THE Indonesian government recently announced plans to develop seven new localities as 'instant special economic zones'. International investors immediately hailed the plan, and Singapore's government is reportedly seeking a concession to manage Bintan as one such zone.

While Bintan is already an established tourist destination, Singaporean investors are increasingly interested in developing the island into a hub for regional agribusiness and aquabusiness. Bintan's attractiveness is obvious: It's located only 48km from Singapore and has extensive undeveloped land and a relatively unspoiled environment.

Yet experience suggests developing a smoothly functioning special economic zone in Bintan or anywhere else in Indonesia would be anything but 'instant'. In this respect, experience in nearby Batam is instructive, where investments have suffered from overlap between a selected and an elected authority.

Only 20km from Singapore and an established destination for large-scale foreign investment, Batam has attracted workers from every party of Indonesia. Since 1971, Indonesia's government has transformed the island from a lightly populated settlement into a bustling regional centre of industry, shipping, communications and tourism.

Until recently, foreign investors flocked to the island for strategic location, cheap labour and inexpensive land. By December 2004, some 750 foreign companies had established operations in Batam, with direct investments totalling US$719 million (S$1.14 billion). Singapore is the largest investor, with 279 companies in operation there and direct investments of US$453 million in total.

However, Batam's road to economic development has been anything but smooth and recent events provide a cautionary tale for 'instant economic zone' plans. Of particular interest are political developments over the last five years, during which the implementation of regional autonomy has resulted in overlapping authorities and, unsurprisingly, confusion and frustration among investors.

Some context is necessary. Technically, Batam is still under the custodianship of the Batam Industrial Development Authority (BIDA), established by presidential decree in 1971.

Importantly, and despite regional autonomy, BIDA remains outside the power of local institutions and retains its monopoly over the island's properties and development policies.

Yet BIDA is no longer the only relevant authority on the island. This is because Batam's new and democratically elected municipal government has now assumed a wide range of authorities, consistent with national laws on decentralisation. Like many other local governments, the Batam municipal government has not been shy in introducing new levies. Issuing (and charging fees) for new industrial licences has proven to be a particularly effective instrument.

Investors have groaned about double taxation and, more importantly, have grown wary of inconsistencies, contradictions and overlaps in the respective policies pursued by BIDA and the municipal government. Evidence now suggests competing authorities and the accompanying uncertainty among investors are damaging the island's economy.

Indeed, between 2000 and 2004, non-oil exports declined by US$1.11 billion, or roughly 20 per cent, and new foreign investments have fallen by 34 per cent over the last year. However, it is reported that tax revenues from the island did increase modestly last year, from US$111.8 million in 2004 to US$117.2 million in 2005.

Recognising the dangers, an increasing number of stakeholders has called for clearer lines of authority.

Ms Nada Faza Soraya, chairman of the Batam Chamber of Commerce and Industry (Kadin), is among the most outspoken. In a meeting at her office in February, Ms Soraya argued that Batam should be granted 'indisputable legal status' and that BIDA and the municipal government be integrated into a single body. Indeed, a national government regulation on the working relationship between BIDA and the municipal government has been under consideration since 2000, but it is yet unclear when it will be put into effect.

Fortunately, while the blurred division of authority on Batam persists, the political landscape of Batam is changing in a way that may just rescue Batam from its 'split personality'. Early this year, Batam citizens voted in their first direct mayoral election. The new Batam mayor, Mr Ahmad Dahlan, is a familiar face to BIDA officials, having worked for BIDA for about 20 years before joining the Riau Archipelago provincial government as a tourism and communications agent.

As a self-identified 'local boy', the Batam born man seems to have taken advantage of his BIDA affiliations in his bid for mayorship. Sworn in on March 1, he is not shy about boasting of his well-rounded relationship with BIDA.

When I met him in late March, Mr Dahlan did not deny rumours that he would invite experienced BIDA officials into several strategic positions in his government, such as head of the Health Office and head of the Local Planning Board.

He insisted that what has kept the two institutions from working together effectively had more to do with 'poor communication' than competition and that his good relationship with his 'colleagues' at BIDA would resolve that problem easily. While the central government's designs on Batam remain murky, personal relations linking Batam's mayor and BIDA may bring about some meaningful change. If Mr Dahlan succeeds in realising his plan to work with BIDA to provide investors with 'one-stop service' for business licensing, Batam's investment climate will see a measure of improvement.

Mr Dahlan also plans to revise 'problematic' regulations and by-laws issued by the previous municipal administrations. Whether and how this thinking will actually affect the organisational interests and behaviour of the two competing authorities is an open question.

But what Batam's pioneering experience shows is the importance of launching plans with a clear legal framework and a clear agreement on the division of authority between different levels of government.

To this end, the Indonesian government ought to clarify how it will 'synchronise' national policies with existing local regulations and by-laws. Resolving the situation in Batam proactively seems more sensible than hoping for a happy realignment of competing local interests.

Dr Nankyung Choi is a post-doctoral fellow at the Institute of Defence and Strategic Studies, Nanyang Technological University.