural expansion, 

facilitated by misguided policies, as the principal driving force 

behind deforestation in the Amazon. Changing the dynamics that influence 

expansion, therefore, should reduce pressure on the forest. Two 

recent studies focusing on small-scale farmers—one study in the Western 

Amazon and the other in the state of Parana—suggest that farmlevel 

decision making is influenced by structural factors and less responsiveness 

to policy reforms than was assumed in the 1991 Forest 

Strategy. This suggests limitations on what policy changes can accomplish 

in containing deforestation. 

Smallholder Agriculture in the Western Amazon 

Carpentier et al. (1999c) 17 sought to identify the links between smallholder 

agriculture and deforestation in the Western Amazon; assess the 

potential for modifying these links via changes in technology or policy; 

and assess the importance of these links to past, ongoing, and proposed 

World Bank activities in Brazil. The study focused on small-scale agriculturalists, 

in part because of their sometimes impoverished state, but 

primarily because the Bank was instrumental in settling many of these 

smallholders, and because of their critical current and future roles in 

deforestation. The effects of policy/technology changes on deforestation, 

agricultural growth and poverty alleviation, and the tradeoffs 

among these objectives, were all examined using a farm-level 

bioeconomic linear programming model developed for this purpose. 

The model takes into account patterns of land and labor use, herd dynamics, 

extractive activities of timber and non-timber forest products, 

changes in transportation costs, and other factors, and outlines implications 

for the forest sector and other policies. 

The Western Amazon is a frontier area characterized by the absence 

of strong government, lack of effective policy instruments, lack of knowledge 

regarding the natural resource base and its possible uses, high transportation 

costs, and the predominance of private property, especially 

among smallholders. 

The study yielded several important policy messages: 

• Deforestation will persist under current economic, biophysical, and 

policy conditions because the per-hectare returns to agricultural 

27


activities are greater than those generated by forest extractive 

activities currently practiced. So, while current small-scale farming 

systems can generate sufficient income to sustain farm households 

and contribute to regional growth, given a choice they will not 

retain natural forests over the longer term. 

• Once smallholders are established on their farms, the harvesting of 

nutrients from the forest (via slash-and-burn agriculture) is not the 

primary motivation for clearing forests. Rather, it is the demand 

for cleared land for agriculture that drives deforestation. Therefore, 

efforts to slow deforestation by identifying alternative and 

cheaper sources of nutrients (especially nitrogen) will probably not 

succeed. 

• The land use patterns of smallholders are not particularly sensitive 

to changes in relative prices or technological advances that do not 

affect labor requirements. There are four explanations for this. 

First, extensive livestock production systems continue to be the 

most attractive to smallholders because they are more flexible and 

require less labor, though not always offering the highest returns to 

land. Second, seasonal labor bottlenecks preclude the broad 

expansion of labor-intensive production systems, for example, 

agroforestry systems, which are precisely the types of systems 

needed to brake deforestation. Third, market and other risks are 

high for many of the products of agroforestry systems. Fourth, 

switching from pasture to most other land uses can be complicated 

and, hence, costly and slow. This financially and agronomically 

induced stability of current land use patterns will challenge 

policymakers, who will have to increase the amounts by which, 

and the time frame during which, they modify farm-gate incentives 

if large and sustained farmer responses are to be expected. 

• The social gains from saving forests may outweigh private profitability 

forgone by not deforesting, but no mechanism for realizing 

transfers exists. However, the volume of savings to society is large 

enough to suggest that investments in establishing such mechanisms 

could be worthwhile. And, if credible and sustainable 

mechanisms for compensating farmers for forest (or carbon) 

retained can be developed, smallholders will respond. 

• Technological stagnation will reduce deforestation, but at the 

expense of poverty and regional growth. To increase incomes and 

preserve forests, technology and policy packages need to improve 

profitability on already cleared area without raising farmers’ 

28


incentives to clear more land for that profitable use. Investments in 

technologies are needed that explicitly target recuperation of 

cleared areas for intensive use and supplemental measures that 

make it more costly for the farmer to convert forest. 

• Although they have food security, some farm households are too poor 

to make investments to sustainably increase agricultural activities, 

especially during the early stages of colonization. However, in the 

absence of major increases in the value of forests to smallholders and/ 

or more effective enforcement of forest regulations, such investments, 

even if made, are not likely to halt deforestation and may even speed 

it up if they increase cash flow available to hire labor. 

• The uncertain future for smallholders will determine rates of 

deforestation. A wholesale replacement of smallholders by large 

farm enterprises might contribute significantly to regional agricultural 

GDP, but the environmental and poverty consequences would 

be dire. This wholesale replacement is currently most likely to 

occur in Rondonia along major overland transport routes with soil 

and topographical characteristics conducive to mechanized soybean 

production. Displaced, well-capitalized smallholders that 

move closer to the forest margins will deforest more quickly than 

their poorer counterparts migrating from other areas. 

• But a new wave of migrants may be coming. Small-scale agriculture 

in the region can be profitable, and may be much more 

profitable (now or in the highly uncertain future) than rural or 

urban opportunities outside the region within Brazil. Major 

economic shocks, such as the recent devaluation of the rial, could 

make the returns to agriculture even more attractive. Therefore, 

the financial incentives for migrating from other regions to the 

western Brazilian Amazon still exist, though the policy incentives 

to do so have been greatly reduced. Regional integration may 

reduce relocation costs of potential migrants and plans to resettle 

additional smallholders have not halted altogether. 

• Smallholder cattle production systems (dual-purpose systems 

oriented to dairy) are on the rise, because they can fulfill multiple 

objectives of smallholders (profitability, liquidity, food security, 

and risk avoidance) simultaneously. New technologies can dramatically 

improve productivity and profitability, and increased profitability 

will likely speed deforestation. 

• Some smallholder experimentation has begun in simple agroforestry 

systems involving fast-growing timber species and using profitable 

29


perennials or other crops as “launching pads.” Other more complex 

systems involving tropical fruits are also the focus of much debate 

and hope. Financial analysis shows that these systems can be 

profitable, but their labor needs place them beyond the reach of 

most smallholders, the markets for some of their products are not 

yet well established, and it may be several years before they start to 

pay off. This makes these ventures risky for smallholders. Moreover, 

because the labor costs required to establish and maintain these 

systems is so high, even if adopted they will only occupy small areas 

on farms and will probably not halt the extensification caused by 

other land use systems, such as cattle ranching. 

• If farm households had access to all the labor they desired, deforestation 

would occur much more quickly. Thus, labor market 

imperfections put a brake on the rates of deforestation. Furthermore, 

farmers with greater initial cash balances (available for hiring 

labor) deforest much faster than cash-constrained farmers. Although 

farmers with poorer soils have somewhat slower deforestation rates 

than those with good soils, the result is the same in both cases, 

although incomes of farmers with good soils are much higher. 

• The current rule for small farmers—that they retain 50 percent of 

the land in forest—is often broken because enforcement is lax and, 

since the policy prohibits the off-take of timber products 

(sustainably or otherwise), it dramatically reduces the potential 

value of standing timber to smallholders. The model assumes that 

no agricultural credit is available to small farmers (which is close 

to reality), so that they cannot borrow to invest in agriculture. 

Such a farm shows average annual profits at prevailing market 

prices to be about R$6,000, compared to the per capita income in 

1995 of R$3,640. This suggests that even in the relatively 

unsubsidized policy environment that now prevails financial 

incentives to migrate to establish small-scale agriculture in the 

Amazon are high and expansion of roads and colonization efforts 

would induce migration. 

• Allowing farms to conduct small-scale timber extraction, even if 

practiced sustainably, will not halt deforestation. Over the long run 

and given a choice, the amount of forest the farmers are likely to 

retain will be the same—zero. The real gain from changing this 

particular forest policy is slowing down the rates of deforestation 

and gaining time to devise policies to address the deforestation 

issue. The report also argues that farmers would select and harvest 

30


according to a Von Thunen-type algorithm: All the most valuable 

species would be harvested first, followed by less valuable ones, 

meaning that the ecological integrity of such forests would be 

quickly undermined. In their view, the likelihood that farmers 

would extract sustainably is not high. Rather, the profitability of 

schemes to promote sustainable harvesting may promote excessive 

logging instead. Therefore, important institutional investments in 

extraction monitoring and verification systems will need to ensure 

that the extraction of timber is done sustainably. 

• Economies of scale exist in “managed” timber extraction, suggesting 

that forest management will be more profitable for groups of 

farmers working together rather than individual households— 

posing both benefits and complications. Pooling capital would 

reduce start-up costs to individual households but would require 

the establishment and implementation of long-term agreements 

regarding off-take, cost-sharing, and monitoring, all which tend to 

be activities with high transaction costs even in areas with high 

population densities, and particularly so in the frontier areas. 

• Sustainable timber extraction schemes are still experimental. The 

long-term integrity of forests under these schemes remains unknown 

and large and perhaps species-specific modifications to 

harvesting volumes and methods are needed. 

• Only very high levels of annual cropping intensification would 

reduce deforestation, but in the early years of such technology 

development, deforestation rates again would increase dramatically. 

The types of factor intensification alone do not determine if 

deforestation would increase or decrease. Rather, it is the factor 

intensity of the new technology that is being introduced. Interregional 

flows of labor and capital play a significant role in all this. 

Technical change can reduce deforestation if it occurs in a balanced 

manner across all agricultural regions. But technical change is not 

fully predictable. Transportation links allow transmission of 

economic effects between regions, and how macro-policies and 

transportation together influence migration flows of capital and 

labor can crucially determine outcomes in the Amazon (box 4.4). 

• Adding value to forests held by small-scale farmers will be fundamental 

to slowing deforestation. Current legal restrictions on 

sustainable timber extraction from private forest reserves and 

bureaucratic obstacles to overcoming them are costly to farmers. 

Hence, farmers have every reason to disobey these restrictions. If 

31


Box 4.4. Modeling the Effects of Infrastructure and Agriculture on Deforestation 

Andrea Cattaneo (1999) used a CGE model to investigate the impact of policies and investments in 

technologies and roads. The Brazil in Action program involves building a road through the Amazon 

to the Pacific going through Rondonia and a port facility is being constructed to open access to the 

markets for exporting soybeans by reducing transportation costs. The Cattaneo model shows that 

the incentives that influence current land use patterns in the area would result in considerable 

deforestation—a 20 percent reduction in transportation costs for all agricultural products from the 

Amazon increases deforestation by 33 percent. Devaluation similarly shifts production in favor of 

exportable products. Logging increases lead to greater deforestation for agricultural purposes. But 

the effect of devaluation on agricultural incentives in different regions is highly dependent on the 

migration flows. If migration takes place only among rural areas then a 30 percent devaluation 

increases deforestation rates by 5 percent. On the other hand, if urban labor is willing to migrate to 

the Amazon to farm, then the deforestation rate increases to 35 percent. 

There is significant tradeoff between forest conservation objectives and agricultural growth. As in 

the case of Carpentier/Vosti studies, the Cattaneo study concludes that livestock technology 

improvements appear to have the greatest returns to all agricultural producers in the Amazon. By 

increasing incomes and employment related to production it not only increases food security in the 

region but also increases deforestation dramatically. Perennials improve equity since they benefit 

small farmers as well, but food security would suffer and risks would increase. Even if they were 

adopted only in part, however, deforestation rates would be reduced. 

forest policy that (practically) prohibits the extraction of timber 

products by small-scale farmers on the 50 percent of their holdings 

reserved as forest are reviewed and modified, important institutional 

investments (such as timber extraction monitoring and 

verification systems) will need to be made to ensure that the 

extraction of timber products is done sustainably. This will be 

expensive and may outweigh the gains of such schemes for 

smallholders. Increasing the value of non-timber forest products 

(NTFPs) will probably only make a marginal contribution to 

saving the forest. Expanding and improving markets for particular 

NTFPs to increase profitability will be challenging; policy efforts 

should focus on improving information exchanges on products, 

product quality, and product prices, and on identifying gaps in 

marketing and management skills along NTFP market chains and 

filling them. In any event, making the forest more profitable 

through NTFPs or timber extraction in the absence of effective 

monitoring could mean more damage to standing forests: Profitability 

may encourage the development or practice of unsustainable 

or excessively damaging extraction techniques. 

32


• Paying small-scale farmers to retain forest (and the array of 

ecological services it can provide, especially carbon) will reduce 

deforestation rates, but since agriculture is profitable in these 

areas, the costs to policymakers in the aggregate will be high. More 

important, preserving forest via small-scale farmers may be less 

efficient than doing so through extractive reserves or large farm 

enterprises since transaction costs in these cases may be lower. 

Tapping local organizations as a means of reducing transaction 

costs should be explored. 

• Speeding up formal processes of securing formal land tenure will 

likely increase the rate of smallholder deforestation as access to 

credit becomes easier. The Brazilian authors of this report, on the 

other hand, argue that secure land tenure reduces the likelihood of 

invasion by loggers and increases the chances of natural forest 

management of both timber and non-timber production. But the 

security of land tenure affects smallholder land use via access to 

information, extension services, and especially formal credit, and 

not via threat of expropriation (see box 4.5). These tradeoffs are 

simply not fully understood, mainly because agriculture and forest 

researchers have been working in isolation from each other. More 

integrated multisectoral research is needed. 

• On balance, large increases in wage rates will reduce deforestation 

and increase incomes, and reductions in labor flows (especially onto 

farms) will save forest but come at some cost to farm income. 

Regional integration may drive wage rates down in rural areas of the 

Western Amazon. The current recession has followed this trend, 

putting additional pressure on forests. Some improvements in labor 

market performance seem to be underway, especially for particular 

tasks such as coffee harvesting. Such improvements foster investments 

in labor-absorbing production systems that reduce the 

pressure on forests. However, there is no reason to be optimistic 

about the impacts of trends on labor market performance or real 

wage rates on deforestation overall. Labor flows are expected to 

increase (onto and off farms) and real wage rates will likely decline 

(at least vis-à-vis urban wages over time)—both of which could put 

additional pressure on forests in the foreseeable future. 

Technology and policy changes, as well as increases in the stock of 

knowledge regarding ecosystem resilience, are increasing the number and 

types of policy tools available to policymakers and acceptable to 

smallholders. In the past, most policies aimed at protecting the forest did 

33


Box 4.5. Land Tenure 

Unclear land tenure is characteristic throughout Brazil, especially in areas with high forest cover, 

both in the Atlantic and Amazon forests. In the Amazon, unclear tenure is one of the factors that 

drives deforestation and serves as a disincentive to sustainably managed forests. People can claim 

land in the Amazon based on the area they have “improved.” Historically, clearing trees has been 

considered an improvement by the National Institute of Resettlement and Agrarian Reform (INCRA, 

Instituto Nacional de Colonizacao e Reforma Agraria). Deforestation is thus a rational decision for 

those seeking land ownership. One of the authors of this report argues that often, unclear land 

tenure also promotes short-term profit maximization (Nascimento et al. 1999). 

But there is no consensus on the impact of tenure security on rates of deforestation. Violence 

resulting from land conflicts is common and tenure security can affect decisions regarding 

investment in the land. In general, occupancy and use of the land has constituted tenure in the 

Amazon. For the most part, agriculturalists without formal title to their land do not fear being 

displaced. Where conflicts do take place, they are the result of premature settlement of the frontier. 

Beginning in the 1960s, large-scale agriculturalists with the greatest access to formal incentive 

programs generally settled the frontier first—and largely prematurely, given the lack of infrastructure 

at the time. Many abandoned their lands, with small-scale farmers taking over on their heels. Once 

government and infrastructure arrived at the frontier, some of the original settlers returned to reclaim 

their land, with conflict and ensuing violence sometimes occurring. Land conflict rarely takes place in 

formal INCRA settlements, despite the fact that many of the landholders do not have formal title. 

It is often argued that tenure security leads to increased investments in land. Kaimowitz (1999 

personal communication) points out, and Vosti confirms, however, that this applies equally to 

investment in reforestation and forest management and investment in forest clearing for subsequent 

agricultural establishment. Thus, whether policies designed to improve land tenure security are 

good or bad for forest conditions is not clear and is, in any case, somewhat location-specific. 

Carpentier et al. (1999c) suggest that in the Western Amazon, giving formal title to smallholders 

may in fact increase forest conversion, as farmers will become eligible for credit to finance 

agricultural expansion. Within the various agricultural systems, however, some of the agroforestry 

systems mimic many of the ecological benefits of maintaining natural forests, although their 

profitability vis-à-vis alternatives is location-specific and, in any case, agroforestry systems are 

less acceptable to those for whom maintaining the biodiversity of natural forests is of paramount 

importance. 

This paper’s Brazilian contributors are firm in their call for tenure rights as a critical prerequisite for 

forest conservation through management. They assert that investment in long-term activities such 

as low-impact logging requires clear tenure, though this alone is not sufficient to promote 

sustainable management practices (Nascimento et al. 1999). Recognizing and protecting land 

tenure in regions with high forest cover should be accompanied by policies that promote forest 

conservation, either by paying for environmental services or promoting sustainable harvests of 

timber and non-timber products. They suggest that longstanding settlement along rivers offers an 

opportunity for World Bank action to assist the government to legalize existing land tenure regimes, 

which could result in a significant contribution to forest conservation in the Amazon. A US$1 

billion World Bank loan for land reform currently under preparation may be an appropriate vehicle 

for such an initiative in their view (see Part II for details). 

34


so via regulation, taking something away from farmers (i.e., effectively 

removing their right to completely deforest lots and convert them to agriculture) 

without giving them anything that had income-generating potential 

in return. The emergence of an active market for fluid milk and 

the potential for sustainably managing smallholders’ legal reserves of forests, 

for example, may allow policymakers to support such privately profitable 

activities in exchange for reductions in deforestation, and also to 

generate the funds necessary to monitor and enforce such schemes. 

Agriculture Expansion in Parana 

A second study (Sonda 1999), 18 carried out in Parana, explored the 

relationships between agricultural expansion, farmer category, agricultural 

productivity, and deforestation. Because the process of agricultural 

expansion and forest conversion currently underway in the Amazon 

is similar to that which took place in the Atlantic Forest, the Parana 

study offers insights into policy implications concerning land use patterns. 

Additionally, this region has several World Bank projects (see 

Part II). Their study illustrates what seems to be a general phenomenon 

in Brazil, and the Atlantic Forest region in particular: Farms with favorable 

soil and topographic conditions and lower transportation costs 

end up with high levels of deforestation. This pattern can be found in 

most western plateaus of the Atlantic Forest, notably in the states of 

Parana, Sao Paulo, and Western Minas Gerais. Not surprisingly, then, 

in areas along the coast, where topography tends to be unfavorable to 

mechanized agriculture—and where soils are poorer and transportation 

costs higher—forest cover is higher. As in the study of the Western 

Amazon, Sonda finds that returns to agriculture—even on barren soils— 

are an incentive to migrants to deforest. 

Stakeholders vary significantly among and within regions of the Atlantic 

Forest. In the study region, for example, there are five classes of 

farmers: subsistence producer, small producer of commercial crops, family 

entrepreneur, non-technified large producer, and technified large producer. 

Four municipalities located in different socioeconomic and 

edaphoclimatic regions were compared: Guaraquecaba, Cruz Machado, 

Pato Branco, and Bela Vista do Paraiso. 

The study found major forest cover differences among regions, ranging 

from forest-rich (e.g., Guaraquecaba, 60.9 percent of forest cover) 

to forest-poor (e.g., Bela Vista do Paraiso, 3.6 percent of forest cover). 

Forest-rich Guaraquecaba is characterized by subsistence agricultural 

systems comparable to many areas in the Amazon. Agricultural yields 

35


are low, due to edaphic and topographic constraints, and transportation 

costs are high. Traditional populations, including Guarany Indians, 

live off what they can extract from the forests. 

There is a high concentration of landholdings within Guaraquecaba, 

with remaining forest cover in very few hands. The 3.6 percent of total 

landholdings that are large (over 250 ha) represent 90.8 percent of all 

remaining forest cover. Of these landowners, nearly all (93.1 percent) 

have title to their land, and the majority (65.5 percent) are “technified” 

producers. In contrast, 39.2 percent of landholdings are small subsistence 

farms (less than 10 ha) that together control less than 1 percent of 

total remaining forest cover. Of these, 35.5 percent do not have title to 

their land. 

On the other extreme, forest-poor Bela Vista do Paraiso has high 

yielding agricultural systems, good transport and storage infrastructure, 

less land concentration, and intense relation to markets. 

Empirical evidence from the Parana study illuminates several issues 

and suggests several recommendations (box 4.6): 

• Increasing agricultural productivity. Parana offers a good example of 

how increasing productivity is associated with increasing deforestation. 

With one of the best state agricultural research and rural 

extension systems, Parana has increased its agricultural productivity 

steadily over the past decades. Productivity gains accompanied 

conventional agricultural development (e.g., new genetic material 

and appropriate soil management). As a consequence, agricultural 

frontier expansion has been fueled by growing gains from intensive 

farming systems. Soybean 

Box 4.6. Recommendations from the Parana Study 

• A “green tax” is being implemented with great success 

in Parana. It should be examined for replicability 

elsewhere, as fiscal incentives to conserve Brazil’s 

forests should be expanded. 

• There is a need to develop location-specific policies for 

afforestation and reforestation, which vary depending on 

whether areas are forest-rich or forest-poor. 

• The World Bank has missed an opportunity to give 

greater emphasis to afforestation and reforestation 

components in its activities in Parana, despite its 

agriculture and natural resource management projects 

in the state. Part II of this paper, which discusses the 

World Bank’s operations in Brazil, will discuss this in 

more detail. 

production, for example, 

has increased from 2,446 

kg/ha in the 1986–90 

period to 3,189 kg/ha in 

the 1997–98 period. 

Forest cover decreased 

over the same periods. 

Increased soybean productivity, 

combined with 

increases in other crops, 

appears to have created 

growing incentives to 

expand agricultural lands 

in Parana. 

36


Increases in agricultural productivity appear to affect deforestation 

in forest-rich and forest-poor areas differently. In forest-poor 

regions, where agricultural productivity is already above the 

national average, further productivity increases are likely to have a 

small impact on deforestation. Remaining forest patches are either 

too small or are located on land too marginal for agriculture. 

Increasing productivity might, however, render current reforestation 

efforts an even less attractive land use alternative. In forestrich 

areas, on the other hand, increasing agricultural productivity 

is likely to have a larger impact on deforestation. As in Acre/ 

Rondonia (Carpentier et al. 1999a) and Santa Cruz, Bolivia 

(Kaimowitz 1999), increasing yields is likely to further encourage 

farmers to deforest. 

• Transportation costs. Regions with better road infrastructure (Pato 

Branco and Bela Vista) and lower transportation costs have had 

higher deforestation levels. This also coincides with findings in 

Santa Cruz, Bolivia (Kaimowitz 1999). 

• Relative prices of agricultural crops. Deforestation in Parana 

occurred in spurts, following the economic cycles of export crops. 

In the Bela Vista region of the northern part of the state, expansion 

of the agricultural frontier was driven first by coffee and later by 

soybean prices. 

• Incentives to protect forests. In Parana, a “green tax” (ICMS 

Ecologico) has been implemented successfully, amounting to about 

5 percent of total state taxes. The proceeds of this tax are distributed 

to municipalities with high forest cover, in effect compensating 

them for the opportunity costs of not deforesting and instead 

protecting forests. Municipal governments began to see their 

forests as assets and have launched environmental education 

campaigns, fire prevention and combat programs, etc. Citizens 

have begun to realize the benefits of their forests as they have 

provided funds to improve health and education programs. 

Incentives to protect forests can include promotion of good 

forest management practices, including timber production. The 

state of Parana has one of the few examples of natural forest 

management in the Atlantic Forest. It is an agroforestry system 

practiced by small farmers in eastern Parana that is based on the 

natural regeneration of Mimosa scabrela (braccatinga), which is 

intercrossed with annual crops and used as firewood for domestic 

and industrial purposes. Natural agroforest management of this 

37

38 


Policies 

Public 

and 

Behavior 

Managers’ 

Land 

Driving 

Factors 

Between 

Relationship 

4.1. 

Table 

factors 

riving 

D s 

policie 

public 

of 

nstruments 

I s 

roblem 

P s 

Alternative 

availability 

apital 

C d 

an 

rural 

both 

operations, 

private 

to 

credit 

Public 

industrial 

conservation 

forest 

for 

support 

weak 

provides 

credit 

Existing 

agroforestry, 

management, 

forest 

to 

availability 

credit 

Low 

reforestation 

and 

"green" 

existing 

of 

implementation 

the 

in 

efficacy 

Improve 

conservation 

forest 

to 

credit 

link 

to 

guidelines 

agroforestry, 

management, 

forest 

to 

availability 

credit 

Increase 

reforestation 

and 

regime 

tenure 

and 

L n 

regularizatio 

tenure 

and 

L n 

i 

especially 

title, 

land 

without 

producers 

of 

number 

Large 

areas 

forest-rich 

areas 

forest-rich 

in 

especially 

regularization, 

tenure 

Land 

technology 

vailable 

A n 

extensio 

ural 

R s 

service 

extension 

technical 

of 

absence 

irtual 

V r 

o 

f t 

fores 

for 

potential 

high 

with 

areas 

forest-rich 

in 

management 

management 

services 

extension 

technical 

of 

absence 

irtual 

V r 

fo 

areas 

forest-poor 

in 

systems 

agroforestry 

and 

reforestation 

and 

reforestation 

for 

support 

and 

orientation 

little 

Very 

areas 

critical 

environmentally 

of 

restoration 

to 

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al., 

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Source:


species has allowed the maintenance of a high forest cover compared 

to other regions where agricultural monocultures prevail. 

Several other species also have high ecologic and economic potential. 

An example is Tabebuia cassinoides (caixeta), a freshwater 

swamp species that re-sprouts after logging and has a well-defined 

management system (Viana et al. 1997). Caixeta forests are under 

pressure from banana plantations, which usually result in soil 

drainage and major changes in water quality (Waldoff 1998). 

• Non-Timber Forest Products. Erva mate (a native forest tea crop) 

production is common in regions such as Cruz Machado, where 

forest cover is about 25 percent. Among the native non-timber 

forests products with high social and economic importance is 

Euterpe edulis (palm heart), which was once abundant in most 

Atlantic Forest areas of Parana. As a result of predatory logging, 

however, palm heart is becoming increasingly scarce. Several 

medicinal plant species are also produced commercially. 

Development 

The forces for development in the forests of Brazil are shaped by 

several economic factors: a highly unequal distribution of land and income, 

and significant imbalances between Brazil’s five major regions, 

which influence rates of rural-urban and interregional migration. These 

regional imbalances continue to be an incentive for poor Brazilians to 

explore the land-abundant, forested northwest. Although subsidies for 

such migration, which were sizeable in the 1970s and 1980s, have declined, 

the migration pressure continues and creates a conflict between 

the poor and indigenous populations (box 4.7) living in the forested 

areas and the new entrants. 

Development is also strongly associated with the construction of roads, 

which in turn is one of the principal causes of deforestation. For that 

reason, this section concentrates on the construction of roads in the Amazon, 

most of which are now funded either privately or by the local and 

state governments with little or no involvement by the Bank (see Part II). 

Avenues through the Amazon 

The geographic isolation of the Amazon ended in 1964 with the 

completion of the Belem-Brasilia highway. As a result of the access provided 

by the road, in conjunction with tax and credit incentives, some 

observers estimate that total population in the highway’s zone of influence 

ballooned from 100,000 in 1960 to two million 10 years later. In a 

39


Box 4.7. Population in the Amazon 

While absolute population has continued to grow in the Amazon since the 1960s, rate of 

growth has declined overall since 1970. Only in Roraima and Amapa did growth rates 

increase after 1980, with population growth in the rest of the region slowing noticeably. 

Tocantins and Maranhao, where the annual rate of growth from 1980 to 1991 was below 

the 2.5 percent rate of natural increase, actually experienced a net out-migration. 

In analyzing the causes of the decline in total population growth in the Amazon, the 

Amazon Working Group (GTA, Grupo de Trabalho Amazonico) notes that the migratory 

component represents 30.7 percent of overall growth. The remaining two-thirds of 

population growth can then be attributed to high fertility rates in the region. Thus, if 

trends persist, the population of the Amazon will be increasing at a rate of 4.8 children 

per woman, compared to 2.7 children per woman in the south and southeast regions. In 

the 1980s, the net in-migration to the Amazon—an area constituting half of the national 

territory—represented only 1 percent of Brazil’s total population. 

The latter half of the 1980s witnessed a shift in trends, with migration declining. The 

economic crisis of the 1980s may underlie the decline in migration. Increased economic 

activity in the urban informal sector, lack of resources necessary to migrate, and a 

decrease in available credit and other economic incentives in frontier areas are likely 

contributing factors. Further, the pool of potential migrants (rural men between 20 and 

39 years of age) declined in both absolute and relative terms in the 1980s. 

One analysis suggests that the population of the Amazon will reach 27 million by 2010, 

increasing its share of the total national population from 11.6 percent in 1991 to 13.9 

percent in 2010. As with the rest of Brazil, albeit to a somewhat lesser extent, the 

Amazonian population is increasingly urban, with 55.2 percent of inhabitants residing in 

cities in 1991. Although cities, villages, and small-scale mining sites grew very rapidly 

during the 1980s, the greater part of this growth was due to migration within the Amazon 

region rather than migration originating in other regions. 

Source: GTA 1998 

study carried out as part of the World Bank’s economic and sector work, 

Mahar (1988) observed that the cattle population likewise increased 

from negligible levels to nearly 5 million. 

Then, in 1968, the Cuiaba-Porto Velho highway (BR-364) was completed, 

opening access to the previously isolated territory of Rondonia 

for a wave of migrants. In contrast to the state’s original settlers, the 

new migrants were primarily small-scale farmers from the southern state 

of Parana. Many also arrived from Mato Grosso, Minas Gerais, Espirito 

Santo, and Sao Paulo. Word of the discovery of fertile land in Rondonia 

prompted massive migration to the state. By the late 1970s, Rondonia’s 

40


population had quadrupled, and the government faced growing demand 

for infrastructure and services. In response, the government initiated 

the Northwest Regional Integration Program (POLONOROESTE) in 

1981, with support from the World Bank (see Part II). Unlike the 

Transamazon experience, where the government had actively recruited 

prospective settlers, in Rondonia the National Institute of Resettlement 

and Agrarian Reform (INCRA, Instituto Nacional de Colonizacao e 

Reforma Agraria) primarily provided lots, roads, and other basic infrastructure 

to a population that had moved to the region spontaneously. 

The demand for space in official projects quickly exceeded the supply. 

In 1980–83, before the paving of BR-364, the average annual number 

of migrants entering Rondonia was 65,000. From 1984–86, however, 

an average of 160,000 migrants per year entered the state. The 

POLONOROESTE experience is the foundation of the World Bank’s 

subsequent interventions in Rondonia and Mato Grosso and a part of 

the World Bank’s 1991 Forest Strategy (see Part II). 

Deforestation by Roads 

A detailed study of 624 municipalities throughout the Amazon between 

1991 and 1994 determined that 81 percent of all deforestation 

occurred within 50 km of major road networks along the “deforestation 

arc” in the southern part of the Amazon region (table 4.2 and figure 4.2). 

The connection between road building and deforestation appears quite 

clear. Indeed, the decline in annual deforestation in the Amazon, from 

an average of 21,000 km 2 /yr in the 1980s down to an average of 13,000 

km 2 /yr in the 1990s, coincides with a reduction of road building in the 

region. 20 This could in part be the result of the government’s economic 

retrenchment and therefore cannot be expected to continue when Brazil 

emerges from its current economic woes and recession. 

Road-Building Rationales and Strategies 

Transportation costs play a key role in decision-making at the frontier, 

where land tenure is unclear and government institutions are weak. 

Additionally, lower transportation costs in the “deforestation arc,” 

coupled with technology, credit, and abundant and cheap land, have 

favored major export crops such as soybeans. Lower transportation 

costs also fuel expansion of uncontrolled logging. Timber extraction in 

turn finances secondary and smaller roads that facilitate encroachment 

in forested lands by small-scale farmers and large ranchers (Arima et al. 

1999). Deforestation and increased frequency of fires ensue, resulting 

41


Table 4.2. Deforestation along Major Road Networks in the Amazon, 1991–94 

Deforestation 50 km along 

Road networks in the Amazon roads (% of Amazon’s total) 

BR364 (Cuiaba-Porto Velho) 18.8 

Oriental network (Barra do Garcas-Belem-Sao Luis) 32.7 

Br 230 (Transamazonica) e Br 164 (Cuiaba-Santarem) 26.9 

BR319 (Porto Velho-Manaus-Boa Vista) 2.7 

Total 81.1 

Source: Alves and Escada 1999 in Viama. 

in forest impoverishment (Nepstad et al. 1999). Road construction is 

thus a key factor in deforestation, as it sets in motion a process that 

acquires a dynamic of its own, ultimately resulting in a scenario quite 

similar to what has taken place in the Atlantic Forest. 

Schneider (1992, 1994), in the World Bank’s economic and sector 

work discussed with the government, argued for a road-building strategy 

for the Amazon that is based on the recognition that forest protection 

will only arise through restricted access: “An extensive road network 

erodes incentives for sustainable agriculture and silviculture. An 

intensive network of farm-to-market roads is the most important deter- 

Figure 4.2. Deforested Areas Along Major Road Networks in the Amazon 

BR364 

Oriental network 

Cuiaba-Santarem 

and Transamazonica 

BR319 

Source: Alves and Escada 1999. 

42


minant of economic viability of small farmer agriculture.” “Where timber 

is concerned, logging patterns become more selective the greater the 

distance from roads. Where forest access is limited by lack of roads, 

once high-value trees have been removed, the remaining forest is of less 

economic interest to loggers, and the forest has a chance to regenerate” 

(Schneider, personal communication 1999). 

World Bank experience through such initiatives as POLONOROESTE 

and PLANAFLORO, discussed in Part II of this paper, has yielded important 

lessons concerning the social and environmental impacts of road 

building in the Amazon, including the need to move cautiously in promoting 

road building in tropical areas. These lessons, however, do not 

seem to have been incorporated into more recent government initiatives, 

such as Brazil in Action (box 4.8). 

The Brazil team suggests that policies aimed at improving existing 

road networks need to be clearly evaluated since they are likely to promote 

deforestation. Road construction should be accompanied by other 

policies conducive to sustainable land uses. Intensive rather than extensive 

road networks may be more appropriate in promoting sustainable 

land uses. Does the World Bank have a role to play in this area? 

Nascimento et al. (1999) suggest that the World Bank could help foster 

institutional strengthening and policy dialogue aimed at avoiding the 

undesirable consequences of lowering transportation costs and improving 

access to forested areas. They acknowledge, however, that the Bank 

would not be able to influence the proliferation of privately built roads 

in the Amazon, except perhaps through helping to improve Brazil’s own 

decision-making processes in this regard. Unlike in Indonesia, where the 

Bank’s transportation lending has played an important role in improving 

Indonesia’s environmental impact assessment capacity, the Bank’s transportation 

investments have not done the same in Brazil as far as OED 

could determine, although the Bank clearly withdrew from financing transportation 

in the Amazon, apart from some road improvement. The Bank 

is discussing how interministerial cooperation in implementing the “Brazil 

in Action” program to achieve environmental and developmental goals 

simultaneously with the Government of Brazil could be helpful but may 

be considered “interference” by the Government of Brazil. 

Forest Fires 

Fires are a problem not only for their direct destructiveness but also 

for the carbon they release into the atmosphere (box 4.9). Most fires 

occur during the dry season and are caused by farmers and ranchers 

43


Box 4.8. Brazil in Action 

In 1996, the government launched Brasil em Acao (Brazil in Action), a development 

initiative that includes ambitious infrastructure and transport development. Several 

components of Brazil in Action or associated projects are particularly relevant to the 

Amazon: 

• Paving BR-174, linking Manaus to Venezuela, crossing the State of Roraima 

• Extraction of natural gas from the Urucu fields in the Jurua River basin of 

Amazonas state. The projected output of 4 million m 3 per day would benefit both 

the Manaus industrial region and the states of Acre and Rondonia 

• Navigability of the Madeira river to permit the shipping of grain from Rondonia 

and Mato Grosso to Amazonas and, from there, to the Atlantic 

• Recovery of BR-364/163 linking Cuiaba to Rio Branco, and ultimately providing 

an overland link to Peru 

• Installation of an energy transmission line from Tucurui to benefit the west and 

south of Para 

• Creation of the Tocantins-Araguaia Waterway to enable transport of grain from 

the center-west to the Maranhao port of Itaqui 

• Recuperation of the Santarem-Cuiaba highway 

• Still undefined roads and bridges for the State of Amapa (GTA 1998). 

Brazil in Action is an important initiative from the standpoint of opening and integrating 

the Amazon into the Brazilian economy, a process that has already been taking place 

over the past decade. Many of these undertakings would facilitate exports and regional 

integration with neighboring countries. If carefully carried out, GTA acknowledges that 

it could provide important opportunities for regional development. 

Along with the economic development that is foreseen by the government, however, 

Brazil in Action poses some significant environmental concerns. GTA’s principal 

concern is the construction of roads in the State of Acre. “The paving of federal roads 

in Acre completely modifies the conditions for access and exploitation of natural 

resources of the state and of many border areas, opens up possibilities for population 

movements, accelerates the sale of land, and places previously rather isolated 

indigenous populations in contact with non-Indians” (GTA 1998). The road, by opening 

a link with Peru, may also lead to international labor flows into Brazil, relieving labor 

constraints on forest clearing for small-scale agriculture in the Amazon. 

Additionally, the Brazil in Action initiative is intended in part to facilitate an increase in 

soybean exports. Expansion of soybean cultivation, which is now possible in the Amazon 

due to technological advances through EMBRAPA research (Kueneman and Camacho 

1987), will replace important natural habitats in the country’s center-west region. 

who burn off cleared land for planting crops or pastures. Since the 1970s, 

huge areas have been converted to pastures, plantation crops, and infrastructure. 

