Malaysia is looking at options with several countries where palm oil would be part of a barter system to buy military equipment. Though talk of such activity is far from new for Malaysia, it has nonetheless once again highlighted an issue that could have broader implications for the country’s defense policy.
The idea of countertrade – a catchall term for an exchange of goods through means other than currency purchase – is not new for Malaysia or unique to it. Like some other developing countries, it has been considered as an option as the country seeks to balance domestic and foreign policy considerations in its defense policy.
Malaysia is the world’s second largest palm oil producer after Indonesia, with the product comprising about 5 percent of its entire GDP. With that in mind, and given the budgetary constraints the country faces in the defense realm, Malaysia’s Defense Ministryhas previously suggested that it could move to a barter system where it uses national commodities including palm oil instead of money to pay for defense equipment as the government manages the challenge of palm oil restrictions emerging from the European Union.
Discussions were already ongoing with six countries – China, India, Iran, Pakistan, Russia, and Turkey – that Malaysia remained open to pursuing collaboration along these lines.
More broadly, while Malaysia’s Ministry of Defense may be right about the benefits of palm oil-related defense countertrade, the costs and risks of pursuing such an option is be evaluated. Buying cheaper or lower quality equipment from the lowest bidder could actually prove more costly in the long run, while widening the array of defense partners could impact interoperability and detract from strategic priorities such as those expected to be outlined in Malaysia’s defense white paper. Those tradeoffs will need to be carefully weighed if Malaysian policymakers are to seriously move ahead with this course of action, rather than just suggesting it as a potential option.
The upcoming purchase of Light Combat Aircraft by the Royal Malaysian Air Force (RMAF) will provide a guide on how this countertrade can be achieved. Malaysia must look at the country that will embrace this Palm Oil countertrade for the long term. Here, it is clear that India would be the natural partner both for its need for Palm Oil and the technical specifications of its Tejas aircraft. It is in Malaysia best interest to get the best deal, and more importantly the best suited military aircraft for both country’s benefit.
The Burke Chair at CSIS is publishing a report by an affiliate of the organization. Dr. Zo…