08/04/2011 (Jakarta Post) - The World Bank’s (WB) recent decision to lift an 18-month moratorium on lending for new palm oil investments indicated a change in the poverty-fighting institution’s perception of palm oil plantations, often accused of causing environmental problems, local palm oil producers said.

Fadhil Hasan, of the association of the Indonesian Palm Oil Producers (Gapki), said in Jakarta that the bank’s new lending policy should help change people’s misconception of the activities of palm oil producers.

“The new lending policy represents a correction in the World Bank’s view about the palm oil industry. This is an important signal for other financial institutions,” Fadhil told The Jakarta Post.

Fadhil added, however, that the Indonesian palm oil industry might not see a significant benefit from the new lending policy because the industry had already received financial aid from the government as part of the revitalization program of the sector.

The World Bank suspended new investments in the palm oil sector in September 2009 to review its lending practices and carried out a wide consultation with various stakeholders in response to mounting criticisms over palm oil operations.

Last week, the bank announced the removal of the moratorium and said it would re-start lending under a new model of financing to benefit the poor while at the same time protect the environment.

During the period between 1990 and 2007, the International Finance Corporation (IFC), the private sector investment arm of the World Bank, invested about $168.5 million in Indonesian palm oil plantations.

Indonesia Oil Palm Smallholders Association (Apkasindo) secretary general Asmar Arsjad had a different opinion than Fadhil, saying that the financing scheme would bring much help to the oil palm smallholders, although indirectly.

“Any new investments by big investors will impact smallholders because, as required by the regulation, about 20 percent of the expanded area should be developed in cooperation with farmers surrounding the area,” he said.

The smallholders operate about 40 percent of Indonesia’s total oil palm plantation areas which are estimated to reach 7.3 million hectares.

Adam Sack, IFC’s country manager in Indonesia, said on Wednesday that the World Bank Group would consider working with the private sector to support environmentally and socially sound projects to benefit the local economy.

“We will prioritize support for palm oil projects that support smallholders, benefit rural communities, utilize already degraded lands and focus on productivity improvements of existing plantations,” he said in a statement.

World Bank data shows that the Indonesian palm oil sector has created between two and three million direct jobs — especially in rural areas — and has become an important source of income for South East Asia’s largest economy. In 2009, for example, it contributed around 4.5 percent to the country’s gross domestic product.

Indonesia is currently the world’s largest CPO producer with 70 percent of its annual output being exported. Along with Malaysia, it contributes around 85 percent to the total global output of palm oil, which is used to make soaps, detergents and cosmetics.