The Mark Steyn interview on Hot Air continues today. Note how Steyn describes the recent emergence of sharia in the Muslim world and how absent it was in many regions only decades ago. Here is a good example of that:

Mr Musdaruddin is the overseer of something that for the time being remains unique in Indonesia. Aceh - where more than 160,000 people died as a result of the 2004 Indian Ocean tsunami - has in the past 18 months become the only one of Indonesia's 33 provinces to enforce Koranic law, or Sharia. Some people fear that makes it the potential vanguard in a movement to bring Taliban-style law to the world's largest, and still overwhelmingly moderate, Muslim nation.

It is believed that the Indonesian government has allowed the implementation of sharia as part of its settlement with rebel forces from Aceh, an area which has through the ages always been quite restive. So, the question now is if with this form of domestic appeasement the Indonesian government has created a beachhead for an ideology that runs counter to the moderate way in which the nation has historically been practicing Islam. There are enough regional differences within Indonesia to thwart any rapid spread of this phenomenon, but the vigor with which sharia is now being enforced in Aceh is reason for deep concern.

Following my earlier post on this issue - which generated a lot of interest, I wonder why - there is now an update and here is the latest from Jakarta:

A group of Muslims protesting Playboy's decision to launch an Indonesian edition of the magazine clashed with police Wednesday and stoned the company's editorial offices, witnesses said.

No one was injured in the protest involving around 150 members of the Islamic Defenders' Front, a small group with a history of attacking bars and nightclubs, as well as Western embassies.

Gateway Pundit has more, including photos.

The last time I purchased a copy of Playboy was in the late 90s because Fay Resnick was in it, believing it would become a valuable collector's item. If you live in Indonesia you may want to stock up on the country's new local Playboy edition because it may not be on the shelves for very long:

A toned-down edition of Playboy magazine went on sale Friday in Indonesia, defying threats of protests by Islamic hardliners who called the publication a form of moral terrorism in the world's most populous Muslim nation.

[ ... ]

One hardline group, the Islamic Defenders Front, pledged to forcefully remove the magazines from shops.

"The first edition might be tame, but it will get more vulgar," said group spokesman Tubagus Muhamad Sidik. "Even if it had no pictures of women in it, we would still protest it because of the name."

Of course. But the pre-emptive de-nudification of the magazine has probably prevented some Jakarta-based American assets going up in flames this weekend.

The notion of a Hefner publication in Indonesia somehow brought back some memories of Jakara's seedier history and I googled the name of the place that deservedly owned the sobriquet "sleaziest spot in the world". Unbeknownst to me, it turned out that Islamists had a hand in the demise of the infamous Tanamur too:

Secondly, there was the security issue which came to the fore when Tanamur's adjacent sister club JJ's was raided by the FPI (Indonesian Islamic Front) a few years back. Also, rather incongruously, one of the biggest mosques in Jakarta has been built just opposite the club.

Remember: we all believed that with democracy Indonesia would become freer and more westernized. It seems the reverse is true.

Yes, the 'moderate muslim' label has been under some pressure as few know exactly what it means and even fewer believe that the so-called moderates actually have a strong enough ablity to act as a voice of reason, to drown out the radical noise. Still, there is value in the concept and as Max Boot explains, much more so when we talk about nation states:

Ostensibly unified by religious belief, the Muslim world is in fact deeply divided by culture, ethnicity, sect and geography. Most Qataris and Malaysians have no interest in joining an anti-Western jihad; they are too busy getting rich trading with the West.

Boot is right, and the same applies to Indonesia too. But I would add that this conclusion shouldn't give way to unfettered optimism about our moderate friends. They have to balance phenomenal domestic and religious pressures, often having to turn a blind eye to less than moderate players. That particular knowledge has fueled the ports controversy which it seems has now been resolved with a palatable compromise.

The Jakarta Post used to be a pretty unreadable newspaper - at least in the 1990s when I worked in Indonesia - but the waves of democratic change have contributed to a publication that has improved significantly. And it seems it is impervious to the darker forces that seek to foment unrest in the world’s most populous Muslim nation. Today's online edition has a very concise debunking of how radicals in the Muslim world have fomented the cartoon crisis and why Indonesia can and should act differently:

In conclusion, it would be wise for all of us here in Indonesia, with the world's largest Muslim population, to reflect on these questions, and not let ourselves get riled by provocateurs, whose stock-in-trade are false rumors meant to cause conflict in which everybody loses.

Let us also keep in mind the context of how this all came about: It was in Denmark, in a particular socio-political climate relating to a specific discourse within that whole context. The caricatures were seen as a healthy, satirical exercise in freedom and tolerance amongst Danes -- Muslims and non-Muslims.

It would be encouraging if some of these saner voices could be heard in the Arab as well as in the Euro-Muslim world, rather than the other way around. We can’t afford to lose some of the largest pillars of Muslim moderation.