Given the high costs of mechanical clearing, fires were 

considered the most cost-effective way to clear land. However, each 

44


Box 4.9. Carbon Emissions and Fires 

Managed natural forest areas that incorporate reduced-impact logging practices produce 

less dead biomass than conventional logging, and therefore can reduce biomass loss 

and offset carbon emissions (Putz 1995). In 1996, logging released approximately 4 

percent to 7 percent of the net annual carbon release estimated for deforestation in the 

Brazilian Amazon (300 metric tons per year; Nepstad et al. 1999). Implementing 

reduced-impact logging systems can thus result in significant gains in CO 2 

balance. 

There are other associated environmental benefits as well, including biodiversity 

protection and watershed conservation. 

Reduction of forest fires can make a significant contribution to a decrease in carbon 

release. Estimates of carbon emissions from Amazon forest surface fires (excluding fires 

associated with deforestation) in 1998 more than double current estimates for the 

region, rising to a total of 10 percent of the net annual carbon emissions stemming from 

human activities worldwide (Nepstad et al. 1999). As with reduced-impact logging, 

controlling forest fires has similar additional environmental benefits. 

year escaped fires accidentally burn a significant amount of land, resulting 

in large economic and ecological damage. Since 1998, annual 

rainfall in the Amazon has declined and there is some evidence that the 

Amazon may be more fire-prone in the years to come. In 1998, a series 

of large-scale wildfires burned some 40,000 km 2 or approximately 20 

percent of the state of Roraima, including 9,254 km 2 of closed-canopy 

forests and extensive savanna, agricultural, and Indian reserve areas. 

Escaped fires are a substantial risk at the beginning of the dry season 

in the southern Amazon because of the abundance of highly flammable 

debris. This is exacerbated by the increasing extent of cleared, logged, 

or previously burned areas. The areas with the highest fire risk in 1998 

were in a region of the southern Amazon that is 200-600 km wide and 

3,000 km long. Meteorological data show that some parts of this socalled 

Deforestation Arc have experienced large rainfall deficits and 

low soil moisture. 

A “Fire and Deforestation Control Project” (PRODESQUE) is under 

preparation under the PPG-7 Pilot Program. This five-year, US$30 million 

project will help both the federal and the state environmental agencies 

in the Amazon region develop and implement a uniform surveillance 

system for monitoring deforestation, forest degradation, and fires. 

It will also strengthen local capacity to control illegal deforestation and 

fire. The World Bank is also funding an Amazon Emergency Fire Prevention 

and Control Project (see Part II). 

45


Agricultural Credit 

In the 1980s, the volume of official subsidized credit in Brazil contracted 

significantly in an effort to create internal balance in the Brazilian 

economy. Additionally, real interest rates moved to positive or nearpositive 

levels in the mid-1980s, with the subsidy element eliminated 

altogether in 1987 (World Bank 1990). 

Unfortunately, agricultural credit can have a negative impact on the 

forests whether it is given or withheld. The tightening of credit after the 

mid-1980s may have had a negative impact on the Amazonian environment. 

First, the abrupt decline in credit volume is thought to have disrupted 

some smaller-scale agriculture in the region. For example, under 

POLONOROESTE in Rondonia, some farmers had undertaken farming 

of government-promoted high-input production systems based on 

tree crops. Given the long-term nature of investments in tree crops, 

these systems were predicated on the availability of cheap credit. When 

that credit was no longer available, farmers were unable to afford the 

inputs required to cultivate tree crops (particularly on the poorer soils 

on which many had settled). Instead, they reverted to less sustainable 

practices such as swidden farming and extensive ranching (Mahar 1990). 

The rapid pace of pasture formation observed in Rondonia in the 1990s 

might in part be the result of this tightening of the credit supply. Further, 

with little credit available to them, small-scale farmers also may 

have resorted to cutting trees in order to finance their agricultural pursuits. 

Vosti (1999 personal communication), on the other hand, argues 

that availability of credit to small farmers will increase their conversion 

of forest for agricultural pursuits. In the case of small farmers, it appears 

that both arguments lead to the conversion of the forest. It may 

be that the small farmers decide to convert based on the perceived potential 

of agriculture, and whether it is financed by credit or by cutting 

trees becomes a secondary issue. This important topic requires additional 

research. 

While credit has tightened, it remains available (Vosti 1999 personal 

communication). There are still a number of government-sponsored 

programs for subsidized credit that affect forests both directly and indirectly. 

Such credit programs totaled about R$1 billion in 1998 (FUNBIO 

1998). A description of the largest programs is provided in table 4.3. 

Banco da Amazonia (BASA), an important player in the forest sector, 

is one of the agencies that manages Fundo Constitucional do Norte 

(FNO), a constitutional fund allocated to the Amazon. As of June 30, 

1998, FNO had liquid assets of R$1.7 billion and had provided fund- 

46


Table 4.3. Descriptions of Largest Government Financing Programs that Have Direct 

Impact on Forests 

Program Description Resources 

Constitutional fund Created in the 1988 Constitution in R$253 million (1998) 

to finance the north conjunction with similar funds for the 

region of Brazil (FNO) northeast and center-west regions, this 

fund finances the full spectrum of rural 

and industrial activities, with 70 percent 

and 30 percent of resources, respectively, 

with interest rates of up to 6 percent + TJLP 

tax a per year. 

National program to Program structured in 1995 for rural R$200 million (1998) 

strengthen familyproducers with income lower than 

agriculture (PRONAF) R$8,000; has attended more than 

200,000 producers with up to R$5,000 

per producer; operated by Banco do Brasil, 

with interest rates of 6.5percent per year. 

Special credit Program designed to assist agrarian reform R$140 million (1998) 

programfor the projects, up to R$2,000 for operational 

agrarian reform expenses and R$7,500 for investments, 

(PROCERA) 

operated by Banco do Brasil, Banco da 

Amazonia and Banco do Nordeste, with 

interest rates of 6.5 percent + 50 percent of 

TJLP tax a per year. 

a. Long-term interest rate tax (Taxa de Juros de Longo Prazo) of approximately 13 percent. 

Source: FUNBIO 1999 cited in Nascimento et al. 1999. 

ing to more than 76,000 beneficiaries. An analysis of the guidelines for 

1999 shows a strong message from its president concerning environmental 

protection. The 1999 program is divided into “creation of work and 

income opportunities” and “conservation and sustainable use of the environment,” 

and it includes guidelines for “use of technologies compatible 

with environmental conservation/preservation” (BASA 1998). 

However, interviews with BASA’s staff in Manaus and Maues and 

with NGOs revealed that the effective implementation of the program’s 

environmental guidelines is weak. First, there are no objective guidelines 

to measure environmental impacts of projects, the result being 

that officers tend to make judgments based on subjective criteria. Sec- 

47


ond, BASA’s staff lacks familiarity with non-conventional rural technologies, 

and borrowers are subsequently encouraged to opt for conventional 

land-use systems that cause deforestation. In the absence of 

training, officers tend to promote the same types of projects that historically 

have been funded, primarily oriented toward cattle production. 

Changing this pattern requires developing objective procedures 

and methods to assess environmental impacts of projects, and training 

of Bank staff. 

Brazil now has a very clear policy linking public credit lines to environmental 

standards. The Green Protocol, signed in May 1995, requires 

all financial institutions controlled by the federal government (notably, 

Banco do Brasil, Banco Nacional de Desenvolvimento Economico e 

Social, Banco da Amazonia, Banco do Nordeste) to follow a generic set 

of guidelines to promote environmental protection. Unfortunately, enforcement 

of the guidelines is weak and has had a relatively small impact 

on lending (Prada and Costa 1997). A significant portion of approved 

projects still involves deforestation and other activities with significant 

environmental impacts. Nascimento et al. (1999) argue that 

the situation must be improved, including better monitoring of projects 

approved by participating institutions, because effective implementation 

of the Green Protocol can have major positive impacts on forests. 21 

The report also suggests that the World Bank might be a catalyst in the 

implementation of such policies. 

48

5 

Protecting Brazil’s Forests: The Role of 

Parks and Plantations 

While the World Bank and many of its clients have given a great deal 

of attention to the sustainable management of natural forests, the real 

key to protecting what remains of Brazil’s forests may lie elsewhere. 

Thus far, too little attention has gone into managing demand and finding 

alternative sources of supply. For example, the plantation sector in 

Brazil is among the strongest in the world, and has vast tracts of land 

available for creating new plantations. However, the social and environmental 

issues associated with large-scale plantation industries must 

be recognized. The rich mineral resources in the Amazon mean that 

there is a continuous threat to forest extraction. The Bank-funded CVRD 

project, while making numerous mistakes, has offered important lessons 

on how to incorporate environmental concerns in mineral extraction, 

lessons that have been incorporated in a subsequent environmental 

project involving CVRD (Companhia Vale Do Rio Doce; see Part 

II). Brazil also has one of the largest networks of protected areas in the 

world, but as this section will show, its efficacy is undermined by weak 

enforcement. 

In Brazil and other developing countries, most of the investments are 

directed toward the plantation sector and very little goes to natural forest 

management, which obviously creates an imbalance. The same disparity 

also exists in the case of applied research. The Bank’s 1991 Forest Strategy, 

for that reason, focused on conservation. But it is time to reach for 

49


greater balance and linkages between the policies of the Bank and developing 

countries. Indeed, the time seems to be ripe to achieve this balance. 

A recent forest management workshop in Brazil noted several encouraging 

facts: 22 

• Rural communities, including Indians, rubber tappers, and colonists, 

have carried out more than 19 promising initiatives in 

natural forest management. 

• These initiatives are recent and they are growing in number. 

• There seems to be a broad consensus—among leading Brazilian 

environmental and social NGOS, social movements, universities, 

international NGOs based in Brazil, and donors—on the role of 

natural forest management (including timber production) by rural 

communities to promote forest conservation and poverty alleviation. 

• Securing land tenure is one of the most important steps in promoting 

community forestry. 

Protected Areas 

Brazil has several classifications of protected areas: national parks, 

ecological stations, biological reserves, national forests, extractive reserves, 

and environmental protection areas. Additionally, states and 

private landowners may set aside areas for protection. The federal government 

has 86 conservation areas under strict preservation, covering 

almost 160,000 km 2 (table 5.1). Of these, 36 are national parks, 23 are 

ecological stations, 23 are biological reserves, and four are ecological 

reserves (WWF 1999). In addition, Brazil has set aside over 900,000 

km 2 as protected indigenous reserves, which are home to more than 

300 indigenous groups. As of 1994, state governments, largely in the 

Amazon, had protected another 140,000 km 2 , though in some cases 

there is overlap with federally protected areas (World Bank 1994). 

While a significant amount of land is under protection in Brazil, 

these protected areas do not necessarily represent Brazil’s biological 

diversity. There is minimal protection of land in the cerrado and the 

northeast’s semiarid caatinga. The endemic araucaria forests of the 

south and the Atlantic Forest are also in need of greater protection 

(World Bank 1994). 

Management of Protected Areas 

A 1994 World Bank study discussed several critical shortcomings of 

Brazil’s protected area system. These have not changed. First, severe 

understaffing of management agencies limits effective policing and pro- 

50

Protecting Brazil’s Forests: The Role of Parks and Plantations 

Table 5.1. Federal Protected Areas in Brazil 

Total area % of country 

Category/Units Number (km 2 ) territory 

Strict preservation 103 158,895.43 1.87 

National parks 36 

Biological reserves 23 

Ecological stations 21 

Ecological reserves 5 

Areas of relevant ecological interests 18 

Sustainable use 81 231,786.68 2.72 

Environmental protection areas 24 

National forests 46 

Extractive reserves 11 

TOTAL 184 390,682.11 4.59 

Source: Brazil 1998. 

tection of these areas. Amazonian parks, for example, have only one 

park field agent for every 6,000 km 2 , as compared to one agent for 

every 82 km 2 in the United States (Peres and Terborgh 1995). A WWF 

analysis suggests that 23.2 percent of Brazil’s protected areas are under 

extreme risk and 19.7 percent are under high risk. Illegal logging is an 

important source of such risk (WWF 1999). Effective policing is therefore 

essential to the ecological security of the protected areas. Second, 

the government has to confront the complexities of populations residing 

within the boundaries of protected areas. As of 1994, about 20 

percent of the lands within national parks, biological reserves, and national 

forests was in private hands. Further, few alternative strategies 

have been pursued for management of protected areas without removal 

of human populations (World Bank 1994). Mamiraua State Park and 

Jau National Park, both in the state of Amazonas, are two success stories 

of achieving forest protection with resident communities (Verissimo, 

personal communication 1999). 

The critical issue with respect to Brazil’s protected area system is the 

lack of necessary funding and implementing capacity to sufficiently protect 

and manage conservation units. There is a movement within IBAMA 

to give greater administrative autonomy to conservation units, allowing 

managers the opportunity to use part of the revenues that are generated 

locally through, for example, ecotourism. The government, through 

51


the Ministry of Environment and IBAMA, also is developing a strategy 

to improve protected area management through partnerships with the 

private sector. Some NGOs have expressed concern about private participation 

in conservation units insofar as it may result in conflicts with 

populations residing in the protected areas. NGOs themselves are likewise 

increasingly involved in the preparation of management plans for 

and in the management of protected areas. In Jau National Park, for 

example, the nongovernmental organization Fundacao Vitoria 

Amazonica is quite successfully assisting IBAMA in this manner. Brazil 

has parks that have high potential for tourism (Iguassu, Orgaos, and 

Itatiaia) and many that do not. Mobilizing domestic and international 

expertise would be very helpful in bringing to bear experience in making 

parks financially viable and determining the roles of the private 

sector and NGO partnerships based on concrete examples of successful 

experiences elsewhere. The World Bank can be helpful in disseminating 

such success stories from inside and outside Brazil (Nascimento et al. 

1999). 

Management Issues and the World Bank/WWF Alliance 

The poor management of protected areas in Brazil is important to 

the future of the World Bank/WWF alliance. In December 1997, the 

Government of Brazil pledged to join the alliance, which aims to bring 

50 million hectares (500,000 km 2 ) of natural forest throughout the world 

under protection by 2000. An additional 200 million hectares (2 million 

km 2 ) of forests are to be certified as being sustainably managed by 

that time. In early 1998, Brazil’s president signed a decree creating new 

protected areas in the Amazon region and Atlantic Forest and pledged 

to work with the alliance to bring 10 percent of the area in the Amazon 

under protection. Brazil’s pledge is important for the alliance to meet its 

global targets. The total area to be converted into preservation units 

under this new initiative is to reach 250,000 km 2 —the size of the state 

of Sao Paulo—and would constitute half of the World Bank/WWF 

initiative’s total global target. But given the poor management of the 

existing protected areas, should additional areas be brought under protection? 

Clearly, there is no global consensus on this issue. The Brazilian 

institutions feel strongly that the Bank should not define a strategy 

for Brazil involving only one institution (i.e., WWF) but rather through 

a truly participatory process. Otherwise, in their view it would be the 

“right thing” not “done right.” 

52


The government’s pledge to the alliance was highly controversial in 

Brazil and stirred intense debate. The move was seen as externally conceived 

and driven and announced without sufficient consultation within 

the country regarding its appropriateness. Rubber tappers were concerned 

that the already-stretched resources supporting existing protected 

areas and improved livelihoods of forest-dependent people would be 

diverted to the new parks. The measure received support from some 

conservationists who view strict preservation areas as the solution to 

deforestation and environmental degradation in the Amazon. Other 

conservationists, however, and social activists who support forest peoples 

criticized the move because they believe that strict preservation is an 

imported conservation model that is not appropriate for the Amazon’s 

vast landscape, which has been inhabited for centuries by traditional 

populations. They believe that traditional forest people have rights that 

must be respected and that these communities represent a greater chance 

of protecting the forest than “paper parks.” The controversy has not 

yet been resolved. 

Plantation Forestry 

The plantation industry in Brazil is of interest not simply because it is 

one of the most dynamic among developing countries, but also because 

of the relationship between plantation forests and the protection of natural 

forests. Because plantation forests serve the same market as do natural 

forests along the frontier, they represent a potential supply substitute. 

The plantation industry is showing impressive results, and time will tell 

whether it can become a cheaper source of timber than the exploitation 

of natural forests. If so, the logging factor may come to be separated out 

of the synergistic logging-agriculture-roads phenomenon at the frontier, 

resulting in reduced pressure on Amazonian forests. 

It is therefore puzzling that the Bank has not supported the plantation 

sector, despite a successful forest project in Minas Gerais. The IFC, 

on the other hand, has supported the plantation sector in Brazil. However, 

the interactions between the Bank and IFC are weak on these issues, 

in contrast to the growing Bank-GEF partnership. In part, however, 

this is because plantations have brought about significant concentrations 

of landholdings, and reforesting large-scale plantations is more 

costly than small-scale plantations (Bacha and Marquesini 1999). Moreover, 

plantations cannot match the biodiversity of natural forests. While 

socially beneficial, small-scale plantations are organizationally more 

demanding. 

53


Brazil has more than 20 million ha of degraded pastures in the Atlantic 

Forest that could be reforested for environmental or commercial 

purposes (Ab’Saber 1995). Reforested, these areas could serve as enormous 

carbon sinks. However, some observers are concerned about the 

use of large-scale, commercial reforestation (eucalyptus and pine plantations) 

because of its perceived negative social and environmental impacts. 

There also are doubts about whether commercial plantations 

would result in net incremental carbon sequestration, a prerequisite to 

qualify for the Clean Development Mechanism. This needs to be clarified. 

These issues might be overcome if reforestation were limited to 

small-scale plantations or based on high-diversity agroforestry systems 

for which there is also substantial potential. Funding of small-scale plantations 

may not be feasible, however, without a subsidy in much the 

same way as the U.S. Conservation Reserve Program started in the 

1980s. 23 Such payments are called “payments for environmental services” 

in the developing countries, since “subsidies” have been questioned 

even by the Bank’s 1991 Forest Strategy. 

Management in the Plantation Sector 

Brazil’s strong forest plantation industry provides raw material for 

timber, pulp and paper. The country produces 6.2 million m 3 of pulp, 

representing 3.5 percent of global production and 6.9 percent of global 

exports (FAO 1999). With 50 percent of global production, Brazil is a 

major producer of fiber cellulose (short and long), and it is the world’s 

largest producer of the short-fiber variety. Little of this production is in 

the Amazon. Indeed, only two Amazonian states produce cellulose: Para 

(5.81 percent) and Maranhao (0.41 percent), with a combined production 

of 6.22 percent of total national production (GTA 1998). 

The plantation forestry industry has had three distinct phases in Brazil. 

Before 1965, the industry was dominated by railroad and other 

state companies. From 1965 to 1988, fiscal incentive programs spurred 

rapid growth in private sector involvement. According to the Banco do 

Nordeste do Brasil, during this period, a total of US$10.86 billion was 

invested through fiscal incentive programs (Bacha and Marquesini 1999). 

Between 1968 and 1988, productivity in eucalyptus plantations rose 

from 29 m 3 /ha/year to 67 m 3 /ha/year. Over the same period, pine plantations 

increased productivity from 33 m 3 /ha/year to 54 m 3 /ha/year. Productivity 

in Brazilian plantations is among the world’s highest. Since 

1988, when the fiscal incentive programs ended, most reforestation has 

been carried out by private farmers themselves, particularly in the pulp 

54


and paper and iron and steel industries. The cutoff in incentives resulted 

in a decline in plantation area, from 59,660 km 2 in 1985 to 53,959 

km 2 in 1996. Despite the absence of fiscal incentives, private industry— 

particularly the pulp and paper segment—has not scaled back its investment, 

which currently stands at about 1,300 km 2 /year. Nevertheless, 

there was a substantial peak in investment when incentives were 

available (Nascimento et al. 1999). 

Some plantation forestry companies, particularly in the pulp and paper 

segment, are making significant investments in increasing their environmental 

performance. The National Association of Pulp and Paper 

Producers (Associacion Nacional dos Fabricantes de Papel e Cellulose, 

ANFPC) created a working group to address environmental issues and 

is actively involved in discussions on public policy matters. Likewise, 

the Association of Charcoal Producers is engaged in many public policy 

forums. Several companies have set aside over 25 percent of their lands 

to total environmental protection. Such environmental policies have 

direct impact on carbon sequestration and biodiversity conservation. 

Since transportation costs are a substantial part (30-40 percent) of 

the total forest product production costs, it may be advisable to invest 

in “close to market” intensive forest management. Such intensively 

managed forests with fast-growing hybrid species are economically attractive 

to the forest industry, and may be instrumental in reducing pressure 

on more distant and intact forests. 

55

6 

Important Issues in the Forest Sector 

Costs and Benefits of Managed Forests in Brazil 

The definition of “sustainable forest management” has been debated 

for at least a decade without arriving at a single, acceptable definition. 24 

In fact, the Bank’s 1991 Forest Strategy offered three definitions of 

sustainability: 

• The continuous flow of timber products and services, some of which 

may be essential for sustaining the livelihood of indigenous people 

• The continued existence of the current ecosystem 

• The long-term viability of alternative uses that might replace the 

original ecosystem—each is considered to be highly site-specific in 

the extent to which it can meet any of these criteria. 25 

The policy paper concluded that it is prudent to be highly skeptical 

about proposals to develop forests. In view of the diminishing area of 

forestlands, especially tropical moist forests, highly demanding environmental 

and policy analyses should precede any significant new development 

or utilization efforts. These analyses should include assessments 

of soils, hydrology, the institutional and incentive framework, 

and the value of conservation for all concerned, particularly indigenous 

people. This was the basis of the strategy’s dictum that the Bank “will 

not under any circumstance finance commercial logging in Primary 

Tropical Moist Forests (PTMFs) as a precautionary policy toward utilization.” 

The strategy paper states that the “policy is motivated by un- 

57


certainties toward full valuation of the environmental services, the inadequacy 

of knowledge regarding forest management systems, and the 

irreversibilities associated with the loss of Tropical Moist Forests.” The 

ban covers both the financing of commercial logging and the purchase 

of equipment in support of logging. The subsequent OP 4.36, however, 

considerably diluted this provision. While the strategy paper tends to 

emphasize what the Bank will do, OP 4.36 states that where the primary 

moist tropical forests are being logged, Bank lending is conditional 

on borrower commitment to move toward sustainable management 

of these forests, and until then, lending is to be limited to ancillary 

services such as planning, monitoring, and field control of forest operations. 

This leaves vast scope for interpretation of “move toward sustainable 

management.” 

The design paper for the current study argued that the ban could be 

construed in several ways. The Bank would: 

• Not lend directly in support of harvesting activities in PTMFs 

• Not support any aspect of production forestry in countries where 

significant logging is occurring in PTMFs 

• Use its policy dialogue with affected countries to minimize, if not 

terminate altogether, lending in non-cooperating countries. 

In Brazil, the Bank has complied with all of these interpretations, 

and attempted to hold policy dialogue and slowly tried to get involved 

in the research and development aspects of sustainable management. 

An extensive search for evidence of the financial returns to managed 

forests in the Amazon turned up very little, in part because those efforts 

have been so few (box 6.1). What evidence the Brazil team was able to 

find suggested returns that were barely adequate relative to interest rates. 

If returns are compared with the opportunity cost of capital, in clearing 

the land for agriculture, for example, they seem singularly unattractive. 

Most research on managed forests, including that of EMBRAPA 

(Empresa Brasileira de Pesquisa Agropecuaria), has focused on technical 

issues and has not assessed financial and economic returns. Add to 

this the limited enforcement of laws and rules, and it becomes clear that 

the cost of breaking them is so small relative to the benefit of converting 

the land to alternative uses—with far fewer regulations, for example, in 

farming—that the incentives seem to be loaded against managed forests. 

Forest conservation in Brazil ultimately boils down to the issue of 

externalities—that is, the extent of divergence between private and social 

values. There are costs associated with forest conversion at every 

level, from soil erosion and watershed degradation to global warming 

58


Box 6.1. Managed Forests 

Neither the private nor the public sector has made many attempts at forest management. 

Private sector investment in the forest sector has been characterized by low investments in 

managing the forest resource base. Typically, private sector investment is directed toward 

improving timber processing (e.g., sawing and milling). Consequently, there are very few 

promising examples in Brazil of natural forest management on a commercial scale. 

One of the few research efforts on the effects of reducing production waste, Barreto et al., 

shows that the present value of managing forest in the Amazon can be increased if more 

efficient technologies are used which could substantially reduce production waste. They 

show that such wastes can be reduced from 26 percent to about 1 percent. Efficient 

production would also result in the reduction of trees needed for commercial operations 

and therefore, improve canopy cover from 18 percent to 45 percent. Further investment, 

pubic or private, in forest management can also provide job security for many of the poor 

in the Amazon. 

Currently, public institutions fund only a small number of forest management projects. 

The Banco da Amazonia in the state of Amazonas, for example, has no forest management 

projects in its portfolio. The reasons for this situation are unclear. The low demand for 

loans in this area may result from low rates of return to forest projects. Because forest 

management is so rare in Brazil, there is a lack of good financial analysis of forest 

management compared to other land uses. 

Mil Madereiras, an 80,000 ha Swiss operation in Itacoatiara, near Manaus, is the first 

commercial-scale forest sector operation that has invested significantly (over US$20 

million) in natural forest management in the country. 

and loss of biodiversity. The 1991 Forest Strategy recognized that some 

of these are national costs, others are global (see box 1.1). The question 

is: How much is the national government willing to compensate local, 

municipal, and state actors to preserve the forest related to the alternative 

uses of land as seen from the viewpoint of those actors? Furthermore, 

what share of the costs would the global community need to pay 

vis-à-vis the cost to the national government? The World Bank–funded 

Rondonia and Mato Grosso projects demonstrate the intense local pressure 

from powerful economic and political interests to defy zoning, even 

when the state governor supports the idea. In Brazil’s current fiscal situation 

it is not clear how much the federal government can pay to slow 

rates of deforestation. It is even less clear how much it should pay. 

In evaluating the domestic benefits of forest conservation, Chomitz 

and Kumari (1996) caution against “expecting uniformly significant 

levels of net domestic benefits … from the preservation of tropical moist 

forests.” They go on to note: 

59


There are certainly classes of domestic benefits, such as sedimentation prevention and 

sustainable production of nontimber forest products, which are significant and 

documentable. These benefits, however, are specific to limited geographic and 

economic circumstances—perhaps more limited than is generally supposed. Other 

benefits, such as local climate regulation, are plausible and conceivably large, but 

subject to large scientific uncertainty. Still other supposed benefits, such as flood 

prevention in large watersheds, and maintenance of dry season water flow, are largely 

contradicted by available scientific evidence. 

Thus, it may be difficult to make the case for federal funding of forest 

conservation on the basis of such domestic benefits alone, making 

the issue of global externalities more important still. 

Since the benefits and costs of forest conservation accrue to multiple 

stakeholders, the challenge lies in balancing the costs and benefits associated 

with forests in a manner acceptable at the individual, municipal, 

state, federal, and global levels. But the costs and benefits depend on a 

large number of complex factors. Lopez (1999) has argued that the 

value to the world of conserving 650 million hectares of tropical forests 

in South America—at least half of which will likely be in Brazil—amounts 

to US$713 billion of net present value. 

Conservation Solutions 

Two themes have emerged repeatedly in evaluating Brazil’s forests: 

• In order to offer any meaningful protection for the Amazon, access 

must be restricted, as prohibitive costs of activity in inaccessible 

areas are the only dependable means of forest protection. This 

necessarily means limiting roads in remote forested areas. 

• Policies must be developed that make it economically desirable to 

conserve forests. This is important at every level, from the individual 

farmer to the federal government, as there are conservation/ 

development tradeoffs throughout the chain of actors. Individuals 

seek to maximize their economic well-being; local politicians 

confronted with growing influence of logging interests often value 

short-term revenues over long-term investment; and the federal 

government is concerned with poverty alleviation and other 

pressing development objectives. 

Brazil’s limited experience with conservation incentives, such as the 

“green tax” in Parana, Minas Gerais, and Sao Paulo, must be evaluated 

and expanded. But such internal transfers likely will not be sufficient 

on their own to address the issue. Instead, there is increasing discussion 

of the need for financial transfers from outside Brazil to compensate the 

country for protecting its forests. Innovative programs based on carbon 

60


and biodiversity credits and the like are based on the premise that countries 

like Brazil should not alone bear the financial burden of protecting 

forests which provide global benefits, in terms of carbon sequestration 

and biodiversity. 

Carbon Sequestration Payments 

The Brazilian government’s position toward forests and climate 

change is evolving. Early on, the government’s position was that the 

export of pollutants, including CO 2 

, to other countries was unacceptable. 

Brazil did not sign the agreements for implementation. Since then, 

however, with the negotiations over the Clean Development Mechanism, 

Brazil appears to be moving in the direction of accepting payment 

for carbon sequestration. 26 This may have profound effects on reforestation 

and forest management (box 6.2) given that Brazil has large tracts 

of degraded land which are prime candidates for reforestation. Several 

studies have been conducted concerning payments for carbon sequestration. 

Carpentier et al. (1999), for example, examined the implications 

on forests of paying farmers not to cut trees. The findings suggested 

that significant transfers would be required in order to provide 

sufficient incentive for farmers to maintain their land in trees as opposed 

to other land uses. Schneider (1994) estimates that the carbon 

sequestration value of Amazon forestland is between US$600 and 

US$7,000 per ha 

(compared with a 

market value of 

US$250 to US$300 

per ha). He goes on 

to note that the inability 

of people in 

Sweden, who pay a 

carbon tax of US$45 

per ton of carbon released, 

to transact 

with farmers preparing 

to clear land in 

Brazil represents a 

global welfare loss of 

more than US$4,500 

per ha of Amazonian 

forest cleared for ag- 

Box 6.2. Sound Legislation, Weak Implementation: The 

Special Case of Riverbanks 

Brazilian legislation holds that forest strips along riverbanks 

(matas ciliares), because they are important as biodiversity 

corridors, food sources for aquatic animals, and protection against 

soil erosion, must be preserved in forest with no human intervention. 

All harvest of timber and non-timber products is prohibited. 

Despite this legislation, a significant amount of riverbank habitat 

has been deforested in the Atlantic Forest. A pilot study in an area 

of 1,700 km 2 in the Corumbatai River Watershed in Sao Paulo state 

found that some 10,000 ha needs to be reforested, with a potential 

to sequester over 1,000,000 tons of carbon worth US$10 million 

(Mannfrinato et al. 1997). Brazil has developed an advanced 

technology for riverbank forest restoration through a cooperative 

program between universities and power companies. Restoration 

costs range between US$1,000/ha and US$1,500/ha. Can the Bank 

help improve implementation of river bank reforestation? 

61


riculture. In the context of proposed carbon taxes, Schneider (1992) 

concludes that “on a global scale, prevention of deforestation in the 

Amazon may be one of the lowest-cost ways to reduce greenhouse emissions,” 

with both donors and Brazil benefiting from transfers. 

The estimates of carbon emissions vary among various uses of forests. 

However, the extent of these emissions and their relative economic 

cost in terms of global warming is a much-debated subject. The current 

literature on the damage value of carbon emissions ranges anywhere 

from US$10 to US$40 per Carbon-ton (Ct). 

Pearce and Brown (1994) calculated the net carbon storage effects of 

converting tropical forest—closed primary, closed secondary, or open 

forest—to shifting cultivation, permanent agriculture, or pasture uses 

(table 6.1). These figures represent the one-time change that will occur 

in carbon storage as a result of the various land use conversions. They 

show that carbon released from the deforestation of secondary and primary 

tropical forest would be between 100 and 200 tons per hectare 

when carbon fixation by subsequent land uses is also taken into account. 

Pearce 

Table 6.1. Changes in Carbon Stored with Forest Land-Use 

Conversion (Carbon tons per ha) 

Original Shifting Permanent 

Carbon cultivation agriculture Pasture 

Original Carbon – 79 63 63 

Closed primary forest 283 -204 -220 -220 

Closed secondary forest 194 -106 -152 -122 

Open forest 115 -36 -52 -52 

Note: Shifting agriculture represents carbon in biomass and soils in second year of shifting 

cultivation cycle. 

Source: Brown and Pearce 1994. 

et al. (1999) applied 

a US$20 

per carbon ton 

released to the 

estimates in 

table 6.1 and 

found that converting 

an open 

forest to agriculture 

or pasture 

would result 

in an estimated 

damage 

of about US$600–1,000 per hectare, while the conversion of closed secondary 

forest would cause damage of US$2,000–3,000 per hectare, and 

conversting primary forest to agriculture would result in a damage of 

about US$4,000–4,400 per hectare. 

• Pearce et al. (1999) also notes that stopping deforestation or 

logging activities may not be the most cost-efficient way of reducing 

carbon emissions, since the opportunity cost of conserving 

forests would depend on the forgone benefits associated with other 

land-use activities. In many cases, however, the value of the 

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forgone benefits may be very low. For instance, Schneider (1992) 

reports upper-bound land values in Rondonia at US$300 per 

hectare, but the carbon credit values based on table 6.1 would be 2– 

15 times higher. But given that the land is worth US$300 per hectare 

in an alternative use, the cost of conservation on global warming 

grounds should be around US$3 per Carbon-ton (US$300 divided 

by 100 tons/ha). However, if the land was worth US$2,000 per 

hectare, then carbon conservation costs would be US$20 per 

Carbon-ton. The latter cost is certainly not the cheapest way of 

conserving carbon, but US$3 per Ct may be attractive. Existing 

carbon trades under joint implementation initiatives range widely, 

but the typical price is about US$5–10 per Ct (Pearce et al., 1999). 

Kramer et al. (1994) estimated the average willingness to pay (WTP) 

of U.S. households for protecting an additional 5 percent of the world’s 

tropical forests. Their results show that each household would be willing 

to make a one-time payment of US$29–51 for a total of US$2.6–4.6 

billion. However, if WTP was extended to all OECD households, a onetime 

payment would increase to US$11–23 billion. Given that tropical 

forests account for 1.7 billion hectares, the 5 percent would be 85 million 

hectares, and the annual willingness to pay would range from US$13 

to US$27 per hectare. 

In a recent paper on why Latin America should participate in global 

trade in carbon emissions as a source of funding for sustainable development, 

Lopez and Ocana argue in favor of the region’s participation. In 

Peru, they find that using an annual plausible value in the range of US$100- 

500 per ha as cost (used by Schneider for the Amazon) of forgoing conversion 

of 100,000 ha from natural forests to agriculture or other land 

uses would range between US$10 million and US$50 million. However, 

when carbon sequestration at a rate of US$25/ton is also included in the 

analysis then the net present value of CO 2 

trading is estimated at US$3 

billion over 24 years, assuming a 50 percent reduction in annual deforestation 

(100,000 ha) and a reforestation rate of 100,000 ha annually. 

Another study, done by Roger Sedjo (1999), showed that regions 

with good soils and rainfall for plantation forestry but are relatively 

distant from the market may not be able to justify plantation forestry 

on economic or financial terms. For Argentina (Patagonia Region), Sedjo 

estimated that the net present value from timber harvest alone on a 

biological rotation of 36 years would be a minus US$546/ha, and on a 

financial rotation of 27 years would be a minus US$419/ha. However, 

when the value of carbon sequestration is also added as a tradable good 

63


(US$20/Ct), plantation forestry becomes a viable financial option. The 

biological rotation would then yield a net present value of US$48/ha 

and the financial rotation would give US$99/ha. It can be shown that 

the length of optimal financial rotation tends to increase as the carbon 

prices increase. Furthermore, if carbon prices are sufficiently high, then 

it will not be financially optimal to harvest and, hence, the rotation will 

become infinite. 

Kishor and Constatino (1993) showed that the international community 

enjoys over 60 percent of the benefits of these environmental 

services and should, therefore, pay for them. They estimated per hectare 

transfers needed for small farmers were US$717/ha and US$1,573/ 

ha for large farmers. It is this kind of an underlying logic that led to the 

World Bank sector report for Costa Rica to recommend transfer payments 

to farmers for environmental services equivalent to the opportunity 

cost of income forgone. 

Certification 

A campaign to promote timber certification in Brazil is growing 

(Smeraldi et al. 1999) and efforts to set standards have begun (box 6.3). 

International donors have been working with local NGOs to support 

pilot initiatives on forest management of both commercial and community-based 

operations. 27 Additionally, the arrival of ecologically and 

socially sound forestry on a commercial scale, through Mil Madereiras, 

has had important impacts within the private sector. 28 

The attitude of the forest industry concerning certification can be 

divided into three broad categories. The highly professional, exportoriented, 

plantation-based pulp and paper segment views certification 

as a potential market benefit with relatively low costs. For example, 

Klabin, the largest Latin American pulp and paper producer, certified 

its main forest operations in 1997. Taking an intermediate position is 

the steel industry, which uses vegetable charcoal. Those enterprises that 

are export-oriented and depend mostly on charcoal from plantations 

see certification as a benefit. Companies that are not export-oriented or 

that depend primarily on charcoal from natural forests and cerrados 

find the (indirect) costs of certification too high relative to potential 

benefits. Finally, the sawn timber segment generally has resisted certification, 

the prevailing rationale being that the change from current predatory 

logging to well-managed forest systems is too costly for the potential 

gains. Again, this view has begun to change as a result of the Mil 

Madereiras experience. 29 

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Box 6.3. Home Grown Certification 

Brazil is actively developing national standards of good forest management within the framework of the 

Forest Stewardship Council (FSC). A working group of the FSC, currently chaired by the WWF, 

includes participants from the private sector and environmental and social movements plus observers 

from government and academia. This broadly consultative process is initially focused on developing 

national standards for natural terra firme forest management in the Amazon and for plantation forestry. 

Brazilian NGOs participated extensively in the structuring of FSC International in 1993 (Virgilio 

Viana, one of the authors of this study, was also involved in this effort) and, more recently, the 

Brazilian FSC working group. A Brazilian NGO representative currently is the vice-president of 

FSC’s board of directors. Many NGOs view independent certification as a positive step in encouraging 

good forest management and discouraging predatory logging. 

