'Oil palm plant ban will not last long'

JAKARTA (JP): The government's recent ban on new foreign investments in oil palm plantations will not last long, because a permanent restriction will contradict the free trade principles, an observer has said.

Chrisman Silitonga, an observer of agricultural and food issues, said on the weekend he was certain the government would reconsider the decision once the move was countered with free trade arguments.

Chrisman, who also works with the National Logistics Agency, believed the decision to ban foreign investment in oil palm plantations was aimed at diversifying the types of agricultural commodities grown in Indonesia.

"I think the government doesn't want to see only one commodity develop rapidly while the others are left behind," he said. "I think the government is aiming at creating a balance between the types of commodities grown," he said.

Chrisman said many Indonesian and foreign businesses were now competing to invest in that sector.

"If these large investments continue -- leading to an oversupply of oil palm production -- they would effect prices and become a boomerang to the investors," he said.

Chrisman said if the government wanted to see a better diversification of agricultural commodities, the ban should not be imposed on foreign investments alone but on domestic investments as well.

"And the ban should not only be aimed at investments in oil palm but in all agricultural commodities that have a tendency to 'backfire' like oil palm," he added.

He said the government should not include the ban on investments in oil palm estates on the negative investment list.

"The list is meant to protect small and medium enterprises. Those in the oil palm sector are big businesses, none of whom need special protection that requires the sector to be put on the list," Chrisman said.

Earlier this month the government temporarily froze Malaysian investments in oil palm plantations in North Sumatra saying Malaysia had overinvested in the sector.

So far 27 Malaysian companies have entered Indonesian oil palm estates in cooperation with local companies.

Minister of Agriculture Sjarifudin Baharsjah said last week the government's decision to freeze oil palm plantation and related palm oil industry for foreign investors was because there was an oversupply of palm oil on the world market.

State Minister of Investment Sanyoto Sastrowardoyo said last week that the government might totally close oil palm plantations to foreign investors. He said this was needed to protect local palm oil plantation companies.

A reliable source said the government's decision to ban the investments was because the giant Sinar Mas and Salim groups -- controlled by politically well-connected business tycoons Eka Tjipta Widjaja and Liem Sioe Liong -- did not want to see anyone reducing their domination.

The source said it was also because Malaysian investors were reluctant to set up joint ventures with the two groups and preferred instead to link up with smaller, medium-scale businesses, mostly controlled by indigenous Indonesians.

Another reliable source said several crude palm oil (CPO) exporters were now suspected of misusing rediscount facilities by marking up export volumes.

"The case had been submitted to the General Attorney's office but was turned down because of objections from Bank Indonesia," the source said.

Indonesia is the world's second largest CPO producer, producing half the volume of Malaysia. (pwn/rid)