A government lending program designed to help rejuvenate the country’s plantations has so far fallen flat, an Agriculture Ministry official acknowledged on Tuesday, with critics blaming a complicated regulatory structure and high interest rates for the flop.
Of the Rp 37.4 trillion ($3.7 billion) allocated for the program, only Rp 4.1 trillion has been tapped by farmers to overhaul and increase output at oil palm, cacao and rubber plantations.
The government, through the Agriculture Ministry, launched the initiative in 2007, with the intention of running it through 2010.
The program’s goal was that farmers would take out loans from participating banks to either establish new plantations or improve existing ones. Farmers pay a maximum of 10 percent interest per annum on the loans, with the government paying any additional interest charged by participating lenders.
“Only about 11 percent of the target credit level has been used,” Azwar AB, the chairman of the Agriculture Ministry’s plantation revitalization team, said at a seminar in Jakarta.
Azwar said one reason the program had struggled was because the overlapping land administration mandates of the Agriculture and Forestry ministries and central and regional governments had caused confusion. He also said that the 10 percent interest rate on the loans might not be low enough to attract many farmers.
Asmar Arsjad, the secretary general to the Indonesian Oil Palm Growers Association (Apkasindo), agreed, saying that the interest collected on the plantation revitalization loans was too high. “Farmers are hoping that the government could reduce the interest rate they pay to about 6 percent to 7 percent a year,” he said.
The lending shortfall might also be due in part to a lower level of bank participation than the government had expected. Fifteen lenders had been lined up to take part in the program, but currently only five are actually making loans, including PT Bank Rakyat Indonesia, PT Bank Bukopin, PT Bank Mandiri and the West Sumatra Regional Development Bank.
The program’s goal was to help revitalize two million hectares of plantations nationwide between 2007 and 2010, including 1.5 million hectares of oil palm farms, 300,000 hectares of rubber trees, and 200,000 hectares of cacao.
However, as of June 2009, only 161,000 hectares of oil palm plantations were established and just 30,000 hectares rejuvenated.
A mere 15,000 hectares of new rubber plantations were created, and, for cacao, “new plantations formed only amounted to 29,000 hectares, with 16,000 hectares rejuvenated,” Azwar said.
MS Hidayat, the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), cited the struggling initiative in a call for the government to create an integrated regulatory framework for the nation’s plantation sector, and especially for the palm oil industry.
“Each ministry has their own regulations regarding the plantation revitalization program, on top of regulations from regional administrations,” Hidayat said. “Instead, we need one integrated regulatory system.”
The necessary changes, he said, could be made through decisions or regulations issued at the presidential level.