In addition to FSC certification, the forest industry sponsored a certification program known by the 

acronym CERFLOR, through the Sociedade Brasileira de Silvicultura (SBS). This program has had 

difficulties at first, partially over its credibility. Very few NGOs support the initiative, as it is 

perceived by many as being industry-oriented. SBS recently handed over the CERFLOR program to 

the Brazilian Association of Technical Standards (Associacion Brasileira de Normas Technicas, 

ABNT), which is attempting to revitalize it. The program’s future depends largely on the perception 

by key stakeholders—particularly NGOs—of its independence. 

In addition to these Brazil-based efforts, the International Standards Organization (ISO) has been 

quite successful in disseminating its certification programs in Brazil. ISO and FSC certification are 

not mutually exclusive, and the choice between them will depend on market demand. 

Outside of the timber industry, a growing number of private initiatives 

in palm heart production are effectively implementing forest management 

plans. This is directly related to market signals indicating potential 

benefits in terms of access to financing mechanisms such as Banco 

Axial’s investment fund and improved market access from certified operations. 

However, the indirect costs of certification (e.g., improving 

management systems, safety of working conditions, etc.) can be high, 

depending on how far below standards an enterprise falls. 

There are three types of benefits that producers may derive from 

certification—namely, improved market access, premium prices for products, 

and improved access to credit and investment funds (Viana 1996). 

Besides giving signals to consumers, certification can aid in government 

monitoring of the industry, as it serves as independent verification of 

private operations. Further, certification can be a stimulus for change in 

employment practices. 30 However, it is unclear whether domestic or international 

consumers will pay premium prices for certified products. 

65


Attempts to influence the timber sector via international trade (e.g., 

boycotts) are likely to have little impact in Brazil, as domestic consumption 

of timber, as opposed to exports, is a key element driving the behavior 

of the logging industry. The domestic market consumes 86 percent 

of Amazon timber production, although exports could grow. Therefore, 

the promotion of certified timber in large urban centers such as 

Sao Paulo can have a greater effect than promotion of certification in 

foreign markets. Certification is still a new phenomenon in the Brazilian 

domestic market. Nevertheless, demand for certified timber in this 

market is growing rapidly, albeit from a low base (Smeraldi et al. 1999). 

It is too early, however, to assess the ultimate impacts of certification on 

predatory logging practices. Ultimately, the importance of independent 

certification to timber production in the Amazon will depend on the 

growth of a domestic market for certified products or public policies 

encouraging certification. 

In a 1998 workshop held at IBAMA headquarters it was agreed that 

certification could improve public monitoring efforts. Additionally, the 

Brazilian government has formally recognized the importance of widely 

accepted criteria and indicators of sound forest management. This is 

evidenced by its strong position in crafting the Amazon Treaty’s Tarapoto 

Criteria and Indicators of Forest Management (TCA 1995). The government 

also has an official representative closely following the development 

of the Forest Stewardship Council (FSC) certification criteria 

and indicators. Despite its support for certification, however, the government 

has expressed concerns in several international forums that 

forest certification does not become a barrier to free trade. 

The economics of certification raise several questions: What share of 

domestic consumers would be willing to pay a premium for certified 

timber? How effective and credible will the certification program be, 

and how well will it be monitored, or will certification become yet another 

source of bribery and corruption? What standards will it use? 

Will they be only FSC standards? And what criteria and indicators will 

be used, given that there has been very little practical research and extension 

on managed forests in Brazil’s highly diverse forest conditions, 

e.g., in the Amazon? Will it need new capital investment by loggers to 

do the least harm to the forests? What would be the cost to small loggers? 

Mil Madereiras, because it had ready access to capital, did not 

have to concern itself with making such new investments and it could 

afford not to make high profits to develop a new “green” image and 

establish reputation as a “clean” enterprise. Who will pay the costs of 

66


certification for small producers? Is there a need for premium prices, or 

can improved market access provide sufficient incentive? How can certification 

contribute to improved monitoring of the industry? What are 

the capital and technological needs to make the transition from predatory 

to well-managed logging? 

In terms of certification also there is also no global consensus on the 

definition of “sustainably managed forests.” Each institution—the Forest 

Stewardship Council, International Timber and Trade Organization 

(ITTO), African Timber Organization (ATO), Indonesian Ecolabeling 

Institute (LEI), and the governments participating in the Montreal and 

Tarapoto process—has its own set of criteria and indicators related to 

certification. Recently, the Center for International Forestry Research 

(CIFOR) sent teams of local and international experts to various countries 

(Austria, Brazil, Cameroon, Côte d’Ivoire, Gabon, Germany, Indonesia, 

and the United States) to have them evaluate the validity and 

usefulness of different criteria and indicators used by various groups. 

They found that there was general agreement about the main components 

of sustainability. The team identified six basic principles and about 

25 points related to policy, ecology, social aspects, and production as 

useful. It was also observed that as one goes down the hierarchy of 

indicators and criteria, they become more site-specific. This means that 

evaluators will have to adapt criteria and indicators in accordance with 

site-specific characteristics (Polex 1999). 

It is clear that certification is by no means a panacea and is being 

opposed by a number of small and medium operators. However, if the 

movement is helping to generate domestic debate and awareness within 

Brazil and to lead to improved forest management, then it should be 

encouraged, without excessive expectations of what certification can 

achieve in the short to medium term. Since the base costs of developing 

internal institutional and technical capacity are large relative to the original 

costs of certifying wood once the capacity exists, the Bank should 

support research and training in this area as a public good, allowing 

domestic and international markets, including the WTO, to rule on its 

merits in the marketplace. 

Indigenous Communities 

Brazil’s indigenous population is distributed across all five geographic 

regions of the country and all but two states. Comprised of 206 ethnic 

groups speaking some 170 languages, the indigenous population totaled 

325,652 in 1995, representing 0.2 percent of the country’s total 

67


population. These groups inhabit 561 areas covering 972,450 km 2 (about 

the size of France and England combined), or 11.38 percent of total 

national territory. 

The government has taken significant steps in securing land tenure 

rights for indigenous populations. In December 1998, the Justice Ministry 

signed the official demarcation of 22 indigenous reserves and officially 

recognized the limits of 13 others, largely through PPG-7 funding 

(see Part II). Between January 1995 and December 1998, the Cardoso 

administration recognized 58 indigenous reserves across nearly 26 million 

ha and demarcated 115 reserves representing an area of over 311,000 

km 2 . Sixty-two percent of the country’s indigenous reserves are now 

fully demarcated, representing 78 percent of total area in such reserves 

(FUNAI/DAF 1999; Santilli 1999). 

Of the 561 indigenous areas recognized by the National Foundation 

for the Indigenous (FUNAI, Fundacao Nacional do Indio), 352 (63 percent, 

with an area of 760,000 km 2 ) are either demarcated, ratified, or 

registered (table 6.2). Forty-one additional areas have been “delimited,” 

23 are identified, and 145 are still to be identified. 31 

Several challenges are associated with indigenous lands and their demarcation: 

• Indigenous lands are invaded by large landowners, timber companies, 

mineral prospectors, and sharecroppers, as well as by the 

Table 6.2. Indigenous Territories as of July 1999 

Percentage of area 

Situation of 

of indigenous lands 

indigenous lands Stage Number Area (km 2 ) in relation to total 

Demarcated - 352 759,753.36 78.13 

Registered 300 721,943.09 74.24 

Ratified 31 34,929.08 3.59 

Demarcated 21 2,921.19 0.30 

In demarcation - 64 212,656.65 21.87 

Delimited 41 174,948.54 17.99 

Identified 23 37,708.11 3.88 

To be demarcated - 145 0 0.00 

To be identified 145 0 0.00 

Total 561 972,450.01 100 

Source: FUNAI/ DAF- Diretoria de Assuntos Fundiarios, July 1999. 

68


public sector, for such activities as construction of roads and 

hydroelectric plants and the creation of new municipalities. 

• The public sector is inefficient in punishing invaders, leaving the 

indigenous communities with little power to confront land invasions. 

• Corruption within government institutions permits a vicious cycle 

of land invasions and extraction of natural resources and compromises 

natural ecosystems and social organizations (Viana 1997). 

• Public resources for the demarcation of indigenous lands are 

scarce. To date, the government has undertaken demarcation partly 

using external resources obtained from bilateral and multilateral 

sources, such as the World Bank, with few resources coming from 

the federal government. This creates particular problems for 

indigenous communities outside the Amazon, which have to rely 

exclusively on ever tighter federal funds. 

• Regional economic and political interests exert constant pressure 

against federal demarcation of indigenous lands, leading to conflict 

and even violence (see Part II). 

• There is a need for economic alternatives to secure the requirements 

of the indigenous people, particularly to cover health costs 

(the case of Xikrin can be a first attempt to link timber production 

to protection of indigenous rights and forest conservation). 

High-value mahogany stocks are a principal reason underlying invasions 

of indigenous lands. South America’s major remaining mahogany 

stocks are located in the forests of Brazil and Bolivia. In Brazil, the 

“mahogany belt” comprises a terra firme forest area of about 800,000 

km 2 concentrated in Acre, southern Para, and parts of Rondonia, 

Amazonas, and Mato Grosso and coincides with numerous indigenous 

lands and areas of ecological conservation (Viana 1997; CEDI 1993; 

Greenpeace 1992). 

Methods of illegally obtaining timber from indigenous lands are numerous 

and include: pure and simple robbery; contracts between timber 

companies and indigenous communities; direct negotiation with indigenous 

communities, usually without a formal contract; declaration of 

bankruptcy in order to escape financial penalties; extraction of timber by 

a third party agent; and abuse of the IBAMA-approved management plans. 

While Carpentier et al. suggest that formal land title for small-scale 

agriculturalists may increase forest conversion, demarcation of and clear 

title for indigenous lands is generally beneficial to forest conservation. 

The process of demarcating indigenous lands has received strong support 

from the World Bank–implemented PPG-7 program. 

69


In the search for appropriate relationships with surrounding social 

and economic environments, indigenous societies will continue to face 

many challenges. For many, forest management is a critical issue, representing 

both a source of problems and a potential solution for sustainable 

land uses. Where illegal logging is concerned, forest production 

acts as a source of social disintegration and economic and ecological 

impoverishment. 

Nascimento et al. (1999) suggest that forest management, on the 

other hand (both timber and non-timber production), may become a 

source of economic alternatives for these communities. In most cases, 

indigenous societies have a comparative advantage in forest management 

over agriculture and cattle farming, given their rich resource base 

and skilled labor. Only a few experiences with natural forest management 

in indigenous reserves exist, however, and very few professionals 

have the necessary skills to work effectively in this area. The Brazilian 

authors of this report believe that this may offer attractive opportunities 

for future World Bank involvement. 

Extraction of Non-Timber Forest Products 

Extraction of non-timber forest products (NTFPs) from natural forests 

in Brazil has declined over the past few decades. In the Amazon, 

this decline is predictable and easily explained by a combination of factors: 

low productivity per unit of land; competition with more economically 

attractive plantation-based products; competition with chemical 

substitutes; and government policies, including import tariffs. This 

same general pattern of decline has been documented in the Atlantic 

Forest as well (Homma 1995; Reserva da Biosfera 1999). 

A noteworthy example is Amazonian rubber production. Rubber 

production in the north region of Brazil (which includes most of the 

Amazon), based largely on extraction from natural forests, declined 

from 16,968 tons in 1989 to 5,338 tons in 1996. Over the same period, 

rubber production in plantations in southeast Brazil rose from 3,918 

tons to 28,657 tons. Rubber imports increased as well from 88,817 

tons to 107,329 tons (Agrianual 1999). These changes largely reflect 

the lower production and transportation costs of rubber derived from 

plantations compared to natural forests. The lower costs result in part 

from a series of policy instruments promoting the plantation-based rubber 

industry. The Brazil team observes that there is an opportunity to 

explore the possibility of valuing other services provided by natural 

forests managed for rubber production such as carbon storage and 

70


biodiversity conservation. Such instruments may stimulate forest conservation 

and reduce deforestation. A similar case exists for babassú oil 

coming from natural stands. As a result of lower tax for imported oils, 

traditional extractivist communities are facing an economic crisis that 

is fueling deforestation and depletion of the resource base. 

In some areas, however, production of NTFPs is increasing. Medicinal 

plant extraction in Parana is an example. Klabin, a private pulp and 

paper company, maintains a public health program for the municipality 

of Telemaco Borba, which is supervised by a team of doctors and pharmacists 

and relies heavily on phytotherapy. This initiative is in the process 

of receiving finding from the Brazilian Biodiversity Fund 

(FUNBIO)—which itself is supported through a Global Environment 

Facility (GEF) grant—to establish a partnership with the Brazilian Foundation 

for Sustainable Development and prepare a business plan for the 

establishment of a company to market medicinal plant products (FBDS 

1999). The results of this initiative will shed light on the economics of 

such enterprises. Brazil nut production in Amapa also is growing. There, 

a producers’ cooperative, Cumaru, processes Brazil nuts to sell to state 

governments, which serve them as snacks in public schools. In April 

1999, Cumaru launched a brand name under which it markets the nuts 

in supermarkets in Amapa. In another promising development, the government 

of the State of Acre is working on an aggressive forest policy 

promoting the management and processing of forest products. The World 

Bank is discussing forest conservation through sustainable use and other 

ideas with the government. 

It is unlikely that extraction of NTFPs can be profitable on a scale 

large enough to significantly affect forest conservation on its own, and 

while Carpentier et al. (1999) show that NTFPs are not competitive 

with agricultural pursuits, extractivism is fundamental to the livelihoods 

of tens of thousands of Brazilians living in extractive reserves. 

Extractivists, according to Vosti (1999 personal communication), are 

among the poorest residents of the Amazon, with some in extreme poverty. 

This would seem to be a clear area for international assistance, for 

both poverty alleviation and environmental reasons. 

Through the PPG-7 program (discussed in Part II), the World Bank 

and the international community are involved in promoting extractive 

reserves in the Brazilian Amazon on a pilot basis. PPG-7 is engaged in 

activities in extractive reserves Alto Jurua and Chico Mendes (both in 

Acre), Rio Ouro Preto (in Rondonia), and Rio Cajari (in Amapa). Together, 

these four reserves are home to more than 2,400 families. 

71


Forest Research and Forest Technology 

Most research programs and funding are directed to agriculture and 

husbandry rather than to agroforestry, reforestation, or forest management. 

EMBRAPA, Brazil’s national agricultural research institute and 

one of the premier research systems in the developing world, for example, 

spends some R$70 million annually, 15 percent of its total budget 

for national agricultural research, on its six centers responsible for 

forest research and located in forest areas. But their budgets include 

lots of other activities, so the support for direct forest research is smaller. 

Historically, EMBRAPA’s research has emphasized agricultural development 

over management of natural forest and plantation forestry. 

The EMBRAPA center in Belem, in fact, has agricultural development 

as its stated mission, with managed forests conspicuously absent from 

its mission statement (Lele 1998). A combination of factors may explain 

the past state of forest research. First, because the Amazon has a 

deficit in food production but the potential for producing more food, 

EMBRAPA centers seem to see their mission as increasing food production 

and productivity. Another explanation may be that, unless products 

from the wild are domesticated, they do not have much future in 

terms of economic viability (Homma 1995). Further, as shown in this 

study, relative returns to agriculture are considerably higher than returns 

to forest management. Finally, there is some amount of political 

pressure to improve agricultural production and productivity. It would 

be fair to conclude that the imbalance in EMBRAPA’s research resource 

allocations to managed forests also may have contributed to agricultural 

expansion in the Amazon, most notably through its impressive 

research work with soybeans and pastures. Future strategy should bring 

about a better balance, as the relative neglect of forests in research agendas 

creates a technological gap that increases agricultural productivity 

relative to forest productivity. An exception is plantation forestry in the 

south, where applied research carried out by EMBRAPA and universities 

and partially funded by the private sector has been successful in 

increasing forest productivity. 

Over the past decade or so, EMBRAPA research stations in the northern 

region, in partnership with many other research institutions, NGOs, 

and universities, have dedicated increasing amounts of financial and 

human resources to understanding the “forest side” of the forest margins. 

Efforts generally have been collaborative in nature (sometimes with 

local or state research teams, but often with international partners) and 

have focused primarily on improving our understanding of forest eco- 

72


system performance (especially regarding timber production). Important 

examples of such research include work on managed forests with 

Mil Madereiras and long-term collaboration with CIFOR. EMBRAPA 

has placed special emphasis on assessing forest ecosystem responses to 

timber off-take of different rates and using different extraction technologies, 

the aim of which has been to identify methods for sustainably 

managing forested areas, especially those held by groups of small-scale 

agriculturalists. Progress has been made on the biophysical front: For 

some types of tropical moist forests, sustainable management strategies 

have been identified and are in the pilot testing phase. Advancement 

has been somewhat slower on the socioeconomic front, but recent modeling 

efforts have demonstrated the potential profitability of small-scale 

managed forests in the context of the whole farm. However, important 

gaps remain in the knowledge base concerning how to monitor and 

control timber off-take, and these gaps will need to be filled, since unsustainable 

timber off-take is more profitable than sustainable off-take, 

and the pressure to open new land for agriculture remains strong. These 

are important areas of new research for EMBRAPA, INPE, and other 

organizations, including universities. A competitive research grants program 

funded by the World Bank with EMBRAPA to foster research 

partnerships among institutions is currently threatened with budget cuts, 

a victim of Brazil’s fiscal situation. 

Some argue that the availability of technology is not a problem; rather, 

it is now a question of technology refinement and dissemination (Uhl et 

al. 1998). Others argue that tropical forest management is too complex 

and will never be possible (Rice et al. 1998). However, if local forest 

managers, particularly the small ones, have no economically viable alternatives, 

and due to lack of enforcement, it pays to shift to agriculture, 

the deforestation pressures they exert are likely to consume a majority 

of the forest cover (Carpentier 1999a). The most important gaps 

are in the areas of economic, financial, and social science research, which 

is crucial to produce returns in the current forest management systems. 

Extension services such as EMATER (Empresa de Assistencia Tecnica 

e Extensao Rural), which offers agricultural and livestock extension, also 

have little or, more often, no technical expertise in forest management. In 

the Atlantic and Amazon forests, technical extension services to forest 

management do not reach forest-rich areas with high potential for management. 

Similarly, there is an absence of technical extension for reforestation 

and agroforestry systems in forest-poor areas. Instead, technical 

assistance almost exclusively is directed at agriculture and pasture man- 

73


agement. Moreover, the availability of forest management technology to 

small farmers is particularly problematic. This results from a combination 

of factors, the first of which is the fact that technical and universitylevel 

forest programs are much smaller, less well equipped and staffed, 

and less politically influential that their counterparts in agriculture. There 

are only two technical schools devoted to forests in the country, and in 

universities, agronomists far outweigh foresters. Most extension agents 

and decision-makers within extension institutions, then, take an agronomic 

view of rural production systems that sees forests as impediments 

rather than assets to sustainable rural development. A noteworthy exception 

is the World Bank–supported Minas Gerais Forest Service, which 

has the best forestry extension program in Brazil. 

Only recently have manuals for forest management been published 

that are accessible to extension agents and professionals (e.g., Silva et 

al. 1997; Amaral et al. 1998). There are many challenges to disseminating 

small-scale forest management practices in Brazil. Existing printed, 

video, and Internet material must be made accessible, and new material 

must be produced. 

The Changing Role of the Public Sector 

Federal Government 

In recent years, the government has made important progress in promoting 

forest conservation. The Cardoso administration has expanded 

protected areas although, as noted earlier, the existing protected areas 

are not being appropriately managed and/or protected. The government 

is also attempting to address many of the policies and practices underlying 

deforestation that are the legacy of decades of military rule and an 

economic growth model based on import-substitution-industrialization. 

Brazil also has signed two high-profile international initiatives aimed at 

forest conservation in the Amazon, the PPG-7 program and the World 

Bank/WWF alliance (see Part II). 

The government has also been clear in its poverty alleviation mission. 

There have been few poverty alleviation programs with the Amazon. 

But since the 1960s, the government has viewed the Amazon as a 

potential source of economic growth and poverty reduction in other 

parts of the country through migration. It has sought economic and 

geographic integration of the region with the rest of the country. The 

current “Brazil in Action” program (see box 4.8) reinforces these efforts. 

In its 1997 publication Agenda 21 for Amazonia (Government of 

74


Brazil 1997), the government asserted that “the key factor in the implementation 

of this Agenda is the correct deregionalization of the Amazonia 

issue which should be viewed from a converging viewpoint: as national 

need; as national responsibility; as national potential.” The Brazilian 

government even took the World Bank to task concerning a 1992 publication 

that it felt presented “a bias with regard to environmental needs 

at the expense of other dimensions, such as, for example, the development 

needs of the local populations” (Schneider 1992). Since then, responsible 

stewardship of natural resources is generally more broadly 

accepted in developing countries like Brazil. The international community 

has expected the World Bank to exercise leverage over Brazil and 

engage in a policy dialogue. However, the Bank’s leverage in large countries 

seems exaggerated, except in a period of crisis. 32 Besides, the use of 

leverage is often resented and can backfire. An important question is 

whether the Bank should have been doing more of its economic and 

sector work involving nationals, and building their capacity to exercise 

policy influence in domestic debates. It is only recently that the Bank 

has begun such a participatory approach to analysis. 

Brazil has long resisted “internationalization” of the Amazon, considering 

the region’s future an internal issue. As far back as the 1960s, the 

Brazilian military and other nationalist interests resented the efforts of 

multilateral development banks to include environmental and indigenous 

protection provisions in their Amazon projects. Ironically, at the same 

time, the military government’s industrialization-based development model 

included large-scale foreign investment in the Amazon. Brazil’s receptivity 

to engage in discussion with the international community on a variety 

of issues, including the environment, has increased in recent years, but 

this is a slow process. Besides, resistance to international involvement in 

the Amazon and aversion to the notion that the Amazon’s forests and 

biodiversity somehow belong to the global community is still resented in 

Brazil and influences dialogue between Brazil and the international community 

(see Part II for discussion of World Bank/Brazil dialogue). 

State and Local Governments 

In just a few years, Brazil has emerged from military rule to become 

one of the world’s largest and most vibrant democracies. Decentralization 

of power to the states, where over half of the public spending occurs 

(World Bank 1995), has followed the successful democratization 

process. The 1988 Constitution provided for a federal structure of governance 

and shifted federal resources to states and municipalities. More 

75


recently, the government has shifted important regulatory and enforcement 

responsibilities to the states. Acknowledging growing power held 

by state governments, in its 1997 Country Assistance Strategy for Brazil, 

the World Bank placed increased emphasis on lending directly to 

states. The World Bank also recognized the need to be sensitive to Brazilian 

states’ desire for growth while pursuing its environmental agenda 

(World Bank 1997). 

While there are hopes that the decentralization of environmental protection 

will improve environmental management, there is also much skepticism. 

Schneider (1994) notes that decentralization worsens the prospects 

for coalition building for sustainable development, especially in those 

initiatives intended to reduce access to resources, such as zoning, land use 

planning, and logging or forest clearing restrictions. Decentralization is 

especially problematic if it increases untied transfers and reduces the leverage 

of the central government over states and municipalities. 

Lack of coordination between federal and state agencies is another 

potential problem, and one that has already created problems, with 

INCRA (Instituto Nacional de Colonizacao e Reforma Agraria) ignoring 

state zoning plans in siting its federally backed settlements (Mahar 

and DuCrot 1998). The growing political power of logging interests at 

the local level also is cause for concern from a conservation standpoint. 

It must be noted that decentralization is not a singular process. It carries 

different implications for the Atlantic Forest (where state and municipal 

institutions are relatively stronger and environmentally more progressive) 

than it does for the Amazon (where public institutions are weaker 

and view the forest as a resource to be exploited for economic growth). 

In some cases, especially in the highly industrialized states of the Atlantic 

Forest, decentralization results in clear gains as state governments are 

better equipped to carry out environmental monitoring than the federal 

government. There is often greater political will at the state level on these 

cases. On the contrary, in forest-rich regions such as the Amazon basin 

the opposite can be true. Decentralization can result in poor control and 

monitoring of deforestation and illegal logging since loggers and other 

groups have great power in state politics. It should be noted, however, 

that in the case of some Amazonian states (Acre and Amapa), there are 

state governments that are very active in promoting forest conservation 

and have built strong political alliances, especially with social movements 

such as the rubber tappers. They are taking rapid steps to articulate improved 

forest policies with support of NGOs and universities. The Bank 

currently has support for the State of Amapa under consideration. 

76


Recent Government Initiatives 

The environment minister at the time of publication of this review, 

Jose Sarney Filho, has made bold moves against illegal logging, including 

sending military units to patrol the Amazon. Further, forest management 

is slowly being integrated into development policies. The new 

set of guidelines for the Fundo Constitucional do Norte, mentioned above, 

is one such positive measure. 

The Ministry of Environment (MMA) also launched a World Bank/ 

FAO–funded initiative to develop a “positive forestry agenda” for Brazil. 

The “Project for Transformation of the Brazilian Forest Sector,” 

which is being funded by a Japanese grant through the World Bank, 

seeks to identify constraints to and opportunities for forest management 

in the Amazon. 

The government has increased the area identified as national forests. 

This was done in order to reduce the supply of low-cost timber from 

illegal sources in unclaimed lands (terras devolutas), and to create incentives 

for long-term investment by timber companies in forest management 

and local processing. Additionally, IBAMA, with funding from 

ITTO, has opened for competitive bid the harvest of some 3,500 ha in 

the Tapajos National Forest. While the action was highly criticized by 

NGOs and the Public Ministry due to conflicts with local populations 

and supposedly low technical standards, this “experiment” generated 

many lessons that are now being mainstreamed by the government. These 

include the need to train staff in conflict resolution and the importance 

of stakeholder participation in the formulation and implementation of 

concession policies. 

The Influence of Nongovernmental Organizations 

Nongovernmental organizations have become increasingly active in 

the 1990s, both in influencing public policies and in implementing field 

projects. Their activity has increased in the context of the government’s 

formulation of its new forest policy. Indeed, Brazilian civil society is 

gradually becoming an important player in conservation and environmental 

issues. A group of 12 NGOs that act under the umbrella of the 

Grupo de Trabalho sobre Politica Florestal (Working Group on Forest 

Policy) has been influencing governmental decisions that directly or indirectly 

affect forests. This group, linked to a broader NGO network, 

the Brazilian NGO Forum, has also been one of the pillars of the process 

to develop Brazilian criteria and indicators for good forest management 

practices (see box 6.3). 

77


Regional NGO networks specifically engaged in the Amazon and Atlantic 

Forests, the Amazon Working Group (GTA) and the Rede Mata 

Atlantica, respectively, also have been influencing a number of forest policy 

issues related to those biomes. The GTA, for example, has been a key 

player in the implementation of the World Bank-implemented PPG-7 Pilot 

Program (see Part II). Indeed, the PPG-7 program is in part responsible 

for the capacity and growing influence of the GTA and for the 

strengthening of the NGO movement in general. Rede Mata Atlantica, 

on the other hand, has been pivotal in the debate over legislation for the 

Atlantic Forest and a possible PPG-7 component for that biome. 

International NGOs also have been active in Brazil, with their activities 

varying according to their respective missions and strategies. Some 

have developed strong links with Brazilian NGOs, improving the ability 

of the international organizations to adapt their agendas to Brazilian 

realities. Friends of the Earth and the GTA have formed one such 

partnership, and among the products of this alliance is the publication 

of a series of documents that have served as important elements in policy 

debates (Smeraldi 1996 and Smeraldi 1998). 

NGOs have increasingly assisted in program design through their 

growing technical expertise. Several examples are particularly noteworthy. 

First, working under a World Bank contract, the Institute for the 

Management and Certification of Forests and Agriculture (IMAFLORA, 

Instituto de Manejo e Certificacao Florestal e Agricola) reformulated 

the forest component of the PPG-7 program. This component, known 

as PROMANEJO (Project to Support Forest Management in the Amazon) 

is a significant ongoing effort related to forest management in the 

Amazon. In drafting this project, IMAFLORA used a participatory approach 

that promoted active stakeholder dialogue. The second example 

is the “Project for Transformation of the Brazilian Forest Sector,” being 

designed with strong input from IMAZON, again through a World 

Bank–funded contract. In both cases, the World Bank, through partnerships 

with NGOs, has made a breakthrough in promoting stakeholder 

dialogue related to forest issues, and perhaps enhancing the NGO role 

as facilitator of such interaction. 

An important success story for both Brazilian NGOs and the government 

is the case of the Xikrin Indian Forest Management Project, 

carried out by the Instituto Socioambiental (ISA), one of Brazil’s largest 

and most influential NGOs. ISA was successful in rallying political sup- 

78


port within the government and the NGO community for forest management 

in Indigenous Reserves. Though implementation is facing a 

number of difficulties, the project is yielding important lessons (Viana 

1999 personal communication). 

After succeeding in a number of campaigns to establish protected 

areas, to change legislation to allow for their direct participation in 

protected-area management, and to establish mechanisms for national 

and international funding, several NGOs have become actively involved 

in the implementation of field projects in such areas as agroforestry, 

forestry (timber and non-timber production), fisheries, and land use 

planning, in both the Amazon and Atlantic forests. A number of initiatives 

have become landmarks in changing the concepts and conventional 

approaches of government agencies. A community forestry project 

in Acre, for example, has played a critical role in the debate over timber 

production in Amazonian forests. 

NGOs are contributing in multiple ways to the integration of forest 

conservation efforts with community participation, including developing 

appropriate technologies to enhance participation and promote conflict 

resolution; on-the-job training for professionals in forestry, 

agronomy, biology, etc.; changing corporate views of public agencies; 

and reducing costs and improving efficacy of conservation and sustainable 

development efforts. They are exercising their muscle in the debate 

on the formulation of the new forest policy. The World Bank has increased 

the role of NGOs in developing solutions to conservation and 

sustainable development issues. 

79

PART II: THE WORLD BANK 

AND BRAZIL 

7 

Overview 

World Bank involvement in both the Amazon and Atlantic Forests 

reviewed in this report may be justifiable on several grounds. Given the 

Bank’s comparative advantage in situations where global externalities, 

market failures, or government failures are present, many of the measures 

discussed in Part I would warrant its participation. The carbon 

storage, biodiversity, and cultural heritage of the Amazon and Atlantic 

Forests are of great global importance and value, with considerable apparent 

diversion between global and local benefits. Much of the work 

to conserve these resources is of a public goods nature. The private 

sector is unlikely to become heavily involved on its own. Government 

failure, likewise, is an issue. With 80 percent of all logging taking place 

illegally, governance and political economy are important factors in deforestation. 

This also increases the challenge of World Bank involvement 

in Brazil to contribute to forest conservation. 

There are, however, three reasons why the Bank may have been less 

proactive in lending to the forest sector since 1991. First, the Government 

of Brazil has clearly and repeatedly asserted its sovereignty over 

the Amazon and its natural resources and resisted “internationalization” 

of the region. With an annual GNP of US$760 billion, Brazil is 

capable of financing many of its own development programs, including 

the kinds of large-scale infrastructure projects for which smaller developing 

economies often rely upon World Bank loans. The Bank’s annual 

loan commitments are small, US$1 billion or so on commercial terms. 

Grants such as those from GEF are limited. Besides, the Bank has in- 

81


creasingly become demand-driven in its programs, with Brazil largely 

determining the activities for which it borrows. Even if the Environment 

Ministry has some interest in a Bank loan, the all-powerful Finance 

Ministry has to seek Bank involvement in this sector. Thus, the 

Bank’s leverage in Brazil is limited. 

Second, a key to World Bank success in its recent forest-related programs 

in Brazil is promoting a sense of Brazilian ownership of those activities. 

Some Bank officials believe that because of the strong vested interests 

in development of the Amazon, combined with the country’s fragile 

environmental constituency, aggressive positioning on the part of the 

World Bank would be counterproductive. Instead, they contend that the 

Bank must keep a low-profile in constituency building and facilitating 

the articulation of a Brazilian vision for the Amazon. This is a slow and 

unpredictable process; the pace of it can vary considerably depending on 

the external shocks, political changes, and personalities involved. 

Third, the Bank’s project experience before 1991 was less than encouraging, 

nor did the 1991 Forest Strategy encourage involvement in 

sustainable forest management. This occurred mainly because the Bank 

was uncertain about what sustainable forest management actually meant, 

and how it could be operationalized. The result was basically a hands-off 

approach in countries like Brazil, which have substantial quantities of 

primary tropical moist forests (see Part I). 

While the Bank’s forest sector lending program in Brazil has had some 

notable successes, the most important efforts have been in non-lending 

activities. The high quality of the economic and sector work produced in 

Brazil has benefited from continuity in Bank staff. In the past decade, the 

Bank’s Brazil Country Office has had only two senior forest economists, 

Dennis Mahar and Robert Schneider, both of whom have made important 

contributions to analysis of the forest sector in Brazil. 

82

8 

The Bank Program in Brazil 

Country Assistance Strategies 

Of the two stand-alone Country Assistance Strategy (CAS) documents 

for Brazil in the post-1991 period (one in 1995 and the most 

recent in 1997), the earlier CAS outlined an anti-poverty thrust to Bank 

lending and policy advice, continuing the objective of the previous CAS. 

The strategy emphasized human capital formation and infrastructure 

development as the principal weapons against poverty. The 1995 CAS 

also marked a shift toward directing policy dialogue, advisory work, 

and lending programs at the state level, acknowledging the decentralization 

process taking place in Brazil. The strategy included three main 

components: attainment of stabilization and resumption of broad-based 

growth through key structural reforms at the federal level; state-level 

reforms, including privatization of banks, electricity distribution companies, 

and other enterprises, and strengthened expenditure planning 

and flexibility and monitoring of state indebtedness at the federal level; 

and, selected sector-specific policies, including human capital formation, 

infrastructure, environmental protection, and specific anti-poverty 

policies such as decentralized rural development programs. 

In the environment sector, the Bank’s objectives in the 1995 CAS 

were “under the newly decentralized systems [to] ensure that priority 

biomes are being protected [and to] assist Brazil with (a) strengthening 

federal and state environmental protection agencies; (b) reforming laws, 

regulations, and policies affecting tax and user fees, land ownership, 

83


forest development, indigenous reserves and urban pollution; and (c) 

strengthening monitoring and enforcement capabilities.” The CAS identified 

several “green” (natural resource management) and “brown” (environmental 

pollution) issues to be addressed. The “green” issues (box 

8.1), which closely parallel those outlined in a 1994 World Bank report 

on the management of agriculture, rural development, and natural resources, 

included: 

• Set tax rates for native forests equivalent to or below tax rates on 

agricultural land. Establish separate rules and regulations for 

native and plantation forests. 

• Define a process for assigning terra devoluta to alternative private 

uses within five years, including a settlement policy that takes into 

account the full environmental impact of forest conversion. 

• Design policies and regulations that allow conservation, agricultural 

development, and delivery of special services to be contracted 

out to the private sector, local communities, and NGOs. 

• Decentralize to the states much of the responsibility for the implementation 

and enforcement of environmental protection. 

• Provide incentives for collection of environmental user fees by 

allowing environmental agencies to retain a portion of the fees they 

collect. 

• Streamline and clarify procedures for identification and demarcation 

of indigenous reserves. Strengthen and coordinate protection 

of these reserves to reduce encroachment and illegal exploitation of 

indigenous reserves. 

The 1997 CAS differed from its predecessor in its movement to a 

long-term sectoral emphasis on basic education, based on the view that 

progress in education is central to achieving long-term growth, poverty 

alleviation, and greater income equality. 

The 1997 CAS outlines its main thrusts: 

• A policy of lending to individual states that focuses on portfolio 

performance fits with the sectoral and regional strategy, and has an 

adequate state fiscal program 

• A primary focus on education assistance that extends beyond the 

CAS period, with the objective of supporting both equity and 

growth. Other key areas of Bank assistance are rural development 

and poverty alleviation, health reform infrastructure development, 

and environmental and natural resource management 

• A private sector strategy focus on access to and cost of capital, 

84


Box 8.1. A World Bank “Green” Portfolio in Brazil 

This portfolio promotes biodiversity preservation and environmentally sound development, 

focusing on Brazil’s Amazon and Atlantic Forest regions. Three Bank projects total US$600 million 

in loans: the Rondonia Natural Resource Management Project (PLANAFLORO), the Mato Grosso 

Natural Resource Management Project (PRODEAGRO), and the National Environment Project 

(NEP). The Bank also administers approximately US$300 million in grants provided through the 

Pilot Program to Preserve the Brazilian Rain Forest and the Global Environment Facility (GEF). 

Initial attempts to design projects in rainforest areas did not adequately take into account the 

complexities of promoting sustainable development in the Amazon. In particular, they involved the 

large-scale application of untested technologies such as land use zoning, and they failed to take 

fully into account the lack of broad local political support for measures that constrain economic 

activity. The implementation of two of these projects—PLANAFLORO and PRODEAGRO—has until 

recently also been impaired by complex designs coupled with fragile local administrative capacity. 

Projects are now being designed, or have been re-designed to address these shortcomings: 

• Many of the projects are now implemented as “pilots” on a limited scale, such as all of the 

Pilot Program and GEF projects, and important components of other projects in the 

portfolio. 

• The projects support testing of promising technologies and approaches such as 

agroforestry, forest management, and decentralized management of protected areas 

• Many of the projects—in particular the National Environment Project and the Pilot Program 

—have a strong focus on institutional strengthening of environmental protection agencies. 

• All five projects have strong stakeholder participation mechanisms and encourage 

decentralization of decision-making to the local level. 

• PLANAFLORO and PRODEAGRO have been subjected to participatory midterm reviews that 

have resulted in simpler project designs and greater ownership by the beneficiaries. 

• Decentralization of project supervision is permitting more intensive monitoring of all 

projects in the portfolio. 

Source: Brazil Country Assistance Strategy 1997. 

infrastructure development, regulatory/institutional costs, and 

small and medium enterprise development to address the chief 

constraints to private sector competitiveness with IFC in the lead 

• Further efforts to sustain and improve portfolio performance, 

including implementation of the recommendation of the report 

recently issued by the Joint Brazil-Bank Portfolio Commission 

• Decentralization of the country management unit to the resident 

office to achieve a more effective response to country needs and 

implementation of the Bank’s assistance strategy 

• A graduated response of Bank assistance to key indicators of fiscal 

sustainability, portfolio performance, and adequacy of the private 

85


sector development enabling environment, to ensure that Bank 

assistance will achieve its intended development impact. 

