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External Debt and Deforestation

Just as the proximate causes of deforestation do not operate in a vacuum, but rather are stimulated by underlying causes, so the underlying causes do not just appear of their own accord. They result from the desire of "lesser developed countries" (LDCs) to become developed, and from the loans extended to the LDCs by developed countries to facilitate this process (Fig. 4.1). Once the LDCs step onto the development/external debt treadmill, there is no getting off. It has been a vicious cycle with development resulting in debt, and the only way to relieve the debt has been through more development. In the 1970s and 1980s, many developing countries overborrowed relative to their ability to repay the debt. In some countries, debt service obligations have been so large that they exceed new loans and private external investment. External debt resulting from importation of international goods can be considered to be the principal cause of deforestation in developing tropical countries (Kahn and McDonald 1995), in as much as the development needed to repay the debt stimulated the underlying causes of deforestation, which in turn drove the proximate causes.

Many different options are available to a country to deal with its debt problem, such as debt rescheduling, debt repudiation, increased borrowing, and restricting imports and increasing exports. One option to repay debt for a country with large areas of tropical forests is to cut down the forest and export the timber. Each 1 million US dollars in external debt was associated with 8.4 ha of deforestation in Asia and 27.2 ha of deforestation in Latin America (Dorman 2003).

Liquidating forests is very attractive to governments, because removal of forests does not show up on a nation's system of national accounts. The forest is not considered to be capital, therefore its removal is not counted as loss of capital (Jordan 1995b). It is as if this resource were free. Because the forest resource is considered a "free good", it is usually used in a non-optimal way, that is, used wastefully. This failure of the national economic system to value resources leads to impoverishment of the resource without the government and the international banks and lending agencies ever becoming aware of the impoverishment.

It is inconsistent that the United Nations' System of National Accounts (Re-petto 1992) considers the depletion of oil as a nation's capital depletion, but does not consider removal of forests as any type of depletion. This may be a legacy from the outdated consideration of resources as either "non-renewable" (for example, oil) or "renewable" (living resources). However, it is very unlikely that tropical forests are renewable, because the scale at which they are being cut down eliminates the mechanisms that enable them to be renewed.

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