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In its recent overview of the countries in transition, the World Bank observes that although the centrally planned economies tended to have impressive levels of basic literacy and numeracy as compared with countries with similar incomes in the West, continuation of investment in education and health is nevertheless an extremely important part of the transition process. It cites two main reasons for this: that the allocation of resources to both health and education under central planning was inefficient in that the system (a) failed to be responsive to changes in the labour market, (b) tended to be poorly coordinated with a duplication of facilities in different ministries, and (c) failed to give teachers and administrators incentives not to waste resources; that the inherited system is not designed to support the reform process and the successful functioning of a market system in which responsiveness to changing economic conditions is a key feature.

This chapter considers the environmental consequences of the policy reforms, and their implications for human development and poverty alleviation. The reforms themselves and their impact on economic performance are described in Chapter 1. Their environmental effects largely derive from two characteristics. The first is that the reforms have stimulated a rapid expansion of natural resource-based exports founded both on the extensive growth of a range of extractive activities and the intensification of paddy production. The second is that they have stimulated impressive rates of industrial growth founded on the well-documented consolidation of the state enterprise sector and much less well-documented growth of small and medium enterprises. The first has given rise to a range of environmental effects associated with resource depletion and the increasing use of fertilizers and pesticides. The second has given rise to a familiar set of water and air pollution issues. Environmental effects associated with resource depletion include: loss of habitat and ecological services in forested areas as a result of logging, fuelwood consumption, and the conversion of forested land for agriculture or aquaculture; loss of ecological services from conversion of wetlands to paddy; increased flood damage and siltation in the major catchments due to the devegetation of watersheds; increased storm damage in northern coastal areas and coastal erosion in southern coastal areas due to the depletion of mangrove forests; reduced productivity in both agriculture and aquaculture due to acidification of drainage water from cultivated acid sulphate soils; severe depletion of almost all inshore fish stocks due to both excessive fishing and the destruction of mangroves and coral reefs; and reduced coastal protection as a result of coral reef damage caused by siltation, dynamite fishing and coral mining.