The strategy contains activities in public sector reform; infrastructure 

and private sector development; environmental sustainability; rural 

poverty, rural development and regional growth (with a focus on 

alleviating poverty in the northeast); education; health; and basic urban 

services and urban poverty. 

Within the environmental component, the Bank’s strategy was to 

support, through lending and non-lending activities, environmental protection 

with actions to strengthen the following: 

• Federal and state environmental protection agencies: Decentralize 

to states and local levels much of the environmental protection and 

mitigation responsibility. 

• Private sector: Contract out conservation, agricultural development, 

and delivery of special services to private sector, local 

communities, and NGOs. 

• Laws, regulations, and policies: tax and user fees, deposit refund 

schemes, tradable permits, land ownership, indigenous reserve and 

forest development. 

• Develop and implement a biodiversity strategy focusing on priority 

ecosystems. 

• Develop incentives for long-term financing of environmental 

initiatives. 

• Strengthen institutions, promote environmentally responsible 

behavior among smallholders, issue legislation defining water 

rights and establishing appropriate incentives, and implement 

water resource management at community levels and between 

competing sectors, reflecting scarcity. 

• Establish environmental management in the water sector, including 

a revision of the licensing procedures for sanitation projects 

involving utilities and environmental agencies. 

• Focus on soil conservation and recovery in the south and southeast. 

In its 1995 CAS, the Bank recognized that its lending would be small 

relative to overall needs in Brazil, and that policy advice should therefore 

always be a prominent element of the Bank’s relationship with Brazil. 

Again in 1997, the CAS pointed out that “the Bank Group’s value added 

to Brazil’s developmental effort is driven much more by contributions as 

a catalyst for reform and for priority investments in areas where they 

Bank can convey its global experiences as well as innovation, and less by 

direct financial contributions to this large and dynamic economy.” 

86


New Environmental Strategy 

The Bank is currently developing a new environmental strategy for 

Brazil that incorporates many of the issues discussed in this paper (Brazil 

Environmental Strategy, Revised Discussion Draft, August 26, 1999). This 

strategy recognizes that development in Brazil must be financially sustainable. 

This means that it must provide incentives, be affordable to 

government, be biologically and politically sustainable, and entail stakeholder 

analysis, including possibilities of compensation to “losers.” 

Strengthening support for the environment is an important objective 

of the strategy, and focuses on: developing an environmental information 

and education strategy to help the public more accurately weigh 

environmental priorities; strengthening partnerships with civil society 

and the private sector; and seeking international grants for global externalities. 

Where forests are concerned, the strategy is directed at eliminating 

the perception that there is excess forest through a credible system 

of production forests and concessions, national parks, and extractive 

reserves, and at implementing this within a fully articulated 

biodiversity strategy. 

As with the CAS, the new strategy consists of “green” and “brown” 

objectives. Within the “green sector” the strategy outlines the following 

priorities: 

• Protect watersheds, combining known high biodiversity with water 

supply or recreational values. 

• Complete the biodiversity inventory and develop a cost-minimizing 

strategy to protect biodiversity. 

• Rationalize timber harvesting to ensure the sustainability of the 

industry without unacceptable environmental and social damage. 

• Begin to develop a national consensus on a development and 

protection plan (macro zoning) for the Amazon. 

The World Bank seeks to promote the use of more strategic instruments, 

such as market mechanisms, taxes and subsidies, and environmental 

funds in Brazil. Market mechanisms to create incentives for landowners 

and municipalities to provide environmental services could include: 

transferability of Legal Reserve obligations; conservation groups 

compensating landowners for forgone development; landowners and/ 

or municipalities selling carbon sequestration services internationally; 

and water markets at the basin level. Economic incentives through taxes 

and subsidies being explored include tax-free environmental land uses, 

the Green ICMS, a tax on unsustainably harvested timber, and royalties 

on land clearance. 

87


Economic and Sector Work Since 1991 

Both before and since the Bank’s 1991 Forest Strategy was issued, 

the Bank has undertaken economic and sector work (ESW) relevant to 

Brazil’s forests. Several reports have provided particularly good 

multisectoral treatments of the underlying causes of deforestation in 

Brazil. Other important publications evaluate Bank lending as it relates 

to Brazil’s environment and forests. Additionally, OED conducted an 

exhaustive review of four projects in the Brazil portfolio, World Bank 

Approaches to the Environment in Brazil: A Review of Selected Projects 

(Redwood 1992). This document evaluates how the Bank has addressed 

environmental components of its work in four major Brazilian projects. 

According to the 1997 CAS, several other relevant reports are planned, 

including A Participatory Approach to Sustainable Development in the 

Amazon, Biodiversity Strategy, and Wildcat Mining in the Amazon. 

In addition to the above reports, several issues investigated in this 

report drew on the work of Mahar, Binswanger, and Schneider. For 

example Mahar (1988) analyzed the impact of government policies on 

the magnitude and rate of deforestation in Brazil’s Amazon region. The 

main hypothesis was that efforts to slow or stop tropical deforestation 

through fiat only will be much less likely to succeed if the overall policy 

and regulatory frameworks give people incentives to do just the opposite. 

The paper first reviews the most recent estimates of deforestation 

in the region, which indicate that almost 600,000 km 2 of Amazon forest 

had already been cleared. Moreover, 80 percent of this has occurred 

since 1980. The paper then traces the evolution of regional development 

policies for Amazonia over the past 25 years. It shows that policies 

and programs emphasizing road building, official settlement, and 

extensive livestock development have generally not been designed and 

carried out with due regard for their environmental consequences. The 

paper concludes with several recommendations on how current policies 

could be reformed in order to improve their environmental impact. 

Binswanger (1989) showed that general tax policies, special tax incentives, 

the rules of land allocation, and the agricultural credit system 

all accelerate deforestation in the Amazon. These policies increase the 

size of land holdings and reduce the chances of the poor to become 

farmers. The following are the key provisions: (1) The virtual exemption 

of agricultural income from income taxation makes agriculture a 

tax shelter; (2) Rules of public land allocation provide incentives for 

deforestation because the rules used in determining the security of a 

claim and its land area encourage land clearing; (3) The progressive 

88


land tax contains provisions that encourage the conversion of forest to 

crop land or pasture; (4) The tax credit scheme aimed toward corporate 

livestock ranches subsidizes inefficient ranches established on cleared 

forest land; and (5) Subsidized credit is available for SUDAM-approved 

ranches. 

Schneider (1992) stated that in order to contribute to the development 

of appropriate and effective environmental policies for the Amazon, 

appropriate policies must be based on a correct diagnosis of the 

causes, nature, and magnitude of the environmental problem. Policies 

must realistically recognize the political and economic constraints facing 

implementation. This report describes the current state of deforestation, 

including its location, level, and rate, and reviews its underlying 

causes. Deforestation is, however, of interest only because it is an indicator 

of potential environmental problems, including species loss, global 

warming, local watershed damage, and microclimatic change, which 

are also described briefly. It discusses the most important types of economic 

activity in the Amazon, and their environmental implications. 

Some of these activities are a direct response to government policies 

and public investments, but others would be carried out without them. 

Future government policy must therefore clearly identify the strength 

of the forces underlying economic development in the Amazon. Finally, 

the report discusses the major economic and political factors governing 

the policy environment for the Amazon, and suggests an environmental 

strategy that addresses environmental objectives in light of the existing 

political and economic constraints. 

Schneider (1994) investigated the special characteristics of the overall 

political-economic context confronting governments on the Amazon 

Frontier as the current pattern of development often results in violent 

conflict and wasteful environmental damage. The main messages 

of the report are: (1) Settlers in the Amazon do appear to be improving 

their standard of living compared to people with the same education 

and skills outside the Amazon; (2) Transience and farm turnover on the 

frontier are due to powerful and fundamental economic forces; (3) Transience, 

farm turnover, and even apparent land abandonment are not 

necessarily linked to degradation of the agricultural resource base; (4) 

More attention needs to be given to the importance of reconciling the 

needs of local politicians with externally designed projects; (5) Creating 

a political coalition to support policies for orderly frontier development 

is difficult; (6) Roads are the fundamental determinant of settlement; 

(7) Allocating land initially to small farmers is not only good policy 

89


from an equity standpoint, but it is also the most efficient and orderly 

way to settle new lands; and finally, (8) National governments must 

define their objectives carefully with regards to establishing government 

beyond the economic frontier. 

The Bank’s economic and sector work since 1991 has been of high 

quality, but it has had only marginal impact on Brazil’s forests. While a 

sizable amount of the environmental work has focused on multisectoral 

analyses of deforestation, including the impact of agriculture and infrastructure 

on the environment, the same cannot be said about the ESW 

agriculture and infrastructure. Some sectoral studies have not given 

deforestation sufficient attention. The 1995 Poverty Assessment for 

Brazil, for example, does not go far enough in discussing the linkages 

between poverty and deforestation. The report largely focuses on the 

northeast, where nearly half of Brazil’s poor reside, and in doing so 

neglects important issues such as the impacts of migration on forests 

and poverty in the Amazon and its effect on deforestation. The Bank’s 

agricultural sector reports have by and large included an annex on the 

Amazon typically emphasizing the impact of agricultural policies (land 

used, etc.) on deforestation. The transportation sector work, however, 

has not involved the impact of transport policies on deforestation. 

In general, however, the environmental ESW represents one of the 

Bank’s most important contributions to understanding factors of deforestation. 

While Brazil has the data and human capital to undertake 

policy analysis on this level, it appears that up to now the Bank has 

been a leader in addressing these issues in a multisectoral, analytical 

framework. It could be argued that the Bank ESW should have stimulated 

similar analytical work by Brazilians. That the current study has 

had to rely so heavily on work undertaken by the Bank indicates that 

very little such policy work is taking place in Brazil. Could the Bank 

have done more to support analytical work by Brazilians that would more 

comprehensively incorporate issues related to the Amazon in its work in 

agriculture, demographic changes, or impacts of transportation? 

World Bank Lending Portfolio 

The Bank lending portfolio is evaluated below across two time periods, 

1984–91 (before the 1991 strategy) and 1992–99 (after the strategy), 

in an effort to determine the effect of the 1991 Forest Strategy on 

lending to Brazil. 

90


Before 1991, globally, Brazil was the third largest recipient of World 

Bank loans, with a total commitment of US$10.6 billion, some 7.1 percent 

of total Bank lending. Fully one-third of project funds went to 

agriculture sector projects, followed by electric power and energy, and 

transportation. Together, these three sectors represented almost twothirds 

of the Bank’s lending to Brazil during these years (table 8.1). The 

vast majority of loans (89 percent) consisted of various types of investment 

lending, with the remaining 11 percent of funds dedicated to three 

sectoral adjustment loans totaling US$1.2 billion (see table 8.2). According 

to the World Bank’s categories of primary program objectives, 

75 percent of the Brazil portfolio was concentrated in projects aimed at 

“environmentally sustainable development” and “poverty reduction and 

human resource development” (table 8.3). 

Since 1991, lending to Brazil decreased by about 12 percent, with 

commitments over this period totaling US$9.3 billion. Lending to Brazil 

as a percentage of total Bank lending likewise declined. Loans to the 

agriculture and energy sectors dropped significantly from their 1984– 

91 levels, while transportation projects increased by 41 percent. The 

years since 1991 also saw a substantial increase in environment sector 

activity, with total commitments of US$936 million. Adjustment lending 

after 1991 rose to 19 percent of the portfolio. In terms of the Bank’s 

primary program objectives, 37 percent of all loans involved “economic 

management,” 35 percent concerned “poverty reduction and human 

resource development,” and projects directed at “environmentally sustainable 

development” fell to 18 percent of the portfolio (table 8.3). 

Two Bank projects that were implemented before the 1991 Forest Strategy 

are particularly noteworthy: the Minas Gerais Forestry Development 

Project and the Northwest Region Integration Program 

(POLONOROESTE). In evaluating the post-1991 period, this report will 

discuss several projects, including the Rondonia Natural Resource Management 

Project (PLANAFLORO) and the similar Mato Grosso Natural 

Resource Management Project, the Emergency Fire Prevention Project, 

the Land Management Project, the Pilot Program to Conserve the Brazilian 

Rain Forest (PPG-7), the two Brazilian Global Environment Facility 

(GEF) projects, and the World Bank/WWF alliance. Additionally, the 

Bank’s transportation and land reform projects are briefly discussed. 

91


Table 8.1. World Bank Lending to Brazil by Sector, 1984–99 

1984–91 

1992–9 

9 

1984–91—1992–9 9 

Sector 

No. of 

projects 

Commitments 

(US$M) 

No. of 

projects 

(%) 

Commitments 

(%) 

No. of 

projects 

Commitments 

(US$M) 

No. of 

projects 

(%) 

Commitments 

(%) 

Change in 

commitments 

(US$M) 

Change in 

commitments 

(%) 

Agriculture 

28 

3,539. 

9 38.8 

9 33.4 

0 15 

977. 

6 22.7 

3 10.4 

6 -2,562. 

3 -7 2 

Education 

6 601. 

5 8.3 

3 5.6 

7 7 1 

Electric 

power and energy 6 4 

Environment 

4 26 

3 5.5 

6 2.4 

8 8 6 

Finance 

2 60 

0 2.7 

8 5.6 

6 1 0 

Multisector 

1 35 

2 1.3 

9 3.3 

2 2 5 

Oil 

and gas 

2 35 

4 2.7 

8 3.3 

4 2 0 

Population, 

health and nutrition 5 59 

2 6.9 

4 5.5 

9 4 5 

Public 

sector management 1 29 

1.3 

9 0.2 

7 5 5 

S ocial 

2 1 

Transportation 

7 4 

Urban 

development 

7 607. 

2 9.7 

2 5.7 

3 3 0 

Water 

supply and sanitation 3 376. 

3 4.1 

7 3.5 

5 6 4 

Grand 

total 

2 

1,082. 

10.6 

1 11.5 

7 480. 

6 8 0 

2,070. 

8.3 

3 19.5 

3 

-2,070. 

4 -10 0 

93 

12.1 

2 10.0 

1 67 

3 25 6 

2 1.5 

2 0.2 

1 -58 

0 -9 7 

75 

3.0 

3 8.0 

8 40 

3 11 4 

17 

3.0 

3 1.8 

2 -18 

4 -5 2 

72 

6.0 

6 7.7 

5 13 

3 2 2 

59 

7.5 

8 6.3 

6 56 

6 1,95 2 

1,010. 

3.0 

3 10.8 

0 1,010. 1 

1,21 

9.7 

2 11.4 

5 11 

1,714. 

5 16.6 

7 18.3 

4 500. 

5 4 1 

39 

4.5 

5 4.1 

7 -217. 

2 -3 6 

97 

9.0 

9 10.4 

2 597. 

7 15 9 

7 10,599. 

3 100.0 

0 100.0 

0 66 

9,349. 

3 100.0 

0 100.0 

0 -1,25 

0 -1 2 

92


Table 

8.2. 

World 

Bank 

Lending 

to 

Brazil 

by 

Lending 

Instrument, 

1984–99 

1984–91 

1992–9 

9 

1984–91—1992–9 9 

Lending 

type Major lending instrumen t 

No. of 

projects 

Commitments 

(US$M) 

No. of 

projects 

(%) 

Commitments 

(%) 

No. of 

projects 

Commitments 

(US$M) 

No. of 

projects 

(%) 

Commitments 

(%) 

Change in 

commitments 

(US$M) 

Change in 

commitments 

(%) 

Adjustment 

Sectoral 

adjustment loa n 

3 1,15 

5 4.1 

7 10.9 

0 3 1 

Adjustment 

total 

3 1,15 

5 4.1 

7 10.9 

0 3 1 

Investment 

Adaptable 

program Loa n 

3 0 

Emergency 

reconstruction loan 

2 27 

5 2.7 

8 2.5 

9 1 5 

Financial 

intermediary loan 

4 1,20 

0 5.5 

6 2 

Learning 

and innovation loan 

2 0 

Specific 

investment loan 

9 

Specific 

investment & maintenance 2 

Technical 

assistance loan 

2 45. 

3 2.7 

8 0.4 

3 2 0 

Investment 

total 

9 

Grand 

total 

2 

1,760. 

4.5 

5 18.8 

3 605. 

1 5 2 

1,760. 

.5 5 

34 

.5 5 

1 .5 2 

18.8 

605. 

1 5 2 

4 3 

4 3.6 

4 34 0 

1 0.1 

6 

0 

-26 

-9 5 

11.3 

-1,20 

0 -10 0 

1 3.0 

3 0.1 

1 

1 0 

4 5,514. 

7 68.0 

6 52.0 

3 43 

5,12 

8 65.1 

5 54.8 

5 -386. 

7 - 7 

1 2,409. 

3 16.6 

7 22.7 

3 12 

2,046. 

2 18.1 

8 21.8 

9 -363. 

1 -1 5 

5 3.0 

3 0.5 

3 4. 

7 1 0 

6 9,444. 

3 95.8 

3 89.1 

0 63 

7,589. 

2 95.4 

5 81.1 

7 -1,855. 

1 -2 0 

7 10,599. 

3 100.0 

0 100.0 

0 66 

9,349. 

3 100.0 

0 100.0 

0 -1,25 

0 -1 2 

93


Table 

8.3. 

World 

Bank 

Lending 

to 

Brazil 

by 

Primary 

Program Objective, 

1984–99 

1984–91 

1992–9 

9 

1984–91—1992–9 9 

Primary 

program objective 

No. of 

projects 

Commitments 

(US$M) 

No. of 

projects 

(%) 

Commitments 

(%) 

No. of 

projects 

Commitments 

(US$M) 

No. of 

projects 

(%) 

Commitments 

(%) 

Change in 

commitments 

(US$M) 

Change in 

commitments 

(%) 

Economic 

management 

0 

sustainable 

Environmentally 

development 

1 1,704. 

3 13.8 

9 16.0 

8 

17 

3,412. 

1 25.7 

6 36.5 

0 1,707. 

8 10 0 

26 

2,671. 

2 36.1 

1 25.2 

0 

15 

1,684. 

6 22.7 

3 18.0 

2 -986. 

6 -3 7 

Poverty reduction and human 28 

3,838. 

3 38.8 

9 36.2 

1 

28 

3,292. 

6 42.4 

2 35.2 

2 -545. 

7 -1 4 

resource development 

Private 

sector development 5 1,50 

3 6.9 

4 14.1 

8 

6 96 

0 9.0 

9 10.2 

7 -54 

3 -3 6 

Not 

stated 

3 882. 

5 4.1 

7 8.3 

3 

-882. 

5 -10 0 

Grand 

total 

72 

10,599. 

3 100.0 

0 100.0 

0 

66 

9,349. 

3 100.0 

0 100.0 

0 -1,25 

0 -1 2 

94

9 

Evaluation of the Bank Program in Brazil 

Minas Gerais Forestry Development 

The Minas Gerais Forestry Development Project was the only standalone 

forestry project the Bank approved for Brazil in the 1984–91 period. 

The state of Minas Gerais is the largest producer and consumer of 

charcoal in the world, accounting for 85 percent of Brazil’s output of 

charcoal for smelted pig iron and steel production. In 1985, the annual 

consumption of fuelwood in the state was about 115 million cubic 

meters, of which 77 percent was converted into charcoal. Some 85 percent 

of this fuelwood derived from native forests, resulting in widespread 

deforestation and loss of primary forest within the state. To address 

this situation, in 1991, the state enacted Law 10561 requiring all 

wood-using industries to become self-sufficient in wood from plantation 

sources by 1998. It is in this context that the Minas Gerais Forestry Development 

Project was conceived. 

The Bank financed US$48.5 million of the US$100 million project, 

with the state government contributing US$8.2 million and the subborrowers 

providing US$43.3 million. Approved in December 1987, 

the project ran until December 1996. Its objectives were: increase industrial 

wood and charcoal production, reduce degradation of native 

forests, alleviate poverty, improve environmental protection, and 

strengthen the management capabilities of the State Forestry Institute. 

95


The project provided credit to establish privately owned eucalyptus 

plantations on 165,000 ha; supported a smallholder reforestation program 

to establish 41,300 ha of eucalyptus and indigenous species; developed 

and supported various conservation programs such as improvements 

in forest management, fire control, technologies for charcoal production, 

conservation education and development of protected areas; 

and financed institutional development and project evaluation. 

The project’s Implementation Completion Report (ICR) gave the 

project a satisfactory outcome rating, as the project achieved most of its 

objectives. The project achieved the production of 22 million m 3 of industrial 

wood, conservation of 159,000 ha of native forests through 

product substitution, prohibition of logging in 390,000 ha of native 

forest, elimination of fires in and around newly created state parks, 

growth in the state’s protected area system by 47,000 ha, and participation 

in the reformation of the State Forestry Institute. It contributed to 

rural poverty alleviation through the creation of about 25,000 person 

years of employment, additional employment as a result of growth in 

ecotourism, and diversification of small farmer income through farm 

forestry. Its contribution to increased environmental protection was the 

creation of additional protected areas, establishment of 11 environmental 

education centers, and implementation of environmental education programs 

and ecological research. The project also promoted an increase 

in private sector participation in industrial plantations. Through revenue 

sharing with the local municipalities, the project stimulated demand 

for setting aside land for conservation. The ICR acknowledged 

that sustainability of the project-initiated activities depends on the 

government’s willingness to permit the State Forestry Institute to manage 

and retain the revenues generated from these activities. 

The Bank commitment to the project was strong and it performed well 

in helping the state to convert a conceptually sound local initiative into a 

well-defined project proposal. It was fortunate to have as a counterpart 

the director of the State Forestry Institute who had strong political backing. 

The initial shortcomings of the SFI were identified and remedial measures 

were implemented quickly during the project, including decentralization. 

The Development Bank of Minas Gerais was capable of efficiently 

managing the credit line. Economic uncertainties tended to be a more 

serious problem for long-term borrowing than anyone had anticipated. 

In addition, the Bank failed to predict the negative trend in the demand 

for charcoal, which occurred throughout the project period. 

96


Bank performance during implementation, however, was mixed and 

sometimes deficient. After making sure that the project got underway, 

supervision and decisionmaking during the economically turbulent period 

of 1992–93 seems to have been inadequate. For example, there 

was no mid-term review in 1993 which was a critical time for the project. 

This review could have shown that the credit component for plantations 

was not working and remedial actions could have been taken. A 

lack of continuity of task managers was a severe problem with five task 

managers involved in the project over a six-year period. With active 

mid-term supervision and fewer changes in task managers it would have 

been a more successful project. 

The State Forestry Institute and the Minas Gerais Development Bank 

performed well throughout the project. The main problem faced by the 

SFI was a shortage of counterpart funds and a temporary freeze on 

recruitment. However, the SFI managed to keep the project activities 

going by allocating its own resources and by obtaining help from NGOs, 

private firms and universities. The project progress was temporarily 

impaired in 1990 due to the promotion and transfer of the director of 

the SFI. The BDMG had no substantial difficulties in managing the subloan 

portfolio. In terms of the legal covenants, the most obvious noncompliance 

was the insufficient allocation of counterpart funds by the 

state government, which continued to be the case throughout the course 

of the project. The states’ financial difficulties help explain why the 

Bank was unable to proceed with the second phase of the project, despite 

strong state government interest. 

The ICR also noted shortcomings in the project and lessons learned 

(box 9.1). First, the credit component for industrial plantations was 

problematic. Plantation establishment costs were underestimated, resulting 

in the reduction of the plantation target from 165,000 ha to 

87,000 ha. Second, the unstable national economy and frequent changes 

in economic policies had severe impacts on loan disbursements. During 

the second year, the demand for credit sharply declined and not a single 

sub-loan application was approved during 1993–95. This, along with 

the fact that only two out of the 24 borrowers accounted for 85 percent 

of all borrowing, led the government and the Bank to cancel the credit 

component of the project in June 1995. According to the ICR, these problems 

caused a 27 percent decline in the amended plantation target. Furthermore, 

the fluctuation in the demand, supply, and prices for eucalyptus, 

charcoal, and pulp after the project became effective seriously affected 

the interest in reforestation and the demand for credit to finance it. 

97


Box 9.1. Lessons Learned in Minas Gerais 

• Tree planting can make important contributions to conservation, and economic incentives to 

small and medium farmers can be substantial, particularly on lands with low potential for 

crops. 

• The economic incentives to small farmers are dependent on access to markets and product 

demand, therefore supporting the need to conduct a wood demand analysis as a component 

of project preparation. 

• The project demonstrated the contribution of high-quality technical assistance to implementation 

performance, with evidence indicating that forestry extension is most effective when 

combined with agricultural extension. 

• The introduction of fiscal incentives to create protected areas proved to be highly successful. 

In future projects, benefit-sharing mechanisms should be explored with local governments 

to encourage local interest in creating new protected areas. 

• A shortage in supervision resources and forestry expertise in the World Bank as well as 

multiple changes of task managers contributed to an adverse effect on project implementation 

and the Bank-client relationship. 

• Credit ended up benefiting a few large borrowers, supporting the idea that future projects 

should establish limits on the amount an individual or group can borrow. 

• Developing a project in a situation of considerable economic uncertainty made it difficult to 

predict demand for credit. The project evaluation concluded that a credit component should 

be avoided when formulating a project under such circumstances. 

• The need for midterm reviews was clearly demonstrated in this project as an opportunity to 

reassess project design. 

• The project demonstrated the strong link between project performance and good leadership, 

including the overall quality of local management. 

Source: Implementation Completion Report. 

Nevertheless, the project was successful in several important areas. 

First, the revenue-sharing aspect of creating parks stirred demand for 

more protected areas. Second, the project involved many local institutions 

in monitoring and analysis, and in this way was genuinely multistakeholder 

in nature. Finally, the project had strong political support 

and leadership. 

Despite the success of the project, it did not qualify for extension 

beyond its original time frame. The poor fiscal situation of the State of 

Minas Gerais made it a risky borrower. Further, the case for either extension 

or a follow-on project would have had to be based on the project’s 

small farmer credit component, but this was at a time when the Bank 

was withdrawing from subsidized credit programs. A better approach, 

perhaps, would have been to highlight the global benefits of the project 

by helping to reduce the pressure on the Amazon. 

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The Minas Gerais Forestry Development Project is thus an example 

of successful World Bank involvement in Brazil’s forestry sector. While 

the 1997 CAS put forth the Bank’s intention to increase lending directly 

to state governments, it is unclear to what extent such projects will be 

funded elsewhere, as adequate state-level fiscal programs, which most 

states currently lack, are a prerequisite for such lending (World Bank 

1997b). When small farmers are the intended project beneficiaries, as 

in this case, financial assistance to them is necessary. But state governments 

in financial crises, regardless of their political commitment to the 

endeavor, cannot afford such transfers. How, then, will projects addressing 

such central issues of externalities be funded? 

Northwest Region Integration Program (POLONOROESTE) 

During the 1960s and 1970s, the Brazilian government tried to integrate 

the Amazon into the country’s rapidly growing economy. In its 

attempts to colonize the region, the government implemented mass settlement 

programs, developed a network of roads and other infrastructure 

and introduced fiscal incentives intended to attract private investments 

to the region. These initiatives attracted huge numbers of small farmers 

and rural workers from south-central and northeastern Brazil. Growing 

migration, increasing land disputes, and occasional violent conflicts 

between the settlers and Amerindian groups provided the basis for the 

Northwest Region Development Program (POLONOROESTE), established 

in the 1980s. 

POLONOROESTE encompassed a total area of 410,000 km 2 , including 

the entire state of Rondonia and the northwestern part of Mato 

Grosso. The main objectives of the project were to pave the BR-364 

highway, provide the investments needed to achieve the harmonious 

socioeconomic development of the region influenced by the highway, 

and protect the physical environment and the Amerindian population. 

POLONOROESTE, as created by the federal government, had an estimated 

cost of nearly US$1.6 billion. It was partially financed by six 

World Bank loans for a total commitment of US$434.4 million. In the 

first phase of POLONOROESTE, three projects were approved whose 

main components were improvement of the 1,500 km Cuiaba-Porto Velho 

highway and expansion of the regional feeder road network, consolidation 

of selected existing agricultural colonization areas in Rondonia, environmental 

protection in the region as a whole, and improved rural health 

services in Rondonia. In the second phase, a rural development project in 

existing small farmer areas in northwestern Mato Grosso was conducted. 

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The third phase was to support the establishment of several new settlement 

projects in Rondonia. All of these overlapping phases were expected 

to be completed within seven years. In addition to the above six projects, 

an Amerindian special project, not financed by the Bank, was included in 

all three phases of POLONOROESTE. Satisfactory implementation of 

the Amerindian project was a condition of the Bank loans. 

The implementation of the physical components of the projects, such 

as infrastructure investments and the trunk road component, were very 

successful. Most of the Bank’s financing was allocated for various transport 

components of the program, which were implemented earlier in 

the project than other program aspects. Most construction activities 

were implemented within the allocated budgets and in some cases, including 

the BR-364 highway, were ahead of schedule. However, the 

results of the nonphysical components of the project—agricultural support 

services, community facilities, and environment and Amerindian 

protection—fell so far short of initial expectations that the implementation 

of POLONOROESTE’s various subprojects was seriously unbalanced. 

The unbalanced implementation posed several major problems. 

The Bank’s resources were disbursed long before the full extent of the 

distortions in other program components were realized. With most of 

its financing expended early in the program, the Bank had little leverage 

to control the other components of the program. 

Improvements in transportation opened access to the region’s natural 

resources, allowing a variety of economic agents, including miners, 

loggers, and ranchers, to operate within the region with virtually no 

environmental controls. Improved access, particularly in Rondonia, also 

created new employment opportunities in agricultural and extractive 

activities, resulting in increased migration. The growing local demands 

of this population influx for productive and community support services 

could not by supported by the existing public sector. 

The Bank overestimated Brazil’s effective capacity to attain the 

program’s social and environmental objectives. The coordinating agency, 

SUDECO, was institutionally, technically, and administratively weak. 

Program monitoring and evaluating activities were denied necessary financial 

and logistical support by the coordinating agency on various 

occasions. Lack of counterpart funding and the failure to provide agricultural 

investment credit were largely related to the severe economic 

recession and fiscal crisis experienced in Brazil at the time. 

POLONOROESTE’s initial strategy to protect the natural environment 

was threefold: 

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• Direct new rural settlements in areas considered to have good 

potential for agricultural development and away from those areas 

that were less fertile. 

• Encourage an environmentally friendly form of agricultural 

production in existing as well as new farmer colonies through the 

promotion of agroforestry. 

• Establish and maintain national parks, forest reserves, and ecological 

stations and carry out regional ecological research programs. 

These objectives were only partially achieved. 

From the perspective of the forest sector review, it is interesting to 

note that the program was unable to consolidate the cultivation of perennial 

tree crops with many of the environmental benefits in official 

colonization and other small farmer areas, or to effectively discourage 

the expansion of annual crops and livestock production with fewer environmental 

values elsewhere in the region. This was partly due to the 

lack of investment credit, declining commodity prices, increasing transport 

costs, and the need for settlers to produce annual crops and raise 

livestock in order to guarantee their own livelihood. 

POLONOROESTE had ambitious forestry development, environmental 

protection, and ecological research components. However, attempts 

to salvage potentially valuable timber cleared from the colonization 

plots and to introduce forest management techniques were largely 

unsuccessful. Commercial loggers progressively removed valuable species 

such as mahogany while in the process disturbing the surrounding 

forest and opening up additional areas for occupation by squatters and 

land speculators. National parks and ecological reserves, as well as 

smaller block reserve areas within official colonization schemes have 

occasionally been invaded by loggers and squatters, and for the most 

part, official efforts to limit these invasions and restrict illegal timber 

extraction have been largely ineffective. The program’s ecological research 

component was relatively good, generating a variety of studies 

that can be useful in natural resource management and environmental 

control methods (Redwood 1992). 

A midterm review found that the project’s mitigating measures were 

“stunned by weak program coordination, institutional inefficiencies, 

and undisguised lack of political support for environmental and 

Amerindian protection” (Mahar and Ducrot 1998). 

Although the precise level and rate of deforestation in the northwest 

is uncertain, satellite imagery shows that land clearing has proceeded 

sharply since 1985 and that there is a strong correlation between rural 

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settlement and areas experiencing deforestation. The role of road building 

is dramatically illustrated by these images, which show a fishbone pattern 

of land clearing along trunk, feeder, and connector road networks, 

particularly in Rondonia (see figure 4.2). 

The loss of tropical forests such as those that once covered more 

than half of the northwest region in the late 1970s resulted in the destruction 

of sensitive nutrient cycling mechanisms, causing a loss of soil 

fertility and increasing erosion. The planting of perennial crops such as 

coffee, cocoa, and rubber reduces these problems to a certain extent. In 

northwest Brazil, due to declining output prices and increasing distances 

to markets, perennial crop production did not prove to be as profitable 

as anticipated by POLONORESTE. Much of the cleared forest is being 

used for annual crop cultivation using slash-and-burn techniques or has 

been turned into pastures and eventually to second-growth vegetation, 

all ecologically undesirable outcomes, though essential for livelihoods of 

the local populations. This supports the arguments of Carpentier, et al. 

According to Mahar and Ducrot (1998), “The World Bank’s decision 

to support POLONOROESTE was not an easy one. The Bank had 

to weigh the consequences of getting involved in an ongoing process 

over which the government had little control, against the consequences 

of standing by and letting the process run its course. In the latter case, it 

is virtually certain that the government would have allocated resources to 

pave the main overland artery BR-364, but it is doubtful under prevailing 

fiscal conditions whether adequate resources would have been made available 

for the health, nature conservation, indigenous protection, agricultural 

research and extension, and other components designed to mitigate 

the negative effects of the frontier processes already underway.” 

Despite the Bank’s laudable intentions for social and environmental 

protection, POLONOROESTE became one of the institution’s biggest 

environmental headaches. Deforestation in the wake of the Bank-financed 

paving of BR-364 prompted unprecedented reaction from NGOs 

and catalyzed the international NGO movement. Along with this organized 

public outcry, the Bank conducted its own evaluations of the environmental 

consequences of the project, including the 1992 OED environmental 

review of four Bank-funded projects in Brazil (Redwood 

1992). The two parallel processes both contributed greatly to the Bank’s 

development of its 1991 Forest Strategy and other social and environmental 

safeguard policies. At the same time, the Bank sought to learn 

from its mistakes with POLONOROESTE in its subsequent lending to 

Rondonia and Mato Grosso. 

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The lessons the Bank has said it learned (box 9.2) illustrate the dilemma: 

on the one hand, letting local and regional institutions take 

control, and on the other, introducing legal covenants to ensure that the 

borrower is meeting the environmental standards expected by the Bank’s 

international constituents. The export evaluation recognized that ultimately, 

borrower commitment to these objectives is fundamental and 

was clearly lacking in POLONOROESTE. 

Box 9.2. Lessons Learned from POLONOROESTE 

• The 1992 OED evaluation concluded that it is necessary to move cautiously in promoting 

road building or agricultural settlements in tropical areas such as Amazonia. In any case, 

such investments should not be made without prior assessment of regional and local 

carrying capacities including a detailed evaluation of natural resource potentials and 

constraints. Equally important is the institutional and enforcement capabilities of the 

environmental management, protection, and control agencies (Redwood 1992). 

• Developing explicit instruments and policies for population distribution and natural resource 

management at the national and regional levels is critical. 

• There is a definite need to improve ex-ante and ex-post assessment of the social and 

environmental consequences of public investments such as roads and rural development 

projects that may directly or indirectly impact natural resource use or environmental quality. 

• In tropical frontier areas, the Bank’s project preparation and appraisal should be based on a 

sound understanding of the ecological, socioeconomic and political-institutional characteristics 

of the geographic areas when new investments are considered. 

• Bank-supported interventions in tropical forest areas should be restricted to the rural sector 

or within the rural sector or to small farmers in directed settlement projects. Other small 

producers and nonpredatory extractivist groups such as rubber tappers; nut, fruit, and oil 

gathers; and tribal populations, should also be assisted. 

• Programs like POLONOROESTE which are complex in nature and involve tropical frontier 

areas should be identified, prepared, appraised, supervised, monitored, and evaluated by 

multidisciplinary teams. 

• Monitoring of ongoing projects and evaluation of completed projects should directly involve 

beneficiary populations, responsible NGOs, and public sector officials that are administratively 

independent of project coordinating and implementing agencies. 

• In complex projects that are risky and involve environmentally sensitive operations, in addition 

to performing a comprehensive midterm review, the Bank should consider establishing its own 

permanent monitoring and supervision capability in the field (Redwood 1992). 

• Projects that are likely to have significant ecological and social impacts and for which loan 

or credit covenants are used to ensure that adequate precautions or protection measures are 

taken, such covenants should be unambiguous and contain explicit timetables for borrower 

compliance. They should be closely monitored and enforced by the Bank. POLONOROESTE 

clearly shows, loan covenants and other forms of Bank pressure cannot truly substitute for 

the borrower commitment to the achievement of the project’s social and environmental 

objectives. 

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Rondonia and Mato Grosso Natural Resource Management 

Projects 

While the POLONOROESTE was reaching its end, the World Bank’s 

next two major projects in the Amazon region, the Rondonia and Mato 

Grosso Natural Resource Management Projects, were already being 

processed. PLANAFLORO, as the project was called, and the Mato 

Grosso Natural Resource Management Project were approved in 1992. 

Both of these projects were intended to incorporate the lessons learned 

from the weaknesses of POLONOROESTE. They also were designed 

in accordance with the strengthened environmental and social policies 

and procedures introduced by the Bank in the late 1980s and early 1990s. 

The proposed Bank loan of US$167 million constituted 73 percent 

of the US$228.9 million total cost for PLANAFLORO. The cost of the 

Mato Grosso project was US$285.7 million, of which the Bank financed 

US$205 million. 

The objectives of both projects were essentially identical: 

• Provide a coherent incentive framework for sustainable development. 

• Conserve the biodiversity of the states while also promoting 

sustainable utilization of its natural resources to provide direct 

economic benefit to the local population. 

