He is optimistic that with the right attention, zones can be a success

INVESTORS have been leaving Batam, but Minister Mentor Lee Kuan Yew is optimistic that problems in the Riau Islands Special Economic Zones (SEZs) have a chance at being solved.

With the right attention, the zones can be a success. He gave this assessment after a half-day trip to Batam and a "four-eye" meeting with Indonesian Vice-President Jusuf Kalla yesterday.

Mr Lee heard the problems first-hand when he toured the Batamindo Industrial Park, which is managed by SembCorp Park Holdings.

Among other things, unions have rocked industrial relations, pushing wages up by 29 per cent last year.

Corruption from officials is more prevalent and investors are also increasingly concerned about terrorist threats.

Mr James Kong, the chief executive officer of eye-care company CIBA Vision, a tenant at the park, recounted to Mr Lee one example of the problems the company faced: Tax officials pored over minute details and made things difficult to pressure managers into giving kickbacks.

All these difficulties combined to push the park's tenant numbers from a peak of 96 in 2001 to 83 today. The number of workers employed there has also shrunk as a result, from 85,000 to 65,000.

SembCorp Park Holdings executive chairman Low Sin Leng told Mr Lee that investors, especially the Japanese, were migrating to other countries, with Vietnam a popular destination.

But Mr Lee said he believed the trend could be reversed in three years if all onboard were determined to fix the problems.

After his meeting of more than an hour with Mr Jusuf yesterday, he expressed hope that Jakarta could solve the SEZs' woes.

"If he gives it attention, if he is hands on, I would say there's a chance that it could succeed," said Mr Lee, referring to Mr Jusuf. "But if it's just left to the bureaucracy, we may try our best, but it will be defeated by the system."

He added that Mr Jusuf "showed a certain willingness to spend time and effort to oversee the problems and get it right".

The problems, he said, began when increased regionalisation in Indonesia saw governors and mayors asserting themselves, as they are now elected instead of being appointed by Jakarta.

He stressed that the problems could only be ironed out by the Indonesians. "We will help them the best way we can, but some things on the ground we cannot fix, they have to fix it," he said.

Referring to the pressures tenants faced from officials, such as harassment over tax and other paperwork, he said investors did not have to put up with that and could go elsewhere.

Singapore and Indonesia inked a new economic agreement in June to revitalise the Riau islands of Batam, Bintan and Karimun.

Under the pact, the two nations will set up SEZs to draw more investment and boost economic growth in the area.

It could see a smoother flow of goods between Singapore and the Riau islands, and make it easier for businessmen to invest by simplifying procedures for work permits and visas.

There will also be an investment service authority to help businessmen deal with licences and documentation.

The seven areas targeted to draw investors are in investment, finance and banking, taxation, customs and excise, immigration, manpower and developing capability.

Prime Minister Lee Hsien Loong, who witnessed the signing of the pact with Indonesian President Susilo Bambang Yudhoyono, said at the time that he hoped the SEZs could refresh earlier efforts by Singapore and Jakarta to draw investment to the Riau province.

While these had created more than 200,000 jobs from 1990 to 2000, investment had tapered off in recent years, PM Lee had noted. The two countries also hope the SEZs could be a model for similar projects to be started elsewhere in Indonesia.

Yesterday, as MM Lee emerged from his meeting with Mr Jusuf, he told the waiting media that the SEZs may be replicated across Indonesia. He cited China's experience. "Deng Xiaoping started the special economic zones along the coast, 12 of them, succeeded, expanded, duplicated and now almost the whole country is a special economic zone," he said.