PALMOILMAGAZINE, JAKARTA – Minister of Maritime Affairs and Investment, Luhut Pandjaitan, in his capacity as the Chairman of the Task Force for Palm Oil Governance Improvement and State Revenue Optimization, announced a pragmatic decision at the end of last month to grant amnesty and legalize 3.3 million hectares (out of a total area of 16.8 million hectares) of “illegal palm oil plantations” in forest areas identified through a comprehensive audit.
Luhut argued that legalizing “illegal” palm oil plantations and incorporating them into the tax system under the supervision of relevant ministries and government agencies, while imposing heavy administrative penalties, would be the most cost-effective correction in terms of employment and have a smaller impact compared to the moral hazard risk, considering that these plantations also involve a significant number of farmers.
However, regardless of the arguments, the discovery of 3.3 million hectares of “illegal” palm oil plantations due to overlapping with forest areas has validated the perception that the public and corporate governance in Indonesia’s natural resource sector, particularly the highly lucrative palm oil industry, has been severely lacking.
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As the world’s largest producer with around 16.8 million hectares of palm oil plantations and one of the largest consumers, Indonesia holds a strong position to lead this industry and shape the global market. Additionally, Indonesia’s abundance of suitable land for palm oil plantations allows for further expansion of the domestic market, given its population of over 270 million people that continues to grow.
The biophysical aspects such as rainfall, sunlight, and land suitability make Indonesia the ideal place for palm oil development. These valuable resources, if managed properly with good governance and agricultural practices, can be a key driver for sustainable development.
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However, like many other developing countries, Indonesia also experiences the “resource curse” or a paradoxical situation where a country performs poorly economically despite having valuable natural resources. Indonesia has failed to harness its abundant natural resources to drive sustainable economic growth due to poor governance and mismanagement.
