Suharto cronies control an ASEAN-wide oil palm industry with an appalling environmental record

George J Aditjondro

Widespread forest fires, covering significant proportions of Sumatra and Kalimantan, with its smoke and haze drifting to Singapore and Peninsular Malaysia, have become an almost annual occurrence in archipelagic Southeast Asia. Yet, the Indonesian government has not taken drastic steps to prevent their recurrence. Why? The palm oil industry in Indonesia has been blamed as the main culprits. Its political strength relies on two factors. Firstly, it is still controlled by relatives and business associates of the former Indonesian president, Suharto, who still enjoy tacit support in the top echelons of the Indonesian political and economic system. Secondly, the influence of the Suharto oligarchy extends way beyond the boundaries of Indonesia into the two neighbouring countries, Singapore and Malaysia, which have been the most affected by the haze caused by the forest fires.

During the 1990s, the scale of the burning grew each year as the forestland converted into tree plantations in Sumatra and Kalimantan expanded. Plantation firms and the land-clearance contractors they hired almost exclusively use fire to clear land. Scientists assessing the forest fire damage say that approximately five million hectares of land were burned in 1997. Of this, 20 per cent was estimated to be forest, 50 per cent agricultural land, and 30 per cent non-forest vegetation and grasslands. Putting this in financial terms, scientists working for Worldwide Fund for Nature (WWF) Indonesia have calculated that the direct and indirect short-term impacts of 1997/1998 have exceeded US$ 4 billion, equivalent to total annual health spending by both the public and private sectors.

In 2000, the situation did not radically improve. The emergency of hotspots as early as March moved Singaporean officials to sound their alarm bell. Nevertheless, this did not discourage corporate and individual farmers in central Sumatra to continue burning the undergrowth way into the middle of July, when officials in Peninsular Malaysia began to worry. These early hotspots and the smog that engulfed half of the Malay Peninsula revived traumatic memories of the 1997 haze, which blanketed Singapore and Malaysia for weeks and scared off tourists.

Corporate arsonists

Regardless of the national and international criticism, three consecutive regimes in Jakarta (Suharto, Habibie, Abdurrahman Wahid) have not been able to cope with these recurrent forest fires. In fact, from the 144 companies which had their licences revoked in October 1997 by then Minister of Forestry Djamaludin Suryohadikusumo, two months later 45 permits were reinstated. And even after a new forestry law was enacted in 1999, which carries a sentence of a maximum of five years in prison or a fine of Rp 5 billion (around US$ 0.5 million), no company owner or executive has been charged and found guilty of lighting the fires.

From the Forestry Ministry's initial list of 176 suspects, 133 were oil palm and pulpwood plantations. Of these two, oil palm plantations had the biggest share, since 46%-80% of all big fires took place on these concessions.

Currently, Indonesia out-competes Malaysia in terms of labour costs by five times and in terms of land by four times, thereby making it the cheapest producer of palm oil in the world. Companies owned by the members of the Suharto clan and their cronies were the most outstanding among the 176 companies blacklisted by the Forestry Minister in 1997. They are still the main driving force in the palm oil business. Cross-referencing the 1997 blacklist with general and specific business directories in Indonesia shows twelve business conglomerates linked to the Suharto family, namely the Salim, Sinar Mas, Barito Pacific, Astra, Raja Garuda Mas, Surya Damai, Kalimanis, Danitama, Mercu Buana, Citra Lamtorogung Persada, Teknik Umum, and Maharani Groups, prominent among the corporate arsonists.

More important than the predominance of Suharto-linked companies on the 1997 Forestry Department's list of suspects is the systemic control the Suharto clan have over the entire palm oil industry, from plantations to marketing to the use of revenues generated from the palm oil trade. Three generations of the clan are represented in the plantations, from Suharto's brother and cousin to Suharto's grandson.

The marketing hegemony works in the following way. During the Suharto era, state palm oil plantations produced crude palm oil (CPO), which was sold to the state logistics agency (Bulog) in either its raw or refined form at rock bottom prices. Bulog made a significant mark-up and profit on its subsequent sales of cooking oil, which is still dominated by two Suharto-linked conglomerates, Salim and Sinar Mas. Key state officials pocketed the difference, foremost among whom is Bustanil Arifin who headed Bulog for two decades. This is also the man who Suharto has trusted - together with Bob Hasan - to manage his four wealthiest charities, claimed by Arifin to far surpass the wealth of the Rockefeller and Ford Foundations.

