palm oil plantations indonesia, palm oil industry
indonesia environment

Has Indonesia's Booming Economy Come at the Expense of Its People and Environment?

August 21, 2009 08:00 AM
by Sarah Amandolare
An internal audit found that the World Bank did not follow environmental and social standards in its interactions with Indonesian palm oil plantations.

Money Versus Social Responsibility

According to Lisa Friedman of ClimateWire, in an article republished by The New York Times, auditors found that the World Bank's private-sector entity, the International Finance Corp (IFC), ignored palm oil production companies' questionable practices when granting them loans between 2003 and 2008. The UK-based Forest Peoples Programme, which initiated complaints against the IFC, claims "companies illegally used fire to clear forestland, cleared primary forests, and seized lands belonging to indigenous people without due process," writes Friedman.

Auditors say "commercial pressures were allowed to prevail," but the IFC said it believes palm oil production is beneficial to rural, tropical economies, and promised to rethink its investment strategies. Forest Peoples Programme and other organizations are not convinced, however, and want the World Bank "to freeze palm oil lending," reported Friedman.

The audit comes on the heels of reports regarding another threat to Indonesia's rain forests. According to MongaBay.com, a developer overseeing construction of a hydroelectric project in Borneo is planning to burn a large area of rainforest where the dam is being built. Local environmental group The Sarawak Conservation Action Network (SCANE), which filed the report, claims the burning raises the risk of regional forest fires, and will likely add to the "polluting haze" that has been stifling Indonesia, Malaysia and Singapore for months. The haze is the result of "large-scale bush and forest fires."

Background: The IFC's loans for palm oil development

According to its Web site, the IFC's mission is promoting "sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives." In early July 2003, the IFC announced that it was granting "two loans to support the rehabilitation of palm oil plantations in Indonesia," in order to create jobs and promote "economic stability" there.

Related: Indonesia's global marketability

Assif Shameen, consulting editor at The Edge Singapore, explains how Indonesia has largely avoided the financial woes of the global economic downturn, and why major banks, including Morgan Stanley, have expressed serious interest in Indonesia's economy. Morgan Stanley economist Chetan Ahya tells Shameen, "In a broader sense, the case for Indonesia is better than even Brazil or Russia over the longer term. Indonesia is where India was five years ago, or where China was 10 years ago."

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