The Framework Agreement on Economic Cooperation that Indonesia and Singapore signed Sunday could be the best chance of quickly regaining investor confidence in the Riau islands of Batam, Bintan and Karimun, and in Indonesia in general
Singapore, with its excellent logistics capabilities, superb transportation and financial facilities, is well positioned to provide a synergistic cooperation with Indonesia, which is rich in natural resources and has a vast pool of low-cost, easily trained labor, in developing highly competitive special economic zones (SEZs) on the three islands.
Since Singapore is the regional base for more than 6,000 multinational companies, and is well known for its high standards of good governance in both the public and private sectors, the city-state also can help Indonesia attract foreign investors and accelerate its institutional capacity building.
The Joint Steering Committee and Joint Working Group the two governments set up to implement the economic cooperation could become the most effective interministerial task forces for implementing all the reforms and facilitating the building of all the physical infrastructure needed to turn the three islands into SEZs. The steering committee will certainly be tasked with policy-making and oversight, and the working group will be in charge of policy implementation.
However, the framework agreement just signed is simply a cooperation commitment that has yet to be implemented. We are fully confident in the political commitment and institutional capability on the part of Singapore to deliver on its side of the bargain. Singapore's experience in successfully developing SEZs in China and India, which happen to be two of Indonesia's keenest competitors for foreign investment, will also be a good asset for developing similar concepts on the three islands.
However, Indonesia has yet to prove it is really serious about developing the three islands into SEZs. The political commitment at the top exists, as evidenced by the presence of President Susilo Bambang Yudhoyono and Singapore Prime Minister Lee Hsien Loong at the signing of the agreement. The fact that it was chief economics minister Boediono who signed the deal for Indonesia seems to show an awareness right from the outset of the need for interministerial coordination to develop the SEZs.
To succeed, special economic zones require superior logistical efficiency, which is anchored on the fast flows of goods, labor and documents. All this in turn requires efficient tax administration and customs and immigration service, flexible labor regulations, efficient business licensing and superb international financial networks. President Yudhoyono rightly talked about a one-stop service for investment and business licensing in the SEZs.
Unfortunately, these areas are precisely among the weakest points within Indonesia's public sector governance. The slow implementation of reforms in the infrastructure and investment sectors, which were launched in the first quarter of this year, and the failure to develop the Investment Coordinating Board as a one-stop administrative center for investment licensing shows an acute lack of institutional capacity within the public sector.
It was therefore a strategic decision to focus the Framework Agreement on Economic Cooperation on streamlining customs and immigration services and improving tax administration, the investment climate and financial and banking facilities, as well as accelerating capacity building for Indonesia's public sector. The Singapore-Riau partnership also will enable manufacturers to combine Singapore's capabilities in research and development, prototype manufacturing, testing and distribution with natural resources and lower labor and land costs on Batam, Bintan and Karimun islands.
At the end of the day, though, the success of the Indonesia-Singapore cooperation in developing the SEZs will rely on the political commitment and leadership of of the Riau administration and its awareness of the vital importance of new investments to build up the regional economy.
We rest assured that Riau Islands Governor Ismeth Abdullah, who in his earlier capacity as the chief of the Batam Development Authority built up experience and expertise in developing a bonded industrial zone in Batam, will be able to provide regional leadership for SEC development on the three islands.
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