Given the fact that three generations of the Suharto family controlled the palm oil industry one can label it Suharto's 'palm oil nepotism'. But since it does not only involve one but several extended families of Sino-Indonesian business people and a handful of retired generals and bureaucrats, loyal to Suharto, one can further label this political economic system, Suharto's 'palm oil oligarchy.'

Despite the fact that Suharto has officially stepped down, this oligarchy is still deeply entrenched in the political and economic system in Indonesia. Janji Akbar Zahiruddin Tanjung, the speaker of parliament, for instance, is a member of the Tanjung family whose family company, PT Marison Nusantara, has overlapping shares with several member companies of the Salim and Raja Garuda Mas Groups. Their businesses range from condensed dairy milk to trade in chemical products.

ASEAN-isation

The influence of Suharto's palm oil oligarchy, however, has not been limited to Indonesia's borders. Preceding the smog that drifted across the Malacca and Natuna Straits to Indonesia's northern neighbours, the tentacles of this business octopus had already become deeply entrenched in the nearest ASEAN countries. This explains the lukewarm response which the haze has received in the upper echelons in Kuala Lumpur, and to a lesser degree, in Singapore.

While in late July 2000 the smog from Indonesia's forest fires had drifted along the Malay Peninsula into southern Thailand, ASEAN government leaders did not offer any concrete steps to ameliorate the catastrophic Indonesian forest fires. On the contrary, Malaysian Prime Minister Mahathir Mohamad strongly refused to take any steps. The ten-nation ASEAN foreign ministers' summit in Bangkok also failed to address the transnational haze strongly in its final communiquMahathir Mohamad in particular, even criticised the international press for 'exaggerating' the haze problem, driven by what he labeled as a 'political agenda' to discourage tourists from coming to Malaysia.

The attack on the foreign media had been preceded by a ban on the domestic media to publish air pollution readings, after Kuala Lumpur and other areas on the peninsula were blanketed with dense haze from forest fires across the Malacca Strait. The Malaysian public, however, refused to play that ostrich policy, forcing the New Straits Times, which usually supports government initiatives unreservedly, to call for the government to publish the Air Pollution Index readings.

On the macro level, Malaysia's silence is partly influenced by the fact that it needs Indonesia to expand its own palm oil industry. By March 1997, Malaysia already had commitments to invest in 1.6 million hectares of oil palm plantations in Indonesia through joint ventures with various Indonesian companies. This was more than a third of all the oil palm plantations planned until the turn of the century. More than 1.3 million hectares had already materialised by 1999, with some of them linking up with companies controlled by four Suharto siblings, namely Bambang Trihatmodjo, Tommy Suharto, Titiek Prabowo, and Siti Hutami Adiningsih. Their plantations cover hundreds of thousands of hectares in Sumatra and Kalimantan. Thus the largest Indonesian business groups had already formed numerous joint ventures with the most well connected companies in Singapore and Malaysia.

Moving deeper into the current and former ruling elites of Indonesia, Singapore, and Malaysia, several joint ventures have emerged, where relatives of former president Suharto, former Prime Minister Lee Kuan Yew, and incumbent Prime Minister Mahathir Mohamad hold powerful positions as shareholders or directors. Or else they are shareholders in companies which in turn acquired shares of other companies in which members of these three families are involved. Mahathir's middle son, Mokhzani, for instance, through his Tongkah Holdings, acquired a majority stake in Hospital Pantai, which in turn became a substantial shareholder in Singapore-listed AsiaMatrix Ltd. This company has Suharto's daughter-in-law, Ratnawati Harjojudanto, listed as its chairperson.

The list is growing of companies which involve the three powerful clans of Indonesia, Malaysia, and Singapore and which have expanded further in the Asia-Pacific region. They were the driving force behind the economic opening of China. That is the reason why the country-by-country approach of the International Monetary Fund (IMF), without unraveling the capital flow from the Southeast Asian countries to China and elsewhere, is doomed to fail.

Any serious attempt to reduce the frequency and extent of the forest fires and the related haze problem has to deal with this 'intra-ASEAN oligarchy.' The long-term aim should be to enforce regional and global transparency and accountability of the members of this oligarchy to its stakeholders, and especially to the ordinary citizens in the ASEAN region who have been - and may still be - regularly choked by the smoke from forest fires.

George Aditjondro (aditjond@psychology.newcastle.edu.au) teaches at the University of Newcastle, Australia. Extracted with permission from an article in the inaugural edition of 'Ecopolitics: Thought and action' (contact Martin Mulligan m.mulligan@uws.edu.au).