Rebuilding Aceh's economy, encouraging investment

Rebuilding Aceh's economy, encouraging investment

Michael Vatikiotis, New Straits Times, Kuala Lumpur

People are more worried about the future of their children's
education, jobs and basic services.

Now that the immediate task of emergency relief in Aceh is
almost over, it's time to start thinking ahead about ways to
develop Aceh's shattered economy and encourage investment. Quite
apart from the need to generate income for the province's more
than four million people and help fund the massive task of
rebuilding infrastructure, there's also an urgent need to
forestall the survival and reinforcement of old grievances that
fueled support for the separatist movement.

Economic development and investment is a critical factor to
help address the grievance in Aceh, and perhaps the only
guarantee of securing peace. There are precedents; support for
the separatists has waned before - and it's usually because a
large dollop of economic goodies has been ladled out to the
Acehnese.

These people want security and prosperity above all. This was
very evident on a recent visit to Aceh, where people were
complaining less about the shortage of food and water, and were
more worried about the future of their children's education,
jobs, and the provision of basic services. Aceh doesn't only need
emergency relief help; it needs an economic plan.

A critical component of any economic plan for Aceh will be
regional co-operation. Regional neighbors like Malaysia,
Singapore and Thailand can and should play a key role in
rehabilitating Aceh's economy.

The first priority should be to revive the old North Sumatran
Growth Triangle Idea with Malaysia and Singapore. First mooted in
the early 1990s, the Indonesia, Malaysia Thailand Growth Triangle
was one of the earliest experiments in cross border economic
integration.

The concept never really took off because it was burdened by
the intransigence of local bureaucracies. In the era before
decentralization, for example, Jakarta could not stomach the idea
of North Sumatra and Aceh developing closer economic ties with
Penang and Singapore.

Fifteen years on, and the atmosphere has changed - economic
sovereignty is being eroded by free trade agreements and the
mobility of corporations that refuse to be hemmed in by national
boundaries.

To begin with, ASEAN should convene an urgent meeting to
discuss ways to revive and make operational the old Growth
Triangle idea. But perhaps more important than motivating
officials is the need to galvanize the business community.

Malaysian and Singaporean corporations have been among the
first to explore Indonesia's growing economic confidence since
the last round of elections in September; they should show their
commitment to the country by exploring primary and tertiary
industrial possibilities in Northern Sumatra.

The region is rich in palm oil, pepper, and other organic
commodities. There are also deposits of natural gas and all the
materials for making cement and other materials for the
construction industry.

The government in Jakarta could encourage this investment
trend by endowing the port of Sabang with special tax-free port
status - as it once had. For now, this would mostly be a gesture,
but one that would resonate with the Acehnese.

The Dutch created the first free port in Sabang in the late
19th century. From 1963 until 1985 this sheltered deep-water port
also enjoyed duty-free status. But there were complaints about
smuggling and when tax-free status was lifted, Aceh lost a major
contributor to regional GDP.

In 1998, some of these privileges were restored when Sabang
became an Integrated Economic Development Zone, waiving VAT and
Sales tax, as well as income tax on certain imported capital
goods. The trouble is that almost no one knows about this. The
port, which reaches depths of 30 metres in places, could be an
excellent location for an oil refinery, ship service and repair
yards, a gas distribution point, as well as distribution hub for
South Asia and Asean.

China could be approached to lend a hand. Chinese companies
have been investing heavily in Indonesia's primary resources,
including oil and gas, coal and palm oil. China's companies are
skilled at building infrastructure rapidly and could be lured to
help rebuild roads, bridges and ports in devastated parts of Aceh
in return for access to the strategic port of Sabang and the
province's natural resources.

Part of the problem here is that Jakarta needs to recalibrate
its perception of Aceh. Aceh is not a remote province on the
fringes of the archipelago; it is a resource-rich access point to
the Southeast Asian mainland and of potential interest to the
Chinese as a transshipment point for oil and gas coming from the
Middle East.

Regional cooperation would help invigorate Aceh's economy,
giving it a role as a source of raw materials for Malaysian,
Singaporean and Thai manufacturers, who would find transport and
labor costs cheaper there than going through more distant
Jakarta.

The writer is former editor of the Far Eastern Economic
Review.