• Protect and preserve the borders of conservation areas, indigenous 

reserves, public forests and extractive reserves, and prevent illegal 

deforestation, wood transport, and forest fires. 

• Implement integrated farming systems suitable for permanent 

agriculture and agroforestry, and systems for managed forests and 

extraction of non-wood forest products from areas in natural 

forest cover. 

• Promote the state’s agro-ecological zoning by supporting priority 

investments in socioeconomic infrastructure and services. 

• Consolidate the technical and operational capacity of state institutions, 

particularly those responsible for agricultural and forestry 

support services. 

Implementation of PLANAFLORO 

PLANAFLORO had a lengthy list of components, but a central component 

was land use zoning of the state of Rondonia, the outcome of 

which is relevant to understanding the implementation of the 1991 Forest 

Strategy in action. While prescriptive land use zoning was first proposed 

in the late 1980s as a means to impose rationality on land use in 

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the Amazon, PLANAFLORO was the first effort to implement land use 

zoning in the region on a large scale. The land use zoning underpinning 

PLANAFLORO’s strategy aimed to promote the intensification of agriculture 

in already-settled areas, in the hopes that increased incomes would 

diminish the incentive to clear more land (Mahar and Ducrot 1998). 

In their study of land use zoning in the Amazon, Mahar and Ducrot 

(1998) provide an important examination of the political economy surrounding 

PLANAFLORO. They point out that one of the biggest challenges 

faced by PLANAFLORO from the beginning was effective coordination 

between the federal and state governments on one hand, and 

between the state governments and local communities on the other. A 

striking example of such incompatibilities is that between 1992 and 

mid-1995, the federal resettlement agency, INCRA, attempted to establish 

seven settlements in areas that conflicted with Rondonia’s zoning 

law. The authors assert that, indeed, the challenges associated with land 

use zoning are more related to political issues than to technical ones. 

One lesson the World Bank took from the difficult POLONOROESTE 

experience was the need to include local stakeholders (box 9.3). Early 

complaints from NGOs about the lack of community involvement in 

project design led the Bank to condition its financing on the participation 

of NGO representatives in project management. Despite skepticism 

at the beginning of the project, according to Mahar and Ducrot, 

“many local stakeholders now believe that the existence of [land use 

zoning] helps to protect their interests.” Environmental activists, indigenous 

communities, and extractivists are among the supporters of zoning. 

While local politicians support PLANAFLORO (largely owing to 

the influx of funds into their jurisdictions), they have been ambivalent 

about land use zoning more generally, for fear of disgruntling economic 

sectors and harming their chances for reelection. The influx of Bank 

funds was large indeed relative to the fiscal resources of the state government. 

But Mahar and Ducrot (1998) go on to point out that some of 

the strongest support for zoning in Rondonia comes from outside the 

state, and indeed from outside Brazil, as many of the benefits of zoning 

accrue at a national and international level. In discussing lessons learned 

from POLONOROESTE, the World Bank’s country department notes 

that, while working with the state government closely, as 

POLONOROESTE failed to do, the project design of PLANAFLORO 

nevertheless had overlooked the importance of a number of interest 

groups within the state, including municipal governments and NGOs 

and the extent of their competing interests, and the project should have 

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Box 9.3. Environmental Consequences of Resettlement 

The World Bank has long supported Brazil’s resettlement programs, through such 

programs as POLONOROESTE and PLANAFLORO. But there has been increasing 

divergence between its environmental and agricultural activities since POLONORESTE. 

The Bank currently has an active project supporting agrarian reform in five states in 

eastern Brazil. These projects have developed innovative land acquisition mechanisms, 

such as the direct purchase of land by groups of farmers, that have resulted in costs 

three to eight times lower than government land reform programs. a But despite its 

achievements, the project has purposely avoided forested areas (such as the state of 

Para) because of the administrative hurdles that would be involved within the Bank in 

approving a project involving the Amazon. b 

Findings by Carpentier et al. (1999) also provide important policy messages relevant to 

the World Bank’s activities in the Amazon: 

Colonization Projects: The World Bank has assisted the Brazilian government in 

establishing thousands of small-scale agriculturalists in the western Brazilian Amazon. 

By and large, these smallholders (many of whom arrived to the region quite poor) have 

escaped poverty (i.e., are now adequately fed) by converting forested land to agriculture. 

Once welfare poverty has been alleviated, though, this conversion process does 

not end, since the relative returns to agriculture vis-à-vis permitted forest activities 

remains high. 

Land Use Zoning: Contrary to the lessons the Bank states it learned on 

POLONOROESTE regarding zoning, reported earlier, Carpentier et al. (1999) conclude 

that locating farms on better versus poorer soils will only marginally slow deforestation 

rates and slightly alter patterns of use of cleared land. Farmers on better soils will earn 

much higher incomes than those located on poorer soils, but incomes of the latter 

group will still be sufficient to induce settlement. Because agriculture on poorer soils is 

profitable, farmers will fight zoning efforts that limit access to areas with poorer soils. 

Establishing land use zones on the basis of land quality will be difficult in practice in 

the western Brazilian Amazon due to very high heterogeneity of soils within broad soil 

classes, and even on farms. 

Infrastructure Projects: Reducing transport time to markets generally will increase 

deforestation, but doing so in ways that reduce seasonal fluctuations in transport time 

will not affect deforestation or use of cleared land. The volume and type of traffic on 

rural roads may have a greater impact on land use, and perhaps on deforestation, than 

road surfaces. Policymakers aiming to support markets for perennial tree crops should 

focus on increasing the volume of truck and bus traffic on rural roads. Reviewing and 

revising the monopoly status of some bus and truck routes would be a first important 

step in this direction. 

a. The successes of this project are being challenged by the influential landless movement (Movimento Sem 

Terra) on the grounds that the project averts the government’s agrarian reform obligations by requiring settlers 

to pay for their land. 

b. See below for discussion of the land reform projects. 

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worked more closely with these groups from the outset. Other Bank 

officials suggest that, while PLANAFLORO has been considerably more 

participatory in nature than was POLONOROESTE, the Bank neglected 

to include private-sector economic actors such as loggers and ranchers 

at the discussion table. Given their powerful political position including 

in the state assembly their exclusion increased the resistance to the 

project as well as some useful solutions. 

Mahar and Ducrot (1998) conclude that “land use zoning is a valid 

instrument for guiding land use on tropical frontiers, though it is far 

from being a panacea.” Many of PLANAFLORO’s difficulties result 

from the “prescriptive” nature of the zoning, which imposed land use 

rules that “often differed greatly from those that would have prevailed 

had economic agents been left to make their own decisions.” Further, 

PLANAFLORO emphasizes the fact that zoning is inherently political 

and will not succeed in the absence of broad public support. 

PLANAFLORO has had difficulties from the beginning. In June 1995, 

the intended beneficiaries, represented by local NGOs, requested an 

investigation of the project by the World Bank Inspection Panel. The 

claimants, though supporting the main objectives of PLANAFLORO, 

argued that the project’s intended beneficiaries had been adversely affected 

by the Bank’s failure to enforce and implement its loan agreements 

and policies, particularly regarding land tenure issues. Following 

its investigations, the Inspection Panel recommended that the Bank’s 

Board authorize a full investigation, determining that material harm 

had in fact occurred and could be linked to policy violations. However, 

the Board decided against an investigation (Udall 1997). The Inspection 

Panel nevertheless made several recommendations for project improvement 

(see Annex D). 

Most of the recommendations of the Inspection Panel were implemented 

in the July 1997 restructuring of the project. The project is two 

years behind schedule and continues to be at substantial risk, according 

to the Bank’s Quality Assurance Group (QAG, see Annex E). The latest 

Project Status Report rates progress as satisfactory, however, because 

considerable accomplishments had been made in zoning, consolidation 

of the environmental components, and the decentralization Program of 

Support to Community Initiatives (PAICs, Programa de Apoio as 

Iniciativas Comunitarias). However, unilateral modification of the zoning 

law, introduced by the State Legislative Assembly, with the support 

of powerful ranchers and loggers, has considerably weakened this legal 

framework. The state government has committed itself to take immedi- 

107


ate remedial actions to restore the credibility of the zoning law; however, 

the transfer of ownership from the federal government to the Government 

of Rondonia of those areas required for the consolidation of 

environmental activities already is well advanced. The Project Status 

Reports (February, June 1999) state that an interruption of the project at 

this stage would prevent the completion of the socioeconomic zoning 

and the consolidation of environmental and socioeconomic activities, 

therefore jeopardizing the returns of all the investments already concluded. 

The task manager recommended an extension of the project closing date. 

From the outset, PLANAFLORO has involved a delicate balancing 

act of various political and economic interests. These lessons are fundamental 

to any Bank work related to the Amazon, as political economy 

issues are at the crux of the region’s future. 

Despite its failure to more fully include private sector interests and 

the delayed involvement of the Ministry of Environment, through its 

involvement in PLANAFLORO, the World Bank has perhaps increased 

its credibility as a facilitator of stakeholder dialogue. This may be an 

important future role for the Bank provided it builds upon lessons learned 

from projects such as this one and improves its conflict resolution/consensus 

building skills largely by drawing on Brazilian national institutions 

that can carry the credibility to be objective facilitators from the 

viewpoint of all parties concerned. The intensely political nature of landand 

resource-related issues is crucial in forest projects, and the Bank 

has been quite weak in handling them both in Brazil and elsewhere, 

with a broad range of national institutions. However, this is changing 

very rapidly in recent years (see, for example, the OED reports on India, 

China, Cameroon, and Indonesia). 

Implementation of the Mato Grosso Project 

The Mato Grosso project faced the same difficulties as 

PLANAFLORO but did not go to the Inspection Panel. Like 

PLANAFLORO, the Mato Grosso project was restructured in February 

1998, incorporating the recommendations of management and the 

Inspection Panel regarding PLANAFLORO. Currently, the Mato Grosso 

project is 12 months behind schedule. The latest Project Status Report 

indicates satisfactory progress toward consolidation of the environmental 

components, demarcation of indigenous areas, training assistants for 

indigenous health and education, and the implementation of the PAIC. 

However, extremely lengthy negotiations for the extension of the zoning 

contract, along with severe financial difficulties, suffered by the State 

108


of Mato Grosso in relation to disbursement of project funds, have paralyzed 

the implementation of the zoning component. This issue has now 

been resolved by the intervention of the state government and the country 

director. The management of the project is considered satisfactory. 

Financial management has also improved since a new system of loan 

administration has been established. The project is therefore expected to 

return to its normal pace of implementation during 1999. A further extension 

of the project closing date may be required past December 1999 

since the federal budget for fiscal year 2000 has been severely reduced 

and consequently the project is expected to suffer implementation delays. 

Emergency Fire Prevention 

The Emergency Fire Prevention Project, approved in 1998, has not 

yet become effective. The total project cost is expected to be US$27 

million, of which the Bank component is US$15 million. The intent of 

the project is to prevent or control large-scale wildfires in the Brazilian 

Amazon during the dry season. The components of this project are risk 

assessment and monitoring of critical areas, forest fire prevention, forest 

fire suppression, and project coordination, monitoring, and evaluation. 

QAG studies show that speed in declaring effectiveness is a good 

predictor of project success. The delay on this project, therefore, does 

not bode well for its future accomplishments. The main causes of the 

delay are legislative and administrative problems. The project is expected 

to be effective in 1999, but as of October, Brazil had yet to fulfill the 

effectiveness conditions stipulated in the loan agreement of April 1999. 

Land Management Projects 

The situation on project performance in southern Brazil tends to be 

far better. With substantial population interest and commercial agriculture, 

demand for resource management among the political beneficiary 

populations and state governments tends to be quite high. These projects 

could easily have incorporated agroforestry components but have missed 

the opportunity. The Bank has been involved in improved natural resources 

management and microwatershed development projects in southern 

Brazil since 1989, when it approved the Parana Land Management I 

Project for US$63.0 million. In July 1991, the Bank approved the Land 

Management II Project, for US$33.0 million, in the neighboring state of 

Santa Catarina. These projects, implemented with the full participation 

of local farmers, municipal governments, and the private sector, showed 

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that microcatchments can be effective units for planning and implementing 

improved natural resource management activities. 

The Parana Land Management I project, which closed in March 1997, 

has effectively supported the effort of the State of Parana to reduce soil 

degradation and erosion and improve soil fertility, moisture, and storage 

capacity by introducing innovative technical approaches for economically 

viable investments in soil conservation and management. As 

a result, production of major crops and income of farm households 

improved significantly. More important, not only did participating farmers 

assimilate and integrate the project’s soil management techniques 

but, through the demonstration effect of these techniques, farmers in 

the region followed their example and demanded that other states formulate 

similar projects. The Land Management I Project was identified 

as one of the 10-best projects financed by the Bank. 

The implementation of the Land Management II Project, having suffered 

an initial two-year setback due to delays in loan effectiveness, 

accelerated once the project concept was disseminated at the local and 

microcatchment levels due to farmers’ very positive response to the 

project strategy. The midterm evaluation, carried out in 1996, confirmed 

that a number of project-promoted soil and water conservation practices 

were substantially above appraisal estimates. Project achievements 

demonstrated that natural resources depletion processes resulting from 

inadequate land husbandry could be reversed in a relatively short period. 

The project methodology and its results have motivated the Secretariat 

of Agriculture and Rural Development to elaborate a sustainable, 

multisectoral rural development strategy, with participation of representatives 

of all sectors of society, at local, municipal, and regional levels. 

In spite of these advances, however, the project needed additional 

time to make up for the start-up delay and thereby fully achieve its 

objectives and make full use of available financial resources. 

The Land Management III Project focuses on the state of Sao Paulo, 

the second largest of the four states in the southeast region, with a total 

area of 248,600 square kilometers. Sao Paulo is one of the wealthiest 

and most populous states in Brazil and currently generates 35 percent 

of the country’s GDP and has 22 percent of national population. It is a 

highly industrialized state accounting for 45 percent of the national 

industrial output. Agriculture also remains an important aspect of the 

state’s economy and contributes 15 percent to the national agricultural 

output and generates about 15 percent of the jobs within the state. 

Currently, about 9 percent—about 14.3 million—of the state’s economi- 

110


cally active population lives in rural areas. Agricultural intensification 

has resulted in increasing pressures on the state’s natural resources and 

has had an adverse impact on forests. The forests in Sao Paulo, which 

once covered 65 percent of the state, now cover only about 11 percent. 

Of that, 7 percent is native forest found on the coastal ridges of the 

Serra do Mar and Serra Mantiqueria. 

Land Management III is intended to benefit 90,000 farmers in about 

1,500 microcatchment areas, of which 85 percent own less than 100 

ha. The beneficiaries comprise about 30 percent of all of Sao Paulo’s 

farmers. This project was approved in 1998, with total project costs estimated 

at US$125 million. The World Bank commitment is US$55 million, 

and the cost of the forest-related component in this project is US$8 

million. 

The intent of the project is to increase sustainable agriculture production, 

productivity, and farm incomes while conserving natural resources. 

The project has five major components: 

• Technology and institutional development that will finance rural 

organizations and extension services and support agro-ecological 

mapping at the microcatchment level 

• Adaptive agricultural research 

• An incentive program for the management and conservation of 

natural resources through environmental education, incentive funds 

for soil management and conservation, pollution control, recovery 

of degraded lands, reforestation, and enforcement of soil use laws 

• Erosion control works for the rural roads 

• Training and dissemination of information; project coordination 

and administration unit that will finance monitoring and evaluation, 

including internal and external auditing. 

In addition, the project provides US$8.2 million to encourage 

microcatchment communities to reforest either continuous protected 

strips along watercourses or small plots in steep areas or on soils that 

are unsuitable for agriculture, in order to improve the quality of water, 

regulate river flows, and reduce sedimentation. 

The project has suffered from effectiveness delays from the very start. 

In fact, it was first appraised in November 1992 and negotiated in February 

1994, but was not presented to the Board, mainly because of the 

financial difficulties faced by the state at that time. In September 1997, 

the project was renegotiated to reflect the changes resulting from the 

completion of the recent debt restructuring program, finally gaining 

Board approval in October of that year. However, because of federal 

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restrictions on the approval of new loans resulting from the latest financial 

crisis, the loan documents have not been approved by the 

Procuraduria General or by the federal legislature. Since early 1998, 

the project has proceeded according to the Project Implementation Action 

Plan, mainly concentrating on the training of the Project Coordinating 

Unit personnel and the regional and field staff. However, since 

late 1998, the project activities have stopped due to the lack of budget, 

as budgetary allocations were a condition for loan signature. In February 

1999, the Bank asked the state government to affirm its interest in 

the loan and suggest a date for signing the loan. 

Agriculture and Forestry Technology Development 

The Agricultural Technology Development Project seeks to increase 

the efficiency and sustainability of resource use in the Brazilian National 

Agricultural Research System (SNFA). The total project cost is 

US$120 million out of which 50 percent is financed by the Bank (US$60 

million). The remaining US$60 million is provided by the GOB (US$30.5 

million), EMBRAPA (US$12.8 million), and other beneficiaries (US$16.7 

million).The objectives of the project are to: (1) stimulate transition in 

the SNPA from its current heavy reliance on public sector research carried 

out by the national organization, EMBRAPA, to a more integrated 

and diversified system of Agricultural Research Technology Department 

and Transfer (ARTDT) led by EMBRAPA; (2) increase the role of clients 

in the definition of research and technology transfer priorities and 

implementation; (3) refocus on public sector research on quintessential 

public goods; and (4) help EMBRAPA to reorient its current structure 

to address issues of decentralization and diversification in the SNPA. 

The project components to achieve these objective are: (1) financing a 

Competitive Grants System for agricultural research, development, and 

technology transfer; (2) strengthening research management through 

technical assistance, training, satellite communications, and international 

collaborations at the federal level; (3) strengthening research and technology 

transfer activities at the state level; and (4) and monitoring and 

evaluating the project overall. 

The focus of traditional agricultural research is changing to incorporate 

issues such as poverty alleviation, environmental sustainability, increased 

productivity, and an enhanced role of private sector. Therefore, 

the competitive grants component of the project focused on five essential 

areas: natural resource management, advanced technologies, 

agribusiness, family farms, and strategic studies. 

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According to the latest project status report (April 1999), one of the 

major constraints facing the project is the lack of a budget. EMBRAPA 

had requested a budget of US$14.6 million for calendar year 1999 

(Brazil’s fiscal year) for project implementation and will receive only 

US$4.1 million. Because of the current financial crisis and the resulting 

reduced counterpart funding, the disbursement figures have been 

downsized for FY99 to reflect the devaluation of the Real. This will 

limit project pace and impact unless the government improves the budget 

allocation. Furthermore, due to a major devaluation, EMBRAPA 

has to spend almost twice as many Reals to be able to obtain the same 

disbursement in dollars. This, too, is expected to slow down rates of 

disbursement. 

The project has made substantial progress in a relatively short time 

toward achieving its objectives. However, progress has been slow in 

mobilizing private investments in agricultural research. Frequent refinements 

of the intellectual property rights (IPR) legislation passed in 1996 

has created confusion about the terms on which the private and public 

sectors can cooperate. Agreements reached between the public and the 

private sectors under the competitive grants program for sharing of research 

benefits have had to be revised in light of legislative revisions. 

The response of the private sector to the competitive grants program 

has been less favorable than expected, leaving uncertainty as to the 

program’s future role. In view of the budgetary constraints, EMBRAPA 

is exploring alternative sources of long-term financing for public sector 

research. The financing of the state research system remains even more 

uncertain due to budget limitations with huge gaps among states in 

terms of research funding. 

Global Environment Facility 

The post-1991 period has in some ways seen a paradigm shift for the 

World Bank, moving away from direct involvement in forest-related 

projects to acting as an implementing agency. The thrust of the Bank’s 

forest-related activity in Brazil now is centered on the internationally 

funded Global Environment Facility (GEF) and US$300 million Rain Forest 

Trust/Pilot Program (PPG-7) to Conserve the Brazilian Rain Forest. 

The Bank also is participating in an alliance with the World Wide Fund 

for Nature (WWF). The alliance is encouraging countries, including Brazil, 

to set aside a global total of 50 million ha of tropical forests by 2000, 

and bring an additional 200,000 ha under sustainable management. 

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Presently there are two GEF forest projects in Brazil that are rather 

small relative either to Brazil’s biological resources or its needs: the 

National Biodiversity Project (PRONABIO) and the Brazilian 

Biodiversity Fund (FUNBIO), both of which were approved in 1996. 

The National Biodiversity Project (PRONBIO), supported by a US$10 

million grant and an additional US$10 million in host country matching 

funds intended to: assist the Brazilian government in initiating a 

program for the conservation and sustainable use of biodiversity by 

identifying priority actions; stimulate the development of subprojects 

through the facilitation of partnerships between the public and private 

sectors; and disseminate biodiversity information. The key aspects of 

this project include defining clear biodiversity conservation strategies 

through stakeholder collaboration, developing strategic government financing 

decisions and policy recommendations, testing new models of 

biodiversity conservation and sustainable use, and developing alliances 

between rural and local groups and the government to improve the 

decisionmaking process for biodiversity conservation and use. 

The implementation of PRONABIO has largely been satisfactory; 

however, a shortage of counterpart funds has been a problem. The Government 

of Brazil recently requested the Bank to prepare an amendment 

that reallocates the grant proceeds in order to deal with current 

lack of counterpart funds for project implementation. 

The Brazilian Biodiversity Fund (FUNBIO) Project, financed by a 

US$20 million GEF grant, is intended to provide long-term support for 

conservation and sustainable use of biological diversity in Brazil by promoting 

and supporting partnerships among government, non-profit 

organizations, academic institutions, and the private business sector. 

The intent of the project is to create an efficient and transparent framework 

for funding critical biodiversity subprojects over the long run in 

Brazil, leverage financial resources from Brazil’s private sector and from 

international donors so that FUNBIO can become a long-term financial 

source for Brazil’s biodiversity conservation, and promote changes in 

the private sector’s approaches to more sustainable use of biodiversity. 

Though the FUNBIO project has been performing well, some problems 

have arisen with the host institution. Recently, the Foundation 

Getulio Vargas (FGV), the host institution for this project, informed the 

Bank of its decision to discontinue its support for FUNBIO’s operation. 

The decision came about as a result of FGV’s internal restructuring, 

which aims to help the institution to focus its attention on activities 

with higher rates of revenues. After consultations with the Bank, FGV 

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has agreed to continue to host FUNBIO in the transition period until its 

replacement is found. According to the project status report, these 

changes have not as yet affected FUNBIO’s operational performance. 

Pilot Program to Conserve the Amazon Rain Forest (PPG-7) 

At a 1990 summit of the G-7 industrialized countries in Houston, 

Texas, German Chancellor Helmut Kohl proposed the establishment of 

a pilot program to reduce deforestation in Brazil’s tropical forests. Its 

objectives are to: 

• Demonstrate that sustainable economic development and conservation 

of the environment can be pursued at the same time in tropical 

rainforests. 

• Preserve the biodiversity of the rainforests. 

• Reduce the rainforests’ contribution to the world’s emission of 

greenhouse gases. 

• Set an example of international cooperation between industrial and 

developing countries on global environmental problems. 

Formally launched in 

1992, the program became 

operational in 1994. Funded 

by the European Union, 

Canada, France, Germany, 

Italy, Japan, the United 

States, and the United Kingdom 

and administered by the 

World Bank, the 12 projects 

of the pilot program now 

have an estimated total cost 

of US$340 million (table 9.1). 

PPG-7 and its component pilot 

projects address issues of 

indigenous communities, extractive 

reserves, rainforest 

corridors, and forest fires and 

deforestation. Additionally, 

the increased emphasis on 

participation embodied in the 

projects has enabled the 

much-needed involvement of 

civil society. The innovative 

Table 9.1. PPG-7 Projects, Status, and Cost 

Projects 

Total cost 

(US$M) 

Ongoing 

Science 

centers and directed research 26.56 

Demonstration 

project 

29.54 

Extractive 

reserves 

9.69 

Natural 

resources policy project 

85.10 

Indigenous 

lands project 

23.96 

Total 

174.85 

Starting 

Forest 

resources management project 19.61 

Monitoring 

and evaluation project 

4.41 

Total 

24.02 

Under preparation 

Floodplain 

resources management 

21.93 

Fire 

and deforestation 

9.53 

Rainforest 

corridors 

50.09 

Municipal 

demonstration projects 

14.31 

Indigenous 

demonstration project 

14.55 

Total 

110.41 

Source: Review of Institutional Arrangements 1999. 

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program has raised expectations among the rainforest constituency both 

in Brazil and internationally and has made some important contributions, 

particularly in building a constituency of Brazilian NGOs and 

professionals that has acquired considerable voice in Brazil’s “green” 

environmental policies. But a recent blue-ribbon panel review of the 

institutional arrangements is critical of the Bank and the other donors 

participating in the program. It concludes that: 

The (disappointing) state of affairs [within PPG-7] reflects lack of an agreed pilot 

program strategy, weak program management, inability of the Participants to address 

and resolve fundamental program issues, as well as complex project designs and 

financing plans which have led to costly and time-consuming project processing. Slow 

coalition-building with Brazilian civil society and with the private sector has deprived 

PP/G7 of needed support.” The review further observes, “the existing institutional 

arrangements (of vesting responsibility for the program with the World Bank) have not 

succeeded in catalyzing the needed Brazilian ownership and leadership of the pilot 

program, and have allowed weak structure, poorly defined accountabilities and unclear 

and overlapping role assignments to compound the performance problems of most, if 

not all of the Participants. (Review of Institutional Arrangements 1999). 

The review suggests that the Bank could have added greater value 

had it acted according to its comparative advantage rather than becoming 

bogged down in design and implementation of individual projects. 

Specifically, the report finds that the Bank was not effective in articulating 

an operational strategy up-front for the pilot program or in linking 

the PPG-7 to broader policy issues and building a policy dialogue with 

the government concerning the Amazon. The Bank prioritized project 

cycles and project formulation and preparation above overall program 

management. The Bank’s interpretation of its fiduciary responsibilities 

also created a situation in which project managers confront triple supervision 

and clearances, from the Brazilian government, donors, and 

the World Bank. 

The review finds that the donors, for their part, while agreeing to the 

project concept of the PPG-7, failed to actively engage in project management. 

Germany, the largest donor, delegated the implementation of its 

financial and technical assistance on a project-by-project basis to KfW 

(the German Bank for Reconstruction) and GTZ (the German Agency 

for Cooperation), respectively, and informally delegated program oversight 

to the World Bank. Similarly, the European Commission 33 left important 

issues to the government and the Bank to carry out. The review 

says that the United Kingdom and United States “stayed aloof” from 

program management and policy issues, also leaving these matters to be 

addressed by the Government of Brazil and the World Bank. The review 

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asserts that “overall, one is led to conclude that none of the Participants 

accepted program management responsibilities.” 

These institutional weaknesses within the donor community itself 

have been combined with the lack of ownership of the program by the 

Brazilian government. Moreover, fundamental program complexities 

have meant that as of 1999, only five of the program’s 12 projects are 

under implementation, with two more poised to commence and five 

others in various stages of preparation. Overall, projects of strategic 

importance for the attainment of pilot program objectives have yet to 

be started while proposals for replenishment and second-stage development 

are already being entertained for the projects which had an early 

start and as yet the program has no learning strategy. To address these 

weaknesses the review recommends creating a Managed Partnership, in 

which the Government of Brazil as the “owner” of the pilot program, 

invites the major donors and the World Bank, as trustee for the Rainforest 

Trust Fund, to join it as partners to manage the PP/G7 as members of a 

Joint Program Steering Committee (Review of Institutional Arrangements 

1999). 

A particularly noteworthy feature of the PPG-7 program is not only 

its externally driven nature but also the trickle of resource levels committed 

by donors. The Brazilian government has not actively sought 

international involvement in the region, whereas the donors, while 

making small financial contributions, have expected the World Bank to 

pursue an ambitious environmental agenda they believe only the Bank 

can pursue with the Government of Brazil. The World Bank officials 

responsible for Brazil’s country assistance have been concerned about 

being criticized in Brazil for pursuing the agenda of the international 

environmental community and therefore having the entire effort backfire 

if the Government of Brazil considers the discussion of sensitive 

internal political issues so internationalized as to suggest that the Bank 

and the international community get out of addressing these issues altogether. 

The Bank thus finds itself “between a rock and a hard place.” It 

believes that the strategy of supporting Brazilian institutions and building 

the capacity of Brazilian professionals to take up the cause, while 

slow and unpredictable in yielding results, is the most effective approach 

in large countries like Brazil. One must question how ultimately successful 

or replicable an externally imposed strategy such as this can be 

as the World Bank moves toward a “demand-driven” country assistance 

strategy, particularly when it involves “a drop in the ocean” level 

of contributions by donors when the short- and medium-term economic 

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and political benefits of deforesting at all levels are immense, as this 

report indicates. The long-term environmental benefits, while considerable 

to the global community, are also difficult to detect in the short 

and medium term. 

There is beginning to be an improved understanding of the importance 

of developing national consituencies and ownership of environmental 

objectives and strategies. At the time of the publication of this 

review, a multi-stakeholder group which participated in the second World 

Bank initiated or co-sponsored workshops had begun to coalesce at the 

national level. There is also a recognition among Brazilian environmental 

groups and their international counterparts that similar multi-stakeholder 

consultations are needed at the state level and below to develop 

domestic consensus and national ownership of environmental objectives. 

Positive steps have also been taken in this direction in PPG-7 by getting 

the Government of Brazil actively involved in the program’s management. 

While not meeting its original objectives, the program has 

demarcated more than 39 indigenous lands, some extractive reserves 

now serve as models for conservation and development, and 160 demonstration 

projects in natural resource management have been carried 

out, resulting in a stronger relationshiop between civil society, the Government 

of Brazil, and the Bank. The PPG-7 has also helped stimulate 

an active interest in certification issues. 

Projects with Possible Impacts on Forests 

As shown in the discussion of CASs earlier, in recent years, environmental 

issues have assumed increasing importance in the Bank’s program 

in Brazil. Over the past decade, the Bank has supported environmental, 

forestry, and Amerindian protection programs under many of 

its projects not directly related to national resource management in Brazil. 

The Northwest Region Development Projects and the Carajas Iron Ore 

Project were the first of these projects in Brazil to include significant 

environmental mitigation components. Again, their results were mixed 

but provided important lessons regarding the design and execution of 

environmentally sound programs. Subsequently, more successful operations 

were developed and implemented: the First Electric Power Sector 

Loan (Loan 2720-BR), the Parana Land Management Project (Loan 

3018-BR), the Amazon Basin Malaria Control Project (Loan 3072-BR), 

the Industrial Pollution Control Project Loan 2831-BR), the National 

Industrial Pollution Control Project (Loan 3480-BR), and the National 

Environmental Project (Loan 3173-BR). 

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Carajas Iron Ore Project 

The Carajas Iron Ore Project (a US$304.5 million loan) was approved 

in 1982, and implemented by the Rio Doce Valley Company (Companhia 

Vale Do Rio Doce, CVRD). It supported the establishment of the mining 

facility at Carajas, and was notable at the time for the heavy emphasis 

it placed on limiting the environmental impacts of the mine. The 

project achieved its stated objectives. It was completed 10 months ahead 

of schedule, with substantial cost under runs (US$73.6 million was canceled), 

but while very efficiently managed by CVRD, it had a number of 

unforeseen environmental effects that gained international publicity. The 

Project Performance Audit Report (PPAR) for the Carajas project stressed 

that, while environmental management in the area directly under CVRD’s 

control was excellent, and the Special Project for protection of nearby 

Amerindians did bring significant benefits, the Bank and CVRD failed 

to anticipate the impact of this project on the degradation of the physical 

environment and human conditions in the project’s indirect area of 

influence. This was mainly due to the strong migrant inflows in the area 

facilitated by the construction of the Carajas railroad. 

The major negative effects of this project were social problems, in 

particular deteriorating health conditions in rapidly growing frontier 

towns unable to provide basic sanitation systems; pressure on 

Amerindian communities from settlers, prospectors, and loggers; and 

rural violence. Physical deterioration of the environment in the Carajas 

corridor is evident in erosion and land degradation caused by deforestation, 

and was attributed to poverty (subsistence needs of poor migrants), 

government colonization schemes, fiscal and credit subsidies to 

unsustainable agriculture and livestock activities, land speculation, and 

logging. Although it is difficult to isolate the share of CVRD and other 

unrelated programs such as the Belem-Brasilia and Belem-Sao Luis highways, 

the Tucurui dam, the Colone colonization the Serra Pelada 

garimpo), the PPAR pointed out “a continuing moral obligation of 

CVRD to assist broader official efforts to provide needed infrastructure 

and services to the rapidly growing rural and urban populations—as 

well as to limit environmental degradation—in the region,” and urged 

the Bank “to be open to the possibility of providing additional assistance 

for socially and environmentally sound development projects in 

this area.” The report also stressed the importance of institutional 

strengthening at the federal, state, and local levels; increasing public 

awareness and active community participation in program design and 

monitoring activities; and the need for cross-sectoral approaches to solv- 

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ing the region’s problems. The follow-on Environmental and Conservation 

project would seek to contribute to increasing basic scientific and 

ecological knowledge of the area; improve the restoration, conservation, 

and management of natural resources; monitor environmental 

quality throughout the Carajas corridor; promote urgently needed social 

infrastructure development in deprived frontier towns; and protect 

the Amerindian populations. 

Environmental Conservation and Rehabilitation 

The Environmental Conservation and Rehabilitation Project, which 

followed on the heels of the Carajas project and was implemented by 

the CVRD, was financed by a Bank loan of US$50 million. 

The project is intended to support the entire environmental program 

of CVRD by financing high-priority investments throughout its operations; 

bring about changes in CVRD’s policies, systems, and procedures 

needed to reinforce sound environmental policies and management and 

help ensure that further development schemes in which CVRD would 

participate in this area are planned and implemented in ways that are 

environmentally sound and socially fair; and correct some of the negative 

indirect environmental and social impact of CVRD’s operations in 

sensitive portions of its area of influence, in particular in the Carajas 

corridor. The project is intended to correct and prevent further environmental 

and social degradation in the Carajas corridor by solving the pig 

iron plant issue; ensuring the continuity of efforts to protect and assist 

Amerindian communities while placing increased emphasis on self-reliance 

and community participation; contributing to the alleviation of 

poverty in communities near CVRD’s facilities through the provision of 

clean water and sewerage systems; and improving knowledge of sustainable 

development in the Eastern Amazon and Mata Atlantica regions 

by using the strong research and implementation capacity of CVRD 

for the study and development of tropical forest management and 

agroforestry systems. The project would also allow the Bank to gain 

additional insight on how large industrial and mining concerns should 

identify and mitigate the indirect environmental and social impact of 

large projects in ecologically sensitive areas. 

The project includes air, water, and soil pollution control and land 

reclamation investments in CVRD’s mining, industrial, rail, and port 

operations throughout the country (58 percent of project cost); natural 

resource investments, which include reforestation and the conservation 

of natural forest and ecosystems in or around CVRD’s installations; 

120


and fauna and flora inventories and conservation (6 percent of project 

cost); investments for the alleviation of social problems in ecologically 

sensitive areas in CVRD’s area of influence, including municipal improvements 

in towns affected by CVRD; and the continuation of the 

Amerindian program financed under the Carajas Iron Ore Project (19 

percent of project costs). It also includes studies, research, training, and 

technical assistance, including a comprehensive impact assessment of 

the Tubarao industrial port, other pollution monitoring and impact studies 

and socioeconomic development studies (3 percent of project costs); 

implementation of a comprehensive corporate environmental information, 

control, monitoring, and auditing system (2 percent of project 

costs); and other subprojects and studies aimed at improving the welfare 

of communities in CVRD’s area of influence. 

It is hard to tell from the supervision mission reports exactly the 

level of progress on the project from an environmental perspective of 

this review, since there appear to have been obstacles to project implementation 

including restructuring of CVRD, resulting in differential rates 

of progress on the project’s engineering aspects and other issues. However, 

progress—including on environmental impacts—generally appears 

to have been slow. 

Implementation of Environmental Conservation and Rehabilitation 

Project 

Catching up with past delays will require a major effort on the part 

of CVRD in 1999 and early 2000 to remain on schedule and procure 

and contract the remaining investment subprojects in the southern system. 

CVRD, however, is committed to improving project implementation. 

It has prepared an ambitious set of goals and a timetable for implementation 

under the Bank-financed project. A total of US$30.3 million 

is planned to be committed for investments in the southern system alone 

in 1999. Due to the privatization (April 1997) and the reorganization 

process that started shortly thereafter, implementation of CVRD’s Environmental 

Management System (SGA) during 1997 was slow in almost 

all areas, particularly in the southern system. During 1998, implementation 

of SGA accelerated in the Carajas mine operation and resulted 

in its receiving ISO 14001 certification in December 1998. However, 

implementation of SGA in the southern system remained very slow 

until the last quarter of 1998. Therefore, it was agreed during the supervision 

mission that the directors of the northern and southern systems 

would issue formal instructions, emphasizing management’s commitment 

to the implementation of SGA. 

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Amerindian Assistance Program 

Due to privatization and the time needed by new management to 

take on responsibilities within the new structure, CVRD’s approval of 

its policy toward its Amerindian Assistance Program was substantially 

delayed. The policy was finally approved in August 1998, incorporated 

in an internal instruction, and sent to the Bank. The ‘CVRD agreed that 

it should reduce its emergency assistance to Amerindians and increase 

programmatic assistance such that it can lead to substantial self-reliance 

by indigenous groups. In particular, CVRD needs to gradually hand 

over responsibility for development activities in the indigenous areas 

under its influence to qualified NGOs or other private sector entities. 

