0.13 Natural capital: forestry  (Page 6/14)

Sedang Bapak Senang

“Don’t bring bad news to the boss”.

Is this true elsewhere? Yes, in industry. In government. In universities, worldwide.

The role of government failure or policy failure in tropical deforestation surely rivals that of market failure. In Indonesia, Brazil and other tropical nations a battery of government policies, including those adopted for worthy objectives have played a large and hitherto unappreciated role in creating economic incentives that have severely aggravated the extent and severity of deforestation in the tropics. These include both forestry policies and, significantly, non-forestry policies. Government forestry policies, including royalty and timber concession policies have grossly underpriced the resources of the tropical forest. This has resulted in unmistakable perverse signals to loggers, ranchers, and agriculturalists that natural forest resources are cheap and may be freely wasted. Non -forestry policies are those that, intentionally or not, have a significant perverse impact on forest utilization, but which are primarily intended to further non-forest objectives. Such policies include tax, trade, monetary, exchange rate, and food policy. General tax policies have subsidized deforestation by offering large income tax incentives for investments in logging, timber-processing, and land-clearing activities for estate crops and cattle ranching. The effect was to make deforestation attractive to firms. Timber booms in the Philippines, Malaysia and Indonesia were fueled by generous income tax exemptions for logging and for processing plants, as well as by sale of timber from government-owned land at prices well below market.

Financial policies involving credit subsidies added to quite perverse incentives for forest investments in Indonesia, Ghana, the Philippines, and especially Brazil. Artificially low interest rates available for finance of logging activities and for forest-clearing projects for large-scale cattle-ranching in 70s, 80s, and 90s by themselves produced very powerful incentives for destruction in the Brazilian Amazon. When coupled with tax subsidies, the incentives for very large-scale forest clearing proved irresistible, so that intrinsically uneconomic cattle ranches in the tropics, particularly in Latin America, have generated large profits for investors. This is how land-clearing for cattle-raising in Brazil has been not only an ecological catastrophe, but a fiscal and financial catastrophe for governments.

This particular non-environmental policy led not only to environmental losses, but to huge losses to the government budget. The Indonesian plywood subsidy stemmed from an understandable desire by government officials to get more domestic value-added by encouraging export of timber in the form of plywood rather than as logs.

Similar subsidies have been used in Oregon in U.S. On first examination, this seems like a worthy goal. We will see. Again the law of unintended consequences, of policies.

The Indonesian plywood subsidy to plywood made from tropical logs resulted from having a high tax on logs and a zero tax on plywood.