My brother-in-law and his wife have taken a leave of absence to travel the world and are now in Indonesia. Here’s an interesting excerpt from their latest missive from Ubud, Bali:

What is remarkable is how few tourists there are. Or, to put it differently, the overcapacity. The bombings of about a month ago have had a very clear impact. When we checked in here we noticed that the last registered guests dated back to about a month ago. They talk about it in the stores and restaurants too, a girl who works at a souvenir-shop told us she had sold only two things over the past week. And the expectation is that things will get worse now that one of the most wanted Muslim terrorists, Dr. Azahari, has been killed in Malang. The Australian government has, as a response to that, issued a negative travel advisory for Indonesia. They fear reprisals. There are other countries too that have issued a similar advice and we often hear about people who have canceled their trip to Bali.

A once thriving and peaceful island is starting the pay a hefty price for jihadist violence. And the pain is felt where it will hurt most in the long run: the economy.

Related Posts
Bali Round-up
Why Bali?
Bali, again

OK, in all the Bali-analysis on this site there has been one oversight (thanks Norm), and that is the fury over the West’s complicity (and in particular Australia’s role) in wresting a small plot of Catholic land from Muslim Indonesia. And as Hitchens explains, there is a direct link to the devastating bombing of the UN headquarters in Baghdad in August 2003.

There’s a longer piece on Indonesia and terror in the works and it should be up in the next day or so.

On Sunday I tried to frame a response to the Why Bali? question and a number of other media outlets have done the same thing, here’s Channel News Asia:

The lush tropical island is known among radical Indonesian Muslim groups as a playground for foreigners. Militants who were tried for the 2002 Bali attacks have expressed their disgust at foreigners and disdain for the Indonesians, who are mostly Hindus on the island, who serve them.

And that may also explain why the island will remain on the list of potential targets for the next little while, as will Southern Thailand which has been dealing with an underreported surge in jihadist violence in recent months.

In the meantime the hunt for the perpetrators is on and Indonesian police is banking on getting some information now that the pictures of the severed heads of the suicide bombers have been released. Speculation however continues:

Analysts yesterday speculated the latest attacks were the work of a splinter group within the Jemaah Islamiah (JI) terror organisation. It is feared the breakaway group - known as "Thoifah Muqatilah" or the combat unit - is being led by Malaysian bomb experts Azahari Husin and Noordin Mohammad Top. The pair are key suspects in Saturday's blasts and masterminded the 2002 Bali bombings, blamed on JI, which killed 202 people including 88 Australians.

Which I consider to be fairly precise speculation and it is safe to assume that Indonesian authorities know far more than they are currently letting on. To be continued.

It may be instructive to pause of a second and realize that Bali is not just targeted because it’s an attractive place to hit vacationing westerners and disrupt a steady inflow of tourist dollars.

Remember, this is a religious war and while al-Qaeda and its affiliates have never thought much of fellow Muslim victims as collateral damage, dead and maimed Balinese may actually be a deliberate part of the game plan. Bali, like many of Indonesia’s outlying islands, is not exactly in sync religiously and culturally with the Javanese heartland and has for centuries been predominantly Hindu. While Bali has never been a disruptive element in unifying the Indonesian nation state, radical jihadist groups know that impoverished Muslims on Java (where the bulk of Indonesia’s masses live) can easily be rallied to defend the Muslim cause in various other parts of the country.

The ethnic and wealthy Chinese are always the first to bear the brunt of mob violence, but it’s equally easy to organize mobs to ransack and terrorize some Christian outposts on Sulawesi or the Moluccas. Since Chinese and Christians are an easy target it is hard to imagine that a lot of tears will be shed over violence and destruction in that relatively wealthy bastion of Hinduism. It may also explain why the persecution of groups like Jemaah Islamiyah hasn’t always been as pro-active as it should have been as Indonesian President Susilo Bambang Yudhoyono’s challenge to balance safety and domestic interests may not be dissimilar to the one that Pervez Musharraf faces in Pakistan.

USEFUL UPDATES:
Tim Blair discusses the aftermath and its Australian victims;
Dutch news has an amateur video of one bombing (upper right hand corner);
The Counterterrorism Blog on the spread of radical Islam in Indonesia.

Details are sketchy but this could well be another Jemaah Islamiyah hit.

For newcomers to this site, I've written extensively about Indonesia and its history here, as I spent a lot of time in the country during my Asian years. The blogosphere's expert on things Indonesian is Macam-Macam, expect some updates there in the days to come.

UPDATE I: Tim Blair is on the case with lots of updates.

UPDATE II: Here's a chronology of recent attacks in the island republic.

UPDATE III: More details here. The targets were two seafood restaurants and there are now 22 dead and 50 injured.

After East-Timor and Aceh, Jonathan Edelstein points to the next area in Indonesia where tensions may flare up: West Papua or Irian Jaya.

This is probably Indonesia's equivalent of Tibet. The western half of New Guinea has nothing in common ethnically with Indonesia and was only added to the Dutch East Indies during the 19th century. The Dutch retained control of the territory after Indonesia's independence in 1949 and it wasn't until 1962 when it gave up sovereignty. Fear of spreading communism forced Washington to pro-actively support Asian partners and whenever the interests of The Hague and Jakarta collided, the Dutch were forced to back down from their territorial claims after pressure from Washington. The Dutch even had to endure a personal lecture from Robert Kennedy who was dispatched by his brother to The Netherlands to settle the matter of New Guinea in 1962.

