The Former USSR Forest Sector and Capital Constraints

Perez-Garcia, J. & Backman, C.A. (1995). The Former USSR Forest Sector and Capital Constraints. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-95-001

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Abstract

This study presents an analysis of the likely capital constraints that Russia and other republics of the former Soviet Union will face under evolving competitive market conditions. As such it serves as a first step in determining the future of forestry in the former Soviet republics, particularly Russia.

The objectives of the study are to identify likely competitive price responses in the former Soviet Union market for roundwood, the likely impacts of different levels of roundwood exports on international prices and the feedback of international prices may have on the domestic price. The study postulates that, without adequate levels of investments in harvesting and processing capacity, domestic demand -- with below international market prices -- will further erode the existing capital base. As a consequence capital constraints will lead to serious shortages in wood supply in the near future in the absence of capital investment. A more rapid approach to market prices would force serious inflationary pressures on domestic demand.

The results of the study may be used to determine possible policy strategies needed to forestall a decline in output in the forest sector. A collapse of the forest sector will lead to serious wood shortages in meeting the domestic demands of former Soviet republics and may lead to a deterioration in the environment. Lower returns to the sector will limit forest management activities. The forest sector may also miss the opportunity to raise foreign exchange in international markets.

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