Place-Based Public Policy in Southeast Asia:
Developing, Managing, and Innovating for Sustainability

Growth triangles differ from other place-based models in that they are broader in geographic area and encompass a greater variety of economic activity than industrial estates. They involve cooperation among villages and provinces from the nations involved instead of among entire nations, as the Asia-Pacific Economic Cooperation Forum and the Association of Southeast Asian Nations do; so they bring different political, investment, and regulatory structures to bear on any given economic activity. Their administration is informal in nature, composed of multilateral memoranda of understanding and working groups that identify the most suitable production locations and facilitate the movement of capital and labor.

Historically, trade activity and cultural similarities linked the populations of rural, mountain, or coastal villages together. The modern development of nation states, however, created somewhat artificial boundaries that prevented many of these adjacent groups from trading and interacting freely. As capital cities developed and traded among themselves, the once cooperative outlying towns became isolated from each other and more dependent on their national capitals for permission to travel and trade on a regional basis. Since 1994, these "subregions"³⁵ have begun to revisit the idea of promoting traditional trade links and are now jointly developing their border areas. This not only creates new industrial and commercial efficiencies, but also new markets, generating growth in less developed areas that lie far from national capitals.

Officials hope increased productivity in these areas will raise incomes and attract migration away from the overcrowded cities. This mirrors the land-planning techniques of industrial estates discussed in chapter 3 and is especially important for Indonesia, which uses growth triangles specifically to implement its policy of promoting development in the outer islands. Indonesia�s Ministry of Industry and Trade reports, however, that these efforts have faced significant hurdles:

[Sub]-regional economic actors face massive handicaps on both the demand and supply sides. [Their] markets are small, in part because of small populations and low incomes, but also because the lack of infrastructure does not permit them to access larger domestic or foreign markets. The same small populations and low incomes limit the size and quality of the local labor force, and, in a vicious circle, scarcity of attractive jobs results in an internal brain drain of educated and skilled workers ... to the center [of the country]. Overall it [has been] cheaper to ship regional natural resources in their raw state to processing centers located in the national "heartland," where both markets and agglomeration economies are located.³⁶

Participant governments have responded to these disadvantages by providing extra financial assistance to outlying communities.

The main objective of the growth triangles is to improve the living standards and quality of life of the population of the participating areas by creating new job opportunities and increased incomes. All growth triangles discussed here share the development of infrastructure as a fundamental goal, followed by an emphasis on local investment, industrial development, agricultural activity, and tourism. By definition, this model has the potential to promote the long-term goals of sustainability, in addition to economic growth and environmental protection, because the model purports to increase economic efficiencies, sound land-use planning, orderly industrialization, and equity in labor and capital markets.

Through this vehicle, participants are attempting to encourage the economic development of entire subregions by taking advantage of opportunities that arise through globalization and trade liberalization and drawing on "underlying economic complementarities and comparative advantages."³⁷ Imagine a project to construct a road between Malaysia and Thailand for which funding comes from Malaysia, technology from Thailand, and human resources from Indonesia and which results in a high-quality product, better-trained work force, and high investment yield.

Participation of both government and the private sector in this model has increased the potential for "best policy practices" in all of these areas and, as such, has attracted investors from all over the globe. The private sector has taken the lead in developing and implementing joint-venture projects within the triangles, whereas governments act as facilitators to minimize legal and procedural obstacles that impede the efficient movement of the factors of production. This approach corresponds with recent government efforts to privatize industries such as mining, manufacturing, and infrastructure (roads, telecommunications, and electric power). In the growth triangle model, "flexibility" is the watchword among public officials who facilitate the processing of permits so growth triangle investors can obtain approvals in local or provincial offices instead of the national level. Officials have also made cross-border travel easier by waiving the exit tax for citizens traveling in designated growth areas, extending the hours for border crossing, and establishing direct flights among outlying areas so travelers do not have to fly out of their way through the capital city.

Participants have also established a three-tier consultative mechanism involving both the public and private sectors. The consultative mechanism functions through separate meetings of working groups, senior government officials, and government ministers.³⁸ Planning efforts at the local and provincial levels have benefited by sharing plans among their triangle partners, thereby coordinating plans for shared facilities and infrastructure. A subregional television network, which is still in development, will disseminate information, increase awareness of neighboring towns and cultures, and advertise services for more than one country at a time.

Participating governments also coordinate incentive programs to entice industries to locate in the growth triangles. These programs include reduced charges for international telephone calls within the triangles, tax relief for certain industries that relocate there from urban areas, subsidies for sea transport of some products, and elimination of cross-border departure taxes between participating areas.

The three primary growth triangle partnerships among members of the Association of Southeast Asian Nations (ASEAN) include the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT), and Brunei-Indonesia-Malaysia-Philippine East ASEAN Growth Area (BIMP-EAGA) (see table 2). Other zones of economic cooperation in Southeast Asia include the Sub-Continental Economic Cooperation (SEC) and the Economic Cooperation in the Greater Mekong Subregion (GMS).