Studies and Indirect Impact Sub-Projects 

The project, with the help of a grant from Japan, includes a number 

of studies supporting Amerindian local communities (Xicrin forest management 

and Gelado Environmental Protection Area) and conservation 

of natural forests (Linhares and Carajas/Tapirape). All four studies were 

reported to have been making good progress and should offer useful 

insight 

Transportation Projects and the Forests of Brazil 

Since 1991, the World Bank has financed 11 transportation projects, 

accounting for 18 percent of the total Bank commitments to Brazil. However, 

none of these highway projects have been located in forest-sensitive 

areas. Federal highway projects have been limited to the maintenance 

and rehabilitation of existing highways, whereas the state highway projects 

have mainly been on the east coast (Alagoas, Santa Catarina, and Rio 

Grande do Sul) and in the cerrados (Piaui, Tocantins, and Maranhao). 

The project appraisal reports of the transportation projects in their 

environmental assessment sections state that the direct environmental 

impacts of the transportation projects reviewed will be primarily related 

to quarries and borrow pits, disposal of used pavement materials, 

other wastes, and the activities of the road crews, although it is possible 

that upgrading and paving of the roads could have indirect environmental 

impacts through increased settlement or intensified land use. 

Therefore, it would be advisable during project preparation for rural 

agencies to revise their norms and specifications for road engineering 

and works in order to incorporate appropriate requirements for environmental 

quality for the works and to make payments to contractors 

subject to compliance with these requirements. The road sections to be 

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upgraded or paved in the first year of the project should be in areas that 

are already developed or located away from environmentally sensitive 

areas. It is important to carry out environmental assessments for all 

such sections to be improved or paved in the first year of the project. 

Land Reform Projects 

Land reform is an important issue in Brazil, where land and income 

distribution are highly skewed. Brazilian members of this team have 

argued for increased involvement of the World Bank in ensuring secure 

land tenure. They believe that titling is central to improving smallholders’ 

incentives to invest in sustainable forest management, although 

Schneider, Vosti, and Carpentier argue that titling will not necessarily 

result in improved forest management. Therefore, as with transportation 

projects, the World Bank has backed away from potentially controversial 

lending in the Amazon, such as infrastructure development 

and land reform. 

The Bank is about to begin financing the first phase of a three-stage 

Adaptable Program Loan (APL) to support the Government of Brazil’s 

long-term program of agrarian reform. The US$1 billion project has 

been preceded by two Bank-financed pilots that the Bank considered 

highly successful. The first was a component within the Ceara Rural 

Poverty Alleviation Project, and the second was the stand-alone Land 

Reform and Poverty Alleviation Pilot Project (known in Brazil as Cedula 

da Terra) under implementation in five states of northeast Brazil. These 

pilots have tested a market-based approach to land reform in which 

beneficiary community groups negotiate directly with willing sellers for 

the purchase of suitable properties, and then also obtain financing for 

complementary community subprojects and technical assistance to establish 

themselves and improve the productivity of the acquired land. 

The Bank investments are rather small relative to the magnitude of the 

landless people. The ongoing Loan 4147-BR is aimed to benefit 15,000 

families in three years. Further, 8,000 families have been titled and the 

remaining 7,000 families will receive titles and settle in the next 4-6 

months. Another 25,000 families have identified properties and negotiated 

sales with owners (but will not complete the transaction until financing 

is available). 

The two pilots have led the government to establish a National Land 

Fund (Banco da Terra), with an initial capital of R$250 million, to 

finance land purchases for rural and peri-urban poor households. 

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10 

Summary and Conclusion 

The World Bank has clearly diminished its lending presence in the 

Amazon in the past decade. It has moved from the “big projects” era of 

the 1960s through the 1980s and strong economic and sector work to a 

more careful approach at the end of the century with attempts once 

again to focus on strategic issues and smaller projects, including pilot 

activities. This appears to be due both to the poor performance of earlier 

projects—which prompted a more risk-averse Bank strategy following 

the intense international scrutiny and criticism that contributed 

to the cautious approach urged by the 1991 Forest Strategy—and to a 

lack of demand in Brazil for Bank funds. Brazil’s macroeconomic difficulties—its 

balance of payments and fiscal deficits—have led the government 

to be selective as well as to shift lending to quick-disbursing 

activities. This is evident in the most recent land reform programs. 

Controlling deforestation is not easy given the large number and level 

of national and global forces and actors affecting it. The number and 

effectiveness of policy instruments available to national and regional 

policymakers’ (and to the World Bank) to control these factors seem 

fewer than previously believed. This is in part because some policy instruments 

are not commonly used for political reasons, and in part because 

the impact of others can either be blunted by markets or even 

distorted by market imperfections. 

If the Bank is to be a facilitator for balancing the needs of stakeholders 

(e.g., the poor and the indigenous people) and national and global 

interests, it must be seen as an objective bystander. The 1991 Forest 

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Strategy, however, clearly emphasizes the importance of slowing down 

rates of deforestation and protecting biodiversity in the tropical moist 

forests due to the global benefits of maintaining the forest cover and 

biodiversity. While it recognizes the national benefits, this review has 

demonstrated why to many (but by no means all) stakeholders, the national 

short- and medium-term costs of not deforesting seem higher 

than the benefits. The Bank’s 1991 Forest Strategy acknowledged this 

risk but did not address it. Similarly, the strategy emphasizes the importance 

of protecting the rights of indigenous people, by implication emphasizing 

the primacy of the rights of the indigenous people over those 

of the local poor. The Brazilian government has at times seen the Bank’s 

advocacy of these two objectives as presenting the international perspective 

and serving the international agenda. If so viewed, it compromises 

the Bank’s ability to be seen as an objective bystander facilitating 

reconciliation of conflicting interests. Rather, the Bank appears to be an 

advocate for global objectives even if these are at the cost of national 

and local interests. The Bank cannot be a facilitator unless it is viewed 

by both parties as not serving the interests of only one party. This inherent 

dilemma in the strategy has not been resolved, as the Bank is, after 

all, a lender to Brazil and has not been able to bring to it any significant 

amount of “soft” resources. 

Summary Evaluation 

Relevance 

The Bank’s 1991 Forest Strategy devoted considerable space to the 

loss of forest cover, particularly of the tropical moist forest of the Amazon 

and its global implications for climate change and biodiversity. It 

also recognized the divergence between the private and social costs and 

benefits of forest conservation at the national and global levels. While it 

recognized the need for transfers to bridge the gap between the private 

and social costs and benefits, it did not offer a mechanism to do so, 

except to mention the Global Environment Facility. 34 Reflecting the differences 

among respected professionals regarding the meaning of sustainable 

forest management, the strategy could not offer an unequivocal 

definition and offered instead three different definitions. It skewed 

the importance of a multisectoral approach and internal returns, international 

cooperation, participatory approaches, and respecting the rights 

of indigenous people. 

126


This report has demonstrated the existence of these externalities 

caused by a variety of factors: the generally weak to nonexistent, yet 

revenue-hungry state and municipal governments; lack of effective policy 

instruments and institutional capacity to influence, control, or monitor 

vast areas; lack of sufficient knowledge about the natural resource base 

to articulate its economic value and possible uses; transportation costs; 

and the predominance of “de facto” private property. Indeed, in the 

face of these circumstances there is intense conflict in the struggle to 

control forest resources. Perhaps more important, global economic forces 

beyond the reach of policymakers seem to dwarf even the mightiest of 

national policy instruments. Evidence of the force of some of these 

macroeconomic events, such as liberalization of trade and decentralization, 

is present today in Brazil and elsewhere. In the short and mediumterm, 

they seem to offer powerful incentives to deforest even when perverse 

policies, such as subsidies identified in the Bank’s 1991 Forest 

Strategy, are removed. 

Additionally, the poverty of small farmers alone is perhaps a less 

important source of deforestation than such factors as the strong domestic 

urban demand for timber. This was not anticipated in the 1991 

Forest Strategy. Where the cost of exploitative logging is small relative 

to the benefit, and enforcement of environmental law is lax, there is no 

incentive to manage the forests sustainably. The 1991 Forest Strategy 

failed to consider this. Rather, it emphasized the importance of land 

tenure security and the removal of subsidies as a way to maintain forest 

cover. This, too, is challenged by the evidence, suggesting that understanding 

the sources and causes of deforestation, while far more complex 

now than in 1991, is nevertheless insufficient to achieve the strategy’s 

objective of slowing deforestation. On the contrary, the evidence suggests 

that the “optimal rates” of deforestation in the Amazon may be far higher 

for local and even national actors in Brazil than considered appropriate 

by the international community. The OED Review therefore concludes 

that the 1991 Strategy is not very relevant from Brazil’s perspective. 

Efficiency 

In theory, there are numerous ways by which the process of deforestation 

can be made more efficient: by improving enforcement of laws 

and regulations, changing the incentive structure for the agents engaged 

in deforestation, and introducing improved technology, extension, marketing, 

and credit facilities. The Brazilian team of this study has argued 

that the Bank did not pursue these avenues because the 1991 Forest 

127


Strategy discouraged the Bank from being so involved. Some Bank staff 

have made similar arguments. However, others have argued equally 

emphatically that the government has never sought Bank involvement 

in the Amazon. Besides, Bank-funded projects have had a mixed record. 

For these reasons, the Bank has largely skirted the issues and has not 

been very efficient in the approaches it has pursued. 

Efficacy 

For the same reasons, neither the Bank’s own program nor its implementation 

of the PPG-7 project has been efficacious. It is too early to 

judge the impact of the GEF activities, but in a case like PPG-7, they are 

a “drop in the ocean.” An important question is whether the international 

community can play a catalytic role in helping ideas and initiatives 

blossom and take hold as input into the government’s and civil 

society’s own forest-related efforts. The scant developments indicate 

that there is international recognition of the need for modest objectives 

commensurate with the resources available, with Brazilian society being 

ultimately responsible for the fate of its own forests. 

Policy Impact 

Even the Bank’s high-quality economic and sector work (ESW) and 

the evaluation of its own projects have had a negligible impact on Brazilian 

policies. But this situation may be changing in view of the formation 

of a new national forest policy in Brazil. 

Institutional Impact 

The Bank’s major institutional impact, including through PPG-7 and 

GEF, has been to spawn an environmental movement, including several 

NGOs in Brazil, that seems to be ready to take on the cause of environmental 

protection and influence domestic policy and institutions. 

Whether it will succeed soon enough to have a major impact on the 

future of the Brazilian forests remains to be seen. But in countries like 

Brazil this seems to be the most effective approach for the international 

community to pursue, short of providing huge sums of grant resources. 

Sustainability 

Sustainability of the Bank’s impact is uncertain at this stage given the 

enormous political and economic pressures following democratization, 

decentralization, and the recurring economic crisis that Brazil has faced. 

Although the government has environmental policies and has clearly become 

much more receptive to dialogue with external actors than before, 

128


forest management and conservation is simply not as high a priority for 

the government as it is for the international community. Significant international 

transfers would thus seem to be necessary if the attention of the 

Brazilian government is to be focused on protecting its forests. But the 

Government of Brazil questions the desirability of such transfers, and the 

precise magnitude of these transfers and their implementation remains a 

matter of debate. The Bank and the international community will also 

have to take a broader approach to protection in the Amazon geographically 

and developmentally, for example, the World Bank/WWF alliance. 

This approach should address issues such as the demand for forest products 

from the industrialized southern Brazil as well as internationally, 

and the provision of alternative sources of energy supply (including plantation 

forests and investments in gas pipelines), and initiatives like certification, 

the Clean Development Mechanism, and international agreements 

between developing and developed countries through the Kyoto 

Protocol and application of the Global Carbon Fund. 

The Brazilian members of the study team point to several issues and 

lessons that have arisen from the various strengths and weaknesses of 

Bank-funded projects in Brazil and the 1991 Forest Strategy. They assert 

that the Bank should: 

• Seek an integrated approach to forest sector and agricultural 

activities, with special attention to agroforestry, research, extension, 

credit, and marketing. 

• Strengthen forestry expertise within the Bank to give greater weight 

to forest-related activities. 

• Give rural communities a greater role in identifying, planning, and 

implementing their own subprojects. 

• Include reforestation—including plantation forestry—and forest 

conservation components in development programs. 

• Build on the success of the Minas Gerais project in developing 

other similar plantation conservation projects in southern Brazil. 

• Based on lessons learned from PLANAFLORO, and on the Bank’s 

credibility in facilitating stakeholder dialogue, improve performance 

through investment in training for both Bank staff and 

partner institutions in conflict resolution and negotiating skills. 

• Support the experimentation and examination of low-impact 

logging practices. 

• Take a much more active role in promoting participatory methods 

for project design and implementation, possibly in part through 

financial support to NGOs. 

129


• Critically evaluate lessons emerging from PPG-7 and use them to 

improve success in subprojects, including bringing practical 

experience to bear from other countries. 

Overall, the Bank’s strengths, given its past performance and the realistic 

potential for its current and future involvement, lie largely in its 

economic and sector work through policy analysis and development; in 

institutional strengthening, including both in the public policy arena 

and NGOs; in promoting the development of sufficient international 

financial transfers for conservation of Brazil’s forests as resources with 

international value to make it worthwhile for Brazil to pay serious attention 

to international concerns; and in facilitating stakeholder dialogue 

that focuses on the “real” issues. Nevertheless, project experience 

is what enables the Bank to fully understand and learn from the prevailing 

realities that in turn enables it to give sound and credible advice. 

After examining the totality of the World Bank’s activities in Brazil, 

it is apparent that the Bank historically has attempted and continues to 

attempt to address many, if not most, of the measures required to increase 

the value of standing forests, the costs associated with unsustainable 

logging practices, and the profitability of sustainable (or improved) 

forest management (as outlined at the conclusion of Part I of this paper). 

Thus, generally speaking, the objectives of the World Bank’s Country 

Assistance Strategy, economic and sector work, and lending programs 

have promoted forest conservation in Brazil, even though some 

projects prior to the 1991 Forest Strategy inadvertently contributed to 

deforestation in the Amazon. 

Of utmost relevance to this study is whether and how the Bank’s 

1991 Forest Strategy has constrained the World Bank in pursuing its 

objectives in Brazil. It must first be established whether the Bank implemented 

its 1991 Forest Strategy in Brazil. 

The 1991 Forest Strategy prescribes five broad principles for the 

Bank’s work: a multisectoral approach; international cooperation; policy 

reform and institutional strengthening; sustainable resource expansion 

and intensification; and preservation of intact forest areas. Additionally, 

the strategy prohibited Bank involvement in logging activities in 

primary tropical forests. 

OED finds that the forest strategy has been partially implemented 

through the Country Assistance Strategies for Brazil (see table 10.1). The 

strategy largely has been implemented where ESW is concerned, although 

there is scope for improving analysis of the environmental (including particularly 

the forest sector) impacts of the Bank’s non-environmental ESW 

130


Table 10.1. Summary Evaluation of the Implementation of the 1991 Forest Strategy in Brazil 

1991–94 1994–99 

Strategy Implementation 

Did the Bank forest strategy for the country change from the pre-1991 period? a Yes Yes 

Was change attributable to the 1991 Forest Strategy? a Yes Yes 

Was the Bank’s post-1991 Forest Strategy for the country 

responsive to the needs articulated by the country? a Yes Yes 

Consistency of Bank strategy 

Was the Bank strategy consistent with the CAS? b 

PartlyMostly 

Did the country have a forest policy consistent with the Bank’s policy? a No No 

Did the Bank follow the principles of its involvement in the sector? b 

PartlyMostly 

Multisectoral approach 

PartlyPartly 

International cooperation 

NegligiblyPartly 

Policy reform Partly Partly 

Institutional reform 

PartlyPartly 

Preserving natural forests 

PartlyPartly 

Resource expansion and intensification 

NegligiblyNegligibly 

Were participatory approaches Implemented? a 

NegligiblyPartly 

Was the 1991 Strategy implemented? b 

PartlyPartly 

Nature of Bank Interactions 

The forest sector strategy was implemented through: b 

CAS 

PartlyPartly 

ESW 

MostlyMostly 

Policy dialogue Partly Partly 

Lending to forest sector Not Applicable Not Applicable 

Lending to forest-related sectors 

PartlyPartly 

Forest conditionality in adjustment lending Not Applicable Not Applicable 

Bank application of safeguards 

MostlyMostly 

Bank Outcomes 

Bank’s forest sector strategy from country perspective: c 

Relevance Negligible Modest * 

EfficacyNegligible 

Negligible 

EfficiencyModest 

Modest 

Is the impact of the Bank strategy in the country sustainable? a Uncertain Uncertain 

The Bank’s Impact 

Did the country improve its forest cover? a Unclear Unclear 

Did the country improve the way it addresses forest sector issues? b NegligiblyPartly 

What degree of impact did the Bank strategy have on the poor? c 

PartlyPartly 

Relevance for Future Strategy 

Does the Bank’s 1991 Forest Strategy seem relevant from the 

perspective of the country? d Unclear Unclear 

Is there government demand for Bank involvement in the forest sector? a No Unclear 

Is there demand from NGOs, the private sector, and NGOs: No NGOs: Yes 

professionals for Bank a involvement in the forest sector? Private Sector: Yes Private Sector: Unclear 

(Amazon): No (Amazon): Yes 

(plantation) 

(plantation) 

How was the country’s forest policy embedded in its overall growth Poorly Poorly 

and poverty alleviation strategy? e 

* Because the Government of Brazil appears to have become slightly more receptive to discussions with the international community on the 

issues of forest cover 

a. Ratings choices: Yes, No, Not Applicable, and Unclear. 

b. Ratings choices: Predominantly, Mostly, Partly, Negligibly, Not Applicable, and Unclear. 

c. Ratings choices: High, Substantial, Modest, Negligible, Adverse, Substantially Adverse, and Unclear. 

d. Ratings choices: Substantially, Partly, Negligibly, No, and Unclear. 

e. Ratings choices: Very Well, Well, Poorly, Very Poorly, Unclear. 

131


Box 10.1. Safeguard Policies 

In addition to the specific components of the strategy 

itself, the World Bank also elaborated several related 

safeguard policies. In fact, as has been mentioned 

elsewhere in this report, much of the push for social 

and environmental safeguards grew out of Bank 

experiences in Brazil. 

The Bank’s activities have generally conformed with 

these safeguard policies. Only in one instance has it 

appeared to circumvent a safeguard. According to a 

World Bank official, a subproject within PPG-7 that 

deals with forest management was classified as a 

“research” activity largely to circumvent the ban on 

logging in primary tropical forest. 

The extent to which the Bank has been effective in 

upholding its safeguards is illustrated by the fact that 

the Brazilian government chose not to seek Bank 

financing of a portion of the otherwise Bank-financed 

Bolivia-Brazil pipeline, as it would have triggered the 

natural habitats safeguard. How effective the program 

of safeguards is in a country like Brazil, with an 

economy large enough to finance even large infrastructure 

projects without the help of the Bank, is a question 

that merits consideration. 

in, for example, transport, 

poverty, land tenure, 

and taxes and subsidies. 

Implementation 

in the area of policy dialogue, 

while minimal in 

the early 1990s, has 

improved in the past 

few years. The forest 

strategy is not applicable 

to forest sector 

lending or adjustment 

lending, as there have 

been no such loans involving 

macro policy 

dialogue—except participation 

in the IMF 

package—since inception 

of the strategy. Finally, 

the strategy has 

been partly implemented 

in lending to 

forest-related sectors. 

One aspect of the 

forest strategy that has 

not been well implemented in Brazil is international cooperation. International 

actors have expected to achieve unrealistically ambitious goals 

with limited levels of transfers and have not been able to get Brazil seriously 

engaged in the issues of maintaining its forest cover. The paper 

outlining the 1991 Forest Strategy defined the nature of the challenge to 

forest conservation as originating from the marked divergence between 

the private costs and benefits from national and global costs and benefits. 

Three possible interpretations of the logging ban component of the 

1991 Forest Strategy were also identified in the strategy paper: 

• The Bank would not lend directly for the support of harvesting 

activities in primary tropical moist forests. 

• The Bank would not support any aspect of production forestry 

in countries where significant logging is occurring in moist 

tropical forests. 

• The Bank would use its policy dialogue with affected countries to 

132


minimize, if not terminate altogether, logging in moist tropical 

forests. This interpretation can imply reduced or no lending in 

non-cooperating countries (OED 1998). 

Indeed, the Bank has not lent directly to harvesting activities in Brazil. 

As for the second interpretation, the work of this study’s Brazilian 

team suggests that the Bank has not been involved in production forestry 

as a risk-reducing strategy. The Bank has tried to use policy dialogue to 

affect logging but has succeeded only to a limited extent. This may be 

primarily because the Government of Brazil has distanced itself from the 

donor community with respect to its Amazon policy. Thus, this component 

of the strategy has been implemented in Brazil. In terms of the five 

underpinning principles, OED finds that the Bank also has upheld the 

strategy to the extent that Brazil’s mixed perceptions and demand permitted. 

Conclusion 

That the forest strategy has not constrained Bank operations in Brazil 

is not to suggest that it is the most appropriate strategy for countries 

like Brazil. In fact, the Brazilian contributors to this study assert that 

the logging ban is causing the Bank to miss important opportunities to 

promote managed forests and ultimately, forest conservation, in Brazil 

(Nascimento et al. 1999). 

Given the available evidence concerning both the Atlantic and Amazon 

forests, the situation seems to be stacked against Brazil’s forests. As 

long as competing land uses remain more profitable than either protected 

or sustainably managed forests, land managers will opt to deforest. 

Moreover, the costs of illegal and predatory logging practices will 

have to become higher than improved forest management in order for 

more sustainable practices to take hold on a wide scale. This would 

require an institutional environment favorable to regulatory enforcement, 

which is currently lacking in Brazil and is not easy to institute. In 

the absence of effective policing of protected areas, enforcement of government 

regulations, and incentives that make conservation profitable 

and without simultaneously building domestic constituencies and their 

institutional capacity, which is inherently a long-term process, Brazil’s 

vast forests will continue to be treated essentially as open-access resources 

or resources with multiple claims. 

The World Bank’s experience in Rondonia demonstrates the importance 

of political economy in determining incentives that lead to deforestation 

and degradation. Can enforcement and alternative tax systems 

133


be introduced to alter the incentive structure, then, in favor of forests at 

the individual, municipal, and state levels? 

Forest experts suggest that the Bank can work in many ways to improve 

the situation. The World Bank had begun, partially supported 

through a Japanese grant, to address the issues of forest strategy that 

would identify the ways to minimize the divergence between the private 

costs and benefits of forest conservation and the state and federal costs 

and benefits. This review had identified why such a sector approach 

needs to address such issues as demand, alternative sources of supply, 

and possibilities of certification. The Government of Brazil appears more 

open to this kind of partnership than it had been in the past. The time 

may be right for a mutually productive and mutually proactive relationship 

between Brazil and the World Bank. 

The Government of Brazil had a new proactive and politically powerful 

Minister of Environment who vowed to improve enforcement of 

forest laws and regulations. At the time this volume went to press, the 

executive secretary of the ministry had earlier led the successful Minas 

Gerais Project and has a strong commitment to an overall environmental 

agenda and a history of a productive relationship with the Bank. 

The PPG-7, despite its limited effectiveness, has helped support a variety 

of environmentally conscious constituencies in Brazil and gotten 

them involved in the planning and implementation of the various 

projects. The Bank’s low-key approach may have helped engage the 

analytical and advocacy work of these stakeholders, including the NGO 

community. 

134

Annexes 

A. Supplemental Tables 

Table 

A.1. Deforestation in the Amazon, 1978–97 (thousands of km 2 

) 

1978 

1988 

1989 

1990 

1991 

1992 

1994 

1995 

1996 

1997 

Acre 

0.250 

0.890 

0.980 

1.030 

1.070 

1.110 

1.206 

1.331 

1.374 

1.420 

Amapá 

0.020 

0.080 

0.100 

0.130 

0.170 

0.174 

-- 

0.178 

-- 

0.185 

Amazô nas 

0.170 

1.970 

2.170 

2.220 

2.320 

2.400 

2.474 

2.663 

2.743 

2.814 

Maranhão 

6.390 

9.080 

9.230 

9.340 

9.410 

9.524 

9.598 

9.776 

9.934 

9.979 

Mato 

Grosso 2.000 

7.150 

7.960 

8.360 

8.650 

9.117 

10.361 

11.215 

11.914 

12.502 

Pará 

5.640 

13.150 

13.930 

14.420 

14.800 

15.179 

16.036 

16.901 

17.614 

18.123 

Rondô nia 

0.420 

3.000 

3.180 

3.350 

3.460 

3.687 

4.206 

4.615 

4.865 

5.053 

Roraima 

0.010 

0.270 

0.360 

0.380 

0.420 

0.448 

0.496 

0.512 

0.536 

0.556 

Tocantins 

0.320 

2.160 

2.230 

2.290 

2.340 

2.381 

2.448 

2.514 

2.548 

2.577 

Total 

15.22 

37.75 

40.14 

41.52 

42.64 

44.02 

45.62 

49.71 

50.15 

53.21 

Increase from previous 

period (%) 

-- 

22.53 

2.39 

1.38 

1.12 

1.38 

1.60 

4.09 

0.44 

3.06 

135


Table A.2. Total Population, by State, Amazon, 1960–91 

1960 

1970 

1980 

1991 

Rondonia 

69,792 

111,064 

491,069 

1,132,692 

Acre 

158,184 

245,299 

301,303 

417,718 

Amazô nas 

708,459 

955,232 

1,430,089 

2,103,243 

Roraima 

28,304 

40,885 

79,159 

217,583 

Pará 

1,529,293 

2,167,018 

3,403,391 

4,950,060 

Amapá 

67,750 

114,359 

175,257 

238,397 

Tocantins 

343,038 

521,655 

739,049 

919,863 

Maranhão 

2,469,477 

2,992,686 

3,996,404 

4,930,253 

Mato 

Grosso 319,248 

599,764 

1,138,691 

2,027,231 

Total 

5,693,545 

7,717,965 

11,754,41 

2 16,988,040 

Intercensal 

increment 

2,042,420 

4,036,447 

5,233,628 

Source: GTA. 

Table A.3. Average Annual 

Population Growth, by State, Amazon 

1960 

–70 

1970 

–80 

1980 

–91 

Rondonia 

4. 

8 16. 

0 7. 9 

Acre 

3. 

1 3. 

4 3. 0 

Amazô nas 

3. 

0 4. 

1 3. 6 

Roraima 

3. 

7 6. 

8 9. 6 

Pará 

3. 

5 4. 

6 3. 5 

Amapá 

5. 

4 4. 

4 4. 7 

Tocantins 

4. 

3 3. 

5 2. 0 

Maranhão 

1. 

9 2. 

9 1. 9 

Mato 

Grosso 6. 

5 6. 

6 5. 4 

Total 

3. 

1 4. 

3 3. 4 

Table A.4. Net Migration, by State, Amazon 

1960–70 

1970–80 

1980–91 

Rondonia 

9,607 

334,946 

478,620 

Acre 

-26,203 

-9,244 

7,584 

Amazô nas -93,457 

65,878 

172,784 

Roraima 

-1,543 

20,566 

110,418 

Pará 

-9,243 

381,563 

447,477 

Amapá 

15,033 

4,769 

44,066 

Tocantins 

39,819 

52,285 

-11,515 

Maranhão 

-443,629 

-152,632 

-330,846 

Mato 

Grosso 151,734 

344,783 

583,703 

Total 

-347,882 

1,042,916 

1,504,291 

Source: GTA. 

Source: GTA. 

Table A.5. Degree of Urbanization by State, 

Amazon 

1970 

1980 

1991 

Rondonia 

53. 

6 46. 

5 58. 2 

Acre 

27. 

5 43. 

8 61. 9 

Amazô nas 

42. 

5 59. 

9 71. 4 

Roraima 

42. 

8 61. 

8 64. 7 

Pará 

46. 

7 48. 

9 52. 5 

Amapá 

54. 

7 59. 

2 80. 9 

Tocantins 

25. 

4 40. 

2 57. 7 

Maranhão 

25. 

1 31. 

4 40. 0 

Mato 

Grosso 

38. 

8 57. 

5 73. 3 

Total 

35. 

5 44. 

6 55. 2 

136 

Source: GTA.

Annexes 

Table A.6. Total Area Reforested with Resources 

from Fiscal Incentive Policy 

a 

Fiscal 

incentives according to 

IBDF and 

Year 

Total area 

(ha) 

IBDF 

(US$M) 

BNB 

(US$M) 

1967 

34,760 

65.70 

-- 

1968 

102,910 

276.47 

19.28 

1969 

162,383 

172.07 

67.11 

1970 

222,005 

447.84 

128.22 

1971 

248,478 

506.08 

308.46 

1972 

304,357 

551.17 

345.08 

1973 

294,153 

560.17 

423.79 

1974 

324,379 

415.69 

522.87 

1975 

398,240 

436.70 

473.63 

1976 

449,249 

617.16 

831.99 

1977 

346,432 

724.05 

995.33 

1978 

411,737 

894.55 

1,193.96 

1979 

473,718 

820.95 

1,434.32 

1980 

435,575 

686.96 

818.17 

1981 

417,875 

713.03 

711.54 

1982 

430,985 

675.06 

673.97 

1983 

215,000 

490.15 

499.04 

1984 

286,200 

378.67 

365.59 

1985 

285,032 

337.20 

338.77 

1986 

409,015 

-- 

427.49 

1997 

-- 

-- 

248.17 

1988 

-- 

-- 

31.64 

a. As of December 1998. 

Source: Bacha and Marquensini 1999 data from Instiuto Brasileiro de 

Desenvolvimento Florestal (IBDF) and Banco do Nordeste do Brasil (BNB). 

Figure A.1. Evolution of Plantation Productivity in Brazil 

50 

45 

40 

st/ha/yr 

35 

25 

20 

15 

10 

5 

Eucalipto 

Pinus 

0 

1968 

1970 

1972 

1974 

1978 

1980 

1982 

1984 

1986 

1988 

1990 

1992 

1994 

1996 

Source: Bacha and Marquesini 1999. 

year 

137


Table A.7. Number of Rural Establishments and Area Reforested for Different Brazilian States 

State 

1 Jul 1950 Sep 1960 

Area 

(ha) 

1 31 

Dec 1970 

31 

Dec 1985 

31 Jul 1996 

Esta- 

Esta- 

Esta- 

Establishments 

Area blish- 

Area blish- 

Area blish- 

(ha) ments (ha) ments (ha) 

ments 

Area 

(ha) 

Rondô nia 

123 

33 

1,001 

37 

446 

253 

8,065 

1,347 

41,040 

Acre 

614 

58 

343 

60 

1,313 

113 

2,443 

310 

11,298 

Amazonas 

6,718 

3,699 

24,034 

1,909 

8,795 

440 

3,271 

65 

1,105 

Roraima 

20 

1 1 22 

360 

10 

414 

35 

1,414 

Pará 

9,100 

1,732 

31,560 

860 

33,955 

1,315 

90,507 

2,119 

114,369 

Amapá 

96 

32 

1,772 

20 

393 

42 

57,894 

3 84,937 

Tocantins 

172 

2,828 

18 

78 

Maranhão 

3,979 

1,882 

103,388 

528 

8,620 

618 

28,482 

374 

27,840 

Piauí 

18,872 

1,029 

27,460 

509 

6,824 

418 

5,287 

106 

3,006 

Ceará 

50,622 

4,949 

140,554 

1,768 

17,120 

1,080 

6,629 

1,989 

24,626 

Rio 

G. do Norte 8,946 

998 

13,380 

557 

4,247 

1,604 

15,874 

662 

5,322 

Paraíba 

14,096 

2,988 

50,087 

604 

3,738 

1,624 

32,496 

2,089 

15,106 

Pernambuco 

34,040 

3,930 

52,728 

1,146 

13,105 

1,341 

15,763 

1,295 

13,537 

Alagoas 

10,126 

842 

16,439 

287 

2,925 

295 

1,065 

202 

2,239 

Sergipe 

7,011 

851 

10,851 

299 

2,488 

305 

2,854 

344 

2,915 

Bahia 

100,018 

10,975 

160,647 

3,780 

41,524 

3,883 

276,581 

7,391 

297,429 

Minas 

Gerais 129,657 

11,306 

230,670 

11,789 

271,522 

29,430 

1,767,861 

38,204 

1,707,782 

Espírito 

Santo 12,308 

1,816 

25,296 

985 

25,119 

1,845 

156,185 

7,107 

172,735 

Rio 

de Janeiro 28,209 

1,431 

26,908 

902 

19,550 

1,908 

39,663 

1,010 

25,881 

São Paulo 

298,502 

23,844 

441,571 

32,312 

577,436 

33,223 

912,730 

25,328 

597,000 

Paraná 

87,909 

9,613 

188,075 

12,810 

205,163 

58,383 

819,556 

55,323 

713,126 

Santa 

Catarina 41,505 

11,898 

97,414 

9,392 

128,333 

37,223 

564,124 

66,861 

561,549 

Rio 

G. do Sul 172,848 

40,472 

234,512 

73,276 

245,764 

151,549 

567,848 

184,543 

630,138 

Mato 

G. do Sul 

519 

454,251 

900 

181,080 

Mato 

Grosso 44,519 

1,028 

73,806 

728 

14,618 

316 

26,171 

239 

67,751 

Goiás 

49,156 

3,571 

117,178 

907 

24,598 

764 

83,630 

500 

72,652 

Distrito 

Federal 

6 131 

122 

272 

178 

23,540 

112 

19,980 

Brazil 

1,128,994 

138,984 

2,069,806 

155,609 

1,658,228 

328,851 

5,966,012 

398,475 

5,395,935 

Source: Agricultural Censuses. 

138

Annexes 

Table A.8. Number of Trees Planted by State in Brazil 

State 

31 

Dec 1970 31 

Dec 1975 

31 

Dec 1980 

31 

Dec 1985 

31 Jul 1996 

Trees 

Trees 

Trees 

Trees 

Trees 

(thousands) 

% of (thous- 

% of (thous- 

% of (thous- 

% of (thous- 

% of 

total ands) total ands) total ands) total ands) 

total 

Rondô nia 

0 0 0 0 0 0 8 0 3,159 

0.04 

Acre 

0 0 0 0 0 0 0 0 31 

0 

Amazonas 

3 0 1,283 

0.02 

475 

0 0 0 69 

0 

Roraima 

0 0 0 0 0 0 500 

0 5 0 

Pará 

69 

0 75,112 

1.40 

66,240 

0.72 

88,131 

0.91 

86,153 

1.22 

Amapá 

0 0 0 0 28,373 

0.31 

84,446 

0.87 

127,114 

1.80 

Tocantins 

-- 

-- 

-- 

-- 

-- 

-- 

3,499 

0.04 

58 

0 

Maranhão 

15 

0 339 

0 945 

0 27,116 

0.28 

13,246 

0.19 

Piauí 

2 0 12 

0 0 0 5 0 1,489 

0.02 

Ceará 

102 

0 945 

0.02 

157 

0 16 

0 1,871 

0.03 

Rio 

G. do Norte 40 

0 1,415 

0.03 

188 

0 462 

0 2,585 

0.04 

Paraíba 

26 

0 889 

0.02 

469 

0 1 0 3,281 

0.05 

Pernambuco 

8,318 

0.32 

16,457 

0.31 

10,988 

0.12 

3,557 

0.04 

5,250 

0.07 

Alagoas 

90 

0 7 0 331 

0 14 

0 1,130 

0.02 

Sergipe 

617 

0.02 

72 

0 564 

0 1,681 

0.02 

227 

0 

Bahia 

111 

0 8,597 

0.16 

186,711 

2.02 

447,680 

4.62 

172,017 

2.43 

Minas 

Gerais 467,239 

18.07 

1,049,053 

19.53 

2,959,508 

32.07 

3,011,201 

31.07 

2,269,065 

32.12 

Espírito 

Santo 26,204 

1.01 

161,180 

3.00 

203,450 

2.20 

171,718 

1.77 

214,626 

3.04 

a 

Rio 

de Janeiro 13,632 

0.52 

59,158 

1.10 

70,605 

0.77 

65,883 

0.68 

33,120 

0.47 

São Paulo 937,778 

36.26 

1,589,686 

29.76 

1,686,065 

18.27 

1,679,537 

17.33 

939,765 

13.30 

Paraná 

282,178 

10.91 

828,742 

15.43 

1,235,367 

13.39 

1,331,033 

13.74 

879,054 

12.44 

Santa 

Catarina 185,553 

7.18 

396,342 

7.38 

775,663 

8.41 

769,679 

7.94 

814,548 

11.53 

Rio 

G. do Sul 643,526 

24.89 

700,506 

13.04 

1,005,289 

10.89 

1,203,052 

12.41 

1,108,990 

15.70 

b 

Mato 

G. do Sul 605 

0.02 

439,751 

8.19 

790,593 

8.57 

607,698 

6.27 

188,253 

2.66 

Mato 

Grosso 

-- 

-- 

4,415 

0.08 

33,671 

0.36 

19,982 

0.21 

45,272 

0.64 

Goiás 

20.699 

0.80 

27,876 

0.52 

137,426 

1.49 

142,532 

1.47 

145,278 

2.06 

Distrito 

Federal 179 

0 497 

0 34,334 

0.37 

31,027 

0.32 

11,199 

0.16 

Brazil 

2,585,984 

100 

5,371,340 

100 

9,227,460 

100 

9,690,493 

100 

7,065,381 

100 

a. Includes data referring to Guanabara in 1970 

b. The figures for 1970 are from the old state of Mato Grosso. 

Source: Agricultural Annuals of Brazil and the states. 

139


Table A.9. Reforested/Forested Area in Brazil by Different Groups, 

1982–95 (in ha) 

Smallestablishments 

to medium-size 

Year 

Paper and 

cellulose 

a 

industries 

Industrial 

steel with 

wood-based 

coal 

rural 

in state programs or 

with businesses in 

Minas 

Gerais Subtotal 

1982 

77,503. 

0 

-- 

-- 

-- 

1983 

65,403. 

0 

-- 

-- 

-- 

1984 

77,295. 

0 

-- 

-- 

-- 

1985 

83,282. 

0 

-- 

-- 

-- 

1986 

81,597. 

0 

-- 

-- 

-- 

1987 

83,424. 

4 58,488 

-- 

141,912 

1988 

99,135. 

2 54,352 

3,374 

156,861 

1989 

116,004. 

3 88,357 

9,989 

214,350 

1990 

131,925. 

0 125,000 

12,378 

269,303 

1991 

74,233. 

