Rethinking the IMS-Growth Triangle

Rethinking the IMS-Growth Triangle

By Linda Low

The IMS Growth Triangle has unique potentials and advantages.

SINGAPORE: Mooted in 1989, the Indonesia-Malaysia-Singapore
Growth Triangle (IMS-GT), formerly dubbed Sijori
(Singapore-Johor-Riau Islands) was the first subregional growth
triangle in ASEAN. Growth triangles do not seem to have a
distinctive theoretical construct but are rather a derivative of
regionalism and direct foreign investment which has been
motivated by benefits in resource pooling, competitiveness,
market penetration, and product life cycle among others.

Private-sector initiatives decide on location and choice of
activities. Government involvement lies in developing
infrastructure and expediting factor flows. If the etymology of
growth triangles is widened to metropolitan regions, these could
include trade development zones (TDZ), export processing zones
(EPZ), special economic zones (SEZ), bonded areas and even
science and technology parks, varying in types of incentives
provided to achieve specific goals, but all promoting economic
cooperation.

Growth triangles are not unique to ASEAN: witness the Southern
Growth Triangle (Hong Kong, southern China and Taiwan), the
United Nations-sponsored Tuman River Area Development Program
(China, Russia and North Korea) and the Yellow Sea Economic Zone
(China and Japan). Others in ASEAN are Indonesia-Malaysia-
Thailand Growth Triangle (IMT-GT) and the East Asean Growth Area
(EAGA), Brunei, Indonesia, Malaysia and the Philippines (BIMP).

ASEAN triangles, congruent with direct foreign investment and
multinational corporations (MNCs), will remain conduits of
industrialization complementing the Asean Free Trade Area (AFTA)
and the Asia Pacific Economic Cooperation (APEC) process. By
2003, AFTA, covering 15 product groups, would still not be a
fully-fledged FTA. Neither does APEC profess to be one. Both seek
to reduce tariffs to liberalize trade and facilitate investment,
labor and technology transfers.

Progress in IMS-GT:

Progress seems more visible on the Indonesia-Singapore side of
the IMS-GT. Activities across the Johor Straits since the British
era are spontaneous and market-driven. However, Indonesia-
Singapore relations are government-induced and involve greenfield
projects ranging from the formation of the Batam Industrial
Development Authority (BIDA) and Batam Industrial Park (BIP) to
Indonesia's review of its foreign ownership policy.

While clearing immigration and Causeway bottlenecks were
problems for Johor-Singapore, Indonesia and Singapore signed a
Memorandum and Joint Venture Agreement in 1990 to establish PT
Batamindo Investment Corporation (BIC) and Batamindo Industrial
Management (BIM). The most significant Johor-Singapore policy
requiring agreement at the highest level was the construction of
the second link.

With less resource complementation between Indonesia and
Johor, it would be against market forces to forge an artificial
third leg. Neither is there a need for a triangular project
involving all three parties. Bilateral relations dominate and
serve well though all committees involve three parties,
coordinated by the Joint Ministerial Committee meeting bi-yearly.

Ministerial and official committees provide a framework for
institutions and processes to arbitrage ideas and projects in a
structured manner. Political commitment and some politicization
of process and structure may give the needed push which the
private sector cannot secure unilaterally.

Also in 1990, Indonesia and Singapore Coordinating Ministers
signed two bilateral agreements expanding the framework for
economic cooperation to Riau Province, from manufacturing to
tourism activities and negotiating a water contract for Singapore
for the next 50 years. Joint Indonesia-Singapore overseas
investment promotion missions went to Osaka, Tokyo, Hong Kong,
Taiwan and South Korea. A Memorandum of Understanding (MOU) to
develop a luxurious residential-cum-resort Batam Executive
Village for BIP tenants was signed in 1991. The 1992 opening of
BIP marked the completion of IMS-GT's first phase.

An MOU in 1994 marked the second phase and official name
change to IMS-GT. In 1996, West Sumatra Province, Malacca, Negri
Sembilan and Southern Pahang were added. This should provide
larger resource pooling and market potential, with the requisite
coordination. Labor constraints will ease but at the expense of
geographical proximity from Singapore or Johor Baru.