Established in 1994, IMT-GT or the "Northern Triangle" encompasses about 21 million people. It includes the territory of Aceh and provinces of Riau, North Sumatra, and West Sumatra in Indonesia; the states of Perlis, Kedah, Pulau Pinang, and Perak in Malaysia; and the provinces of Satun, Narathiwat, Pattani, Yala, and Songkhla in Thailand.

The areas in which IMT-GT countries cooperate are trade and customs, finance and investment, sea and air linkages, land transportation, agriculture and fisheries, human resource development, tourism, energy, and telecommunications. Already, transportation has improved with the formation of new air linkage, cruise, shipping, and hauling services. Reduced telecommunication fees in the IMT-GT zone have facilitated increased business transactions in the agricultural produce, marine product, and electronic good sectors.

The private sector largely drives these efforts, while the governments of the three countries stay firmly committed to encouraging investment efforts and joint projects. The governments, therefore, have begun easing and harmonizing rules and regulations that pertain to trade, investment, and transportation. With this support, the private sector has succeeding in developing forty-eight joint venture projects, totaling about $4 billion.

Indonesian officials say that because Indonesia�s national economic policy tends to emphasize its advantage in agriculture-based activities, IMT-GT is seen as a good vehicle to empower the other resource-based industries that are part of IMT-GT. Thai officials report that they plan to use Thailand�s industrial estates as the production base in these triangles to reach their country�s development goals for both estates and triangles.

Malaysian officials report increased movement of labor and capital within IMT-GT borders as neighbors have invested in Malaysia�s food-processing, wood-processing, and textile facilities. Malaysia�s private sector has invested in fourteen industrial buildings (primarily textile factories) in Indonesia�s Medan industrial estates, hotels in Medan, and a cold storage facility in Aceh. Malaysian companies have also facilitated trading activities, promoted joint tourism packages, and pursued physical infrastructure projects, such as a proposed "Land Bridge" that would bundle rail, road, gas, and oil pipelines in a route stretching from Penang, Malaysia, to Songhkla, Thailand. The two countries agreed to invest jointly in the trans-Thailand-Malaysia natural gas pipeline portion of the project, which includes a gas separation plant on the coast of Songkhla and a 90-kilometer gas pipeline connecting to a Malaysian gas pipeline. Thailand is formulating a master plan to use the gas for various industrial developments in the participating area.

Although strong business linkages already existed, IMS-GT or the "Southern Triangle" was formally established in 1996 and includes the provinces of Riau and West Sumatra in Indonesia; the states of Johor, Melaka, Negeri Sembilan, and Pahang in Malaysia; and Singapore.³⁹ These areas are close in proximity. Riau is 20 kilometers from Singapore, and Singapore is 1.2 kilometers from Johor. Geographically the smallest triangle, IMS-GT encompasses a total of 12 million people. Its participants focus on transportation infrastructure (water, ports, new ferry services, and roads), tourism, industrial, and agricultural projects.

Throughout the 1980s, Singapore manufacturers systematically moved their production lines to Johor, Malaysia, and Batam Island, Indonesia, with the rise of building rental and labor costs in Singapore. Singapore continues to provide considerable investment, skilled labor, marketing and management practices, and global shipping linkages to enterprises in these two areas, which in turn contribute the land, gas, and water. Of the three countries, Indonesia has the least skilled labor with the lowest resulting labor costs, whereas Malaysian labor is in the middle and Singapore is at the high end of the labor market. This scale means IMS-GT resembles the theoretical growth triangle model most closely, particularly in sectors such as electronics, which has a manufacturing process requiring "complementary" or tiered labor requirements.

Batam, a city in Riau, has since 1970 provided logistical services for offshore oil and gas industries and also manufactures steel, electronics, agricultural items, and textiles for export. Batam hosts almost 8,000 multinational companies, including McDermott, Epson, Halliburton, Hyundai, Matsushita, Philips, Sanyo, Seagate, Siemens, and Sony.⁴⁰ The Indonesian Board of Investment stationed staff in Batam starting in 1989 to process investment applications in a one-stop process in order to avoid sending investors to the capital, Jakarta, to complete paperwork. The Board of Investment offers duty-free import of capital goods and consumer goods as well as accelerated depreciation to manufacturers in Batam. The Batam Industrial Estate Development Authority touts Batam as environmentally friendly, because it has reserved about 60 percent of the landmass as a green area and catchment for local reservoirs. Officials have also begun a program to improve living standards and infrastructure for Batam�s poorer neighborhoods. Officials plan to resettle squatter communities and install drainage and sewers in villages.

