World Rainforest Movement

Indonesia: debt, plantations and resistance

Industrial tree plantations have often expanded through direct land expropriation and through manipulative land purchase. But there is a third kind of mechanism by which such expansion indirectly occurs, a mechanism that is somehow less-known although it is probably as important – if not more – than the two previous ones: debt relations. This short article intends to shed some initial light on this mechanism with special reference to commercial tree crops in Indonesia.

At the level of the small planter

In Indonesia, as elsewhere, many peasants got into debt for establishing small-scale tree plantations (oil palm, rubber, acacia, coffee, cocoa, etc.). About one third of Indonesia’s oil palm plantations, for example, are managed by smallholders holding less than 5 hectares. This represents about 2.5 million hectares and much of the expected future expansion will occur as a consequence of smallholder production.

What lies behind these apparently inoffensive facts? And why peasants took a loan in the first place? As a matter of fact, peasants need some cash for health care, schooling and for buying certain goods (cloths, soap, fuel, etc.). They therefore plant some cash crops. But land preparation (drainage canals, terracing), machines, seedlings, fertilizers and pesticides are costly. Few peasants can afford that and are therefore forced to take out loans, often through regional plantation companies. The smallholder ends up contractually linked to a given company to which his or her production must be delivered at specific prices. Such arrangements include the various forms of private or state-run nucleus-smallholders schemes. They are sometimes limited to the supply of credit by the company, but they usually also involve the sale of seedlings and agrochemicals.

In such schemes, companies are officially presented as the heroes of development. Such ‘subcontracting’ credit programmes are said to provide a decisive assistance to smallholders – which is in some particular cases true – but they also represent a powerful mechanism of control and discipline. In many cases, such schemes are in fact nothing else but an expansion strategy, perhaps even the most prominent one today in Indonesia. Unable to attain their financial objectives, smallholders end up selling their remaining land to the company. As Karl Marx (1867) noted a long time ago, “the credit system, which in its first stages furtively creeps in as the humble assistant of accumulation, […] is finally transformed into an enormous social mechanism for the centralisation of capitals” including land in this case.

It is important to realize that once a smallholder has entered a credit contract, he or she is not free anymore. Under a form of constant stress, the debtor is obliged to “do well”, that is, he or she must produce enough to ensure the timely reimbursing of loans and the payment of interest. This is no minor matter. Every indebted household is little by little brought to prioritize its needs and to make sometimes painful choices between socio-cultural expenditures and productive investments. Many of them have to work more and even to engage in temporary or part-time wage-labour elsewhere in order to secure timely repayments. If they fail to do so, they may lose their lands which represent their unique means of production. Companies have obviously very well understood the advantage of having smallholders trapped into debt. Accordingly, they try to remain as long as possible in the creditor position, sometimes resorting to dishonest practices (e.g. hiding the remaining amount to be repaid or convincing peasant to take another loan).

More fundamentally, such rural indebtedness has contributed to change customary ways of life. A researcher reported that village conversations “rarely failed to raise statements bemoaning the decreasing cooperation between villagers” and stressed the fact that “people in the village are becoming increasingly calculating (berkira) in their approach to money matters” (quoted in Scott, 1985). Regarding the effect on the community, there is a pressure against customary common lands because credit is impossible unless portions of the community’s land are used as collateral. Besides such socio-cultural impacts, peasant indebtedness has also created new pressures on the environment. Wilson (2010) writes that “if peasants have access to credit, particularly at high interest rates, increasing annual productivity becomes vital to their ability to repay their loans” – which also involves increased pollution and further ecosystem simplification.

At the level of the plantation company

Companies may also end up trapped into debt. The heavy debts of plantation companies are notorious in Indonesia. Perhaps the most famous example of this is Asia Pulp & Paper (APP), the country’s largest paper producer. Its plantations were established during the mid-1980s and 1990s on a concession of 300,000 hectares. With debts of US$ 13.9 billion in 2006, APP is subject to an extraordinary financial and legal pressure to expand operations regardless of ecological or social costs. Matthew and Gelder (2001) note that “APP’s process of resolving outstanding debts to foreign creditors has been linked to further expansion of their processing operations. APP has for example financed its growing debt in part by raising more finance to support new expansion of its pulp and paper facilities. Such a vicious circle of debt-driven destruction has directly led to forest destruction”.

While it is estimated that APP’s activities have resulted in one million hectares of rainforests being lost since the beginning of its operations, the company apparently continues today to rely heavily on wood harvested from natural forests – often prior to convert them into pulp plantations. Trapped in these debt-driven dynamics, APP is also known for violating the rights of local forest-dependant villages. Barr (2004) estimates that 60,000 hectares of its plantations are subject to claim by neighbouring communities. Since Suharto was forced from office in 1998, members of previously powerless communities have begun to openly protest the loss of their customary land and livelihoods, sometimes resulting in violent conflicts (HRW, 2003).

Practices of international creditors are obviously an important root of the problem. APP’s heavy borrowing was based on the assumption that repayment would be possible because of its access to an unlimited supply of cheap wood from natural forests and pulpwood plantations – something that was indeed possible in the past through military backing. The important point here is to understand the connection between corporate indebtedness, socio-ecological destruction, and social conflicts.

Conclusion

At the household level, in many parts of Southeast Asia including Indonesia, debt relations have been a central mechanism fostering the concentration of land in a few hands. It has thereby stimulated social differentiation processes by which smallholders lost their land and became tenants or wage-labourers. Such processes are still on the march today in the Indonesian plantation sector. It is not always easy to observe as it may take different forms, sometimes very informal ones.

At the company level, debt also plays an important role. It forces companies to aggressively increase production in order to repay creditors, often from industrialized countries. It thereby encourages the expansion and intensification of plantations. At a larger scale, such pressures are comparable to what happens at the household level. In any case, the financial sector – whether local, national or global – is able to control and discipline its customers and turns out to be the key winner.

By Julien-François Gerber, email: JulienFrancois.Gerber@campus.uab.es

References

Barr, C., 2004. Risk analysis and impact assessment for pulp and plantation investments: the case of Indonesia. Bogor: Center for International Forestry Research.
Human Rights Watch (HRW), 2003. Without remedy: human rights abuse and Indonesia’s pulp and paper Industry. New York: HRW.
Marx, K., 1976 [1867]. Capital. Vol. 1. New York: Vintage.
Matthew, E. & J. van Gelder, 2001. Paper tiger, hidden dragons. London: Friends of the Earth.
Scott, J., 1985. Weapons of the weak. New Haven: Yale University Press.
Wilson, B., 2010. Indebted to fair trade? Coffee and crisis in Nicaragua. Geoforum, 41(1): 84–92.

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