In the years since, Irian Jaya has been rapidly colonized by especially Javanese settlers and by various international developers (particularly mining companies) who together with local (read Indonesian) partners have discovered the resource rich island. From both an economical and ethnic perspective it's therefore extremely unlikely that Jakarta will ever relinquish its hold on the island.

NOTE: For more on this topic, here's an older Peaktalk post entitled Unifying the Island Empire.

Roger links to the news that Japan apologized for its wartime colonization and invasions during World War II, an issue that continues to be highly sensitive:

The war's legacy lingers in Asia, where many of Japan's neighbors accuse Tokyo of failing to atone fully for invading them and colonizing the Korean peninsula and Taiwan. The issue has stirred opposition to Japan's bid for a permanent seat on the U.N. Security Council.

Well, there’s one country that took full advantage of Japan’s invasion and that is Indonesia. It declared itself independent on the defeat of its colonial masters by Japan in 1942, an act that was formalized on August 17, 1945 in the chaos that ensued following Japan’s defeat. The Dutch never really recognized this and waged a four-year war (the so-called “police actions”) against Indonesian insurgents to reclaim sovereignty, an effort that ultimately failed resulting in a full Dutch withdrawal in 1949.

Ever since, Indonesia’s date of independence has been a bone of deep contention. Tomorrow however will mark the first time since the 1940s that the Dutch government will attend the August 17th independence celebrations in Indonesia and thus retroactively accept that date as the formal end of its colonial rule in what was then called the Dutch East Indies. Some groups have jumped on this and are now arguing for a formal apology for the “police actions”. Since an apology is tantamount to accepting liability for causing damage don’t expect a lot of movement on this one, but do count on a re-evaluation of the years that the Dutch attempted to forcefully re-assert sovereignty over its lost island empire.

Today the Indonesian government signed a peace deal with rebels in Aceh:

The deal, signed in Helsinki by Indonesian Justice Minister Hamid Awaluddin and Malik Mahmud of the Free Aceh Movement (GAM), provides for an amnesty and disarming of the rebels from Sept. 15 and restricts government troop movements in Aceh.

Aceh, located on Sumatra island, has always been a restive area - even the Dutch fought many battles here. The recent conlict erupted about two years ago but apparently last year's tsunami prompted peace talks. Given its history this may be a temporary arrangement, but it nevertheless is good news.

Kate at OTB links to an interesting study that argues that public opinion in Indonesia is shifting away from anti-American and pro-Osama Bin Laden attitudes following the US-led tsunami relief efforts.

This is surely good news but I doubt whether relief in one of the country’s far away and renegade provinces really was the only driver behind this significant shift in opinion. Indonesian sentiments are notoriously fickle and the country was never a place noted for deep-rooted anti-American sentiments. You’ve got to wonder whether the short-lived wave of OBL-popularity wasn’t just a fluke at a time when the nation itself was going through some intense political turmoil with both domestic and imported Muslim radicals fanning the flames. If you take a closer look at the poll results it seems that the recent terrorist violence (notably the Bali bombings and the Marriott Jakarta attack with many local victims) have left a far deeper imprint on the average Indonesian. A solid majority agrees that violence against civilian targets is not justified under any circumstances and OBL’s rapid drop in popularity from 58 to 23% over a two-year period indicates that he was nothing but a short-lived phenomenon in a non-Arab country noted for its moderate brand of Islam.

Both the al-Qaeda and the anti-terror crowds considered the island republic a battleground that it never was and never will be. Still, as events of this week reveal, Indonesia remains an interesting and fairly unpredictable partner.

Indonesia's new president, Susilo Bambang Yudhoyono was sworn in today. This is probably the end of the post-Suharto interregnum, and while the world will be looking at SBY's capabilites to deal with terror, I would like to see how he deals with the economy and corruption first.

In Indonesia and that is major achievement in a country that only five years ago hesitantly moved away from fifty years of autocratic rule. Without major incidents Indonesians have voted incumbent President Sukarnoputri out of office today in a landslide, a landmark in South-East Asia where deposing leaders by way of the ballot-box continues to be an exception.

We are far from sure however what to expect from the new leader, Susilo Bambang Yudhoyono (or SBY which will no doubt become the reference of choice), but voters opted for change and many hope that he will be the man to boost the economy and take on Indonesia’s most persistent illness: corruption. Acting against terrorism is another matter completely and hardly the concern of the average Indonesian and here the US and Australia will have to focus their attention to ensure that the new president will have his priorities right.

Mark Steyn has an instructive column up in The Australian, making it very clear that Muslim fundamentalists single out non-Arab Muslim democracies such as Indonesia (and Turkey) with good reason. And in his typical Steynesque prose he explains why all of a sudden the world pays attention:

All that Bush has done is provide a context. Before 9/11, an Australian embassy bombing would have been big locally, but in Paris and London and Washington it would have been one of those garbled international headlines you hear at the end of the news bulletin as you're sitting in traffic waiting for the Lite Rock Favourites Of The '80s to resume. Somebody bombed an embassy somewhere. Some terrorist group you've never heard of. The Jemal Tigers? Something like that. Oh, well. Lotta crazy people out there.

