Busy Batam: Bountiful deals for Singapore but no deal with Indonesia?

Updated On: Jun 27, 2006

This week, Batam played host first to Singapore Prime Minister Lee Hsien Loong’s bilateral summit with Indonesian President Susilo Bambang Yudhoyono to enhance economic cooperation, to be followed by Australian Prime Minister John Howard’s meeting with Yudhoyono for a very different concern over the recent worsening rift in bilateral relations.

Yudhoyono met Lee on Sunday to witness the signing of a framework agreement on economic cooperation on the three major islands of Batam, Bintan and Karium islands. This marked Indonesia’s invitation to Singapore to help Jakarta transform the three islands into special economic zones (SEZs) in a bid to draw much-needed direct foreign investment in the hope of turning them into centers of growth, with multiplier and spillover effects for the economies of both countries.  The agreement could see a smoother flow of goods between Singapore and the Riau islands, and make it easier for businessmen to invest in the latter.

Indonesian Vice-President Jusuf Kalla said that Indonesia and Singapore were moving closer to the establishment of special economic zones by combining the strengths of the two countries.  The well-planned infrastructure envisioned could well inject fresh buzz into Batam and Bintan, which are already well known as manufacturing bases.  He said the economic zones located on Batam and Bintan islands would combine the advantages offered by each country for mutual benefit.Singapore, he said, had the capital, marketing system, networking technology and other commercial advantages, while Indonesia offered land and workers.  The economic zones are expected to become more investor-friendly, with more lenient regulations on finance and banking, taxation as well as customs and excise.

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.  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.

While Singapore’s meeting with Indonesia reaped bountiful rewards, it remains to be seen if Howard will go back to Australia empty-handed following meetings with his Indonesian counterpart on Monday and Tuesday.  The Australia-Indonesia talks are seen as vital for improving strained bilateral ties after a rift over Papuan asylum seekers.  Australia's granting of visas to Papuan independence activists seeking asylum was interpreted by Jakarta as an endorsement of Papua's separatist movement, and undermining Indonesian sovereignty. 

Howard had attempted to ease the tension over Australia's acceptance of the Papuan boat people by proposing harsh new measures to deter any further boat arrivals.  Critics in Australia saw the move as a diplomatic sop for Indonesia, leading parliament to block the proposed legislation.  Having failed to get tough new asylum seeker laws designed to placate Jakarta’s concerns through parliament, Howard will be without a key bargaining chip he had wanted to take to Yudhoyono.  This effectively denied Howard a chance to show goodwill towards Indonesia ahead the talks. The unhappiness of the Australians over the release of alleged terrorist leader Abu Bakar Bashir whom Australians held responsible for the Bali bombing will further complicate and sour the atmosphere for the meeting.

Discussions are expected to be tough, analysts said, with both men going into the meeting aware of how positions on the issues causing the tension are hardening in their home countries.

Earlier, there had been reports that Howard and Yudhoyono would endorse a new security treaty at the meeting.  But now both leaders have come out to temper the expectations.  Howard denied reports that he would sign a security pact with Yudhoyono at the meeting, but said a treaty could be discussed.  Indonesian officials also played down expectations the leaders would sign a joint declaration committing them to a security treaty.

Unsurprisingly, analysts have predicted the meeting may be testy.  Mr Bantarto Bandoro, a researcher with the Centre for Strategic and International Studies inJakarta, told The Straits Times: “Domestic pressures could make both men reluctant to cede much ground as far as the issues are concerned, especially since this will be their first meeting after ties worsened.”


Batam security beefed up for key leaders' meetings (The Straits Times/Xinhua/AP/Jakarta Post, 24 June 2006)

RI, S'pore sign deal on economic zones (The Jakarta Post, 26 June 2006)

Less red tape, easier business in Riau islands (The Straits Times, 26 June 2006)

Indonesia meeting on, relations cool (The Age, 25 June 2006)

Howard rules out Aussie visit for Bashir (Sydney Morning Herald, 25 June 2006)

Indonesia puts treaty in doubt (The Age, 24 June 2006)

Uncertainty surrounds SBY-Howard summit (The Jakarta Post, 24 June 2006)

Papua to be main focus of talks between Yudhoyono, Howard (The Jakarta Post, 26 June 2006)

Howard, Yudhoyono to meet in Batam (The Straits Times, 26 June 2006)