3 51,305 

7,976 

133,514 

1992 

82,653. 

1 80,067 

13,244 

175,964 

1993 

89,202. 

7 46,653 

7,564 

143,420 

1994 

83,702. 

9 37,026 

6,502 

127,231 

1995 

94,540. 

0 30,351 

6,323 

131,214 

1996 

112,541. 

6 32,752 

5,831 

151,125 

1997 

101,723. 

3 30,756 

6,536 

139,015 

a. Annual data on reforested and forested area by paper and cellulose industries were obtained by 

considering major values (from 1982–89) of the area forested and reforested and in existence in each 

annual year. 

Sources: Statistical Annual of the ANFPC 1982 to 1996; Statistical Annual of ABRACAVE 1996. 

140

Annexes 

B. The 1991 Forest Strategy 

The World Bank Forest Strategy sought to address rapid deforestation, 

especially of tropical moist forests, and inadequate planting of 

new trees to meet the rapidly growing demand for wood products. These 

twin challenges were the consequence of five forces: 

• Externalities that interfered with the free interplay of market forces 

with the potential to bring about socially desired outcomes 

• Strong incentives to cut trees 

• Weak property rights in many forests and wooded areas 

• High private discount rates for those encroaching on the forests, and 

• Inappropriate government policies, particularly concession arrangements. 

The Bank’s strategy, therefore, promised to promote the conservation 

of natural forests and the sustainable development of managed forest 

resources. The strategy it outlined consisted of policies to alleviate 

Two Challenges 

1991 Forest Strategy 

To slow the alarming 

rate of deforestation, 

especially in the tropics 

To ensure adequate planting 

of new trees and the management 

of existing resources to 

meet the rapidly growing demand 

for fuelwood and other projects 

in developing countries 

Four Strategies for Forest Development 

Protecting the Forests 

• Policies to alleviate 

poverty 

• Forest zoning and 

regulation 

• Correcting private 

incentives 

• Public incentives 

Policies to Meet 

Basic Needs for 

Forest Products and 

Services 

• Reducing demand 

• Increasing supply 

Strengthening Forest 

Institutions 

Role of International 

Community 

• Technical assistance, 

research, and 

institution building 

• Financing 

• International trade 

reforms 

Five Principles of Policy 

Multi-sector 

approach 

International 

cooperation 

Policy/ 

institutional reform 

Preserving 

natural forests 

Resource 

expansion 

Source: Derived from “The Forest Sector,” a World Bank Policy Paper, 1991. 

141


poverty, improve forest zoning and regulation, correct private incentives, 

and increase public investments. The strategy also proposed reducing 

demand through investments in research and technology, increasing 

the supply of essentials through farm forestry, and increasing market 

efficiency. Government policies and programs, the strategy said, 

should aim to change the incentives and institutional structures that 

lead to excessive deforestation and inadequate tree planting and prevent 

the use of good practices in forest management. Under the strategy, 

international cooperation and assistance were to ensure that global 

externalities were internalized locally and that the efforts of governments 

and international organizations were to be coordinated. 

Five principles were elucidated to underpin Bank involvement in the 

forest sector: 

• Adopt a multisectoral approach in the design and implementation 

of forest operations. 

• Support international cooperation in the formulation and adoption 

of legal instruments conducive to sustainable forest development 

and conservation. 

• Promote policy reform and institutional strengthening by helping 

governments identify and rectify market and policy failures that 

encourage deforestation and unsustainable land use. 

• Finance operations that lead to socially, environmentally, and 

economically sustainable resource expansion and intensification. 

• Support initiatives that preserve intact forest areas. 

Fulfilling this commitment required five things of Bank-financed 

projects: 

• Adoption of policies and an institutional framework consistent 

with sustainability and a participatory approach to the management 

of natural forests 

• Adoption of comprehensive and environmentally sound conservation 

and development plans based on a clear definition of the roles 

and the rights of the key stakeholders including local people 

• Basing commercial use of forests on adequate social, environmental, 

and economic assessments 

• Making adequate provisions to maintain biodiversity and safeguard 

the interests of forest dwellers, particularly indigenous peoples 

• Establishing adequate enforcement mechanisms. 

142

Annexes 

C. Economic Background 

With a land mass of 8.5 million km 2 , Brazil encompasses nearly half 

of the South American continent. The country is home to more than 

160 million people, including upwards of 300,000 indigenous people 

(ISA 1996). Brazil has one of the world’s largest economies, boasting a 

GNP of US$760.3 billion in 1998 (EIU 1999a). Agriculture accounted 

for 10.7 percent of GNP in 1996, with industry comprising an additional 

39.3 percent and services the remaining 50 percent (EIU 1999b). 

Manufacturing is the largest component of export revenues. While the 

forest sector is large, it comprises a small percent of GNP and has not 

been a major component of Brazil’s export revenue (table C1), with the 

vast majority of wood products being consumed domestically. 

Brazil is highly endowed with natural resources. Its mineral reserves, 

much of which are located in the Amazon region, are worth an estimated 

US$3 trillion (Schneider 1992). Brazil holds one-third of the 

world’s iron and Latin America’s largest bauxite reserves. The Brazilian 

Amazon contains 78 percent of global niobium deposits (EIU 1999b). 

In addition to significant hydrologic and other resources, Brazil’s forests 

are also of great importance. In the Legal Amazon, which has an 

area of 500 million hectares (ha), about 75 percent is under forest, representing 

a commercial stock of 60 billion m 3 (Kaufman et al. 1990). 

Macroeconomic policies and development strategies have had a profound 

impact on Brazil’s forests. From an economic standpoint, Brazil 

has pursued an aggressive postwar policy of import-substitution industrialization, 

in which the industrial/manufacturing sectors were promoted 

and protected to the disadvantage of other economic sectors, including 

agriculture. This strategy, based as it was on unsound fiscal and monetary 

policy, led to impressive 

economic growth through the 

1970s but ultimately left Brazil 

highly vulnerable to the oil 

shocks of that decade, leading to 

a stagnation of economic 

growth and rampant inflation in 

the 1980s (Maddison and Associates 

1992). 

In the 1990s, under the administration 

of Fernando 

Alfonso Collor, rapid trade liberalization 

began. Almost all 

Table C.1. Principal Exports, 1997 

(US$ millions) 

Export 

Revenues 

Manufacture 

32,736 

Transport 

equipment and parts 

6,758 

Soybeans, 

meal, and oil 

5,729 

Iron 

ore 

3,061 

Coffee 

3,094 

Total 

exports (including others) 

52,990 

Source: EIU 1999b. 

143


non-tariff barriers to trade were removed in four years. Import tariffs 

were lowered, reducing the cost of inputs and machinery, and leading 

to rapid forest conversion. Trade liberalization has supported Brazil’s 

comparative advantage in agriculture and livestock, and has stimulated 

expansion of the service and durable goods sectors (EIU 1999b) as well 

as growth of agriculture along the forest margin. 

With the introduction of the Real Plan in 1994, crafted by now- 

President Fernando Henrique Cardoso, Brazil emerged from its period 

of hyperinflation to enjoy unprecedented economic stability in the recent 

past. However, by the end of 1997, the combination of an overvalued 

currency, the traditionally loose fiscal policy, and tight money had 

resulted in a growing public sector deficit and current account troubles. 

When the Asian financial crisis hit, the government raised interest rates 

and attempted to control fiscal spending. In late 1998, hoping to avoid 

an extremely pressured devaluation, the government signed an IMF-led 

US$41.5 billion loan package. Investors fled nonetheless, and economically 

powerful groups within Brazil protested the high interest rates. 

The government responded with what it intended to be a controlled 

devaluation in January 1999. However, the market quickly swept up 

the devaluation, and the value of the Real tumbled by 40 percent, making 

industrial and agricultural exports that compete with forests more 

competitive. With the economy now in recession, Brazil has raised interest 

rates and is pursuing greater fiscal austerity (The Economist 1999). 

It is within this context of economic seesawing that the government has 

been promoting development and poverty alleviation. While the Cardoso 

administration has made impressive progress toward general stabilization, 

the threat of instability persists with the urgent need to bring the 

large fiscal deficits, particularly those of the states, under control. 

Of the six countries in the OED study, Brazil is the wealthiest and 

has the strongest economic indicators. With per capita GDP at US$4,800, 

Brazil ranks as a middle-income country. But this conceals striking inequalities 

in the country. While many Brazilians enjoy a standard of 

living much like that of industrialized countries, the 1995 Brazil Poverty 

Assessment estimated that 17.4 percent of the country’s population 

(24 million people) fall below the international poverty line (World Bank 

1995b). The World Bank (1997) notes that this is especially glaring for 

a country with Brazil’s overall income, and results from one of the world’s 

worst levels of land income inequality. This affects the incentives for 

deforestation. 

144

Annexes 

A 1995 household survey found that the wealthiest 20 percent of 

Brazilians enjoy 63 percent of total income, while the poorest 20 percent 

of people garner only 2.5 percent (The Economist 1999). Land 

distribution historically is as skewed as income distribution. While the 

Gini coefficients for land distribution do not vary widely between regions, 

the high value across all regions is notable. Half of Brazil’s farmland 

is occupied by under 1 percent of farms (The Economist 1999). As 

a result, almost half of Brazil’s 330 million ha of farmland lies unused, 

while at least 2 million rural families are estimated to be landless (EIU 

1999b). This has prompted major migrations to urban areas. While this 

reduces pressure on forests, it also attracts settlers to the land-abundant 

Amazon. 

Significant imbalances between Brazil’s five major regions also influence 

rates of rural-urban and interregional migration, with profound 

implications for maintaining the forest cover. In 1995, the southeast generated 

57.2 percent of total national GDP, with the south (17.4), northeast 

(13.7), center-west (6.9), and north (4.9) far behind (EIU 1999b). 

The country’s wealth is largely concentrated in the southeast and south, 

with staggering poverty in the northeast. About a third of the population 

in the northeast lives in poverty, compared with 11 percent in the southeast. 

Per capita GDP in the Federal District is seven times that of Piaui or 

Maranhão, the poorest states in the northeast (World Bank 1997). For 

the past several decades, successive government administrations have attempted 

to close that gap through regional policy and revenue transfers 

between states (The Economist 1999). The income gap had been narrowing 

until 1994. Since then, income disparities have been widening again, 

as wealthier regions have taken advantage of economic growth opportunities 

created by the Real Plan (World Bank 1997). This has again brought 

regional development issues to the forefront of poverty reduction efforts 

in Brazil (World Bank 1997). These regional imbalances continue to serve 

as an incentive for poor Brazilians to explore the land-abundant, forested 

northwest. Although subsidies for such migration, which were sizeable in 

the 1970s and 1980s, have declined, the migration pressure continues 

and creates a conflict between the poor and indigenous populations within 

the forested areas and the new entrants. 

145


D. World Bank Inspection Panel Findings for the 

PLANAFLORO Project 

The World Bank Inspection Panel determined that the objectives of 

PLANAFLORO were too ambitious and that the project had too large 

and widely diverse components. The project should have included indicators 

for land regularization and zoning such as the number of legally 

created protected areas and the transfer of the protected areas to the 

state. Furthermore, benchmarks should have been developed for the 

progress of the zoning component. Specific indicators for environmental 

monitoring and law enforcement, including the level of activity and 

results, should have been included from the outset. 

A review of the progress in the implementation of PLANAFLORO 

was conducted by the Inspection Panel in March 1997. The panel concluded: 

1. Based upon the satellite imagery under the project, contrary to the 

project’s objectives, deforestation during 1993–96 had substantially 

increased. Continued monitoring of deforestation and use of 

methods to control deforestation on a real-time basis needed to be 

given priority under the restructured phase 

2. Difficulties already experienced in achieving most of the environment 

goals of the project required that restructuring include 

conditions that provide for long-term solutions to existing environmental 

problems, including legal safeguards against the changing 

characteristics and reducing the size of the protected areas. 

3. Border problems associated with indigenous and extractive areas 

must be addressed effectively to ensure the long-term sustainability 

of protected areas. Illegal settlements must be removed, an action 

which cannot be implemented unless the capabilities of institutions 

such as SEDAM (the Rondônia State Secretariat of Environmental 

Development) and ITERON (the Rondônia State Land Institute) 

are strengthened. The Panel was also informed that the restructured 

project would have a number of conditions related to 

indigenous peoples such as: the removal of illegal invaders from 

Uru-eu-wau-wau reserve by April 30, 1997, removal of invaders 

from the Mequens reserve by November 30, 1997, demarcation of 

the Massaco indigenous reserve by November 30, 1997 and 

announcement by FUNAI of its position on the legal dispute 

related to the Burareiro settlements. The panel also recommended 

that, in the development of economic alternatives and preparation 

of subprojects, special efforts should be made to ensure that 

146

Annexes 

indigenous and other disenfranchised groups participate and have 

technical assistance. Otherwise, potential beneficiaries of the 

project component may be limited to those with access to funds 

and technical capacity. 

4. It is essential that a realistic, sustainable health plan for indigenous 

people be part of the restructured project. 

5. Management should be encouraged to continued with incentives to 

achieve effective project management and supervision. 

6. In the restructuring phase, the Bank should build on its implementation 

capacity at the technical, accounting, and managerial levels. 

7. Every effort should be made to achieve even the most modest 

objectives of the restructured project with respect to agro-ecological 

zoning and social/environmental objectives. Proper guarantees 

and conditionalities for critical missing or delayed actions should 

be established and amended to legal documents. 

147


E. OED- and QAG-Evaluated Projects 

OED-Evaluated Projects 

All Brazilian Operations 

OED evaluated a total of 53 projects in Brazil which exited the portfolio 

between 1992–98 in terms of their outcome, sustainability, institutional 

development impact, bank performance (project identification, 

project appraisal, and project supervision) and borrower performance 

(project preparation, project implementation and project compliance). 

These projects had net commitments of US$6.5 billion (1996 dollars). 

OED determined that the outcome of 38 projects was satisfactory, 

based on their relevance, efficacy, and efficiency—72 percent of the total 

projects and 65 percent of the total commitments. Sustainability 

was rated as likely for 32 projects—60 percent of the projects and 61 

percent of the total commitments. Institutional development impact was 

considered to be substantial for 25 projects—47 percent of the projects 

and 35 percent of the total commitments. The ratings for all OED evaluated 

projects by sector and subsector are presented in Tables E.1-E.3. 

An overall look at the Bank’s performance in terms of project identification, 

appraisal, and supervision shows that project identification 

was evaluated as satisfactory for 41 projects—77 percent of the projects 

and 75 percent of the commitments. Project appraisal was found to be 

satisfactory for 29 projects—55 percent of the projects and commitments. 

Project supervision was rated satisfactory for 34 projects—64 

percent of the projects and 60 percent of the total commitments. 

The borrower performance ratings in terms of project preparation, 

implementation and compliance indicate that project preparation was 

satisfactory for 31 projects—58 percent of the projects and 67 percent 

of the total commitments. Project implementation was considered satisfactory 

for 28 projects—53 percent of the projects and 46 percent of 

the total commitments. Finally, project compliance was found to be 


of the total commitments. 

OED-Evaluated Agriculture Sector Operations 

The ratings for the lending operations evaluated in the agriculture sector 

seem to be slightly above the entire portfolio ratings in terms of project 

sustainability and institutional development impact. However, the ratings 

for project outcome are comparable with the ratings for the entire 

148

Annexes 

portfolio. A total of 22 operations with commitments of US$2.6 billion 

were evaluated in the agriculture sector. The outcomes of 16 projects 

were rated as being “satisfactory”—73 percent of the projects and 62 

percent of the commitments. The sustainability rating was “likely” for 

15 agriculture projects—68 percent of the projects and commitments. 

The institutional development impact was rated “substantial” for 14 

projects—64 percent of the projects and 37 of the commitments. 

Evaluating the Bank’s performance in terms of project identification, 

appraisal and supervision of the agriculture sector operations shows 

that project identification was “satisfactory” for all 17 projects—77 

percent of the projects and 64 percent of the commitments. Project appraisal 

was found to be “satisfactory” for 14 projects—64 percent of 

the projects and 56 percent of the commitments. Project supervision 

was rated “satisfactory” for 13 projects—59 percent of the projects 

and 60 percent of commitments. The project appraisal and supervision 

rating in the agriculture sector projects are slightly better than the ratings 

for the entire portfolio; however project identification ratings are 

comparable. 

Borrower performance ratings in the agriculture sector for project 

preparation, implementation and compliance indicate that project preparation 

was satisfactory for only 6 operations—27 percent of the projects 

and 33 percent of the total commitments. Project implementation was 


of the total commitments. Finally, project compliance was considered 


of total commitments. It appears that the project implementation and 

compliance ratings for the agriculture projects were higher than the 

ratings for the entire portfolio, but project preparation ratings were 

significantly lower. 

OED-Evaluated Forest Sector Operations 

The only forest project which was evaluated by OED was the Minas 

Gerais Forestry Development project, with net commitments of US$40 

million. The outcome of this project was rated satisfactory, institutional 

development impact was considered as substantial, and sustainability 

was rated as uncertain. In terms of the Bank’s performance, both project 

identification and appraisal were considered satisfactory, but project 

supervision was rated as unsatisfactory. Borrower performance in project 

preparation, implementation, and compliance was rated as satisfactory. 

149


Table E.1. Overall Performance Ratings for OED Evaluated Projects, 1992–98 

Evaluated projects 

Outcome satisfactory 

Net 

Net 

commit- commit- No. of Commit- 

No. of ments No. of ments projects ments 

Sector/Subsector projects (US$M) Projects (US$M) (%) (%) 

Agriculture 22 2,584.64 16 1,611.77 73 62 

Agricultural credit 2 550.82 

Agricultural adjustment 2 618.16 1 569.21 50 92 

Forestry1 39.67 1 39.67 100 100 

Irrigation and drainage 3 368.12 1 66.07 33 18 

Livestock 1 45.79 1 45.79 100 100 

Other agriculture 10 737.92 10 737.92 100 100 

Perennial crops 1 71.05 

Research 2 153.11 2 153.11 100 100 

Education 4 349.64 2 232.13 50 93 

Higher education 1 141.77 1 141.77 100 100 

Vocational/teacher training 3 107.87 1 90.36 33 84 

Electric power and other energy4 1,011.56 

Distribution and transmission 3 1,011.56 

Electric power and other energy1 

Environment 3 164.35 3 164.35 100 100 

Natural resources management 1 66.35 1 66.35 100 100 

Pollution control/waste management 2 98 2 98 100 100 

Finance 1 186.37 

Financial sector development 1 186.37 

Population, heath, and nutrition 6 534.46 5 460.86 83 86 

Basic health 2 75.89 1 2.29 50 3 

Targeted health 4 458.57 4 458.57 100 100 

Public sector management 1 28.35 

Institutional development 1 28.35 

Transportation 

Highways 2 425.08 2 425.08 100 100 

Railways 2 356.18 2 356.18 100 100 

Urban transport 1 126.11 1 126.11 100 100 

Urban development 5 440.29 5 440.29 100 100 

Other urban development 1 180.93 1 180.93 100 100 

Urban management 4 259.36 4 259.36 100 100 

Water supply and sanitation 2 381.37 2 381.37 100 100 

Urban water supply2 381.37 2 381.37 100 100 

Grand Total 53 6,488.4 38 4,198.14 72 65 

150

Annexes 

Table E.1. Overall Performance Ratings for OED Evaluated Projects, 1992–98 (cont’d) 

Sustainability likely 

ID impact substantial 

Net 

Net 

commit- No. of Commit- commit- No. of Commit- 

No. of ments projects ments No. of ments projects ments 

projects (US$M) (%) (%) projects (US$M) (%) (%) 

15 1,751.82 68 68 14 956.77 64 37 

1 289.53 50 53 

1 569.21 50 92 1 48.95 50 8 

1 39.67 100 100 

1 66.07 33 18 1 66.07 33 18 

1 45.79 100 100 1 45.79 100 100 

10 737.92 100 100 9 712.99 90 97 

1 43.3 50 28 1 43.3 50 28 

1 90.36 33 84 1 90.36 33 84 

1 141.77 100 100 

1 90.36 33 84 1 90.36 33 84 

2 696.62 50 69 

2 696.62 67 69 

2 115.56 67 70 1 66.35 33 40 

1 66.35 100 100 1 66.35 100 100 

1 49.21 50 50 

4 458.57 67 86 2 165.31 33 31 

4 458.57 100 100 2 165.31 50 36 

1 278.35 50 65 

2 356.18 100 100 1 244.00 50 69 

3 482.29 60 53 3 648.46 60 71 

4 259.36 80 59 3 230.76 60 52 

4 259.36 100 100 3 230.76 75 89 

1 86.44 50 23 

1 86.44 50 23 

32 3,941.02 60 61 25 2,299.78 47 35 

151


Table E.2. Bank Performance Ratings for OED Evaluated Projects, 1992–98 


Identification satisfactory 

Net 

Net 




Agriculture 22 2,584.64 17 1,645.8 77 64 



Forestry1 39.67 1 39.67 100 100 


Livestock 1 45.79 1 45.79 100 100 

Other agriculture 10 737.92 10 737.92 100 100 


Research 2 153.11 2 153.11 100 100 

Education 4 249.64 4 249.64 100 100 



Electric power and other energy4 1,011.56 4 1,011.56 100 100 

Distribution and transmission 3 1,011.56 3 1,011.56 100 100 

Electric power and other energy1 1 100 

Environment 3 164.35 1 66.35 33 40 


Pollution control/waste management 2 98 

Finance 1 186.37 

Financial sector development 1 186.37 


Basic health 2 75.89 1 73.60 50 97 


Public sector management 1 28.35 1 28.35 100 100 

Institutional development 1 28.35 1 28.35 100 100 

Transportation 5 907.37 5 907.37 100 100 

Highways 2 425.08 2 425.08 100 100 

Railways 2 356.18 2 356.18 100 100 



Other urban development 1 180.93 1 180.93 100 100 




Grand total 53 6,488.4 41 4,892.85 77 75 

152

Annexes 

Table E.2. Bank Performance Ratings for OED Evaluated Projects, 1992–98 (cont’d) 

Appraisal satisfactory 

Supervision satisfactory 

Net 

Net 




1 1,435.89 64 56 13 1,552.93 59 60 

1 569.21 50 92 2 618.16 100 100 

1 39.67 100 100 

1 250.9 33 68 

1 45.79 100 100 1 45.79 100 100 

10 737.92 100 100 8 567.03 80 77 

1 71.05 100 100 

1 43.3 50 28 

3 247.28 75 99 2 232.13 50 93 

1 141.77 100 100 1 141.77 100 100 

2 105.51 67 98 1 90.36 33 84 

1 314.94 25 31 

1 314.94 33 31 

1 66.35 33 40 3 164.35 100 100 

1 66.35 100 100 1 66.35 100 100 

2 98 100 100 

1 186.37 100 100 1 186.37 100 100 

1 186.37 100 100 1 186.37 100 100 

1 88.52 17 17 4 458.57 67 86 

1 88.52 25 19 4 458.57 100 100 

1 28.35 100 100 

1 28.35 100 100 

3 516.64 60 57 4 760.64 80 84 

1 278.35 50 65 1 278.35 50 65 

1 112.18 50 31 2 356.18 100 100 

1 126.11 100 100 1 126.11 100 100 

4 397.33 80 90 5 440.29 100 100 

1 180.93 100 100 1 180.93 100 100 

3 216.40 75 83 4 259.36 100 100 

1 294.93 50 77 1 86.44 50 23 

1 294.93 50 77 1 86.44 50 23 

29 3,548.25 55 55 34 3,910.07 64 60 

153


Table E.3. Borrower Performance Ratings for OED Evaluated Projects, 1992–98 


Preparation satisfactory 

Net 

Net 




Agriculture 22 2,584.64 6 858.93 27 33 



Forestry1 39.67 1 39.67 100 100 


Livestock 1 45.79 1 45.79 100 100 

Other agriculture 10 737.92 


Research 2 153.11 2 153.11 100 100 

Education 4 249.64 2 232.13 50 93 



Electric power and other energy4 1,011.56 4 1,011.56 100 100 

Distribution and transmission 3 1,011.56 3 1,011.56 100 100 

Electric power and other energy1 1 100 

Environment 3 164.35 2 115.56 67 70 


Pollution control/waste management 2 98.00 1 49.21 50 50 

Finance 1 186.37 1 186.37 100 100 

Financial sector development 1 186.37 1 186.37 100 100 


Basic health 2 75.89 1 2.29 50 3 


Public sector management 1 28.35 1 28.35 100 100 

Institutional development 1 28.35 1 28.35 100 100 

Transportation 5 907.37 5 907.37 100 100 

Highways 2 425.08 2 425.08 100 100 

Railways 2 356.18 2 356.18 100 100 



Other urban development 1 180.93 




Grand total 53 6,488.40 31 4,365.01 58 67 

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Annexes 

Table E.3. Borrower Performance Ratings for OED Evaluated Projects, 1992–98 (cont’d) 

Implementation satisfactory 

Compliance satisfactory 

Net 

Net 




16 1,774.37 73 69 15 1,525.98 68 59 

1 289.53 50 53 

2 618.16 100 100 2 618.16 100 100 

1 39.67 100 100 1 39.67 100 100 

1 66.07 33 18 

1 45.79 100 100 1 45.79 100 100 

10 737.92 100 100 9 712.99 90 97 

1 43.30 50 28 1 43.30 50 28 

2 232.13 50 93 2 232.13 50 93 

1 141.77 100 100 1 141.77 100 100 

1 90.36 33 84 1 90.36 33 84 

1 66.35 33 40 3 164.35 100 100 

1 66.35 100 100 1 66.35 100 100 

2 98.00 100 100 

3 167.60 50 31 5 460.86 83 86 

1 2.29 50 3 1 2.29 50 3 

2 165.31 50 36 4 458.57 100 100 

1 126.11 20 14 2 404.46 40 45 

1 278.35 50 65 

1 126.11 100 100 1 126.11 100 100 

3 230.76 60 52 3 368.73 60 84 

1 180.93 100 100 

3 230.76 75 89 2 187.80 50 72 

2 381.37 100 100 1 86.44 50 23 

2 381.37 100 100 1 86.44 50 23 

28 2,978.69 53 46 31 3,242.95 58 50 

155


Table E.4 Quality Assurance Group Projects at Risk Ratings for all Active Projects in Brazil, 

June 1999 


Actually at risk 

Net 

Net 




Agriculture 17 1,190 1 55 

Agricultural adjustment 2 145 1 55 50 38 

Irrigation and drainage 3 222 

Livestock 1 44 

Other agriculture 10 719 

Research 1 60 

Education 5 671 

Other education 2 218 

Primary education 3 453 

Environment 7 719 2 65 

Environmental instit 1 50 1 50 100 100 

Natural resources management 5 654 

Other environment 1 15 1 15 100 100 

Finance 1 20 

Financial adjustment 1 20 

Oil and gas 12 224 

Oil and gas transportation 1 130 

Refine/store/distribute 1 94 

Population, heath, and nutrition 3 565 

Basic health 1 300 

Other population, health, and nutrition 1 100 

Targeted health 1 165 

Public sector management 3 220 

Civil service reform 1 5 

Privatization 2 215 

Transportation 9 1,415 1 300 

Highways 3 554 1 300 33 54 

Railways 1 300 

Urban transport 5 561 

Urban development 3 385 

Urban development adjustment 1 100 

Urban management 2 285 

Water supply and sanitation 5 926 2 290 

Other water supply and sanitation 2 376 1 140 50 37 

Urban water supply2 400 1 150 50 38 

Water supply and sanitation adjustment 1 150 

Grand total 55 6,335 6 710 

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Annexes 

Table E.4 Quality Assurance Group Projects at Risk Ratings for all Active Projects in Brazil, 

June 1999 (cont’d) 

Potentially at risk 

Not at risk 

Net 

Net 




16 1,135 

1 90 50 62 

3 222 100 100 

1 44 100 100 

10 719 100 100 

1 60 100 100 

5 671 

2 218 100 100 

3 453 100 100 

1 205 4 449 

1 205 20 31 4 449 80 69 

1 20 

1 20 100 100 

1 94 1 130 

1 130 100 100 

1 94 100 100 

3 565 

1 300 100 100 

1 100 100 100 

1 165 100 100 

3 220 

1 5 100 100 

2 215 100 100 

8 1,115 

2 254 67 46 

1 300 100 100 

5 561 100 100 

3 385 

1 100 100 100 

2 285 100 100 

3 636 

1 236 50 63 

1 250 50 63 

1 150 100 100 

2 299 47 5,326 

157


OED-Evaluated Operations with Forest Components 

The only forest component project evaluated by OED was the Land 

Management I–Parana project with net commitments of US$63 million. 

The outcome of this project was rated satisfactory, institutional 

development impact was considered as substantial, and sustainability 

was rated as likely. The Bank and borrower performance ratings in all 

categories were satisfactory. 

Quality Assurance Group “Project at Risk” Ratings for All 

Active Projects in Brazil 

Overall Portfolio Ratings 

The Quality Assurance Group (QAG) maintains the current project 

status of all active projects in terms of identifying projects at risk (actual 

and potential problem projects) and not at risk. These ratings are based 

on current supervision reports that reflect project performance in terms 

of effectiveness delays, compliance with legal covenants, management 

performance, availability of counterpart funds, procurement progress, 

environment/resettlement problems, slow disbursements, history of past 

problems, risky country, risky subsector, and economic management problems. 

As of June 1999, the World Bank had 55 active lending operations 

with total commitments of US$6.3 billion. Of these, QAG rates 47 operations 

which are considered to be not at risk—85 percent of the total 

projects and 84 percent of the total commitments. Six projects (two projects 

each in environment, and water supply and sanitation; one project each 

in agriculture, and transportation sectors) with commitments of US$710 

million are rated as actually problem projects. An additional two projects 

(one project each in environment, and oil and gas sector) with commitments 

of US$299 million are considered to be potentially problem projects. 

Using a 10 percent cutoff rate in terms of the project performance indicators, 

the most significant flags in the overall portfolio are slow disbursements, 

counterpart funds, effectiveness delays, risky subsector, and history 

of past problems. 

Agriculture Project Ratings 

The agriculture sector as a whole has 17 active operations with commitments 

of US$1.2 billion. The performance of the agriculture sector 

seems to be better than the overall portfolio performance, given that 16 

projects are rated as not at risk—94 percent of the projects and 95 

percent of the total commitments. The only project rated as an actual 

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Annexes 

problem project has a net commitment of US$55 million. The most 

significant risk rating flags at 10 percent cut-off rate are slow disbursements, 

shortage of counterpart funds, and effectiveness delays. 

Forest and Forest Component Project Ratings 

There are no active forest projects in Brazil. However, there are four 

active forest component projects with net commitments of US$442 million. 

Only one of these projects is rated as “not at risk” with commitments 

of US$167 million—25 percent of the projects and 38 percent of 

the commitments. Two of the projects are rated as actual problem 

projects with commitments of US$70 million, and one is rated as a 

potentially project with commitments of US$205 million. 

Forest and Forest Component Projects in Brazil 

In the pre-strategy period (1984-91) the World Bank approved one 

direct forest project with total commitments of US$49 million which is 

0.5 percent of total commitments to Brazil. Given that the World Bank 

financed a total of 41 direct forest projects with total commitments of 

US$1.68 billion, the direct forest lending to Brazil represents three percent 

of these commitments and two percent of these projects. 

In the post-strategy period (1992–99) the World Bank financed a 

total of 34 direct forest projects with commitments of US$1.72 billion, 

however, none of these projects was in Brazil (see table 6.1). 

In addition to the direct forest projects, there are numerous operations 

which are classified as non-forest projects, which may have forest 

components. We consider such projects as “indirect forest projects” or 

“forest component projects”. Generally, most of these projects are found 

in various sub-sectors of agriculture and recently in the sub-sectors of 

environment, particularly in natural resource management sub-sector. 

Before 1991 the World Bank financed 32 forest component operations 

with total project commitments of US$1.94 billion of which 

US$291 million was committed for forest specific activities. Brazil had 

two such projects with total project commitments of US$180 million of 

which US$125 million were allocated for the forest specific activities. 

However, after 1991 the overall number of forest component projects 

substantially increased to 94 projects with total project commitments 

of US$6.2 billion of which US$1.79 billion were related to forest activities. 

This increase is also reflected in Brazil’s case which again had four 

of these component projects with total project commitments of US$442 

million, out of which US$231 million were for forest specific activities. 

The distribution of forest component projects is presented in table 6.2. 

159


F. Summary of November 1999 Brasilia Workshop and 

Stakeholder Comments 

The Consultative Workshop: The World Bank Forest Strategy 

Review and its Impacts in Brazil (Unofficial Translation) 

Brasília, November 18-19, 1999 

1. Context: The World Bank is reviewing its forest strategy worldwide. 

This review includes: (1) studies regarding the loan portfolio and its 

impact on forests and the people that depend on them; (2) assessment 

of the effectiveness of the 1991 Forest Strategy; and (3) consultations 

with government, civil society and the private sector. 

The review will indicate the strategic role that the World Bank 

should have it its intervention in the forestry sector and in assistance 

to member countries to better address the objective of 

promoting conservation and sustainable use of forest resources. As 

part of the assessment process, independent case studies were 

conducted concerning the forestry sector and the impact of the 

World Bank in the sector in six countries (Brazil, Cameroon, 

China, Costa Rica, India and Indonesia). The goal of each of these 

six national studies is to have a clear idea of the implementation of 

the 1991 Forest Strategy in the operations of the Bank and understand 

the views of the various stakeholders in each country – 

government, the private sector and civil society – concerning Bank 

involvement. The objective of this Workshop was to discuss the 

document resulting from the Brazil case study. 

2. The Workshop: Forty-seven people participated, representing 32 

entities from the following sectors: government (7 institutions), 

private sector (12 institution), civil society (13 people from 12 

entities) The complete list of participants is attached. Organized by 

the World Bank, the Workshop had the support of EMBRAPA, the 

Secretariat for Forestry and Biodiversity from the Ministry of 

Environment, the Technical Group on Forestry from the Brazilian 

NGO Forum and the Environment Department of the National 

Confederation of Industries (CNI). 

The Workshop Panel was composed of Mr. Gobind T. Nankani 

(Country Director, World Bank/Brazil), Mr. José Carlos Carvalho 

(Executive Secretary of the ministry of Environment), Mr. Francisco 

Reifschneider (Chief, International Secretariat of 

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Annexes 

EMBRAPA), Sr. Luiz Flávio Veit (representative, National Federation 

of Industries), Mrs. Adriana Moreira (representative, NGO 

Forum) and Ms. Uma Lele (Operations and Evaluation Department, 

World Bank, and coordinator of the Forest Strategy Review). 

To begin, Ms. Lele presented the process for the World Bank 

Forest Strategy review, now taking place on a global scale. Next, 

she presented the document prepared by the consultants, Mr. 

Virgílio Viana and Mr. Adalberto Veríssimo. Following the presentation, 

the workshop was opened for discussion so that the different 

sectors could express their opinions about the document and 

the review process (see annex for a copy of each presentation). 

On the second day, the working groups debated two themes: 

(1) intersectoral policies capable of promoting the sustainable use 

and conservation of forests; and (2) public policies capable of 

promoting plantation forest management (native and exotic). 

3. Working Group Presentations: Each group presented and discussed 

in open session the following conclusions: 

Group 1: Sustainable Use and Conservation of Forests 

• Finance multiple use forestry management projects in tropical 

forests, paying attention to social and environmental safeguards. 

• Finance only commercial activities certified by independent and 

internationally recognized entities. 

• Assist in the formulation and implementation of integrated forest 

policies to assure the protection and sustainable use of natural 

forests. 

• Loosen the rules of the World Bank in accordance with local 

realities. 

• Stimulate applied research, training and extension, in the multiple 

use of natural forests. 

• Assist actions in monitoring and control, certification and 

supervision of the forest sector. 

• Finance the strengthening of the forest sector (commercial 

businesses, traditional populations, indigenous populations, 

small- and medium-scale producers) throughout the production 

chain (management, transport, processing and marketing). 

• Maintain the safeguards already described in the 1991 Bank 

Forest Policy, including specifically the issue of certification. 

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Group 2: Plantation Forest Management 

Assumptions: 

Comparative advantage of Brazil 

• Forest technology 

• Available areas 

• Natural factors 

• The need to reverse the picture of urban/rural poverty 

• Increase in supply and price of environmental services 

• Brazilian environmental legislation 

• Potential for inclusion of new native species 

• Industrial park for consolidated forestry 

Policies: 

• Expand the forestry base with multiple use of land and 

forests 

• Prioritize the expansion of plantations with small and 

medium producers 

• Incorporate nontraditional sectorss (e.g. Erva mate, 

fumicultor) 

• Reforestation without conversion of natural forests 

• Environmental education (especially to prevent burnings) 

• Ecologic-economic zoning discussed with civil society 

Concept: 

• Multiple use 

• Pure and mixed plantation forests 

• Environmental services 

Desired results/ benefits from activity: 

• Reduction in rural exodus 

• Stabilization of the land base 

• Increase in income/employment 

• Quality of life improvement 

• Reduction in forest deficit 

• Reduction in cost of raw materials 

• Expansion and diversification of the industrial base 

• Reduction in pressure on native forests 

• Reduction in CO 2 

emissions due to decreased transport 

distances 

• Conservation of water basins 

• CO 2 

sequestration 

• Reduction in burnings 

• Conservation of biodiversity (especially, reduce fragmentation) 

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Annexes 

4. Conclusions: During the final open session, all sectors represented 

expressed great satisfaction for the opportunity to contribute to the 

process of the forest policy review nad for the opportunity to meet 

with different sectors in a constructive manner. 

The NGO Forum reaffirmed the importance of civil society 

participation in the process of reviewing the Bank’s forest strategy. 

The Forum stated that the process should proceed with caution 

and that forest certification is fundamental (see Annex F). 

The representative of government (Ministry of Environment) 

emphasized the importance of the attendence of the representative 

from the Casa Civil of the President of the Republic, and the 

partnerships between the government, civil society and the private 

sector. He stated that this debate should continue, especially in 

light of the launching of the National Forest Policy in April 2000, 

with the participation of all sectors. 