After 9/11 we interpret these things differently and that has indeed been one of the key contributions of Bush to the war on terror, in addition to actually waging it. RTWT.

When I argued yesterday that a Muslim rebirth would be one of the required ingredients for winning the war on terror I was probably overly simplifying the case, ignoring the different strains of Islam that exist in various places around the world. A case in point of course is Indonesia. Macam-macam today has some very good comments as to why we shouldn’t throw the island republic into the same box together with the rest of the Muslim world and argues the following about Indonesians:

In this sense, they are similar to the Persians and Turks who do not necessarily see their Muslim identity as being inseparable from their unique ethnicity. No such luxury is available to the Arab peoples, who have no past glories to bask in prior to the arrival of the Prophet Muhammad. For them, Islam was the cultural watershed, certainly not so for the Persians or even the Javanese of today.

Read the whole thing. By extension it means that Muslim radicalism in Indonesia operates in a very different environment: no alignment of religion and culture, a fledgling democracy and still, as much as the Javanese epicenter dislikes it, some cultural diversity. Groups like Jemaah Islamiah will continue to try and destabilize the country with further acts of terror, the outcome of their actions however will be notably different from what we are seeing in the Middle East. But: a lot will also depend on how Indonesian authorities deal with the terrorist phenomenon, and so far the only way I can summarize their efforts is with an old Dutch proverb “soft doctors make stinky wounds”.

Were getting closer to the final round of the presidential contest and Conrad has a good round-up of recent electoral maneuvering. It seems like front-runner Yudhoyono is well positioned.

It’s not the first time that I have lamented the fact that the blogosphere underreports Indonesia. Apart from Macam-Macam (which has the island republic as its sole topic) and the occasional incursions by Conrad, I have a hard time finding good writing on Indonesia.

Yet, there’s good reason to look at the country which has recently completed its first round for the presidential elections which will go to another decisive round in September. When Suharto’s rule ended in 1998 the country was probably correctly qualified as an economic basket case and the rapid succession of presidents in a country that in its first 50 years of existence had only had two, supported the notion that it had become ungovernable as well. The nation’s diversity and likelihood of falling apart resurfaced in the newswires in the absence of strong leadership, and to compound it all, 9/11 turned the world’s largest muslim country into a breeding ground for new terrorists. I was often mystified at the number of people that were able to assure me that Osama bin Laden was now hiding in Indonesia. The country was consequently painted as the prime candidate to be the next Islamic republic and the dreadful nightclub bombings on Bali in 2002 only reinforced the idea that there was little that could stop Indonesia’s slide into the abyss of history.

As the Economist this week points out in its leader (subscriber link only), things have not only stabilized on the economic front, the first round of elections for a new president has proven that the transition to an orderly democracy is starting to take shape. True, the contenders for the presidency were not able to present a real message or vision to present to their 220 million underlings, but radical Islamist candidates were unable to get enough traction to field a candidate and the two pro-Islam candidates that were on the ballot were actually opposed to turn the island republic into the next Iran. The Economist highlights the accomplishment:

Indonesia’s example ought to put paid to the notion, still common in the Muslim world and sometimes heard in the West, that democracy and Islam can never co-exist. One might very well argue that it shows the contrary: democracy is good for Islam. Whenever given a choice, Muslim voters – not just in Indonesia, but in Malaysia, India, Pakistan and arguable Turkey too – reject extremism.

Yes, and it also points to the obvious conclusion that democracy has only found fertile grounds in those Muslim countries that are historically and culturally separate from the Muslim-Arabic core of the Middle East. If Saudi Arabian fighters are treated as foreigners in Iraq and Afghanistan, imagine how they are being perceived on the island of Java, no Osama hiding in Bogor anytime soon.

That doesn’t mean that Indonesia’s woes are over. Corruption remains one of the pillars of doing business in the country, economic and demographic issues will persist well into the foreseeable future and Islamist and ethnic forces will continue to try and pull the political and cultural center apart whenever they feel the time is ripe. Still, with the restructuring of a lot the 1990s financial excesses, an orderly transformation to democracy where 80% of eligible voters turned out and an apparent repudiation of radical Islamism things are indeed starting to look up. Either incumbent Sukarnoputri or challenger Yudhoyono, who is widely seen as the man to beat, will have to take on the difficult task of ensuring that this fragile glimmer of hope is sustained into a better future.

For the first time in years I bought the Vanity Fair again, my interest piqued I have to admit by Joe Wilson and his wife, but what made the purchase a worthwhile investment was to read Christopher Hitchens on Indonesia, a country that has attracted quite a bit of attention on these pages. Ever since 9-11 the country - being the world’s most populous Muslim nation - has been in the spotlight as the potential new base for al-Qaeda and the horrific attacks in Bali last year and on the Jakarta Marriott this year only reinforced the notion that the island republic could be the next battleground in the clash between western values and Islamic fundamentalism. A country housing so many poor and disgruntled Muslims would have to be the next domino to fall, many argued.

