REGION: Indonesia's nervous neighbors
Far Eastern Economic Review
Feb 26, 1998

Nervous Neighbours
    By Ben Dolven in Singapore
 And Murray Hiebert in Kuala Lumpur
    * With Salil Tripathi in Jakarta
    615 Words

It was an extremely direct remark, even for a man famed for putting
things bluntly. At a dinner with his constituents on February 7,
Singapore's senior minister, Lee Kuan Yew, said the Indonesian rupiah
would weaken again if financial markets were uncomfortable with
Indonesia's choice of its next vice-president. Lee didn't name B.J.
Habibie, the man likely to get the nod, but his meaning was clear.
Markets had pounded the rupiah, he said, because President Suharto's
statements "pointed to a minister whom they associated with Indonesia's
high-cost projects."
   That brought objections from Habibie, and dozens of people
demonstrated the next week in front of Singapore's embassy in Jakarta.
But while Lee's speech touched a raw nerve there, it also brought the
concerns of Indonesia's neighbours into the open. As financial problems
have pushed Indonesia closer to social chaos, both Singapore and
Malaysia have grown palpably fearful -- not just of another round of
regional financial panic, but also of the possibility that they could be
swamped by Indonesian refugees.
 In mid-February, Singapore's English-language newspapers, usually
very careful about reporting events in Indonesia, put anti-Chinese riots
in Java on their front pages. The Chinese-language press was even bolder
-- Shin Min Daily News carried large photos of Indonesians looting
Chinese-owned shops and a headline that noted the rioters' chant:
"Chinese, Get Lost." Rumours abound that Malaysian and Singaporean naval
forces have been put on alert to stave off an Indonesian influx, though
neither government has confirmed them.
   The alarm has led both Malaysia and Singapore into delicate
diplomatic waters in a region where noninterference in others' internal
affairs is a mantra.
   Prime Minister Goh Chok Tong has visited Jakarta three times since
October, offering financial assistance and a proposal for
trade-financing guarantees. But with each offer, Singapore has backed
the International Monetary Fund's reform recommendations. As Indonesian
policymakers move towards pegging their currency to the U.S. dollar,
Singapore's expressions of anxiety have grown. Goh said on February 16
that he was concerned about Indonesia's intention to adopt the
controversial currency-board plan.
   It's a tricky situation for Singapore, a mostly Chinese nation
surrounded by large Muslim countries. "Singapore faces a dilemma right
now," says Bruce Gale of the Political and Economic Risk Consultancy.
"On the one hand it has to identify itself with Southeast Asia. On the
other hand its economic interests lie closer to those of outsiders."
   While Malaysia's comments about Indonesia have been more cautious,
its fears are no less tangible. Malaysia has 2 million foreign workers,
70% of them Indonesian. And the ringgit has fallen with nearly every
plunge of the rupiah. "As Indonesia is a close neighbour, it is only to
be expected that we are concerned about what happens in that country,"
Daim Zainuddin, the country's top economic adviser, said in a recent
interview with the REVIEW.
   Their shared sense of concern has led Singapore and Malaysia to put
aside bilateral disputes in the hope of promoting regional stability.
Relations between the two were deeply strained early last year following
Lee's description of the southern Malaysian state of Johor as "notorious
for shootings, muggings and car-jackings." But when Goh and Malaysian
Prime Minister Mahathir Mohamad met in Kuala Lumpur on February 16-17 --
their third meeting in a month -- they hashed out agreements which went
a long way towards restoring amicable ties. Malaysia agreed to provide
Singapore with water past 2061, the year their current agreement
expires. And in a communique, Goh and Mahathir said the regional
financial crisis had "further underscored the need for both countries to
cooperate closely in all possible areas."
   Several contentious issues remain, including competing territorial
claims. But for now, they're overwhelmed by concerns about Indonesia.