One week before Christmas, the World Bank released the final $15 million of its Structural

Adjustment Credit (SAC) to Cambodia, despite the fact that the Cambodian government

has not met the forest management-related conditions of the loan.

The industiral logging associated with 'plantation development' in Kampong Thom province.

In so doing, 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. As it seeks to defend its decision, the Bank is justifying the subversion

of reforms the loan conditions were intended to promote.

The $30 million SAC to Cambodia was initiated at the high-water mark of forest reform

in Cambodia in early 2000. This reform process began after the IMF suspended its

support programme to Cambodia in 1997, in protest at the Government's failure to

collect revenues from a forest sector being ravaged by so-called 'anarchic' logging.

In linking lending and forest management, the IMF highlighted the squandering of

Cambodia's most valuable natural resource. The Cambodian Government was spurred into

initiating a forest sector reform process, which was launched by Prime Minister Hun

Sen following the 1998 elections.

Recognising forests as "Cambodia's most developmentally important resource,"

the SAC agreement between the World Bank and the Cambodian Government set out conditions

concerning forest sector management for the Government to qualify for the release

of the loan's second tranche of $15 million. While by no means comprehensive, the

conditions encompassed structural and regulatory changes critical to the success

of forest sector reform.

Some of these, such as the introduction of a new forestry law, have ultimately been

met. Others, however, have been disregarded, as part of what appears to be a deliberate

government strategy to facilitate logging outside the reformed regulatory framework.

From the late 1990s, forest concessions run by Cambodian and foreign companies, became

the driving force behind illegal logging in Cambodia. Many of these companies are

no more than fronts for groups and individuals with close ties to senior politicians.

All are focused on maximising short-term profits and none have an interest in sustainable

forest management.

In recognition of these realities, the architects of the SAC made release of the

loan's second tranche conditional on a major shake-up of the timber concession system.

The conditions required termination of non-performing contracts of concessionaires;

other concessionaires' presentation of restructuring programs satisfactory to the

World Bank; and no granting of timber concession contracts outside the revised legal

framework, which prohibits reallocation of cancelled concessions.

Observance of these conditions would have provided the basis for an overhaul of the

way Cambodia's forests are managed and a chance to show the door to the criminal

enterprises plundering them. That the conditions have not been met is testament to

the determination of senior officials within Government to thwart reforms which might

diminish their own profit from illegal logging. That the World Bank has pronounced

this acceptable, indicates a lack of will which will do nothing to encourage future

governments to take forest sector reform seriously.

Over the lifetime of the SAC, it is the case that Government has cancelled some timber

concession contracts. However, with perhaps one exception, those terminated have

been concessions which were commercially exhausted or controlled by companies which

were bankrupt or had the wrong political affiliations. It is hard to think of a single

criterion by which any of Cambodia's forest concessions might merit the description

'performing'. In terms of delivering the required royalty revenues to the state,

managing forests sustainably and respecting the rights of people living within the

concessions, Cambodia's forest concessions represent, in the words of a 2000 ADB

review, "a total system failure".

The timber concessionaires have between them liquidated a substantial proportion

of Cambodia's most valuable resource, with Cambodians receiving nothing in return.

If the World Bank were to use its own over-arching goal of poverty reduction as an

indicator of performance, then all the current logging concessions would be considered

to be 'non-performing'. The consequence of the government's failure to meet its obligations

and the Bank's acquiescence, is continued control of vast swathes of Cambodia's forests

by companies that have consistently demonstrated their disregard for the country's

laws and the rights of its citizens.

None of the timber concessionaires has presented a restructuring programme satisfactory

to the World Bank. All the concessionaires missed the initial November 2001 deadline

for production of Strategic Forest Management Plans (SFMPs) and Environmental and

Social Impact Assessments (ESIAs). Rather than penalising the companies, the Cambodian

Government instead extended the deadline for submissions by a year; calling into

question its commitment to ensuring that this SAC condition be met.

When the concessionaires' SFMPs and ESIAs were publicly released in November 2002,

they were universally condemned for their dismal quality. The companies' plans offered

little substantive basis for their claims concerning the timber resource in their

concessions, the benefits Cambodians would derive from their logging activities,

or their projected environmental and social impacts. Reflecting the seriousness with

which they approached the restructuring process, concessionaires copied entire sections

of each other's plans. This copy and paste approach yielded sometimes surreal results,

such as the revelation that a timber concession in Preah Vihear province would act

as a 'wildlife corridor' between Vietnam and a wildlife sanctuary in Mondulkiri.

Rather than treating the concessionaires' submissions as a statement of their will

and capacity to manage Cambodia's forests sustainably, the World Bank instead offered

the concessionaires technical assistance, funded by loan money which Cambodians will

have to repay, to try to make their plans more presentable. On the basis that this

window-dressing exercise is ongoing, the Bank has decided that the SAC condition

on restructuring of concessionaires is now met, when clearly it is not. Again, this

serves to perpetuate the tenure of companies whose illegal and destructive activities

are well documented.

