Procurement: <b>October 23, 2003</b>

October 23, 2003

Strapped for hard currency, regional neighbors Malaysia and Indonesia have both used a novel method to fund arms procurement. In both cases, palm oil trade was used to barter for advanced Russian Sukhoi fighters, with Indonesia using palm oil trade as part of an approximately $192 million deal for 2 Su-27s, 2 Su-30s and 2 Mil-35s, all of which were recently delivered.

Malaysia, for its part, signed in August a $900 million deal for 18 Su-30MKM, similar to the advanced, thrust vectoring Su-30MKI for India, but with a different avionics fit. Some 30 percent of this deal will be paid by palm oil trade and approximately another 30 percent off-set through technology transfers to local Malaysian companies. Delivery is scheduled for 2006.

We will probably not see Russian aircraft being traded for rice or bananas, however. Although 90 percent of palm oil and its derivatives are used for food purposes, it is also a valuable commercial commodity with an increasing range of industrial applications from candle wax and soap to plastics manufacturing, industrial lubricant and as a substitute for petrochemicals. -- Shawn Chung

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