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JAKARTA - As Jakarta loses control of its domestic situation, the region confronts a slowdown in foreign investment, a rise in Muslim extremism, and the threat of chaos or even civil war in Southeast Asia's largest country
A Caltex oil plant in Riau, Indonesia. Water and gas supply agreements with neighboring Singapore remain in Limbo while political and social instability in Indonesia rumbles on.
The labor market is overrun with illegal Indonesian migrants. That's the observation of a Malaysian plantation manager from Negri Sembilan, near Kuala Lumpur. He recently brought in a dozen Indonesian laborers for his plantation. Going through the proper channels cost him $525 a head to cover agency fees and work permit charges. It was money down the drain. On the second day of work, a man on a motorbike drove up and offered the workers a dollar a day more than they were being paid. "They all left," says the manager. "This has happened several times before."
So he did something he had not done before: He broke the law. Since illegal Indonesian laborers are plentiful, he figured that if he was going to hire workers who walk out at the drop of a hat, he might as well shell out less for them. The plantation manager paid a broker $70 per head for the services of 20 Indonesians without work permits. "There is no incentive to hire legally," he says. "There are so many illegal Indonesians nowadays that you might as well hire them."
Blame it on Indonesian President Abdurrahman Wahid. Under his erratic leadership Indonesia has lurched from one crisis to another, and the resulting social unrest has caused an increasing number of poor Indonesians to sneak into neighboring states in search of work and security. Unfortunately for countries like Malaysia and Singapore, there is more to the problem than incoming illegal immigrants and law-breaking plantation managers. As Jakarta loses control of its domestic situation, its neighbors are growing concerned at the slowing of foreign investment into the region, the flight of capital from Indonesia, the rise in piracy and Muslim extremism, and the threat of secession and civil war. "It's like watching a bloody tragedy that might suck you into the action," says the CEO of a Singapore-based company with extensive operations in Indonesia.
Few dispute that Wahid, the half-blind Muslim cleric-turned-president, has compounded the already fraught situation he inherited from B.J. Habibie 18 months ago. "Wahid has been a disaster," says Bilveer Singh, a political scientist at the National University of Singapore. "He's not just physically blind, but politically, socially and economically blind. It is very sad." The latest unrest to rock the nation is violent protests triggered last week by a 30% fuel-price hike and a proposal to cut severance pay for workers.
Wahid, who faces impeachment in August because of his mismanagement of the nation, has suggested he will not step aside even if there is gunfire at the presidential gates. He has a body of support in his home fiefdom of East Java that, if mobilized, could clash bloodily with his opponents and precipitate untold carnage. Some even worry the country could break apart. It is a prospect that sends shivers across the region. In Thailand, Withaya Sucharithanarugse, an Indonesia expert at Chulalongkorn University's Institute of Asian Studies, notes: "Indonesia will be in trouble for the next five years, and there is great concern that the turmoil will spread across the region."
Already, foreign companies with interests in Indonesia are feeling the heat. The Singapore CEO complains: "You can't plan for your Indonesia operations. You can't make long-term decisions. You can't attract finance. You can't do anything." One observer points to the difficulties experienced by Singapore car distributor Cycle & Carriage, which has a controlling stake in Indonesian automaker Astra International. "Car sales in Indonesia last year went up 300%. You've got a booming industry, you've got a good company, yet the share price [of Astra] is depressed," he says. "This is a good example of a company that should be doing well if the macro-indicators were doing better, if the rupiah were doing better and if the political situation stabilized."
Which is why most of the region's businessmen are in a holding mode when it comes to their Indonesian interests. "Obviously, no new investments," says Razak Baginda, executive director of the Malaysian Strategic Research Center. "A lot of businessmen are cutting back, putting aside operations, reappraising, not making any movement. It's a kind of a wait-and-see thing."
The numbers tell the story. In 1997, the year Asia's financial crisis began, foreign direct investment in Indonesia was $33.8 billion. Two years later, it had fallen to $10.9 billion. With the initial optimism sparked by the advent of the Wahid presidency, the figure crawled back up to $15.4 billion last year. Now, after Wahid's woeful performance, the figure for the first quarter this year just $3 billion suggests that 2001 will see another fall. "The Indonesian manufacturing sector has been hit hard," says Graham Hayward, executive director of the Singapore International Chamber of Commerce. "We estimate that since 1998, industrial output has dropped by as much as 60%."
The climate of uncertainty has even affected government projects. Political scientist Bilveer points out that Singapore's critical water and gas agreements with Indonesia remain in limbo, with details yet to be finalized. "As long as there is no stability and no credible government in Indonesia," he says, "these things which have been in the pipeline for more than 10 years will continue to be difficult to move." Last month, Singapore businessmen flocked to a conference in nearby Batam, Indonesia, organized by the region's chambers of commerce. The event was attended by Wahid's likely replacement, Vice President Megawati Sukarnoputri. Hayward recalls: "People told her they were not going to start investing in Indonesia again until stability was restored and they had faith in the new situation."
But of greatest concern to Indonesia's neighbors is that they are being tarred with the same brush by Western investors. A recent survey found Indonesia to be least favored by regional fund managers along with neighboring economies like Malaysia, Singapore, Thailand and the Philippines. "We must not forget that among elements to promote investment in our region are the political situation, peace and stability," said Malaysian Foreign Minister Syed Hamid Albar at the G-15 developing-nations summit last month. "Malaysia is always praying for the political situation in Indonesia to be restored."
