World Bank rewards Cambodian government despite forest mismanagement

16 January 2004

Despite the Cambodian Government’s continuous breaches of the forest management-related conditions, the World Bank released the final $15 million of its $30m Structural Adjustment Credit (SAC) to Cambodia in mid December 2003. NGOs argue that this shows that the Bank is not genuinely committed to forest conservation. The Bank’s anti-corruption credentials are also in doubt as it has awarded a contract for forest monitoring to a company with convictions for bribery.

In early 2000 the Cambodian Government initiated a forest sector reform process and a $30 million adjustment loan from the World Bank had a strong focus on the issue of forests. The loan set out conditions concerning forest sector management for the Government to qualify for the release of the loan’s second $15 million tranche. The conditions encompassed structural and regulatory changes critical to the success of Cambodia’s forest sector reform.

A UK-based NGO, Global Witness, was officially appointed by the Bank as independent monitor of the forest sector reform. In January 2003 it called on the Bank to withhold the second $15m payment, as well as cancel extension of a $5m Learning and Innovation Loan for forestry reform. The Bank withheld the second payment to the Cambodian Government in reaction to the failure of the government to comply with the terms of the credit and its threats to expel Global Witness as independent monitor.

The Bank has turned its back on its responsibilities as an international lender

However despite the Governments continuous breaches of the forest management-related conditions of the loan, the World Bank released the final $15 million of its adjustment loan to Cambodia in mid December 2003. This decision and the continuous mistreatment of the process by the Cambodian Government and the Bank have lead to a storm of criticism. As Mike Davis, a campaigner with Global Witness, reports “The Bank has dealt a potentially fatal blow to Cambodia’s beleaguered forest sector reform process and turned its back on its responsibilities as an international lender”.

Although some of the conditions have been met, such as the introduction of a new forestry law, the majority have been disregarded by both the Government and the Bank. Among the conditions not met were an end to granting timber concession contracts outside the revised legal framework, and the termination of non-performing concessionaire contracts. These conditions acknowledged the problems of illegal logging carried out by companies backed with political clout and motivated by short term profit margins. The government did terminate some contracts, but it appears that this was because the companies were either bankrupt or not aligned with the ‘right’ political groupings.

Another set of conditions was that the concessionaires had to produce Strategic Forest Management Plans and Environmental and Social Impact Assessments by November 2001. However the Government postponed the deadline until November 2002 and even by then was prepared to accept plans and assessments of extremely low quality. Some assessments had clearly just been copied from each other and there were no clear plans to reduce illegal logging.

The Bank granted $15m to the Cambodia Government in light of all these blatant non- compliances. As Mike Davis observes “while the efforts of logging syndicates and their political patrons to evade loan conditions and the law are not altogether surprising, the Bank’s position requires an explanation”.

With the absence of an Independent Monitor since April 2003, when Global Witness’ contract was terminated, the appointment of a new Independent Monitor became the final obstacle for the Cambodian Government to overcome to obtain the Bank’s money. The position was given to the Swiss firm SGS, which has stirred further controversy because of the company’s track record. SGS was convicted of corruption charges in Pakistan in 1999 for having tried to obtain a government contract for inspection services in return for a large sum of money. SGS is also subject to a pending charge in Uganda from a pre-shipment inspection company. The Alliance of Democrats in Cambodia released two statements complaining about the “infamous” SGS and arguing “to promote good governance in corruption-plagued Cambodia, one would think that the World Bank would be more discerning in its selection of service providers”.

This episode points up the frequent gap between the Bank’s good intentions and actual implementation. It is positive that the Bank demanded the restructuring of forest management so as to preserve Cambodia’s important natural resources. But in practice the World Bank has legitimised the flawed timber concession system, rogue logging companies and corrupt officials and called into question its social and environmental credentials.