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.