Special Economic Zones and the Need for Proper Governance: Empirical Evidence from Indonesia

The relationship between the performance of Special Economic Zones (SEZs) and their governance is an under-researched topic. Despite their popularity as a development policy tool in developing countries, many SEZs fail to achieve their intended goals. A key factor determining the success of SEZs is their governance set-up. This article examines the designs and practices of governance in three SEZs in Indonesia—two tourism-oriented SEZs and one industry-oriented SEZ. Exploring the gap between the theoretical concept of "good governance" and the actual governance practices in SEZ development and operation, the article finds that current governance designs and practices neglect the importance of local contexts, which in turn results in suboptimal outcomes. We therefore suggest that the designs and practices for SEZ governance should be adjusted to reflect local socio-economic, cultural and political conditions. In other words, successful SEZ models should be based on a governance framework that needs to be both "good" and "proper".