Not necessarily so, and Hitchens walks us through the various issues that make Indonesia a very different and complicated case. Most notably he points out that the history of Indonesia and its late and rather voluntary adoption of Islam make it difficult to compare the country to other Muslim nations, with Indonesians having a serious dislike of pan-Arabism which in turn is hampering efforts by Wahhabi agencies to fund a regional base. It should also be noted that there is hardly one dominant and pervasive Muslim doctrine in Indonesia; the religion is as varied as the island republic itself, especially when you compare it to Arab countries. You will have to read the entire piece, but the gem is this one, when someone discusses the likelihood of Sharia being enforced in Indonesia:

“If we had a religious police to enforce morality, people would start bribing it to look the other way, and then we would have a corrupted religious police – which is secularism by the back door”

Yes, corruption and Indonesia are often mentioned in the same breath as most of my readers will know, and it is entirely feasible that corrupt practices would work their way into religiously pure institutions. In a way the country has always been as secular as for instance Turkey: ensuring a safe distance between mosque and state, carefully managing the fanatical streams of Islam and allowing other religions (here: Hinduism, Buddhism, Catholicism and Protestantism) to co-exist as official religions. While certainly not discounting the potency of Islamism in Indonesia, things may not look as bleak as some would have us believe.

The Ventilator responds to my post on dealmaking in Indonesia during the Suharto years and points to the fact that corruption places a sizeable burden on business and he leans towards supporting the “sand theory of corruption” as opposed to my apparent support for “the grease theory of corruption. True, corruption can in the long run stifle economic growth and indeed the Asian currency crisis of the late 90s can to some extent be contributed to the general intransparency of Asian economies.

I guess the core of my argument about Indonesia was that at that point in time and in that particular place it helped a certain development that would otherwise have remained absent. And while in some cultures corruption is more of an accepted practice than in others, the Indonesian case in the end demonstrated that too much of it will ultimately lead to its own destruction and I can’t see any Suharto returning to a position of power anytime soon. Having said that, the many infrastructural projects that came to fruition during the 1990s in Indonesia can be pivotal drivers in an economic upturn down the road. As an example, one day the island republic is going to need and use the phenomenal power capacity installed during the previous decade.

Conrad introduces some of the candidates for next year’s presidential elections in Indonesia. Anyone concerned over the deteriorating climate for foreign investment in Indonesia should rest assured, the people that helped create the phenomenal boom of the 1990s in the island republic are down but not out. I was pleased to see that Siti Hardiyanti Rukmana or “Tutut” is mulling a bid, as I can personally attest that due to her involvement in a number of projects phenomenal amounts of capital flowed into Indonesia that helped build some spectacular infrastructure projects. In turn these deals generated work for exporters all over the world, helped the local island economy by creating jobs and of course they ensured huge bonuses for the lawyers and bankers who put it all together. Reading Conrad’s post I dug out one of my old deal memoranda that I prepared for our head office, describing one of the local companies that owned a stake in the power project my bank was underwriting:

“ … President and Commissioner of the company is Siti Hardiyanti Indra Rukmana, the youngest daughter of the President of Indonesia, Suharto. Her company’s ownership is conform the Indonesian law on foreign investment for local shareholding requirements which is currently 5%. Her company is involved in thermal power station maintenance and private power development”

I wrote that, in 1996. Thermal power station maintenance? I bet you that Tutut was not able to tell a power station from a fish market but, under the laws carefully crafted by her father anyone doing business was required to carry at least a 5% interest for the family. To be clear, they got it for free, no need to make a cash contribution for the equity as was required of the other partners. Multiply this arrangement over telecoms, car plants, gas fields, banks, property developments, beer bottlers and you will begin to get a grasp of the wealth the Suharto family generated. And few foreign investors ever raised material objections; it was the way business was done in Indonesia. And Tutut was obviously not the only one, the brother of Prabowo Subianto (also on the Conrad shortlist and married to another Suharto daughter), was instrumental in putting together one of the largest private power financings in Indonesia in the 1990s, US$2.6 billion, largely funded by US and Japanese investors and banks. For this deal, which took a little longer to arrange, the family upped its rate to a healthy 15%.

I recently dusted off these memories for a gathering of MBA students and to my surprise they could not contain their amazement over these somewhat unusual arrangements, asking me over and over again how western banks and businesses could be comfortable with such excessive corruption. Not only businesses I told them, as many western governments helped to finance these deals indirectly through export credit support, or even direct intervention with Bill Clinton, Warren Christopher and Bob Rubin calling on the Suharto clan to get deals closed. And with good reason. Not only was it a small price to pay for economic growth and making good profits, in retrospect we may have funded - at the expense of a currency crisis - a veritable attempt to help bring prosperity to countries that we now know may drift towards radical Islamism absent any economic prospects. Tutut and Prabowo are probably not our dream candidates to take up the highest office in Jakarta, but we should remind ourselves to remain involved in Indonesia to help steer it away from economic and political chaos. If that means picking up someone’s interest in a gas plant or fast-food outlet, so be it.