If there is little movement of investment into Indonesia, there is plenty of movement out of both capital and people. Local businessmen are looking for investment opportunities abroad, while affluent Indonesians are parking their wealth and sometimes their families as well overseas. "The amount of money that Singapore banks have on deposit from Indonesia is quite considerable," says Hayward, adding that Indonesians have also been buying up property. "We have 96 units in my condominium, and about 14 or 15 are owned by Indonesians. A lot of the flats are left empty or just have the wives and children staying in them while the husbands go back to work."
Their poorer compatriots are on the move, too. A popular destination is Malaysia, a fellow Muslim state where they can speak the language. No one knows for sure how many Indonesians there are in Malaysia, but recent estimates suggest it may be as high as 2 million almost a tenth of the population. Last year, Kuala Lumpur deported 90,000 Indonesians who had entered illegally, but this year that figure will almost certainly increase. In May, some 6,000 illegals were arrested a massive jump from the 200 to 300 that were caught on an average month last year.
The specter of a flood of illegal immigrants has Malaysians fretting about the possible rise in crime and violence. "Malaysia has always been petrified of Indonesia due to its size and population," says regional strategist Razak. "Look at Kalimantan just across our border and what happened there with the Dayaks chopping off heads. Our biggest nightmares are turning into reality." While Indonesians in Malaysia are not likely to be running around with machetes, outbreaks of violence are always a reality in Malaysia's already crowded holding camps for illegal immigrants. Also, as Indonesian migrants are mainly moving into the plantation sector, traditionally dominated by Malaysia's ethnic Indians, there is a heightened risk of racial unrest. To head off such dangers, Malaysian authorities have stiffened penalties for human trafficking and stepped up patrols along the southwest coast, a popular landing area for illegal entrants.
Compounding the fears of Indonesia's neighbors is piracy. The Strait of Malacca, which separates the Malaysian peninsula and the Indonesian archipelago, has always been a favorite haunt of modern-day buccaneers, accounting for nearly three-quarters of the world's pirate activity. Should Indonesia break up, the problem is likely to worsen. "If you get one of the states like Riau breaking off and it can't effectively police the waters, then you're going to get a situation where it becomes a haven for pirates," says Melina Nathan, associate research fellow at Singapore's Institute of Defense and Strategic Studies. "In fact, I think that is already happening." According to the International Maritime Bureau, 72 seamen were killed in pirate attacks last year, a stark contrast to just three in 1999. The Jakarta government has been too preoccupied with other problems to combat piracy off its shores; at the same time, Indonesians impoverished by their country's economic turmoil are turning to high-sea banditry.
Then there is the worry over the rise of extremist Muslim groups. Indonesia's radical Islamic movements like the Laskar Jihad, already known for their murderous rampages in the Malukus, could exploit the lack of order in the country and accelerate their influence across the region. "Many people have lost their jobs or had their family members killed, so they have nothing to lose and are willing to fight for God," says Fadhil Lubis, an Islamic scholar based in Medan, North Sumatra. Areas with restive Muslim minorities, such as the southern Philippines and southern Thailand, are vulnerable to the fundamentalist contagion, as is Malaysia, which is grappling with its own Muslim radicals. Razak asserts that Indonesian extremists are already moving into Malaysia. "Unfortunately the Malays are quite susceptible to all this influence," he says. "We are walking on a tight rope."
Even if the worst fears of Indonesia's neighbors do not come to pass, it is clear that much damage has already been done to the region as a whole. The Association of Southeast Asian Nations, for one, has not done its own image much good by displaying almost total apathy in the face of the turmoil raging in its traditional leader and largest member. "ASEAN has somewhat been limping along as an organization," says Bilveer. "It has not shown its true mettle as far as the Indonesian crisis is concerned."
Southeast Asia's attractions as a business destination have also taken a knock. Many are bracing for a regional decline in investment from companies in Europe and North America, which often simplistically view Southeast Asia as a unit. "After all, Indonesia is half the region," says Bilveer. "It's a major treasury of resources, and it's a major market. If that place goes bust, then nowhere in Southeast Asia can escape the repercussions." Close neighbors Malaysia and Singapore are likely to suffer the most. "Singapore wants to position itself as a hub, and it loses out if the whole region is seen to be declining in stability and utility compared with Northeast Asia," says Nathan. "If you are looking to base yourself in a hub for the area, Hong Kong now makes more sense."
Unfortunately for Southeast Asian economies, the end to the crisis is nowhere in sight. Even if there is a peaceful transfer of power in Jakarta, few believe that a Megawati government will change things for the better in the short run. "Nobody sees her as revitalizing Indonesia overnight," says one Singapore businessman. "They do not have the equivalent of a Lee Kuan Yew waiting in the wings, and that's the worrying thing."
Which is not to say the return of a Suharto-like authoritarian figure is a good idea. "You can't turn back the clock," says Nathan. "There have been certain international trends that make it quite difficult for the Suharto way to prevail anymore. I don't think returning to dictatorship is a solution." Razak is less picky about what kind of leader does the job. "We don't care who rules the place, with an iron fist or whatever, so long as the country remains intact," he says. "Our interest is not to see Indonesia democratic, but to see it stabilize." Unfortunately for Indonesia and its neighbors both democracy and stability will probably be under threat in the country for some time to come.

Kemal Jufri for Asiaweek

Posted in Politics @ 23 June 2001 by Jeroen · 'Blog' RSS feed · permalink

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