The Palcazu Forest Management Model was introduced to the tropics in the 1980s to incorporate social, ecological and economic considerations for the development of the Palcazu Valley, Peru. The development of the Yanesha Forestry Cooperative was the social benefit; the use of strip clear-cutting to promote rapid regeneration of timber species was the ecological benefit; and the complete use of timber from the clear-cut strips was the economic benefit. The sustainability of the Palcazu forest management model is discussed based on the interaction of factors that affected its performance. Apart from adverse social and economic policies, there was no social inclusion of the Yanesha to the project, limited knowledge of strip clear-cutting in the tropics, and low timber productivity, along with low profits and high costs in its first harvest. As originally proposed, the Palcazu forest management model is not sustainable, but several modifications could make this model financially viable.