vii

PREFACE

Praise to the Lord Jesus Christ for the entire blessing that He has given to

the writer so this Thesis can be completed properly and submitted punctually.

This Thesis entitled “THE DYNAMISM OF INDONESIA-SINGAPORE

BILATERAL INVESTMENT COOPERATION: THE CASE OF FREE TRADE

ZONE IN BATAM 2005-2009” is intended to fulfill the requirement of academic

terms in order to obtain Bachelor Degree of Social Sciences at Faculty of Social

and Political Sciences, University of Pelita Harapan, Karawaci, Tangerang.

I realized that there are many advice, supports, and prayers from people

during the process of writting this thesis. Therefore, the writer would like say

thank you to all people who have helped in the process of making this thesis,

namely to:

1) Prof.Aleksius Jemadu, Ph.D., as the Dean of Faculty of Social and

Political Sciences.

2) Roy Vincentius Pratikno, B.Sc, MM., as the Head of International

Relations Department.

3) Edwin M.B Tambunan, S.I.P, M.Si., as the thesis advisor who has given

directions, ideas, time, and encourage to the author in order to form a

well-written thesis.

4) Ignatius Ismanto, M.Si., MA., as the thesis co-advisor who have given

idea, time, and advice to the author.

5) Andri Oarto, S.T., M.Cont.Mgmt, who helped and supported the author,

as a scholarship student in Faculty of Social and Political Sciences in

Department of International Relations, to settle academic administration

from the first semester until the last semester.

6) All the lecturers in International Relations Department; Ms. Nia Larissa

Purba, Mr. Bhatara, Ms. Sylvia Maladi, Mr. Rully Mangunsong, Mr.

viii

Indra K, Mr. Wibawanto, Mr. Jerry Sambuaga, Mr. Affan and other

lecturers in UPH who have taught the author since the first semester until

the last semester.

7) All the staff in Faculty of Social and Political Sciences; Mrs. Endah, Ms.

Ester, Ms. Helen, Mr. Kuku and others who have helped the author from

the first until the last semester.

8) Mr. Raj Kumar as The Consul of Consulate of The Republic of Singapore

who gave his time and explanation to the author about the Singapore’s

perspective on FTZ Batam during the interview.

9) Mrs. Esni, Mrs. Tuti, Mrs. Kindi, and Mr. Wildan as the staff of Batam

Industrial Authority (BIDA) who help the author to get data and

information about FTZ Batam for this research.

10) My beloved parents, Ranto Pakpahan and Bertha Siahaan, who supported,

encouraged, loved and prayed to the author.

11) My beloved brother, Rein Pakpahan, who gave his love and support to the

author.

12) My Big family; Tulang and Nantulang Simson, Maktua Joan, Maktua

Jondri, Bou Desti, Bou Sri, Bou Ani, Bou Henti, Uda Agus, Uda Loyen,

Maktua Albert, and Bapatua and Maktua Ebby who gave their support

and prayers to the author.

13) Kristian Sitorus who gave his love, support, and encouragement to the

author during this thesis making.

14) My cousins; Joan, Desi, Cardo, Ari phetot, Dinan, Febe, Melva, Ebby

who gave their support to the author.

15) My MYC family; Mr. Steve Metcalfe, Mrs. Rebecca, Mr. Renee and Mrs

Melanie, Mrs. Mini, Ci’Lia, Ci’Evi, Ci’Nina, Ci’Michelle, Jessica,

Marlene, Ester, Terryn, Cindy, and all the dormitory girls under my

supervision from year 2008-2011 who gave their support, understanding,

and care.

16) My CWners friends; Mia Febrina, Della, Fajar, Recky, and Phytie who

have been there to cheer up and support the author.

ix

17) My IR friends; Jessica Helmi, Geby, Ines, Dian, Poppy, Fiona, Agnes

Natalia, Agnes Susanto, Vicky, William,Steven, Richard, Selvie, Stella,

Gia, Lenny, Monic, Clorinda, Jessica Angkasa and others who help and

supported to the author.

18) My High School best friends; Yunita ND, Sally, Aisyah Nur Utami who

gave their care and support to the author.

19) Gina Karina and Mariska who help the author by giving information and

share their experience about thesis.

20) Mr. Amos Garcia who helped the author review and check the English of

this thesis.

21) All people that cannot be mentioned personally who help and support the

writer to accomplish this research.

I realize that there are still many imperfections in this Thesis. Therefore, I

apologize those imperfections. Critiques and suggestions from readers would be

very useful. Hopefully, this Thesis can be useful to anyone who reads it.

Karawaci, July 2011

Author

x

TABLE OF CONTENTS

COVER STATEMENT OF THESIS ORIGINALITY THESIS ADVISOR APPROVAL BOARD APPROVAL ABSTRACT ........................................................................................................... v PREFACE ............................................................................................................ vii TABLE OF CONTENT ........................................................................................ x LIST OF FIGURES ........................................................................................... xii LIST OF TABLES ............................................................................................. xiii LIST OF APPENDICES................................................................................... xiv CHAPTER I INTRODUCTION

1.1Background .................................................................................................... 1

1.2 Research Problem ......................................................................................... 6

1.3 Research Goals ............................................................................................. 7

1.4 Research Significances ................................................................................. 7

1.5 The Organization of Thesis .......................................................................... 8 CHAPTER II ANALYTICAL FRAMEWORK

