The following paper examines economic aspects of tropical deforestation in South East Asia, focusing mainly on the role of tropical timber production. Current evidence suggests that the levels of deforestation in the region may not be optimal but 'excessive' from an economic point of view. Important values are lost, some perhaps irreversibly, when closed forests are 'opened up', degraded or cleared but there is insufficient accounting for these foregone benefits in land use decisions. The problem is exacerbated by policy distortions that effectively subsidize activities that lead to deforestation. Although forest clearing for agriculture is the main source of tropical deforestation in the region, timber production also has a direct impact through the removal of trees and damage to the remaining forest area, as well as an indirect impact through opening up and improving access to the forests for land-clearing activities. Pricing, investment and institutional policies for forestry actually work to create the conditions for short-term harvesting by private concessionaires and, in some instances, even subsidize private harvesting at inefficient levels. The under-pricing of stumpage values also means that the wrong signals over resource scarcity are given as old growth forests are depleted. The result is that forest-based industrialization becomes out of synche with long term economic development and deforestation patterns. A major thinking of forestry and agricultural policies in the region is required if South East Asian countries are to manage the 'natural capital' inherent in their tropical forests in an efficient and sustainable manner.
