Crisis after crisis threatens whole of SE Asia

'It's all being held together with chewing gum and sticky plaster': Indonesia and its ailing neighbours

John Aglionby in Jakarta Saturday March 17, 2001 The Guardian

The economic and political shockwaves triggered by stockmarkets round the world plunging in value are likely to hit hardest in South-east Asia. The Indonesian president is already at war with parliament as communal conflicts rage unchecked in many areas, the Malaysian authorities are using oppressive sedition laws to prevent an escalation of the worst ethnic violence in 30 years, and the ousted Philippine president is refusing to retire quietly as the country's new government struggles to clear up the carnage he left behind. In Thailand, the newly elected prime minister is struggling to stave off corruption charges that would force him from office, in Singapore ministers are panicking about China possibly filling the power vacuum left by America's new hands-off Asia policy, and East Timor is suffering the growing pains of a new country heading into an uncertain future.

Tiny Brunei is the only country in the region not making unsettling headlines.

Even in healthy economic circumstances, much of south-east Asia would be facing an extremely uncertain next few months with a potential for major social and political upheaval. But with the current collapse of global markets and parallel slowdown in developed nations' economies reverberating around the region, the ante has risen significantly.

South-east Asia is where the world's last major financial crisis kicked off in July 1997 with the collapse of the Thai baht, and most of the once loudly roaring tigers are still licking their wounds.

Storm clouds

With the exception of Singapore recoveries have, at best, proved patchy and, at worst, barely got off the ground, raising serious questions about the ability of the region's political and social structure to survive another major economic hit.

The Thai prime minister, Thaksin Shinawatra, was the first to admit storm clouds are gathering. On Wednesday he said the state of his country's economy was "worrying", with the budget deficit likely to be much higher than anticipated, exports falling so sharply that Thailand experienced its first trade deficit for 11 months in January, and little new foreign investment on the horizon.

But it is Indonesia that is likely to be the first serious victim. Its economy is already in turmoil - stalled economic reform, a spat with the International Monetary Fund, stagnating repayments on £180bn of debt and longstanding high-profile foreign investors halting operations are just four items on a growing list of crises.

"There are so many reasons to be negative about the economy and nothing really to be positive," said Sri Mulyani Indrawati, an Indonesian economist.

"History shows that the collapsing currency does not even help exports."

The extent of the crisis in the world's fourth most-populous nation is so great, however, that few ordinary Indonesians are focusing on the economy. The increasingly likely demise of President Abdurrahman Wahid is grabbing most attention.

This almost-blind Muslim cleric, who became the country's first democratically elected president in October 1999, is facing a rapidly rising tide of opposition to his erratic and ineffective rule.

As thousands of student-led protesters besieged the presidential palace on Monday, he refused to resign, claiming somewhat fatuously that the restive provinces of Aceh, Irian Jaya, the Moluccas, Madura and Riau would immediately declare independence.

There is no doubt that it is only the constitution which is keeping Mr Wahid in power. It states that impeachment proceedings can only be initiated against the president after he has been given three months to respond to a first formal warning and one month to a second. The first censure was issued on February 1 and all the major opposition parties confirmed this week that, barring a miracle, they would issue a second.

As Mr Wahid's party only controls 10% of parliament, a second warning is considered unstoppable.

On top of this is the mounting unrest in the provinces. Jakarta proved powerless, or unwilling, to prevent Dayak head-hunters in Kalimantan butchering almost 500 migrants from Madura and forcing out tens of thousands of others three weeks ago.

After a three-week hiatus, pro-Wahid mobs once again ran amok in East Java on Wednesday, vandalising opposition party offices, threatening to kill Wahid critics and blocking ferries to Bali.

The army was ordered this week to launch a formal operation against separatists in Aceh, while the military commander in the Moluccas admitted recently that there was no end in sight to the two-year-long sectarian conflict there.

With events running so out of control, total meltdown could well occur long before Mr Wahid is impeached. "Everything is being held together with chewing gum and sticky plaster," said one Jakarta-based security consultant. "Something is going to have to give soon; it's just a question of what and when."

Explosion

As crises converge, observers elsewhere in the region are starting to worry what the fallout might be. "The major regional risk... is undoubtedly Indonesia's deteriorating situation," said Steve Brice, an analyst with Standard Chartered Bank. "If the fabric breaks down the flow of people could become overwhelming."

They might not come just from Indonesia though. Many of the countries in the region built their post-1997 crash recovery efforts on tech-heavy industries. As the Nasdaq continues to freefall and tech companies downsize, south-east Asia could face an unemployment explosion.

"The labour sector will surely be very badly affected," said Rafaelito Santos, an investment risk analyst in Manila. "It's still too early to assess how bad it will be. It all depends on how governments can deal with the situation."

Congressional elections in the Philippines in May could well be a flashpoint. The wife of the ousted president Joseph Estrada is running for office to show how much support her husband still commands and, if mass lay-offs occur between now and then, her support base could swell significantly.

This would cause a headache for President Gloria Macapagal-Arroyo - who swept to power in January in a political coup hidden by a people power movement - although it is unlikely to be fatal.

The same cannot be said for Mr Shinawatra's woes. If the constitutional court upholds the false declaration of assets indictment against him he will have to resign. This would throw the whole government into limbo as it is built around the personality and wealth of this billionaire telecoms tycoon.

Such doomsday outcomes might not transpire and the region could muddle through, mauled but not permanently maimed. But most people fear the region still has not seen the worst.

"It would be a very brave call to suggest that we're at the bottom," said Mr Brice. "Near, yes, but the magnitude and the timeframe of the remaining fall are impossible to gauge." So are the consequences.

http://www.guardian.co.uk/international/story/0,3604,458168,00.html

-- Martin Thompson (mthom1927@aol.com), March 17, 2001