The US$20 million Padang Industrial Park in West Sumatra
developed by state-owned Johor Corporation and the West Sumatra
government concretizes Johor-Indonesia cooperation, which, in
turn, strengthens other bilateral relations. It caters to
manufacturing, production and distribution of electronics,
textiles, ceramics, food products, engineering, packaging and
supporting industries.

Enlarged resource base and market size is no guarantee of
continued economic benefits. New markets in China, India,
Indochina and other ASEAN growth triangles pose competition.
Coordinating ministers must ensure the subregion's attractiveness
and promote Asean and non-Asean investors alike. The improvement
of infrastructure, telecommunications, power generation, road,
air and sea links and the reduction of administrative redtape and
bottlenecks have become imperative. Market forces will guide
investors to the growth triangle that suit them best.

Benefits from IMS-GT reach beyond participating countries. It
has enhanced ASEAN economic cooperation to warrant its upgrading
into an ASEAN project in 1993. ASEAN has also started functioning
as a subsystem in international relations to promote Asia Pacific
economic cooperation. With IMS-GT highly profiled and publicized,
the pressure to succeed, however defined, is high.

Issues and challenges:

The challenge facing the IMS-GT is intense competition from
ASEAN and non-Asean projects including the Greater Mekong Scheme.
Beyond regionalization, globalization is a larger and more potent
force compounded by technology to engender a borderless, seamless
world. Competition for investors and MNCs and markets becomes
more intense.

Although only two ASEAN members are in the Greater Mekong
Scheme, ASEAN has identified two projects involving a trans-Asian
railway link from Singapore to Kunming and a gas pipeline linking
ASEAN with Cambodia, Laos and Myanmar to signal its interest. The
thinking is that ASEAN or non-ASEAN triangles are not zero sum
games as spillovers and wider partnerships lock in regional
economic cooperation and goodwill.

In such a spirit, ASEAN states act directly as collaborators
and indirectly as "guarantors" for areas where investors and MNCs
are hesitant. IMS-GT participation in other ASEAN and non-ASEAN
growth triangles should thus produce "coopetition" defined as
cooperating with a business competitor in an attempt to improve
both parties' performance.

Political competition among growth triangles is, however,
harder to handle. Conflicts between Singapore and Malaysia can
spill over to IMS-GT. After all, IMS-GT fundamentally rides on
bilateralism, not trilateralism and Singapore-Malaysia
bilateralism is currently the strongest side of IMS-GT. Unlike
IMT-GT or the Greater Mekong Subregion (GMS) which have Asian
Development Bank (ADB) backing, there is no external modulating
influence in IMS-GT.

Malaysia and Singapore could be an unbeatable duo twinning in
information technology, telecommunications, port and airport
hubs. Head-on competition between them would not be exemplary, if
nothing else. Hopefully, a more tripartite IMS-GT may dilute
nationalism with regionalism.

Prospects and policy implications:

Though the prospects for IMS-GT remain favorable, some stock-
taking and re-engineering of the concept would be useful. Greater
political commitment and public sector initiatives and policies
must continue to assure private sector confidence, since its
first-comer advantage is diluted as MNCs have more choices and
varieties in other Asean and non-Asean growth triangles. New
capitalist centers advocating liberalization, deregulation and
privatization have created a supercompetitive era and a global
shakeout from which no industry or country can be immune.

As such, stakeholders in the IMS-GT have to reinforce its
intrinsic features with higher skills, information highways and
networks, efficiency and proven track record notably represented
by Singapore and Johor as the leading nodes. The IMS-GT has
garnered sufficient experience and prowess in industrialization
and restructuring to inject its catalytic influence on other
growth triangles and subregions. It has leadership qualities
which should be exploited positively.

Congregating around the Straits of Malacca, the IMS-GT has
unique potentials and advantages. Maintaining safe, secure and
efficient passage through the Straits offers business
opportunities in transport and communications.

The writer is an Associate Professor at the Department of
Business Policy, National University of Singapore.