The representatives of the private sector mentioned that the 

sector favors changes in the forest strategy of the Bank, and that the 

private sector is in favor of certification. They nevertheless do not 

agree that financing to the forest sector should be conditioned on 

certification. They also expressed their support for forest management 

and the modernization of the industrial park for the sector. 

Ms. Uma Lele, in name of the Operations and Evaluation 

Department of the World Bank, thanks those present, reaffirming 

also the importance of the participation of each sector represented. 

She explained that in December 1999 the results of the consultations 

in the various countries where similar workshops were held 

would be presented to the Directors of the World Bank and that 

the studies would be available on the Bank’s webpage. The conclusion 

of the studies on the impact of the Bank’s Forest Policy in the 

various countries is expected in May 2000. 

F1.The response of the Government of Brazil (SBF/MMA) 

to the OED Evaluation of The World Bank 1991 Forest 

Strategy and Its Implementation 

Workshop held in Brasilia, Brazil on November 17–18, 1999 

Brazil is in the process of developing a set of policies and directives for 

sustainable development of its forest resources. This incorporates all aspects 

of forest management including the production, conservation, and 

protection of remaining forests. The new policy takes a conservation ap- 

163


proach toward biological diversity, while advocating the sustainable use 

of forest resources and reduction of predatory practices. 

The directives seek to enhance the intrinsic social benefits of collective 

right actions on forests. They allow for economically feasible opportunities 

resulting from good management of natural and planted areas. 

The strategy for the new forest policy aims at aligning government 

actions with the wider interests of the society for the maintenance of 

the remaining forests, and increase of social benefits through forest management 

and changes in forest use practices. 

The steps necessary to achieve these directives are as follows: 

• Institutional development is necessary to develop forest management 

practices through the emphasized role of the federal government 

in coordinating partnerships with the state and municipal 

governments. A development-oriented participatory approach 

needs to be adopted which includes all stakeholders in decision 

making and which strengthens the additional role of IBAMA 

parallel to state forestry organizations in training and allocating 

staff responsible for the countries’ forests. 

• Promotion and implementation of sustainable forest development 

should be based on the economically feasible and ecologically 

sustainable use of forest resources. These activities should encourage: 

intensively managed multiple use forest systems; searching for 

socially and economically advantageous alternatives which stimulate 

the valuation of timber and non-timber products; steering 

reforestation policy toward the recovery of degraded areas; reestablishing 

the role of the forests for traditional populations; 

reformulating land use concepts; establishing economic mechanisms 

capable of dealing with the risks and costs associated with 

the long forest gestation periods; and researching to find alternatives 

that ensure sustainable forest management and determine a 

new industrial order in the forest sector. 

• International trade and forest policy that seeks to establish global 

criteria and indicator mechanisms for forest management to 

evaluate and determine the sustainability of forests. Ensure enforcement 

of all international agreements and conventions on 

forests. Strengthen the participation and leadership role of Brazil in 

forums and events where the Brazilian interests are at stake, 

particularly in tropical forests. 

• Biodiversity protection in forest ecosystems by developing control 

and monitoring instruments and regulating the use of forest 

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Annexes 

resources. Also by consolidating the system of conservation units 

which should adhere to the new technological zoning realities. 

• Influence other sector strategies by reformulating the main instruments 

and strategies in other sectors to create a positive effect which 

contributes to the sustainable development of forest resources. 

The forest strategy and its implementation should also accomplish 

the following: 

• Alter the Brazilian Forest Code 

• Incorporate sustainable use concepts into agriculture expansion 

policies, colonization, and land reform policies 

• Reverse the predatory pattern of forest resource use 

• Address the potential deficit of forest raw material for industrial 

consumption 

• Change the emphasis from command and control to mechanisms of 

an economic, social and environmental nature 

• Facilitate necessary cooperation between the government sectors 

on federal, state and municipal level 

• Influence the planning of federal and regional agricultural expansion 

by making it a sustainable process with desirable characteristics 

• Ordain the itinerant forest industry 

• Improve decisionmaking by improving the availability of timely, 

dependable, and up-to-date data on production, trade, consumption, 

and adequate use (waste, deforestation, fire) of forest resources 

• Adequately monitor the process of agriculture expansion resulting 

from deforestation including fires 

• Make resources available for the use of cutting edge technology for 

monitoring and enforcement. 

The implementation of these directives imply changes in forest management 

instruments and supra-sectoral mechanisms necessary to enhance 

the distribution of benefits from cultivation, forest management, 

and conservation of natural areas. Recently, several legal land policy 

components were altered to meet several such objectives being negotiated 

globally. 

Changes seem necessary to influence the behavior and practice of 

exploration. The Provisional Measure (Medida Provisória - MP) 1511/ 

96, for example, was published by the government to organize the occupation 

of forest areas in the Amazon. This MP amended article 44 of 

the Brazilian Forest Code, stating that regardless of its size, at least 50 

percent of the total area of rural properties should be kept as forest 

165


reserve, setting the limit of usable area at only 20 percent. This was a 

great achievement to maintain the forest cover of the land by forcing 

the owner to keep larger legal reserves and therefore, reduce the 

subutilization or abandonment of cleared areas and avoid the cycle of 

clearing-itinerancy-abandonment-clearing. The government used this restriction 

to reverse the pattern of agronomic/cattle-raising activities followed 

by plain abandonment. The MP also states that new land clearings 

cannot be authorized before the owner regenerates the previously 

degraded areas. The review of MP 1511 allowed the small owners, under 

100 hectares, to be free of these restrictions and to incorporate advances 

in ecological and economic zoning which could guarantee the 

sustainability of their agriculture. The reactions of owners to MP 1511 

shows that the acquisition of large land areas for speculation has become 

a less attractive option due to a reduction in the value of expropriation 

processes (a Brazilian example of action on the issue of land 

use organization). 

Another substantial change being implemented via Law 9393/96— 

Rural Land Tax (Imposto Territorial Rural)—provides incentives for 

the maintenance of forest reserves and establishment of sustainable forest 

management activities (a Brazilian example of action in land issues). 

Development of actions to reverse predatory exploration has become 

an important aspect of government priorities. This is reflected by actions 

such as the establishment of a Natural Resource Chamber (Câmara 

de Recursos Naturais) within the Casa Civil da Presidência da República 

to follow the development of forest policies. Research has shown that 

80 percent of exploration in the Amazon occurs on an irregular basis 

which tends to create difficulties for new foreign enterprises who wish 

to operate in the Amazon for timber extraction. 

In the Amazon Region, approximately 50 million m 3 of wood is extracted, 

based on estimates of 20 percent annual growth over the last 

five years. However, it is estimated that 60 to 70 percent of the wood is 

wasted because of the harvesting and industrial processes. Further, concerns 

about sustainability (exploration and replenishment of forest resources) 

are nonexistent and the access to biological diversity and genetic 

material is not regulated, favoring the smuggling of extracts generated 

and produced in the Amazon. 

This waste demonstrates that there is an abundance of forest resources, 

and therefore, forest products are undervalued. 

Creating a shortage of forest resources could be a way to increase the 

value of forest products and consequently assure an attitude change in 

166

Annexes 

the way forests are utilized. This objective is sought through the national 

forest program and new concession mechanisms. In order to do 

so, we should state a few issues from the National Forest Program. 

First, technical evaluations indicate that the abundance of forest resources 

from the Amazon and its present exploitation through predatory 

means does not reflect its true economic value. The main challenges 

are causing an economic shortage of resources before they actually 

reach a critical point, estimating and formalizing the real value of their 

use, and generating a greater value added. Second, reports show that in 

addition to the activities of transcontinental enterprises in Brazil, businesses 

are entering the Amazon as stockholders of small local enterprises, 

which tend to employ existing practices since they are highly profitable. 

The Government of Brazil is anticipating that Brazil, especially the 

Amazon, will become the main supplier of natural wood to Asian countries, 

a role presently fulfilled by the North American countries. The 

expectation is that Brazil’s participation in international trade should 

increase given that the Malaysian, Indonesian, and other Asian countries 

are reaching their production limit. 

The establishment of a social program in the region to regulate the 

exploration of timber through a regiment of controlled use and access 

to public lands may be an alternative, given the existing state of ecological 

depredation and high incidence of poverty. Organizing those 

who extract timber into community associations will make sustainable 

exploration of timber as well as its trade and industrialization possible. 

The proposed system foresees growth in wood production and offers 

a set of actions that will allow for an organized system of forest use. 

This system will be established based on public bids on forest areas. 

The first bid will be a test. It will be conducted in the Tapajós National 

Forest, one of the five locations offered to the private sector by 

the government beyond the year 2000. The idea is to make the national 

forests fulfill their multiple objectives based on regulatory instruments 

for the marketing of forest products. The Tapajós Project has been developed 

over the last two decades, and is focused on developing forest 

measurement techniques to measure change in forest inventories over 

time, along with road infrastructure and environmental impact evaluation 

mechanisms. 

The Tapajós National Forest is part of the 39 existing national forests 

in the Amazon and has the greatest potential for forest products. 

The Jamari National Forest has 225,000 hectares and should join 

the model of forest concession. IBAMA is preparing a more aggressive 

167


bid and could offer an area from 30–50,000 hectares. The other three 

forests that are in the government’s plan (Bom Futuro National Forest 

and Jamari National Forest in Rondônia, Tefé National Forest in the 

Amazon, and the Caxuanã National Forest in Pará) will be addressed 

after 1998. 

The implementation of forest concessions in areas with native vegetation 

is an old practice being carefully evaluated by the government. 

Though it has been successful in the central-southern region with the 

production of paper and cellulose, official permits for the exploration 

of natural resources from Brazilian forests by private enterprises has 

been a polemic issue with negative reactions from several sectors of the 

society. 

The international debate on forests at the United Nations, particularly 

on issues addressed by the Intergovernmental Panel on Forests 

(Painel Intergovernamental de Florestas—IPF) is currently the most important 

global forum. 

Among the countries with extensive tropical forests, the Brazilian 

stance has been to defend its right to maintain its forests, services, and 

externalities resulting from management and conservation of forest resources. 

This has to be done through internal policies, seeking to maintain 

clear trade rules that meet effective criteria and indicator mechanisms 

for forest management without relenting the sovereign right of 

how to use and protect its forest resources. 

It should be emphasized that the Brazilian government wishes to increase 

the area of plantation forests particularly through smallholdings 

to ensure sustainable performance and development of the forest sector. 

Strategically, the government does not support compensatory mechanisms 

that are not in line with the national public policy and which 

create unnecessary burdens on the Brazilian forest endowment. 

Other important issues were mentioned, but we believe it will be 

essential that World Bank support credit and financing mechanisms for 

the management of native forests and initiatives for plantation forestry 

through the private sector. We believe it is important that performance 

evaluation mechanisms in the forest sector acknowledge the regional 

factors and differences and apply positive experiences in a given region 

based on the issues specific to that region. 

Hélio S. Pereira 

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Annexes 

F2. The Response of the Federation of Industries of the 

State of Mato Grosso (FIEMT—Federação das Indústrias 

no Estado de Mato Grosso) to the OED evaluation of the 

World Bank 1991 Forest Strategy and its Implementation 

Workshop held in Brasilia, Brazil on November 17–18, 1999 

Summary 

The sector understands that native forest management is not enough 

to ensure a sustainable flow of timber resources from Mato Grosso and 

proposes that the Bank should promote forestry by financing timber 

plantations for timber mills and lamination industries. 

Introduction – Mato Grosso Forest Industry 

The timber industry in the State of Mato Grosso was first established 

in the 1960s with the colonization of the forestlands in the northern 

and western regions of the state. During this time large tracts of 

primary forests were cleared for agriculture production and pastures. 

The resulting large quantities of harvested wood played an essential 

role in the establishment of numerous timber mills, lamination plants, 

and plywood plants within the state. 

At present the timber industry in Mato Grosso generates 15 percent 

of the state’s revenue and employs 35 percent of the industrial labor 

force. The industry’s raw material consumption is approximately 4.5 

million m 3 /year. More than 75 percent of this requirement is met by 

selective harvesting based on “forest management plans” in the primary 

forests. The remaining 25 percent comes from land clearings associated 

with the agro-pastoral industry. 

Though there are still extensive primary forests left within the state, 

their timber potential is much lower than commonly perceived because: 

• The forests are highly heterogeneous and host more than 2,000 

different tree species. The distribution of species varies according 

to the topography and soil characteristics which has resulted in 

low species volume, generally less than 1.0 m 3 /ha. 

• Relatively few species are used by the timber mills, and the laminating 

and plywood industry. Less than 100 species are used with 

some frequency but only about 20 species account for more than 

half of the regional production. 

Although selective harvesting has little impact on the structure of the 

forest itself, it does deprive the forest of species with any commercial 

value, thereby impacting the process of regeneration. 

169


Sustainability and Forest Regeneration 

It should be emphasized that the regeneration of extracted species 

alone is not sufficiently adequate to assure complete regeneration of 

any given species, even with the support of various forest management 

strategies. For instance, the African experience shows that even planting 

seedlings of commercially viable species in exploited forests has resulted 

in low forest regeneration. 

The reforestation of teak and some other native species has been 

effectively achieved in Mato Grosso, which provides a concrete example 

of its technical viability. However, economic and financial limitations 

have hampered reforestation efforts necessary to achieve future 

sustainability. 

Financing difficulties in forest management arise from long gestation 

periods and the nature of cash flows associated with the forests. The 

rotation or harvesting cycles for timber used in the mills and lamination 

industry is usually over 25 years. Cash flows are characterized by the 

concentration of expenses in the beginning of the cycle (approximately 

70 percent of expenses occur in the first three years) and the revenues 

occur at the end of the rotation period (more than 90 percent of the 

revenues are associated with the final harvest). Financing forest projects 

requires grace periods of 25 years or more, and annual interest rates 

vary between 2–4 percent, depending on the species. The reforestation 

of timber crops with lower commercial values experience even more 

financial difficulties. They tend to be less profitable because timber market 

prices generally do not incorporate basic resource costs. 

Society seems to or “pretends to” believe that the Amazon and other 

natural forests are unlimited sources of timber and that the raw materials 

withdrawn from these areas are an abundant resource without any 

economic value. While this view prevails, there are no real insights on 

the sustainability issue. 

In the long run, scarcity of timber may increase its value, creating 

profit margins that will allow for product substitution. The incorporation 

of environmental impact costs may even further increase its economic 

value in relation to other building material (aluminum, steel, 

plastics, ceramic products, etc.) and therefore make timber plantations 

more profitable. However, if we wait until timber prices are high enough 

to justify financing reforestation, it may be too late to achieve desired 

sustainability levels. 

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Annexes 

Proposal: Finance Forest Promotion 

The reforestation of timber-producing species which could be used 

in small-scale mills and lamination industries is proposed through grant 

financing for the small and medium-size rural producers from Mato 

Grosso. This proposal is based on the following considerations: 

• Projected timber shortages for mills and lamination industries 

within the next 10 to 30 years 

• Successful results observed for reforestation projects in Mato 

Grosso 

• Availability of large cleared lands currently without any economic 

use 

• Environmental role of reforestation in terms of providing long term 

soil cover which protects the soil from harsh tropical climates, 

while regulating the climate and water cycle 

• Rural producers already have a majority of the production means 

(land, tools, equipment, idle labor, infrastructure, and management) 

necessary to allow them to produce timber at a price which 

is lower than the current market prices 

• Producers’ experience in plant cultivation, hands-on approach, and 

the small scale of plantations, are all factors which increase the 

confidence of the industry in terms of foreseeing better quality 

timber production 

• Producers can consider small reforestation projects as complementary 

activities to their primary sources of income which are necessary 

to support them and may even be used to cover some of the 

reforestation expenses until the tree crops mature 

• Building a reserve of substantial value and liquidity within the 

property can be an exemplary “retirement fund” which can offer 

greater economic stability and incentive to the producers to stay in 

the rural area 

• Generation of sustainable and well distributed wealth in the rural 

area 

• Use of reforestation along with other crops and natural vegetation 

to minimize environmental risks associated with monocultures 

• Use of reforestation to sequester large quantities of carbon from 

the atmosphere in standing timber. After harvest it may be utilized 

for other long-term uses (furniture, frames, floorings, etc.) 

• Availability of reforested timber will reduce pressure on the 

primary forests. 

171


The financing of a pilot project for forest promotion, implementation, 

and monitoring is proposed. The intent is to plant 1,000 hectares 

annually over a five year period. It is estimated that the total cost per 

hectare will be of US$1,000.00/ha. The Federation of Industries of the 

State of Mato Grosso—FIEMT (Federação das Indústrias no Estado de 

Mato Grosso)—is at the disposal of the World Bank to give further 

details of the proposal. 

Luís Flávio Veit 

Director 

F3. Agenda 

Date: 18–19 November 1999 

Location: Manhattan Plaza Hotel 

SHN Qd.02 Blocos A/E 

Brasília - DF 

November 18 

2:00 Workshop opening with sector representatives 

2:30 Presentation on the Review of Forest Strategy of OED/IBRD 

Robert Schneider, Uma Lele 

3:30 Coffee Break 

3:50 Presentation on the results of the case study on Brazil 

Virgílio Viana, Adalberto Veríssimo 

5:00 Panel discussion of the study 

Sector representatives 

6:00 Dinner 

November 19 

8:30 Work group session—analysis of the study conclusions 


10:30 Plenary 

12:00 Lunch 

2:00 Work groups on thematic areas 


3:45 Closing plenary: presentation of the recommendations 

about forest strategy 

5:30 Conclusion 

172

Annexes 

F4. List of Participants 

Adalberto Veríssimo 

Adriana Moreira 

Adriana Ramos 

Afonso Henrique Paulino 

André Guimarães 

Bruno Stern 

Carlos Alberto Funcia 

Carlos Luiz Regazzi Filho 

Carmen Puig 

Celso Junius Ferreira 

Cláudia Calório 

Claudionor da Sliva 

Ednardo Machado 

Eduardo Canepa 

Eric Stoner 

Flávia Barros 

Flávio Montiel 

Francisco Reifschneider 

Guilherme Carvalho 

Helcio Souza 

Hélio Pereira 

Isaura Frondizi 

John Forgach 

John Garrison 

Jorge Alberto Yared 

José Batuira de Assis 

Juan Carlos Rueda 

Luiz Flávio Veit 

Manuel Cesário 

Mario Mantovani 

Mirian Prochnow 

Newton Zerbini 

Raimundo Deusdará 

Ricardo Tarifa 

Robert Schneider 

Sandra Faillace 

Sérgio Ahrens 

Sérvulo Vicente 

Syed Arif Husaid 

Teodoro Lamurier 

Uma Lele 

Vasco Flandoli 

Victor Hoeflich 

Victor Sucupira 

Virgilio Viana 

Weber Amaral 

IMAZON 

IPAM 

ISA 

SINDIFER 

IBRD 

GETHAL 

SBS 

CNI 

SEAIN 

ANAMMA 

ICV 

GTA 

MMA 

BNDES 

USAID 

Rede Brasil 

Greenpeace 

EMBRAPA 

FIEPA/AIMEX 

INESC 

MMA 

BNDES 

Banco Axial 

IBRD 

EMBRAPA 

ABRACAVE 

CNS 

FIEMT 

WWF 

CONFLORESTA 

RMA 

MMA 

MMA 

IBRD 

IBRD 

FASE 

EMBRAPA 

SEAIN 

IBRD 

BDMG 

IBRD 

ABPM 

EMBRAPA 

MMA 

USP 

ESALQ/USP 

173


G. Summary of March 2000 Brasilia Workshop 

World Bank Consultation on the Forest Strategy Implementation 

Review 

Brasília, March 15–16, 2000 

1. Context: The World Bank is in the process of reviewing its forest 

strategy throughout the world. This process includes: (1) evaluation 

of the impacts of its portfolio on the forests and on people 

who depend on forests; (2) evaluation of the efficacy of the 1991 

forest policy; (3) case studies; and (4) regional consultations with 

government, civil society and the private sector. The Forest Policy 

Review will indicate how the Bank should act in the forest sector 

and assist countries to better promote conservation and sustainable 

use of natural resources. 

In November 1999, the Bank promoted a workshop to discuss 

with representatives of the Brazilian government, the private sector, 

and civil society the results of a case study on the Bank’s 

performace in the forest sector of Brazil. Results of the case study 

and workshop were later presented to the Bank. 

In addition to the case studies, the Bank is also organizing 

regional consultations throughout the world to consult with a wide 

range of stakeholders the impact of the Bank’s 1991 forest policy 

implementation and strategy. Consultations were held in Tunisia 

and Brazil. The next regional consultations will be held in the U.S., 

Finland, Switzerland, Bangladesh, Singapore, Johannesburg, and 

Quito. 

Ths report describes the outcomes of the Brazilian consultation. 

2. The Workshop: On March 15 and 16, the Bank brought together 

in Brasilia, Brazil, 60 people from a wide range of stakeholders (39 

organizations), including representatives of the government (seven 

institutions), the private sector (11 institutions), civil society (15 

institutions), and international organizations (six organizations). 

The agenda and the complete list of participants are in annexes 1 

and 2. 

During the opening, the World Bank Sector Leader for ESSD in 

Brazil, Dr. Robert Schneider, stated that the objective of the 

workshop was to consult the diverse stakeholders on the Bank’s 

1991 Forest Strategy, and to gather suggestions regarding changes 

174

Annexes 

in the strategy. He clarified that the workshop was divided into 

two parts. Part I would set the stage by allowing an NGO to 

present results of an independent study on the Brazilian forest 

sector, and the government to present the new framework for 

forest policy in Brazil. Part II would discuss specifically the Bank’s 

forest strategy. Dr. Schneider’s presentation is included in annex 3. 

3. Part I: Setting the stage: The forest sector in Brazil at a crossroads. 

(This presentation does not necessarily represent the Bank’s 

opinion) 

Sr. Eugenio Arima, from the NGO IMAZON (Institute of 

People and the Environment in the Amazon) presented the results 

of analysis showing the economic rationale to support the Amazon 

forest sector. Based on RADAM and IBGE census data, his analysis 

shows that in areas of high rainfall there is a substantial decline in 

agricultural/cattle ranching production. In such areas, which 

comprise 60 percent of the Brazilian Amazon, forest activities 

already provide more employment and income than ranching, 

which is the next major land use. He infers that sustainable forest 

activities can generate seven times more employment and four 

times more income per hectare than ranching. See annex 4 for the 

slides from Mr. Arima’s presentation. 

Mr. Raimundo Deusdará, from the Ministry of the Environment, 

presented the National Forest Program (NFP), currently 

under preparation by the Government of Brazil. The NFP program 

is the new framework for government stragegy on the forest sector. 

It is composed of two parts: (1) structural actions, such as normative 

policies, forest monitoring, forest extension, and institutional 

strengthening; and (2) production activities such as the sustainable 

management of forest resources, rehabilitation of degraded lands, 

reforestation and afforestation, and support to traditional forest 

populations. See annex 5 for Mr. Deusdará’s presentation. 

3. Part II: The World Bank Forest Strategy Implementation Review 

In the second part of the workshop, the Bank’s forest policy was 

specifically discussed. Mr. Ricardo Tarifa, environment specialist in 

the World Bank, presented the current IBRD 1991 policy. Next, 

the results of the independent evaluation done by the World Bank’s 

Operations and Evaluation Department in Washington were 

175


presented by Ms. Uma Lele. Finally, Mr. Christian Peter, from the 

World Bank in Washington, talked about the review process and 

consultation on the forest strategy around the world. 

On the second day, working groups (including a mix of representatives 

from the Bank, government, NGOs, and the private 

sector) discussed and made presentations on the following topics: 

public policies (group 1); natural and plantation forests (group 2); 

and tropical forests conservation and forest dwellers (group 3). 

To each group, the following questions were posed: (1) Does the 

Bank have a meaningful role to play in the forest sector?; (2) If so, 

what is it?; and (3) If so, how do we fulfill it? 

Work Group 1: Public Policy 

Does the Bank have a meaningful role to play in the forest sector? 

1. Yes. The Bank already works in the forest sector (very little), 

and indirectly in intersectional projects that have a negative 

impact (roads, agriculture, urbanization, energy, zoning, etc.). 

2. The Bank’s refusal to act in natural forest management is in 

itself an action, albeit negative. 

3. This involvement should be reviewed and redirected, including 

the removal of restrictions on funding economical forest activities, 

as currently stated in the Bank’s 1991 Forest Strategy. 

4. In comparison to other countries, Brazil has potential and 

advantages (size of tropical forest, biodiversity, technology for 

the planting of production forests and environmental protection, 

etc.) which provide Brazil with the right credentials to 

receive Bank funds and support sustainable forest development. 

5. Brazil is currently taking important steps to implement a new 

forest policy, through its National Forest Program and its 

subprograms (Florestar, Sustentar, and Forescer). This shows 

the social, environmental and economic importance of the 

forest sector to the Government of Brazil, even arguing that the 

NFP’s current goals are set lower than necessary due to budget 

limitations imposed by the Treasury. 

Work Group 2: Management of planted and native forests 


1. Yes. The Bank has a significant role in the forest sector at the 

global level. 

176

Annexes 

Where and how should the Bank act? 

Issues where there was consensus: 

1. The Bank should support public sector training restructuring 

actions—e.g., forest policy technical assistance, implementation 

of public (production) forests, forest monitoring, environmental 

services, education, training, and research. 

2. Creation of a forest fund to finance natural and planted forests 

(such as the Prototype Carbon Fund). 

3. Offer performance guaranties as a way to promote forest management 

in public areas (the Bank could finance performance bonds 

for borrowers of funds inteded for forest activities). 

4. Projects to be financed by the Bank should follow criteria for 

social, environmental, economic, and cultural sustainability. 

5. Forest sector issues should be included in the country assistance 

strategy (CAS) preparation, and the discussion process 

should be open, transparent, and democratic, with wide 

partipation from several sectors, civil society, and the National 

Congress, and not restricted to the Bank and the staff from 

ministries of planning and finance. 

6. The Bank should support the consolidation of small-scale 

forest management experiences. 

7. The Bank should focus on forestry projects with social and 

environmental certification done by independent institutions. 35 

Issues where consensus was not reached 

8. Forest certification whould be done by organzations with 

international credibility (this was the opinion of NGOs, and 

relates to item 7 above). 

9. Direct funding from the World Bank for the exploitation of 

tropical forests should be restricted to projects developed by 

local communities and grassroots organizations (this was the 

position of the NGO Rede Brasil). 

Work Group 3: Tropical forest conservation and forest peoples 

Problems identified by the group 

1. The ambiguity of the 1991 Forest Strategy results in misunderstandings. 

2. Achievements by individual projects are not influencing 

government policies. 

3. The Bank has had a passive attitude and not made full use of 

its instruments. 

177


4. There is no clear process for the implementation of the Bank’s 

1991 Forest Strategy. 


5. Yes. The group understands that the Bank should expand its 

presence in the Brazilian forest sector. 

Where and how should the Bank act? 

6. In conservation units and indigenous lands, with the participation 

of the government, local communities, and Brazilian NGOs. 

7. Extend the work to other Brazilian biomes, such as Mata 

Atlantica, Cerrados, and Caatinga. 

8. The Bank should support effective policy formulation. It 

should look to its experience on projects to transform project 

results into policies. 

9. Create mechanisms for the direct participation of communities 

in areas of project implementation, involving the local governments 

(state and municipal). 

10. The Bank should have a more proactive attitude to influence 

government policies in the forest sector. 

11. CAS elaboration consultation should continue to be participatory, 

and the forest sector should be incorporated prominently 

into CAS discussions. 

12. The Bank should support projects for the rehabilitation of 

degraded lands in previously forested regions, both rural and 

urban. 

13. Incorporate the concept of environment services of forests in 

policy formulation, in project implementation, and other 

funding (for example, IFC). 

14. Define guidelines and criteria to take into account the environmental 

services provided by forests in the formulation of World 

Bank forest policies. 

15. Create a management committe in the Bank, with participation 

of civil society and government, to implement the Bank’s forest 

strategy (following the model set up by the Rain Forest Pilot 

Program). 

16. Use the financing mechanisms envisaged by the Kyoto Protocol 

to promote forest conservation and improving the quality of 

life of forest dwellers. 

17. Improve channels for the dissemination of forest sector information. 

178

Endnotes 

Summary 

1. Until recently, this was called the World Bank/WWF alliance. This 

partnership is now being widened to seek broader ownership of the conservation 

effort, particularly involving national and local institutions. 

Chapter 1 

2. Relative to Brazil’s annual GNP of US$760 billion, this is still a small 

amount. 

3. The ability of forests to serve as repositories, or “sinks,” of carbon 

dioxide (CO 2 

) is vitally important to the health and stability of the global 

environment. The Bank’s 1991 Forest Strategy cites this potential of forests as 

a significant reason for why the World Bank should give special attention to 

the conservation of the tropical rainforest in the Amazon and to reforestation. 

Chapter 2 

4. These figures represent all forest types, not only tropical moist forest. It 

also should be pointed out that not all Brazil’s forests are “richly endowed;” 

the country’s forests are in fact quite heterogeneous. 

5. The Legal Amazon is made up of all of the north region (the states Acre, 

Amapa, Amazonas, Para, Rondonia, Roraima, and Tocatins) plus parts of the 

states of Maranhao, Mato Grosso, and Goias. The southern edge is the 16th 

parallel, and the eastern edge is the 44th meridian. 

179


Chapter 3 

6. Wood is used to produce charcoal for the steel and iron industries. 

7. Dollar values corrected for December 1998. Total revenue is based on 

the total production value for the timer industry in 1994 (US$46.883 billion), 

trade of wood products in 1993 (US$4.717 billion), the value of companies 

providing forest harvesting services (US$85 million), and silviculture and 

natural forest extraction. 

Chapter 4 

8. See the OED Indonesia case study. Since 1980, the importance of the 

forest sector to Brazil’s international trade has increased slightly. In that year, 

it accounted for 5.42 percent of total exports and 1.2 percent of imports. In 

1998, these values had risen to 7.14 percent and 1.98 percent, respectively. It 

is noteworthy that even though Brazil has maintained a positive trade balance 

in forest products since 1980, through the 1995–98 period Brazil’s overall 

wood trade balance was negative (Bacha and Marquesini 1999). 

9. It is noteworthy that since 1980, Brazil has maintained a positive trade 

balance in forest products, even through the 1995–98 period when Brazil’s 

overall trade balance was negative (Bacha and Marquesini 1999). 

10. The policy and regulatory issues surrounding forests are discussed in 

detail in the “Forest Regulation” section of this chapter. 

11. In October 1999, the government fined a Brazilian company 

US$360,000—a record amount—for illegally cutting, storing, and transporting 

protected tree species in Para (CNN, October 4, 1999). 

12. A new government program, known as “Move Forward Brazil” 

(Avanca Brasil), has been proposed by the federal government and is now 

being analyzed by the Brazilian congress. The program is similar to “Brazil in 

Action.” 

13. Lei # 4.771, September 15, 1965: Codigo Florestal. 

14. Comprising of Acre, Para, Amazonas, Roraima, Amapa, and Mato 

Grosso, the regions north of the 13th parallel in the states of Tocantins and 

Goias, and those to the west of the 44th meridian in the State of Maranhao. In 

all cerrado regions the legal reserve is 20 percent (Chomitz 1999). 

15. SUFRAMA (Superintendency for the Manaus Free Trade Zone) and 

SUDAM have administered support to the domestic wood products industry. 

Between 1968 and 1975, 11.3 percent of SUFRAMA’s projects were for wood 

projects. These 19 projects represented an investment of US$53 million. 

SUDAM also promoted logging as part of the second Amazon Development 

Plan in 1974. By 1976, SUDAM had made investments of US$144 million in 

23 projects involving wood products (Schneider 1992). 

180

Endnotes 

16. The internal market is strongest in the southeast (38 percent of total), 

followed by the south (18 percent), northeast (14 percent), and the centerwest 

(5 percent). The Amazon itself consumes 10 percent of forest production. 

The United States and the European Community traditionally have been the 

largest importers of Amazonian wood products, with Japan next. Amazonian 

exports to other Asian countries (South Korea, Taiwan, the Philippines, 

Thailand, and Indonesia) began in the 1990s (Smeraldi and Verissimo 1999). 

17. This study was financed by EMBRAPA as an input into this OED 

report. 

18. This study was commissioned by OED, financed by EMBRAPA, and 

was carried out by the Brazilian team of the current study. 

19. Vosti (1999 personal communication) disagrees with this characterization 

(see above) and hence with the alternative offered. 

20. In the 1960s and 1970s, the Government of Brazil invested heavily in 

infrastructure development, including road construction. On a national level, 

public investment in transport accounted for some 40 percent of total public 

capital formation during this period and reached 3.3 percent of GDP in 1975. 

Roads received the largest share of these investments until the mid-1970s 

(World Bank 1991). Thousands of kilometers of roads were built in the 

Amazon in the 1960s and 1970s. The effect has been to open the region to 

colonization and economic development and expand Brazil’s agricultural 

frontier well into the Amazon region. Roads built by logging companies also 

have contributed to this. Improvement in transportation infrastructure continues 

to be an important element in government policies for the Amazon region. 

Chapter 5 

21. Banco da Amazonia alone, for example, has R$253 million available 

for 1999. 

22. “Ii Oficina De Manejo Florestal Comunitario Da Amazonia” was held 

in Maraba, Para State, September 27–October 1, 1999 and was attended by 

more than 70 participants, including representatives of the World Bank, 

donors (USAID, GTZ, IICO), IBAMA, leading Brazilian NGOs, researchers, 

and community leaders. 

23. The CRP program involved a one-time, 50 percent cost share and 

subsequent annual payments over a 10-year period. 

Chapter 6 

24. A detailed discussion of forest definitions can be found in A Sustainable 

Forest Future? by David Pearce, Francis Putz, and Jerome Vanclay 

(1999). 

181


25. If sustainability is interpreted according to the first or third definition 

then the commitment to “sustainable management and conservation oriented 

forestry” contradicts the rationale for the logging ban. The strategy paper (pg. 

10) noted that tropical moist forests “are the most fragile forests in that their 

soils are easily degraded or deforested, and experience to date indicates that 

even if reforestation or selective felling is attempted, the original ecosystems 

cannot be fully renewed or sustained.” This perception underlies the Bank’s 

ban on lending for commercial logging. Where valid the above statement 

implies that “sustainable logging” is an oxymoron. 

26. This is the case only in forest plantations and only if the scheme is 

limited to developing countries (Schneider, personal communication 1999). 

27. Timber producers skeptical of the economic viability of natural forest 

management have become frequent visitors of Mil Madereiras. Some have 

shown interest in the potential economic gains (particularly in reducing 

harvesting and transportation costs, improving product marketing and reducing 

legal problems) and are assessing the feasibility of improving their 

management systems in order to qualify for certification. For example, 

Gethal, the largest producer of plywood in the Amazon, has been preparing 

for certification for the past two years and is now undergoing formal auditing. 

28. In 1997, Mil Madereiras was brought under the Forest Stewardship 

Council (FSC) certification system. It was the first natural forest management 

operation in Brazil to seek certification, and as of June 1999, it remains the 

only such area certified by the FSC. 

29. A Bank sponsored workshop on Opportunities for Sustainable Forest 

Management was held in Manaus in October 1999 and brought together 

producers, buyers of certified timber, private ecological investment funds, 

leading Brazilian and international NGOs, certifiers, and government representatives. 

The meeting was seen as a historical event for the future of forest 

management in the Amazon. For the first time, market advantages (premium 

prices, access to investment funds, access to markets, corporate image, etc.) of 

certifiable forest management appeared to be greater than perceived costs. 

30. In the case of Mil Madereiras, all workers are officially registered and, as 

a result, have access to social security benefits. Additionally, workers are 

provided with protective equipment (Tasso Azevedo, personal communication). 

31. Identification: Undertaken by FUNAI through dissemination of a map 

of the designated areas in the Diario Oficial of the state and of Brazil, with a 

period of 90 days during which states, municipalities or third parties can raise 

objections. 

Delimitation: Administrative authorization from FUNAI from the Justice 

Ministry to proceed with the physical demarcation of the area, through a 

Protaria Declaratoria. 

182

Endnotes 

Demarcation: Demarcation of the area by FUNAI, defining territorial 

limits and removing non-indigenous occupants. 

Ratification: Presidential approval of the above processes through a decree. 

Registration: Registration of the land in the land registry (CRI) and with 

the Secretary of Federal Property (SPU). Once the demarcation process is 

complete, the indigenous land receives documentation equal to a private 

property title (Schartzman and Santilli 1999). 

32. See the case studies of China, India, and Indonesia. 

Chapter 9 

33. The EC wanted to take over leadership of the project from the Bank, 

nevertheless, within the German instance itself, KfW and GTZ have not 

always seen eye-to-eye on critical issues. 

Chapter 10 

34. The existence of externalities, recognized the strategy paper, implies 

that the free interplay of market forces will not bring about socially desired 

outcomes. Using the example of the Brazilian Amazon, the strategy paper 

reported the estimated value of carbon in an undisturbed hectare to be 

US$375 to US$1,625 and the land prices between US$20 and US$300, with 

the benefit of saving the 21 million hectares anywhere in the range of US$750 

million to US$3.2 billion, compared to the cost of US$420 million to US$600 

million. In recognizing that “it appears economically efficient for outsiders to 

pay the owners of the land in the Amazon not to deforest and to preserve the 

natural forest,” the strategy pointed only to the GEF as a source of such 

transfers. In fact, the US$30 million in grants to Brazil through the GEF is 

insignificant in comparison to the magnitude of payments suggested in the 

strategy paper, and has in any case not focused on the issue of payments to 

Brazil for environmental services, but largely focused on conserving 

biodiversity. 

Annexes 

35. Mr. Luis Favio Veit (from the private sector) later sent a letter to Bank 

staff stating that “the private sector understands that certification should be a 

voluntary act, and opposes it as a compulsory requirement. We accept that 

certification could be an element to differentiate otherwise equivalent proposals. 

We agree that certification whould be done by a credible organization, 

although we disagree on whether it should be done by an internationally 

recognized organization.” 

183

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