Government decides to adopt 'enclave' FTZ in Batam

Zakki P. Hakim, The Jakarta Post/Jakarta

The government finally decided to maintain the previous government's proposal for an "enclave" free trade zone on the industrial island of Batam, despite potential opposition within the House of Representatives.

Coordinating Minister for the Economy Aburizal Bakrie told reporters on Monday that the government decided to limit the free trade areas to certain places on the island despite the House's desire to make the whole island a free trade zone.

However, the minister believes the House will accept the enclave approach.

"There will be no conflict at the House," Aburizal stated on the sidelines of the CNBC Strategic Forum entitled "The New Indonesia 2005: Policy and Action".

Aburizal said this government's plan was slightly different from the previous one proposed by the Megawati administration.

The government will free manufacturers within the designated industrial zones from paying import duties, while those outside the zones can enjoy the same facility through bonded warehouses.

He said the government was still making assessments before making a decision on whether neighboring Rempang and Galang islands would be able to be complete free trade zones (FTZ).

During the forum, President Susilo Bambang Yudhoyono said in his keynote speech that the government had a very good working relationship with the House.

"Vice President Jusuf Kalla's success in being elected leader of Golkar, the largest party in the House, will significantly add more stability to my government," he said.

Since Kalla took over the reins of Golkar in December, there has been no real opposition in the house as the party has 128 of 550 seats at the House, in addition to the administration's support from several medium-sized parties.

The previous government under Megawati Soekarnoputri and the previous House failed to reach an agreement on the status of Batam as an FTZ.

Last September, the House endorsed its bill that granted FTZ status to the whole of Batam Island. The bill was opposed by the government.

Without the government's approval, the law cannot take effect, creating further uncertainty for investors on the island, which, since 1978 has been promoted by the government as an industrial bonded zone to attract foreign investors.

Batam has become one of the most attractive manufacturing and industrial locations in Southeast Asia, playing host to some 600 foreign companies and absorbing over US$3 billion in foreign investment.

The government has argued that extending full FTZ status to the whole island would cause envy from other regional administrations that do not have FTZ status.

As soon as Susilo was sworn in this past October, the Singapore government, which is just a 45-minute ferry ride from Batam, expressed hope that the new government would quickly decide on the FTZ status of Batam. Otherwise, existing and potential investors would turn away to competing investment areas in China and Vietnam.

Singapore Foreign Minister George Yeo said Batam had the potential to become a leading industrial center like China's Shenzhen within 10 years, but only if the lingering legal uncertainty was quickly resolved.

Meanwhile, Indonesian Chamber of Commerce and Industry (Kadin) chairman MS Hidayat said the decision to turn all of Batam into an FTZ area or to adopt the enclave FTZ was not an issue for investors. It was more important that the status of Batam be clearly defined, he added.