SOUTH PACIFIC: Asian Crisis Slows Logging, Swells Economic Woes

By IPS Correspondents Reprint | | Print |

Kalinga Seneviratne

SYDNEY, Sep 25 1998 (IPS) - Logging saws are fast becoming idle in the South Pacific islands, as recession-hit Asian logging companies slow down operations in the region and once-rich customers scale back purchases.

That has been a blessing in disguise for the environment especially in places like Papua New Guinea and the Solomon Islands, where green groups have long blasted Asian loggers for ruthless exploitation of pristine rainforests.

But the green dividend from Asia’s recession has a painful side effect: it has meant slashed earnings from timber exports, weakening already fragile economies.

Governments and forestry industry sources are predicting gloom and doom for island economies whose major export income comes from timber.

“It (Asian crisis) has been quite beneficial for us because the loggers have slowed down their rate of logging,” Dr Brian Brunton, the PNG-based Pacific forest specialist of the environmental group Greenpeace told IPS.

According to the PNG Forest Industry Association (FIA), the volume of logs exported from the country has fallen by more than half since January 1997. This has dropped from 275,000 cubic metres to less than 108,000 cu m by June this year.

This amounts to a loss of foreign exchange earnings for PNG of about 4.7 million U.S. dollars a week, FIA. The slowdown in the timber industry has cost more than 5,000 jobs, industry officials say.

The neighbouring Solomon Islands, which built up its economy on log exports to Asia, is also reeling from the slowdown of overseas operations by Asian firms.

Its forestry exports have declined by more than 60 percent this year and industry income has dropped to below 25 million dollars this year, from 67 million in 1997.

These are serious blows to the economy, because about half the the Solomon Islands’ export income and tax revenues come from the logging industry.

The South Pacific’s logging industry ran into trouble because many of the Malaysian, Indonesian and South Korean logging firms which dominated it have closed shop in recent months, after the depreciation of their currencies hit operations back home.

But the biggest impact has been in the declining markets in East Asia for timber products.

The main markets for PNG and Solomon Islands’ timber have been the Japanese and the Korean housing industries, which are a major casualty of the recession. It did not take long for the Pacific’s logging industry to feel the pinch too.

Indeed, the average export price of logs has fallen from 100 dollars a cubic metre at the end of 1997 to as little as 65 dollars a cu m today.

The fall in prices and demand has jarred PNG, which exports 80 percent of its logs to Japan and Korea. South Korea, which bought 59 million dollars worth of logs from PNG last year, has almost stopped buying logs. So has the Philippines, another PNG market.

PNG forestry industry officials say the downturn in the logging sector could create severe and economic problems since about a quarter of a million people depend on it for survival.

They claim that as timber companies stopped operations in rural areas of PNG, industry-supported communication networks, transport health facilities have been suspended as well.

Thus, FIA and the Association of Forest Resource Owners, who represent the landowners, have called upon the PNG government to lower the export duty on logs. Though Forestry Minister Dr Fabian Pok promised to do so in July, the PNG government is coming up against fierce opposition from the World Bank.

Under an agreement with the Bank, PNG fixed the log export tax rate at 30 percent. Pok has submitted a proposal to the Cabinet to lower the tax and even bring it down to zero, to help logging companies to ride the crisis.

But the Bank is sticking to its guns. This week, Bank officials told PNG Prime Minister Bill Skate in Washington they are not prepared to give any more financial assistance until economic management is improved.

Among others, observers say, the Bank is unhappy with attempts to reintroduce concessions for the logging industry which go against policy goals of reducing dependence on it.

Dr Brunton argues that PNG is not as dependent on the logging industry as the government makes it out to be. “That’s what they are saying,” he said. “But the main inputs to the economy at present are from oil, gas and minerals.”

He also dismisses as “logging company propaganda” claims that rural people are losing health and other services as logging firms close shop in the countryside.

“If you compare the logging industry with the petroleum or mining industry, as far as infrastructure is concerned, that put up by timber companies are far inferior to those put up by other resource companies,” he argued. Unlike many logging firms, petroleum and mining firms are there for the long haul, he added.

Whatever the pros and cons of the benefits from logging, petroleum or mining operations, the reality is that the PNG government is almost broke. A World Bank assessment team is going to PNG next month, before any more funds are given to it.

For its part, the Solomon Islands government is struggling to cope with an International Monetary Fund (IMF) structural adjustment programme it undertook earlier this year to help it cope with the effects of Asia’s financial crisis.

The programme requires it to stimulate exports and restrain domestic demand, while cutting log exports to sustainable levels in the long term.

This is a tall order for an economy that in the four years until 1997 saw a resource boom and dramatic rises in market prices for their logs — after the closure of logging operations in Sabah and Sarawak in Malaysia.

Amid that boom, the government rapidly increased public spending and the economy headed for an unsustainable expansion of both public and private consumption. But the Asian crisis put the brakes on this, forcing the Solomon Islands government to go to the IMF for help.

Economic analysts say South Pacific countries will continue to take a heavy hit from the Asian crisis, though not all their economic woes can be blamed on it.

The Asian Development Bank (AsDB) says the adverse impact of Asia’s recession would range from 15 to 25 percent of GDP for the Solomon Islands, and 2.6 to 4.8 percent of GDP for Papua New Guinea.