Heritage Foundation slams World Bank's palm oil policy

This is written by my colleague, Rupa Damodaran.

US-BASED public policy research institute, the Heritage Foundation, has chided the World Bank for its plans to revise its strategy for future development assistance in the palm oil sector.

The International Finance Corp (IFC), under the World Bank, suspended approval of new palm oil development investment in September 2009, pending a review of practices in the sector.

It has embarked on multi-stakeholder consultations to develop its global strategy in palm oil and has held several meetings with stakeholders in Indonesia, Ghana, Costa Rica and the Netherlands. According to the IFC, the final strategy will be announced in September 2010.

"The World Bank should go back to adopting a pro-growth strategy that supports oil palm planting investments in developing countries," said trade and economics expert and fellow James M. Roberts in an interview with Business Times in Kuala Lumpur.

It is learnt that the IFC's moratorium had hampered investment plans of several Malaysian planters keen on expanding oil palm cultivation in Africa.

The Washington-based Heritage Foundation is also urging the Obama Administration to advise the bank to uphold its original mission of alleviating poverty with a pro-growth strategy.

Roberts, in his newly released research paper, said the palm oil sector is vital to economic growth and job creation in Indonesia, Malaysia and other developing countries. "Restriction to further development in the palm oil sector will block opportunities to raise living standards and reduce poverty levels in the third world. Strings, in the form of narrowly-defined sustainable criteria, attached to World Bank's loans will potentially harm trade and investment partners too," he said. 

For the past decade, numerous western environment activists have campaigned against oil palm planting in tropical countries, alleging that it destroys rainforests and endangers wildlife such as the orang utan. "These groups are selective in their environmental crusade. The real motive is to oppose imports of cheaper but higher quality vegetable oils into Europe because it threatens the market share of their homegrown rapeseed oil," he added.

Many of these environmental activists who target their attacks on oil palm planting nations like Malaysia and Indonesia are recipients of tens of the millions of euros in annual grants from the EU environment ministries and the European Commission, the Heritage Foundation report revealed.

"Foreign direct investments to develop the palm oil industry has played an important part in fuelling the economic growth and freedom in developing nations. In the last 30 years, oil palm planting investmens has increased stability and prosperity in Indonesia and Malaysia (together accounting for as much as 85 per cent of world palm oil production), as well as Colombia, Liberia and Ghana," he said.

The oil palm industry employs more than 570,000 in Malaysia and over three million people in Indonesia, contributing to more than US$27 billion (RM87.5 billion) in sales, in 2007. 

Roberts said over the past five decades, the World Bank and the IFC together have invested nearly US$1.3 billion (RM4.2 billion) in oil palm projects and have helped palm oil-producing countries develop prudently while protecting the environment and wildlife.

"It is distressing to see the World Bank re-orientating its development resources away from private sector economic and agricultural development projects," he said.

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