Indonesia plans to transform three major islands in Riau Islands province into special economic zones (SEZs) in a bid to draw much-needed direct foreign investment.
With the assistance of neighboring Singapore, the development of Batam, Bintan and Karimun islands as special economic zones is hoped to turn them into centers of growth, with multiplier and spillover effects for the economies of both countries.
President Susilo Bambang Yudhoyono and Singaporean Prime Minister Lee Hsien Loong were in Batam on Sunday to witness the signing of a framework agreement on economic cooperation on the three islands. Indonesian Coordinating Minister for the Economy Boediono and Singaporean Minister for Trade and Industry Lim Hng Kiang signed the deal.
Yudhoyono hopes the islands will become more investor-friendly, with more lenient regulations on finance and banking, taxation as well as customs and excise.
"A joint steering committee will report to me and Prime Minister Loong in four months on the challenges being faced and the solutions to them. We're aiming for a one-stop service to cut the high-cost economy so that more opportunities will open up," Yudhoyono said.
The cooperation is being viewed as a win-win proposal for both economies in the long run. Running out of space, Singapore, which has established similar free trade zones with China and India, wants to expand its economic activities on the three islands in the face of growing competition in the region.
Indonesia is expected to benefit from fresh foreign investment and the massive network and promotional skills of Singapore. Provided that the plan proceeds as envisioned, Yudhoyono said the model could be emulated in other areas of the country in cooperation with more countries.
Prime Minister Lee said Singapore would assist Indonesia with investment advice, promotion of the islands as manufacturing investment destinations and capacity building for Indonesian officials and workers.
The most immediate opportunities on the islands lie in shipyards and oil-related equipment, services and industries. Other industries that could be tapped are electronics, garment and tourism.
Investment Coordinating Board chairman M. Luthfie said the revitalization of the three islands could boost exports from the current US$5 billion to $16 billion over the course of five years.
He said the issue of the SEZs would be included in the revisions of the tax and investment laws at the House of Representatives.
Riau Islands Governor Ismeth Abdullah, meanwhile, expects the establishment of the special economic zones to create jobs for some one million workers.
Existing foreign direct investments in the province have provided jobs for only 300,000 workers, he said, with the bulk of those, or 250,000 workers, being employed on the industrial island of Batam.
Businessmen Rachmat Gobel and Angky Camaro, who were present at the signing ceremony, expressed optimism over the agreement. Both men stressed the need to deal with the bureaucracy and administrative hassles of doing business in the country.
The government plans to establish a total of eight SEZs throughout the country, as part of a fast-track scheme to boost foreign direct investment in strategically located regions with good investment climates and business prospects.
Besides Batam, Bintan and Karimun, other planned special economic zones include Bali, Makassar, East Java and North Sulawesi's Bitung island.
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