¨When forests do not have a high enough financial value or an opportunity cost satisfactory to producers, they tend to disappear¨.

This is the point of departure of a recently published synthesis study on the status, experiences and perspectives of forest financing in Latin America. The study emphasizes that one of the main challenges facing countries in their efforts to reduce forest degradation and deforestation is the need to make good forest management more commercially competitive and make forests themselves more economically attractive. Promotion of investment in management and in payment for the goods and services produced by forests, and also ensuring that total earnings are a fair reflection of the real costs and benefits of their sustainable production is key.

The problems hampering adequate financing of forest management are complex. Chief among them is the failure to appreciate the multifunctional nature of forests - with the sole focus being on timber as the source of income -, inequity in the distribution of costs and benefits along the production chain, the long time-frame of the forest management and production cycle, low cost-effectiveness and the high perceived risk.

Forest management practices tend to be implemented without clear criteria of sustainability, using obsolete approaches and little technology, with consequent low productivity and efficiency. The difficulty in gaining access to existing financing mechanisms under reasonable conditions, combined with the defective and unstable political, legal and institutional environment of the forest sector, hampers governance and hence worsens the general image of the sector. All this helps to create a fairly unfavorable climate for forest investment and business.

At the same time, there are opportunities and challenges that can help to improve the situation. There is a growing awareness that traditional views, policies, sources and amounts of forest financing have been insufficient and inefficient in achieving SFM. The potential role of innovative market arrangements is the object of growing attention, and a range of promising new financing sources, instruments and mechanisms (especially regarding payment for environmental forest services) and capital market instruments is now appearing, and these can help to generate additional financial resources. It is also increasingly being realized that stand-alone financing mechanisms are less effective and sustainable than those set within a broader and more reliable institutional and policy and political framework

It is concluded that comprehensive National Forest Financing Strategies (NFFS) could be adopted, encompassing the financing of investments (including incentives), payment for goods and services, and risk mitigation mechanisms.  Criteria of conditionality (incorporation of criteria of sustainability and responsible business operations), additionality (creation of additional revenue and improved access to financing for investments and risk mitigation systems), functionality (effectiveness and impact of the mechanisms for the various target groups) and equity (a fair distribution of the costs and benefits of sustainable forest management along value chains and among the various actors in the sector) both nationally and internationally should be applied.

This synthesis study on the financing of forest management in Latin America emerged from the joint efforts of two initiatives: (a) the FAO/IUCN/CCAD project Financing strategies and mechanisms for sustainable use and conservation of forests - Phase I: Latin America, financed by the Netherlands; and (b) the ACTO/DGIS-BMZ/GTZ regional programme Sustainable use and conservation of forests and biodiversity in the Amazon region, co-financed by the Netherlands and Germany. The present document is based mainly on studies carried out in 19 Latin American countries to review the current state and perspectives of forest management financing.

The study is available in Spanish and english.

A summary article in English containing some of the main findings of the study can be found in ETFRN News No 49 (www.ETFRN.org)

Dijk, K. van, Savenije, H. 2008. Hacia Estrategias Nacionales de Financiamiento para el manejo forestal sostenible en América Latina - Síntesis del estado actual ay experiencias de algunos países: Documento de Trabajo sobre Política e Instituciones No. 21. FAO, Roma