2.1 Economic Liberalism ................................................................................. 10

2.1.1 Interdependence in Economic Liberalism ........................................ 13

2.2 International Cooperation ........................................................................... 14

2.2.1 Bilateral Relations ............................................................................ 17

2.2.2 National Interest ............................................................................... 18

2.3 International Trade and Business ............................................................... 18

2.4 International Investment ............................................................................. 22

2.5 Trade Agreement ........................................................................................ 24

2.6 Free Trade Zone ......................................................................................... 26

2.7 Analytical Framework ................................................................................ 29

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CHAPTER III RESEARCH METHODS

3.1 Scope of Research ....................................................................................... 30

3.2 Research Types and Methods..................................................................... 31

3.3 Types and Sources of Data.......................................................................... 32

3.4 Data Collecting Techniques ........................................................................ 33

3.5 Data Analysis .............................................................................................. 34 CHAPTER IV DATA AND ANALYSIS 4.1 Indonesia and Singapore in Investment Cooperation.................................. 37

4.1.1 Indonesia’s National Interest: The Need for Investment.................... 38

4.1.2 Singapore’s National Interest: The Need to Invest Abroad ............... 41

4.1.3 Indonesia-Singapore: The Interdependence in Investment ................ 44

4.2 The Development of Free Trade Zone (FTZ) Batam ................................. 47

4.2.1 Batam Island as Free Trade Zone ..................................................... 47

4.2.1.1 The Economic Potential of Batam Island............................. 55

4.2.2 FTZ Batam; Domestic Policy with International Gain ..................... 59

4.2.3 From A Negotiation To An Agreement ............................................. 59

4.2.4 Indonesia-Singapore’s Closer Ties .................................................... 62

4.3 The Progress of Free Trade Zone (FTZ) Batam.......................................... 63

4.3.1 The FTZ Policy; Domestic Policy within Bilateral Agreement ........ 66

4.3.2 The Level of Investment Activities .................................................. 68

4.4 Higher Investment: The Impact of FTZ Batam .......................................... 75

4.4.1 The Advantages of Batam as Free trade Zone................................... 78

4.4.2 Other Investment Aspect Besides Money.......................................... 84

CHAPTER V CONCLUSION AND RECOMMENDATION 5.1 Conclusion................................................................................................... 86

5.2 Recommendation ........................................................................................ 90

BIBLIOGRAPHY………………………………………………………………91

APPENDIX

xii

LIST OF FIGURES

Figure 2.1 The Analytical Framework ................................................................. 29

Figure 4.1 Singapore’s Direct Investments Abroad by Region............................. 42

Figure 4.2 Map Between Batam and Singapore .................................................. 56

Figure 4.3 Singapore Investments in Indonesia 2005-2009 (In US$ Billion)....... 73

Figure 4.4 Amounts of Foreign Investments in Batam by Country up to December

2010 (in US$ Million) ......................................................................... 77

Figure 4.5 Foreign Investments Growth in Batam Year 2000-2010

(in US$ million) .................................................................................. 79

Figure 4.6 Work Force Growth in Batam.............................................................. 80

xiii

LIST OF TABLES

Table 4.1 The Development of Realization of Foreign Investment in Indonesia

Year 1999-2008.................................................................................... 40

Table 4.2 The Development Periods of Batam Island .......................................... 53

Table 4.3 Survey Result on Political and Economic Risk..................................... 58

Table 4.4 Major Destination of Singapore’s Investment in Asia 2005-2006........ 69

Table 4.5 Major Destination of Singapore’s Investment in Asia 2006-2007........ 70

Table 4.6 Major Destination of Singapore’s Investment in Asia 2008-2009........ 71

Table 4.7 Singapore Investments in Indonesia 2005-2009 ................................... 73

Table 4.8 Statistic Of Investment in Batam 2005-2009 ........................................ 75

Table 4.9 Batam’s Revenue in Billion Rupiah...................................................... 80

xiv

LIST OF APPENDICES

APPENDIX A

1. Final Project Monitoring Form (Advisor) ....................................................... A-1

2. Final Project Monitoring Form (Co-Advisor)................................................. A-2

3. Request For Permission of Research Form ..................................................... A-3 4. Official Statement Letter From Batam Industrial Development Authority ... A-4

5. Statement Letter From Consulate of The Repubic of Singapore ................... A-5 6. Proof of External Reader by Amos Garcia...................................................... A-6

APPENDIX B

1. Government Regulation No 46 of 2007 .......................................................... B-1

2. Indonesia Law 44 of 2007 about "Determination of Government

Regulation in Lieu of Law No Year 2007 About the Amendment Act No. 36

Year 2000 About the Determination of Government Regulation in Lieu of

Law No. 1 Year 2000 About the Free Trade Zone and Free Port Act ................ B-2

3. Law of The Republic of Indonesia No. 25 of 2007......................................... B-3

4. Singapore’s Investment Abroad 2006-2009 ................................................... B-4

5. Political and Economic Risk Consultancy Batam Risk Report ...................... B-5

6. Foreign Visitors Report in Batam .................................................................. B-6

7. Export Report in Batam................................................................................... B-7

8. Tax Revenue in Batam .................................................................................... B-8

9. Workforce Growth in Batam........................................................................... B-9

10. Economic Indicators in Batam 2002 to 2010 .............................................. B-10

APPENDIX C

1. Curriculum Vitae............................................................................................. C-1