T

he incentives to be given to some special economic zones (KEK) should be backed up by infrastructure upgrades; otherwise the policy would not work and miss the stated goals, analysts have said.

On Thursday, Coordinating Economic Minister Darmin Nasution unveiled a number of incentives for eight special economic zones to spur economic activity in the regions.

Latif Adam, an economist at the Indonesian Institute of Sciences (LIPI), was skeptical such incentives would do much to boost the economic zones.

'€œLooking at China, where KEKs significantly moved the industry forward, their zones are supported by three factors, which are infrastructure, good governance and human capital,'€ he said over the phone on Friday.

The incentives announced on Thursday focus only on the governance aspect, he added.

Latif also doubted that all related ministries had the same understanding in assessing businesses that were entitled to the incentives.

Institute for Development of Economics and Finance (INDEF) executive director Enny Sri Hartati likewise said the government did not understand the main factor hampering the development of special economic zones, namely a lack of basic infrastructure, which deterred investors from opening businesses in the designated zones.

'€œIncentives will please investors, but what they need more to realize their investment is basic infrastructure, including power,'€ she said.

The Sei Mangke economic zone in North Sumatra, she added, lacked proper access to the nearest port, Kuala Tanjung, and the port itself was too small for export and import activities.

Besides offering incentives for KEKs, the latest economic package also gives the green light for packaged drinking water companies to continue business after a Constitutional Court ruling earlier this year banned a private monopoly on the nation'€™s water resources.

Amrta Institute for Water Literacy director Nila Ardhianie said Friday the policy sent mixed signals, as the government actually had been discussing new regulations to replace the annulled law. She expressed concern that the new policy would diverge from the court ruling.

'€œThe ruling basically orders the government to limit private ownership in the water business and strengthen the role of state-owned and local administration-owned enterprises in the business,'€ she said, adding that

Currently, 76 percent of the packaged drinking water business in the country was run by foreign companies. Nila'€™s office estimated that the business was worth Rp 61 trillion (US$4.49 billion) last year.

However, Danareksa chief economist Kahlil Rowter said the sixth economy package had the most concrete policy for developing KEKs.

'€œPreviously, for decades the government had only intentions but no concrete action,'€ he said.

The incentives include income tax reduction ranging from 15 to 100 percent for five to 25 years, depending on the business'€™s capital and local resources used.

Kahlil also recommended that the government choose locations that were preferred by investors, such as Batam. Bank Mandiri economist Andry Asmoro said the incentives should be followed by a more general revamping of the KEKs by the government.

'€œWe still need more stimuli to boost industries,'€ he said.

Bank Danamon analyst Dian Ayu Yustina said the management of the stimuli had to be closely supervised by the government to be effective for the country.