In the Indonesian portion of IMS-GT (the towns of Batam and Bintan) "the most successful industrial estates are the estates that are owned and managed by Indonesia-Singapore joint-venture companies"⁴¹ with notable leadership from subsidiaries of Singapore�s Jurong Town Corporation and Indonesia�s Bimantara, Salim, and Astra holding companies. By far, the strongest links in IMS-GT are between Indonesia and Singapore, causing concern among some analysts. They believe that Singapore�s overwhelming investment and management role in this structure has meant that IMS-GT functions less like a triangle and more like two bilateral relationships�one between Singapore and Indonesia and the other between Singapore and Malaysia. Little coordination seems to exist between Malaysia and Indonesia, with the exception of several Malaysian agricultural processing companies that have invested in oil palm plantations in Riau, Indonesia.

The Brunei-Indonesia-Malaysia-Philippine East ASEAN Growth Area (BIMP-EAGA) became a formal entity in 1995 and comprises Brunei Darussalam; the provinces of East and West Kalimantan and North Sulawesi in Indonesia; the states of Sarawak, Sabah, and the federal territory of Labuan in Malaysia; and Mindanao and Palawan in the Philippines. About 50 million people live in these rather far-flung areas.

In contrast to other growth areas that use the strengths of several partners to complement each other, the economic conditions of participants in BIMP-EAGA are quite similar and, therefore, competitive in nature. BIMP-EAGA has been described as an area that lacks "everything except jungle" and comprises many islands with a dearth of industrial development, land-use planning, roads, and ports. Nevertheless, its potential lies in its extensive but largely untapped reserves of natural resources. In 1998 when Thailand and Indonesia experienced negative growth, the local economies of BIMP-EAGA had positive growth between 0.5 and 2 percent.

In BIMP�EAGA, participants focus on physical infrastructure and transportation networks, tourism, agriculture, capital formation and financial services, and human resource development. To expand and develop the infrastructure programs, memoranda of understanding were signed to improve and expand air linkages and telecommunications networks. Shipping lines within the subregion improved with the establishment of ferry services between Zamboanga, Philippines, and Sabah, Malaysia, and between General Santos City, Philippines, and Bitung, Indonesia. Private Philippine companies have invested in food canning and fishing industries in Sabah, Malaysia, whereas Malaysian companies invested in oil palm plantation development in Kalimantan, Indonesia, and in oil and gas exploration in Mindanao, Philippines.

BIMP-EAGA is the first growth area of its kind to institute an environmental working group as one of its formal working groups. The other twelve working groups focus on different industry sectors, such as tourism, fisheries, agriculture and agro-industry, forestry, transport, capital formation and financial services, human resource development, construction and construction materials, and telecommunications. The BIMP-EAGA secretariat is headquartered in oil-rich Brunei.

The Sub-Continental Economic Cooperation (SEC) growth area includes Bangladesh, Burma (Myanmar), India, Sri Lanka, and Thailand. Little information is publicly available on SEC.

The Economic Cooperation in the Greater Mekong Subregion (GMS) comprises Burma (Myanmar), Cambodia, China�s Yunan Province, Laos, Thailand, and Vietnam. GMS incorporates about 225 million people in an area with low-skill labor and underdeveloped consumer markets. Unofficial and unreported trading relationships are believed to be more lucrative than registered ones. Many opportunities exist for partnerships tapping China�s huge consumer labor force and consumer market; iron ore, copper, and mineral deposits in China and Laos; fuel oil in Vietnam, China, and Laos; natural gas reserves in Vietnam and Burma; and finance and marketing experts from Thailand.

The Asian Development Bank has taken an interest in GMS�s potential and has identified the three areas of infrastructure that would need to be developed first, that is, increased intraregional transportation (road, rail, river, and aviation), water and energy supply, and telecommunications. The Asian Development Bank has also been instrumental in developing IMT-GT and BIMP-EAGA, sponsoring conferences and analyses of their resources and capabilities. These efforts have resulted in recommended areas of cooperation and a list of potential projects, which participants used extensively in their planning. Universities within the growth triangles have also conducted research and shared information about potential industries and business opportunities.

Following several years of implementation, participants in many of the triangles believe it is now time for the governments and working group members to evaluate the performance of the growth triangles and find ways to streamline their implementation to make them more effective. These subregional areas still face ongoing challenges that make it difficult to conduct business. These include inadequate infrastructure (particularly water supply), unskilled local labor supply, difficulty clearing and obtaining land titles, perceived inequalities between local businesses and investors that live in the capital cities, and the lack of tenacity among local officials in matching international regulatory and administrative standards.

Participant countries have hosted several business seminars, which have given growth triangle economies an opportunity to describe their resource strengths as well as give briefings about local business practices and investment rules in their areas. Still, however, participants report continued problems obtaining information about basic business procedures. The data are still insufficient when it comes to publishing the simple rules of business transactions within growth triangles�from land utilization procedures to tax structure, labor qualifications, and regulatory requirements�from one province to the next. Even contacting the correct local government officials has challenged businesses interested in operating within the triangles. Solving these logistical problems would allow investors to enter the growth areas with more confidence.