Batam, Indonesia, 25 June 2006 – President Susilo Bambang Yudhoyono and Prime Minister Lee Hsien Loong today witnessed the signing of a Framework Agreement on Economic Cooperation in the Islands of Batam, Bintan and Karimun. The Agreement, signed by Coordinating Minister for Economic Affairs Boediono of Indonesia and Minister for Trade and Industry Lim Hng Kiang of Singapore, is aimed at cooperation to develop Special Economic Zones (SEZs) in the mentioned region, as well as possible other areas located elsewhere in Indonesia.

The two Leaders believed that the successful implementation of the Framework Agreement is important to guarantee the development of internationally competitive special economic zones in the region, and to serve as a model for the development of additional special economic zones in other parts of Indonesia. It is a clear sign of the political commitment from both sides to develop this area into a viable and dynamic center of growth with clear mutual benefits for both countries.

The SEZs development will be based on the principles of clear institutional structures, consistent policy framework, streamlining of investment procedures, development of efficient infrastructure, and

effective zone administration and management.   The scope of cooperation

that will be included in the zones will be investment, finance and banking, tax, customs, immigration, manpower, capacity building and other possible areas of cooperation. Other than cooperation to develop the special economic zones, cooperation will also include in the tourism, agriculture, aquaculture, small and medium sized enterprises, training and human resource development, and educational services.

Strategic Objectives and Mutual Benefits The development of special economic zones is one of Indonesia’s strategies to increase direct investment in the country and to improve the country’s international competitiveness. A National Team chaired by Minister Boediono currently is finalizing the policy framework for special economic

zones.   The framework will include identifying a set of criteria that

needs to be fulfilled by areas to be determined as zones, and agreeing on a set of policies that will be provided in the zone; and most importantly providing international best practices in terms of investment servicing and institutions.  Such policies would include amongst others, duty and VAT free inputs for re-export purposes with simplified procedures for the movement of goods, work permit and visa facilitation, and most importantly an integrated investment service authority where an investor can process all the necessary licenses and documentation, as well as take up any issues and problems.

It is envisaged that economic cooperation will be to enhance the consistency of the implementation of the special economic zone concept.

While the policy framework in developing SEZs in Batam, Bintan and Karimun remains under the Indonesian policy framework, Singapore’s experience in developing similar zones in other countries will certainly support a successful and effective implementation. However, the cooperation does not preclude Indonesia from cooperating with other countries to develop special economic zones in the islands and elsewhere.

The establishment of SEZs in Batam, Bintan and Karimun will bring benefits in terms of investment, growth, job creation and foreign exchange earnings to Indonesia.  The most immediate evident opportunities are in shipyards

and oil related equipment and services.   Already 80 percent of oil

supporting business in Indonesia are located in Batam such as casing and tubing, engineering, procurement and construction and drilling rig construction.  There is also the potential to further develop oil related industries in this area, whether it be storage or refinery facilities, and petrochemicals.  Given high oil prices there will be increased demand from Indonesia, as well as elsewhere. There are also already a number of shipyards such as which have plans to expand.  In both shipyards and oil supporting industries, there are also an increasing number of interested investors from other countries.

In the manufacturing sector, strategic priorities will be to develop and upgrade existing sub-sectors which are already strongly represented in Batam and Bintan like electronics, chemicals and precision equipment, as

well as light manufacturing such as garments.   Other areas of mutual

benefits would be in the tourism and wellness industry such as resorts and the potential synergies with the Singapore convention and exhibition business; agriculture and aquaculture; and various service industries.

There is also potential in training and education activities to service the needs of the special economic zones, as well as wider.  The Batam Polytechnic inaugurated by the President today, is already a concrete example of Singapore and Indonesian cooperation in such capacity building.

The development of the zones in Batam, Bintan and Karimun will make it a center of growth with multiplier and spillover effects for the Riau Islands as well as the surrounding areas.  The successful implementation of special economic zones in these islands will become a model to be quickly replicated in other strategic regions in the rest of Indonesia.

The Government’s decision to have Batam, Bintan and Karimun as the first SEZ is because they have good infrastructure, large existing number of foreign and domestic investors, and located strategically, so most ready to take off and develop in a short time.

The Scope and Implementation of the Agreement The Framework Agreement will be implemented by the setting up of the Joint Steering Committee (JSC) with co-chairs Minister Boediono and Minister Lim Hng Kiang. The JSC will meet within three months time to agree on the action plan for implementing the cooperation and adopting market oriented

proposals.   The action plan will be implemented by the Joint Working

Committee (JWC) which comprises of co-chairs Mari Pangestu, Minister of Trade from the Indonesian side and Mr. Lim Siong Guan Chairman of Economic Development Board, from the Singapore side.

The action plan will include the short term priority of resolving immediate issues and problems faced by investors in the area, and ensuring the substantive improvement of implementation of existing policies. At the same time the action plan will outline the needed actions by a specified timetable, identifying policy framework of the special economic zone, and building up the needed integrated investment service unit, the management and monitoring systems, and the human resource support.

Source : The Coordinating Monistry for Economic Affairs