Conrad has over the past few weeks been active in pointing out that the climate for foreign investment in Indonesia is rapidly deteriorating. More evidence is the reintroduction of the old concept of “gijzeling” whereby anyone can be detained without trial until an alleged debt has been settled, and this is now being applied to collect “taxes” from expatriate workers. Not only is “gijzeling” a Dutch term (which translates literally as hostage taking), it is also a concept that originates in Dutch law and to this date is on the books in the Netherlands, though it is hardly ever used. Had this practice not been part of the legal infrastructure that the Dutch left behind in Indonesia, I have little doubt that somehow Indonesian authorities would at some point have discovered this technique of generating additional revenue. However, you can bet your bottom dollar that if ever the country comes under serious international criticism over this practice it will happily point to the old colonial master that introduced the practice in the first place.

This may be a storm in a glass of water, but I think it is not. The moderate forms of Islam that have been practiced in Indonesia for centuries are increasingly under pressure from fundamentalist schools of thought. If this draft legislation is enacted then Indonesia will have started down the slippery path of becoming a society exclusively governed by Sharia. True, the old Dutch laws needed some upgrading but if Sharia is the alternative then I know what I would prefer.

I spent the weekend in Harrison Hot Springs, a quaint little resort town some two hours inland east of Vancouver as I was invited to do a presentation for second year MBA students at Simon Fraser University. This was the first time I had ever done something like that and I decided to do a case study based on a project financing I was involved in during the mid-nineties in Indonesia. The Paiton power project was initiated in 1989, financed in 1995, physically complete in 1999 and financially restructured earlier this year. I organized the presentation like a brief case study and asked the students to identify the risks that needed to be mitigated in order to get this project financed. Great response and lots of questions, I never thought I would one day stand in front of a group of students and do this, but there I was and I really enjoyed it. So did Irene, Nora and Maeve, who spent the better part of their time in the natural mineral hot pools.

There was a lot of student interest in the financial and technical aspects of the case, but towards the end the questioning drifted towards political side of these mega-projects, in particular since this project was heavily supported by the Suharto family and some students questioned the ethics of doing business with people like that. Especially in view of the fact that the Suharto’s benefited royally from infrastructure deals like this one, in fact they benefited directly from literally every deal done in Indonesia during their reign. My response was that the international financial community today would give a fortune to go back to the Suharto days for it was a time when there was at least a measure of political and economic stability in Indonesia and deals got done. That raised a few eyebrows – remember John Hawkins put Suharto on his list of the worst figures of the 20th century - but it is true, walking away from major deals (this one was worth $2.5 billion) that in the end benefit many is foolish and if some money ends up where it should not end up using our western standards, so be it. If we would be so rigorous in applying our ethical principles (to the extent that we live by them when we are at home) we would hardly be doing any business at all.

Update: applying ethical principles too narrowly, however noble the intent, can not get in the way of free-trade, a principle upheld by Democrats (the Paiton project got very strong support from the Clinton administration) as well as Republicans. Dean Esmay alerts us to the fact that Howard Dean may not agree by saying that "we would not have bilateral trade agreements with any country that did not fully observe American standards". If that means abandoning the world-wide economic liberalization of recent years an even deeper recession is indeed practically guaranteed.

The death penalty for one of the terrorists implicated in the Bali bombings may appear to convey Indonesia’s tough stance on terrorism but this is nothing more than after-the-fact window dressing. Conrad today has a good rundown of all the warning signs that were deliberately ignored by the Indonesian authorities over the past few weeks, leading to the bombing of the Marriott hotel in Jakarta with deadly consequences. If terrorism grows unfettered in unstable and corrupt breeding grounds such as Indonesia (and Saudi-Arabia) by virtue of the fact that local authorities are unwilling and uncommitted to do anything about it, we are in for some very uncertain times. The immediate result will be a gradual economic pullback from these countries by western businesses, which in turn will have dire implications for overall local stability and facilitate recruiting young disgruntled men into the ranks of Islamic fanatics. Australia’s PM John Howard understands the need to be pro-active in this regard and has today wisely called for closer links with Indonesia, although I wonder how that will translate into reading and interpreting intelligence that confirms that terrorist attacks are imminent.

Today's bomb attack on the Marriott Hotel in Jakarta, Indonesia is yet another piece of evidence that al-Qaeda or al-Qaeda inspired groups have lost none of their strength. On the contrary.

Indonesia, as I discussed earlier, was the beacon of transforming South-Asia into a success story and both Irene (who spent three months in Jakarta in 1997 setting up a new office for her erstwhile employer) and myself spent a lot of time in the country during the 1990s, frequenting the type of hotel that was attacked today. Suharto’s fall in 1998 did not set the country on a course of democracy and freedom, on the contrary, instability and a surge of Islamist activity have set the country on a very undesirable path. The bombings in Bali last year were a clear sign of that direction, and now terror has struck in the country’s capital killing even more foreigners, among them a Dutch banker. Given the country’s economic troubles, political instability, regional conflicts (Aceh) and terrorist activity the question will be what the longer term impact will be, especially with presidential elections coming up next year. The Indonesian military may again step into the void in order to stop the rapidly increasing slide to chaos.

