Forestry activities are not implemented in a vacuum, but highly interlinked with other domains: social, cultural, institutional, economic, and political. Good governance that builds on effective local institutions and social capital enhancement becomes one of the key issues in studying and implementing forestry projects locally. The paper presents empirical evidence from a social forestry project implemented in the poorest departments of Eastern Paraguay. It provides a descriptive comparison of two neighbouring communities characterized by different institutions. There is a large difference in project performance in both areas in socio-economic terms. One community displayed high levels of social capital and was better prepared to take advantage of extension aid and “store” the acquired know-how. The other community, with low levels of social capital, benefited from the project activities only temporarily. The role of local institutions as project channels and the development of social capital are indicated as key factors for plantation projects to work effectively.