The Bank has similarly indicated its satisfaction that the Government has not awarded

any new concession contracts outside the revised legal framework. Yet, in contravention

of the letter and the spirit of the SAC agreement, senior government officials have

continued to reallocate timber concessions and dispense an array of legally dubious

documents to facilitate logging operations. These include contracts to establish

land concessions on forested areas, old log collection permits, firewood, stump and

sapling collection permits and permits for construction of houses, boats and bridges.

All fall outside the legal framework and all are being used as a cover for large-scale

illegal logging operations. These activities corrode an already weak system of governance

and threaten the livelihoods of forest-dependent communities.

In a letter to NGO Forum on Cambodia dated December 17, World Bank Vice-President

Jemal-ud-din Kassum defended the Government's right to issue such permits. His endorsement

will come as welcome news to the permit holders, for example the 'firewood collectors'

currently helping to clear-cut several thousand hectares of former concession forest

in Tumring commune, Kompong Thom province. The 'firewood', which in this instance

comes in two meter by one-meter sections, is being collected by a company owned by

Seng Keang, the wife of the Prime Minister's cousin, Dy Chouch. From Tumring, the

Seng Keang company illegally transports the 'firewood' to a factory outside Phnom

Penh, where it is turned into plywood. This venture is particularly profitable, as

by harvesting 'firewood', rather than 'logs', Seng Keang has been able to evade royalty

payments to the tune of at least $1,000,000.

Meanwhile, in neighbouring Preah Vihear province, the North East Lumber company has

been illegally allocated part of a cancelled timber concession for the purposes of

collecting 'tree stumps'. This is directly contrary to the World Bank's SAC conditions,

given that the stump collection contract falls within the legal definition of a timber

concession. As it happens, the tree stump collectors are in any case undertaking

traditional-style logging operations. Interviewed by Global Witness investigators

in May as they were felling a tree, North East Lumber workers stated that they had

once tried collecting tree stumps, but it had proved difficult so they had decided

to cut down trees instead. This was not a problem, they explained, because the trees

they cut were nearly dead anyway.

Forestry officials obviously concur with this view, and have been carrying out inspections

of the North East Lumber operation on a weekly basis. So, it seems do the World Bank,

who have stated that they are "satisfied that the Government has not awarded

new forestry concessions of the type barred by SAC conditionality", despite

the abundant evidence of this conditionality being breached or circumvented across

Cambodia. 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. While, in the past, Bank staff were quick to see through

the use of quasi-official permits to legitimise logging operations, it appears that

critical faculties have been blunted by the urge to disburse the SAC and proceed

to another round of less conditional and less contentious loans to Cambodia.

In its efforts to get clear of the SAC, the World Bank has made effective use of

another loan to Cambodia: its $5 million Learning and Innovation Loan (LIL), which

funds a Forest Concession Management and Control Project in the Government's Forestry

Administration. This project's poor design and implementation have resulted in the

World Bank legitimising the flawed timber concession system, rogue logging companies

and corrupt officials.

A 2002 Bank appraisal concluded that the performance of the LIL was "unsatisfactory",

and the loan was due to expire at the end of 2003. In the event, the LIL has received

an extension sufficient for some of its remaining funds to pay for the appointment

of a new Independent Monitor of the forest sector. Employment of an outside agency

to carry out independent monitoring is yet another condition of the SAC loan which

Government officials have sought to circumvent and no official monitor has been operating

since April.

In November, World Bank staff publicly stated that the only outstanding SAC condition

which the Government had yet to fulfil was the appointment of a new independent monitor.

While this was not true, it was a convenient position from which to move towards

final disbursement of the SAC; as it was the Bank, through its LIL loan, which was

putting up the money to recruit Swiss firm SGS to the role.

Concerns that SGS has, with World Bank approval, been issued with a weak mandate

which compromises both its independence and its scope to carry out monitoring activities,

have been dismissed by the Cambodian Government and the Bank.

The catalytic impact of the IMF's withdrawal in 1997 shows that linking lending with

forest management performance in Cambodia can be effective in persuading government

to manage the country's natural resources responsibly, but only if the lender is

prepared to insist that conditions are actually met. The converse is also the case,

and the World Bank has gone from taking a commendably firm stand on forest sector

reform in Cambodia to endorsing breaches of its own lending conditions. This suggests

a lack of commitment by the Bank to ensuring that Cambodia's forests are managed

for the benefit of its population, something which corrupt officials will be quick

to take note of.

Moreover, in denying the validity of the terms of the SAC, the Bank loses credibility

and signals to future Cambodian Governments that conditions written into its aid

agreements are essentially cosmetic. The impact is to undermine what remains of the

forest reform process at a time when illegal logging, much of it commissioned by

members of the political elite, is rampant throughout Cambodia's forests.

Perhaps most serious of all, is, the World Bank's abandonment of its responsibilities

as an international lender. Amidst the profusion of multi-million dollar aid packages

to Cambodia, it is easy to lose sight of the fact that funds such as the SAC are

loans, which Cambodia's citizens will one day have to pay back. If lending to Cambodia

is not accompanied by substantive improvement in the management of its principal

natural resource, international financial institutions' engagement will do little

for the country's prospects of escaping an ever-mounting burden of international

debt.

Mike Davis is a campaigner with Global Witness, a London-based NGO, which has been

working to combat illegal logging in Cambodia since 1995.