The Gweilo reports on the state of affairs in Indonesia and mentions that things are not getting any better, on the contrary:

The most corrupt institutions in the country, the judiciary and the military are determined and have the power to stymie any reforms. The legislature is weak and similarly crooked. The largely Chinese business elite are the handmaidens of the corrupt indigenous military and political leaders, allowed special privileges as long as their illicit payments continue. Absent an effective middle class and with no one with the stature, integrity and ability to lead a reform movement visible, the rot and drift appear sure to continue for the foreseeable future.

It is interesting that he refers to the absence of a middle class. I clearly remember the fall of 1994 when I was part of group of international bankers and lawyers who were toasting to Indonesia’ s economic success in Surabaya’s Hyatt Hotel prior to the groundbreaking ceremony of the country’s first major independent power project. Our thinking was to a large extent built on the idea that the economic success in countries like Indonesia, Thailand, Malaysia and the Philippines would inevitably create a middle class that would be able to afford all the products offered by the deals that we were financing (power, water, telecoms, construction materials) and who in time would help these countries become healthy democracies with phenomenal economic power. Very often, when our flights were preparing to touch down we would circle metropolises like Jakarta and Bangkok and point to the new suburbs and say, “see, what a success story, these wealthy suburbs keep on growing”.

Many back in the US and Europe would point to the looming dangers and counsel against taking on more underwriting risks, using valid arguments against things like Suharto’ s rule in Indonesia, corruption and excessive US Dollar borrowing. Yet, at the time we on the ground as the experts on the region won the argument very often and the tide seemed to be in favour of investing in South-East Asia. And: no one wanted to run the risk of not participating in the lucrative business activity in South-East Asia so all the major European, American and Japanese banks piled into especially Indonesia and Thailand snapping up and financing deals that later turned out to be questionable indeed. I mean, how much power, how much cement does a country really need?

This often went as far as underwriting hundred million dollar deals by a single bank with the understanding that the funds would be recouped from a stock market offering later on. Banks would have a double whammy here, lending first and then leading a stock offering, fees and commissions galore. The problem was that by the time such deals were ready to be launched, the market for Indonesian deals had evaporated, the country’s currency had crashed and the place was in political disarray following Suharto’ s fall. To this day that situation has not improved and the wealthy middle class that would spend and vote the country up the ranks of the world’s developed nations has yet to materialize.

As with Iran, I have neglected to write more about Indonesia, especially in relation to the attempts by the country’s political and military center to keep the archipelago unified at all cost. The Financial Times (subscribers only) reported last week that the Indonesian military was allowing militias to operate in Aceh, in very much the same way as it did in East-Timor. We know what atrocities took place in East-Timor and how many suffered and died at the hands of these uncontrolled thugs. No wonder the FT is on top of this story as one of their reporters, Sander Thoenes, was murdered by the Indonesian side during the violence in East-Timor back in 1999. Today the Indonesian military announced that it is banning all tourists from the Aceh area as well as restricting access of foreign journalists, most likely in an attempt to step up violent activity in the rebellious province and keep the eyes of the world at bay.

An interesting discussion has started over at Conrad’s about Indonesia, with some arguing that chaos is imminent, some arguing against that. I will argue against, although we may see quite a bit of instability going forward, especially with elections coming up next year. The Aceh situation may continue to deteriorate over a period of time and test the current political leadership which does not have the iron muscle for which Suharto was known. So, the intensity with which Jakarta imposes its will over the province may vary, but in the end the center will prevail. Apart from the political leadership, business and military interests will ensure that nothing will fall of the table. In any case, by sheer numbers, the Javanese will have the upper hand in the long run.

Good weekend, I feel much better. I will kick the new week off with a post (below) on Indonesia. There has been an interesting flow of news coming out of that country with the start of the trial of those responsible for the Bali bombings but also because of increased restiveness in Aceh, one of the country’s renegade provinces. In fact, hostilities between the Indonesian army and rebels started yesterday. I will start with the underlying mechanics of regional issues in Indonesia in a historical context but I will also try to post more on a regular basis on this country. Apart from a few like the Gweilo, the blogosphere is underreporting this nation which is odd given that it is the 4th populous in the world with about 210 million inhabitants, its stretches a geographical area that is equivalent to the distance of London to Baghdad, it has undergone some major social, political and economic changes in recent years and is also the world’s largest muslim nation. So starting today, more Indonesia on Peaktalk.

It was during my first trip to Indonesia, almost exactly ten years ago, that I visited the national monument, Monas, in the capital Jakarta. In the basement was a display consisting of models and figures depicting the history of the country, before, during and after Dutch rule, which lasted from the early 1600s to 1949. Amazingly, the part of the historic display that dealt with the years prior to Dutch colonial rule included various models of wooden battleships carrying the red-white Indonesian national flag. I immediately registered this historic fallacy for there was nothing like an Indonesian nation state prior to the 1600s, it was established only after the archipelago gained its own independence in 1949 at which time it formally adopted the red-white national flag. The display that I saw was put together on purpose by the authorities in order to strengthen and maintain the notion that Indonesia is one country with one national identity and that identity, according to them, had been a constant factor over the centuries. Nothing could have been further from the truth.

