Business and politics in Indonesia’s expanding palm oil sector

Anderson 1 Palm oil resize
Published: Jul 02, 2014

Patrick Anderson

Workers loading fresh fruit bunches- Marcus Colchester

In 2003, Indonesia was ranked as one of the ten most corrupt countries in the world. By 2013 it had shifted to the 60th most corrupt out of 175 countries surveyed. That move up the global ranking came as a result of intensive and consistent efforts by Indonesian civil society and government to document, expose and prosecute endemic corruption. Anti-corruption institutions have recently turned their attention to Indonesia’s rapidly expanding oil palm sector. However, criminal prosecution of corrupt state officials and company directors must be supplemented by bureaucratic and electoral reform if Indonesia is to be effective in its struggle against corruption.

A history of rent seeking

The practice of rent seeking - government officials using their positions to extract payment for services – goes back at least to the Sultanates and their courts that preceded and overlapped with Dutch colonisation of Indonesia. The practice was maintained by the Dutch administration when appointing ‘natives’ to government positions; there was a common understanding that the meagre salaries of native bureaucrats would be complemented by them charging clients for their services.

These practices continued into the post-colonial period. In the late 1960s following widespread criticism of corruption in the then young New Order regime, a commission was appointed to investigate the issue. The report of the Commission of Four in 1970 noted that corruption was rampant, but none of the cases it documented led to prosecutions. Later in the Suharto era, despite a restricted political space, civil society groups, lawyers and journalists continued to research and document corrupt officials, exposing the corrosive effect of corruption on the rule of law, and advocating for legal reform.

The problem of low wages and low accountability for public servants has continued into the reform era. With the advent of direct local elections, rent seeking by state officials has taken on new levels as they engage in corrupt fundraising for election campaigns. At the same time, Indonesia’s anti-corruption movement has had more space and more resources to fight corrupt business-state practices

New era of anti-corruption activism

In 1999, following the fall of the autocratic New Order regime, police were given the power to investigate corruption, and in 2002 a law on anti-Corruption was passed by the national parliament, providing the legal basis for the Corruption Eradication Commission (Komisi Pemberantasan Korupsi or KPK). The KPK was established in 2003 with the power to investigate and prosecute government officials for involvement in corruption and to undertake efforts to prevent corruption through provision of public information and education campaigns.

The KPK is regarded as one of the most effective anti-corruption agencies in Asia, with the successful prosecution of more than one hundred state officials including district heads, provincial governors and national ministers. Its efforts have returned hundreds of millions of dollars in stolen assets to the state, and its prevention efforts around the nation are promoting good governance (transparency, participation and accountability) as a means to change the culture of corruption. However, corruption is still rife in the forestry and agriculture sectors due to the large payments companies are prepared to make to obtain licenses, and the need of elected officials to generate large ‘war chests’ to run for office.

The uphill battle against corporate corruption

Today, five per cent of Indonesia’s land area is covered with oil palm plantations. Government and industry have plans to double or even triple this area in the coming two decades. The expansion of the sector is closely associated with corrupt relationships between companies and politicians. For the most part, this involves local and international oil palm companies paying district government officials to obtain plantation licenses. Plantation managers in Kalimantan and Sumatra will often comment that, ‘off the record, our company couldn't do business if we weren't prepared to pay bribes,’ when responding to questions about corruption. The implication is that palm oil companies are prepared to do business without paying bribes, but that ultimately their hands are tied and they must appease the demands of corrupt officials. But in a 2013 review of the industry’s best practice standards, such sentiments were revealed to be untrue.

The Roundtable on Sustainable Palm Oil sets industry standards for company practices in regards to environmental sustainability, legality and human rights. In 2013, during the year-long review of the Roundtable’s Principles and Criteria, NGOs had called for the addition of a clause on fighting corruption in the sector, with the requirement that member companies agree not to pay bribes. Malaysian and Indonesian companies argued strongly against adding a clause on corruption, and their lobbying and blocking strategies successfully defeated the proposed anti-corruption clause.

The rise in prosecutions

Anderson 2 Hartai MurdayaHartati on trial- Hukumonline http://www.hukumonline.com/berita/baca/lt50d2e5d36ef1f/hartati-murdaya-berdebat-dengan-dirut-pt-sonokeling

Now ten years old, the KPK has successfully prosecuted government officials involved in corruption, sending a message to government and industry alike that things need to change. The KPK has also successfully prosecuted oil palm companies in Kalimantan, and is continuing its efforts to eradicate corruption in association with the issue of licenses for forestry and plantation concessions. As of early 2013, some 280 provincial governors, district heads, mayors and their deputies were under investigation or being prosecuted.

The first oil palm case the KPK took up was in Buol District, South Sulawesi. In February 2013, Hartati Murdaya, the director of the oil palm company PT Hartati Inti Plantation, was found guilty of providing District Head of Buol District Amran Batalipu with US$500,000 in bribes to obtain licenses for 11,000 hectares of oil palm. The district head was sentenced to seven and a half years and Hartati received a jail sentence of 32 months and a US$15,000 fine. After her arrest, Hartati resigned from the board of patrons of Indonesia's Democratic Party and the National Economic Committee.

The need for political reform

Despite having KPK launch large numbers of investigations into the oil palm and pulpwood plantation sectors, elected officials are still prepared to take the risks associated with receiving bribes in order to amass the funds necessary to run for office. The coalescence of interests between plantation companies and local political elites remains strong, so new cases seem to appear every day.

While KPK’s efforts are laudable, reform of Indonesia’s election laws will also be necessary, so that political parties and their candidates can access sufficient funds to run election campaigns without relying on illicit funding sources. Without removing the incentives for corruption, Indonesia’s forests and the people whose livelihoods depend upon them, will continue to suffer.

Patrick Anderson (patrickanderson1960@gmail.com) works as a policy advisor with the Forest Peoples Programme, focused on Indonesia. He is a visiting fellow at the ANU School of Culture, History and Language, in the College of Asia and the Pacific.


Inside Indonesia 117: Jul-Sep 2014