Governing the Palm-Oil Sector through Finance: The Changing Roles of the Indonesian State

Abstract

By analysing the different roles of the Indonesian state in arranging finance schemes for palm-oil development since 1945, this article aims to answer two questions: What are these roles? And to what extent have they prioritised or balanced economic growth, social equity, and environmental protection? We conclude that the state has never been absent from the palm-oil industry but has had different and changing financing roles that are historically contingent and shaped by the evolving economic and political landscape. Furthermore, these roles reflect Indonesia's priorities of achieving economic growth through palm-oil development, furthering social equity, and, recently, promoting environmental sustainability.

Friend or foe? The various responses of the Indonesian state to sustainable non-state palm oil initiatives

“…The palm oil sector made a significant contribution to the recovery of the Indonesian economy following the 1997 Asian Crisis (Susila 2004). The economic recovery enabled the state to bring back its role in facilitating palm oil sector development, but this time the state faced increasing pressure to address sustainability issues (Pramudya et al, 2017a). The reluctance to develop further partnerships within RSPO occurred at the onset of the rising confidence of the state to improve its facilitation roles.…”

“…Rather than leaving it to the market mechanism, the state plays an important role in preparing business to cope with the changes. The Indonesian palm oil sector itself emerged from active facilitation of the state in the past (Rival and Levang 2014;Casson 1999;Pramudya et al, 2017a), and therefore seeing the state as an important agent for sector transformation is undeniable.…”

Balancing and counterbalancing : the Indonesian state addressing pressures to improve palm oil sector sustainability

“…The palm oil sector made a significant contribution to the recovery of the Indonesian economy following the 1997 Asian Crisis (Susila 2004). The economic recovery enabled the state to bring back its role in facilitating palm oil sector development, but this time the state faced increasing pressure to address sustainability issues (Pramudya, Hospes, and Termeer 2017a). The reluctance to develop further partnerships within RSPO occurred at the onset of the rising confidence of the state to improve its facilitation roles.…”

“…Rather than leaving it to the market mechanism, the state plays a vital role in preparing enterprises to cope with the changes. The Indonesian palm oil sector itself emerged from active facilitation of the state in the past (Rival and Levang 2014;Anne Casson 1999;Pramudya, Hospes, and Termeer 2017a), and therefore seeing the state as an essential agent for sector transformation is undeniable.…”

“…The use of fire for clearing lands to open plantations had escalated, which had been pushed by the surging demands of palm oil in the middle 2000s. Plantation expansion was also stimulated by the increasing practices of illegality in post-Suharto Indonesia, resulting from a weakened enforcement of regulations because of patronage politics, the increasing use of peatlands as access to mineral lands had decreased, and the limited capacity of the state to facilitate financial schemes and assistance for propagating agricultural best management practices after the crisis (Vayda 2006;Bakker 2015;Pramudya, Hospes, and Termeer 2017a;Varkkey 2016). Moreover, land-clearing by fire involves huge economic rents that attracted many people from business, government, the security apparatus, local communities, and indigenous communities (Purnomo et al 2017).…”