Indonesia, Singapore ink economic zones deal

BATAM, Indonesia (AFP) - Indonesia and Singapore have signed an agreement to work together to establish special economic zones (SEZs) on three Indonesian islands.

The aim of the agreement is to revitalise investor interest in the islands of Batam, Bintan and Karimun, which have suffered a drop in investment in recent years due to growing competition from the region, including China and Vietnam, the two countries said Sunday.

The neighbours will set up a joint steering committee to oversee the development of the SEZs on the islands, which are close to Singapore, with the aim of making the business environment there more investor-friendly.

"Success in the SEZs will create win-win outcomes for both sides," Singapore Prime Minister Lee Hsien Loong said at a joint press conference here with Indonesian President Susilo Bambang Yudhoyono.

"It combines the complementary strengths of Indonesia and Singapore into a package that is competitive and attractive to investors," he said.

Lee said he gave full backing to the project after the Indonesian leader expressed interest in February to revitalise the islands.

Under the pact, Singapore will provide support using its past experience in setting up similar SEZs and its leverage as a regional commerce hub to promote the three Indonesian islands.

"This framework agreement emphasises the cooperation in the areas of investment, finance and banking, taxation ... in order to establish an investor-friendly environment in the special economic zones," said Yudhoyono.

"I hope that investors would take advantage of the opportunities that we are going to have ranging from shipyards, manufacturing sectors such as electronics... and even light industries such as garment, tourism, agriculture, aquaculture and education," he said.

Singapore and Indonesia have previously worked together on industrial projects in Batam and Bintan in the late 1980s, creating more than 200,000 jobs as investments poured in.

At one time, industrial output from the three islands accounted for 14 percent of Indonesia's non-oil domestic exports, the two countries said.

But investors' interest in the islands, which form part of the Riau islands located south of Singapore, have waned in recent years due to a more favorable business climate in emerging economies such as China and Vietnam.

"The development of special economic zones is one of Indonesia's strategies to increase direct investment in the country and the improve the country's international competitiveness," Indonesia's coordinating ministry for economic affairs said in a statement.

"The development of the zones in Batam, Bintan and Karimun will make it a centre of growth with multiplier and spillover effects for the Riau Islands as well as the surrounding areas," it said.

Singapore was Indonesia's third biggest trading partner in 2005 and the largest investor in the country with investments worth 3.9 billion US dollars, Singapore's Ministry of Trade and Industry said.

Two-way trade between the two countries totalled 54.2 billion Singapore dollars (33.9 billion US) in 2005, up 11.5 percent from the previous year.
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