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To the Malaysian government, Leonary Marcus officially does not exist.

He is one of an estimated 50,000 stateless Indonesian children living in Sabah province, the country's palm oil producing heartland. Thousands more have come from the Phillipines, born to workers that have arrived in waves since the 1970's to fulfill a demand for cheap labor in what is now the world's second-largest palm oil industry. Without papers that prove nationality, their children are likewise denied healthcare and education, while the rest of the region continues to enjoy the fruits of their labor.

Over the past two months, life has grown even harder for migrant workers in Sabah. When followers of the mysterious Sultan of Sulu traveled to the region in early February to re-establish a land claim, a weeks-long standoff turned bloody, leaving more than 70 people dead and scores displaced. Malaysian forces are accused of rights abuses against the migrant community in the backcountry as they try to flush out remaining gunmen, while scores of Filipinos have fled the violence by boat.

In 2011, the export of palm oil and palm-based products earned Malaysia $27 billion -- a five-fold increase over the past decade -- thanks to brisk trade with China, the European Union, India and the United States, which is now importing record levels for its low price and long shelf life. Today, more than half of all products sold in U.S. supermarkets, from cosmetics to candy bars, contain palm oil. And with new government-mandated labeling requirements in the United States and Europe aimed at phasing out unhealthy trans-fats found in other types of oil, demand is increasing.

That's more good news for Sabah, which accounts for one-third of Malaysia's palm oil output. Twenty-five years ago, Lahad Datu, the main town in eastern Sabah, was a forgotten backwater of clapboard buildings. Drunkards roamed cracked sidewalks by day and nightfall was a signal to stay indoors. Locals recall how their hapless police force was nowhere to be seen when a gang of pirates shot their way into the town's only bank, walking out with sacks of cash over a trail of dead bodies.

Such visions are hard to square with the robust development sweeping the area: Over the past 15 years the city's population has doubled; downtown real estate prices have quadrupled; gleaming business-class hotels and fast-food franchises line newly paved roads that are monitored by squad cars. In the middle of a busy traffic roundabout in the center of town, a gilded palm tree stands as a symbol for the government-led campaign to upgrade a region that has lagged far behind Malaysia's industry-rich Western peninsula.

Jason Motlagh

"Life here used to be much different; it was a rough kind of place," says Tammay Bin Inton, 58, a community leader for whom the days of violent street crime and power outages are a not-so-distant memory. He sat with a group of friends at a popular Indian teashop, talking football over cups of milk tea and samosas. With some pride, he noted that both of his children had recently moved back from Kota Kinabalu, eastern Malaysia's largest city, to start projects of their own and take advantage of the boom. "The quality of life here has improved tremendously," he says. "Business is good."