The Dutch, who established a colonial empire based on trading posts, as opposed to capturing and populating vast land areas like the British did, settled Indonesia first in the early 1600s by kicking out the Portuguese and establishing the port of Batavia, the area that is now Indonesia’s capital, Jakarta. It was not until the late 19th century, i.e. almost 300 years later that the Dutch conquered all of the area that is now Indonesia. By occupying all these islands the Dutch established the boundaries and composition of modern day Indonesia, prior to that it was a collection islands that were largely independent as separate sultanates or other forms of administrative organization with distinct cultural and religious identities. Some parts did not have any organization, the western half of New Guinea (now called Irian Jaya) inhabited by the Papua’s was still pretty much in the Stone Age when the Dutch arrived and large parts continue to be that way to this very date.

The Japanese occupation accelerated the road to Indonesian independence much to the chagrin of the Dutch who fought a largely unnecessary war from 1945 to 1949 (which the Dutch still euphemistically call “police actions”) in order to prevent such independence. The Dutch believed that Indonesian independence would be a tricky proposition and they were not entirely wrong in making that assumption. The Dutch consequently had a very large hand in drafting the new republic’s constitution and recognizing the unique diversity of the new independent Republic of Indonesia it envisioned a federal republic where the constituent parts enjoyed some measure of independence. Consequently the new country would be called the Republic of the United States of Indonesia. This was a concept that did not entirely fit into the worldview of the Javanese elites who essentially took power after the Dutch left. With the bulk of Indonesia’s population living on Java and with military and economic power centered on the same island, the new rulers under President Sukarno and later President Suharto wasted no time to establish the dominance of the center and the subjugation of the various cultures present in the new island republic. And that cultural variety was significant: from the conservative muslims of Aceh, to the roman Catholics on Flores, Moluccans in the east, Hindus on Bali, the Papua’s on New Guinea to name a few, and of course the different groups on the large islands of Sulawesi and Kalimantan. The basic rationale was simple, under the banner of the new nation’s creed of nationalism (called “Pancasila”) unity would be established through five key principles: belief in one supreme God, justice and civility among peoples, the unity of Indonesia, democracy through deliberation and consensus, and social justice for all. So the very foundation was centered around unity and how better to sustain that very unity other than by accessing the vast wealth of all these islands, from oil, to gold, to copper, to coal, natural gas and as well as plethora of other riches. Combining the political goals with the economic incentives made any form of flexible federalism next to impossible. By the way, Muslim fundamentalists saw Pancasila at the time as a mechanism that would prevent Indonesians from building an Islamic state. Indeed, to this date that has not happened and there’s no Sharia to speak of, a rather complex legal framework based on some outdated Dutch law books continues to underpin the legal system in Indonesia.

The Indonesian rulers thus very quickly fed the Dutch inspired constitution through the shredder and set upon the course of establishing one centralized nation state. They had essentially a free-hand: the Dutch had lost any ability to play a meaningful role and the world’s new superpower, the US, used its influence to promote that very unity sought by Jakarta. With the growing influence of communism in South-East Asia the US had a vested interest in stability and a break-up of Indonesia into rebellious nation states would have created a phenomenal market for the export-oriented rulers in Moscow and Beijing. So, any attempts by these aspiring ethnic groups to escape from the Indonesian fold and achieve a measure of independence were suppressed not only domestically, any international help was virtually non-existent. This is a situation that has continued to this day, with occasional flare-ups, the latter giving the Dutch their first experience with terrorism when Moluccan refugees in The Netherlands started to hijack trains and execute innocent commuters in the mid-1970s. And over the past few weeks the situation in Aceh has deteriorated. Aceh, an enclave in Northern Sumatra, has been notoriously restive, even the Dutch fought a bloody thirty-year war there in the late 19th century.

So the Indonesian umbrella has remained pretty much intact over the past 54 years with the help of an iron fist from Jakarta. With settlement of Javanese in ethnically different parts of the republic as well as increased economic activity in these various parts it is ever less likely that the leadership in Jakarta will become more flexible in dealing with its various ethnic minority groups. A likely break-up Soviet or Yugoslav style is simply not on the cards, it is more likely that Indonesia will follow the Chinese model where far flung areas such as Tibet remain firmly under Beijing control, helped by increased colonization by ethnic Chinese. The Indonesians, or Javanese to be more precise, have followed the same approach. The intimate relationships between the Indonesian army, the Javanese business elites and their ability to manipulate the political leadership is a virtual guarantee that Indonesian unity will be preserved at all cost. No matter what political leader exercises power in Jakarta, unity of the Indonesian state is and remains sacrosanct, which is why the Aceh rebels face an almost certain defeat at the hands of the Indonesian army.