ANALYSIS ON THE SITUATION OF BATAM SPECIAL ECONOMIC ZONE

Miftah Syarif Harsya

SMA Pribadi Depok
miftah98@gmail.com

Special Economic Zone in Indonesia is defined as, “Regions with specific boundaries within the territory of the Republic of
Indonesia which are set to host specific economic functions and acquire certain facilities.” (UU. No. 25 Tahun 2007). In
these zones, business and trades laws differ from the rest of the country. Broadly, SEZs are located within a country's
national borders. The aims of the zones include: increased trade, increased investment, job creation and effective
administration. To encourage businesses to set up in the zone, financially libertarian policies are introduced.

In Indonesia, the creation of SEZ was inspired by the success of countries that adopted the system of special economic
zones such as India and China. Therefore, in 1971 Batam Island was designated as an industrial zone by the Indonesian
presidential decree. To facilitate the industrial development, the Batam Industrial Development Authority (BIDA) was
established. Batam was chosen because of many factors, such as its proximity to Singapore and Malaysia, its location on the
busy shipping routes, and others. Also, since 1983 Batam was given an administrative city status and in 2000 it was changed
into municipality.

Figure 1.The location of Batam FTZ

As an SEZ, Batam has many problems and complexity, especially on its status as Free Trade Zone. Many black markets
located here because of the tax free regulation on goods entering to FTZ. Also the chance to open black market gets bigger
by its location on the busy shipping routes, so there are some of the ships carrying illegal goods to Batam. The goods that is
sold usually are smuggled electronic devices and gadgets, and lack official warranty. And there are many case of drug
smuggling into the country through Batam. Most of the smuggler came from Malaysia, which is near to Batam, and enter
through Batam Centre International Port. Even in 2012, there are 16 drug smuggling case occurs.

The problems also arise from the dualism of the government in Batam. According to the law, BIDA should be included in
the city’s government and development management together within the municipality. But the law itself does not consider
the assumption of government management, especially in relation to the balance between load and authority as well as
institutional capacity between BIDA and the city’s government. This is caused by an assumption that Batam has the same
condition like other cities in Indonesia. In fact, due to the different historical development and its strategic position, the
island has certain dimensions of a specific nature, in addition to a general nature which is also found in other regions. As the
result, there are conflicts between the BIDA and the government around some circumstances. This condition can affect the
process of making business permits and profit distribution in Batam.

To resolve those problems, there should be cooperation between BIDA, the municipality’s government, and Batam’s
citizen. First, the government of Indonesia should intensify control on the goods carried into Batam, especially along its
coast, because many of the illegal goods in the black market entered through the small illegal harbours located along it. The
citizen and the tourist should not buy those goods, because they just disserve themselves if they still do it. This step also can
be used to stop drug smuggling that occurs many times here. And there must be an obvious distribution of load and
authority between BIDA and the city’s government. It means the law that clearly state this distribution should be available.
Finally, the transportation infrastructure needs more maintenance, so the city would be easily accessed either from inside or
outside of Indonesia, which indirectly boost the economic activity in the city.