Govt vows to decide on Batam FTZ soon

Zakki P. Hakim, The Jakarta Post/Jakarta

The government is committed to quickly decide on whether to turn the whole of Batam island into a free trade zone (FTZ), or only part of it under an enclave system.

Minister of Trade Mari E. Pangestu said that the government was determined to make a decision soon, as delaying would only hamper the flow of investment.

"I can't promise you that there will be a decision in 100 days, but I can say that the process will begin within this next 100 days," she told lawmakers late on Thursday during a hearing with the House of Representatives Commission VI on trade, investment and industry.

Mari said that the two main problems in deciding the FTZ status of Batam were the issues of smuggling and fairness, as consumers within the FTZ would be exempted from paying value added tax.

The previous government proposed an enclave system whereby only certain industrial areas would get the FTZ status, arguing that turning the whole of Batam into a FTZ would be risky amid rampant smuggling practices, and would also encourage people in other regions to demand similar tax treatment.

Meanwhile, previous members of the House have insisted that the whole of Batam should be turned into an FTZ to lure more foreign investment.

The government needs to issue a law on the FTZ status of Batam to create certainty for investors, but this will require approval of the House.

Batam, which is located very close to Singapore, is now one of the most attractive manufacturing and industrial locations in the Southeast Asian region, playing host to some 600 foreign companies and absorbing over US$3 billion in foreign investment.

Meanwhile, Indonesian Chamber of Commerce and Industry (Kadin) chairman MS Hidayat said that whether to turn the whole of Batam into a FTZ area, or to adopt the enclave FTZ approach, was not an issue for investors as what was most important was that the status of Batam be clearly defined.

"The Kadin local representative (in Batam) told me that there are about 250 parties that have expressed interest in investing in Batam, but postponed their decisions until there is a clear decision on Batam's future," Hidayat said.