Violence haunts Indonesia recovery hopes
January 4, 1998


Andrew Marshall

JAKARTA, Jan 4 (Reuters) - Indonesia is an accident waiting to happen.

The crisis-racked country limped into 1999 under the shadow of simmering unrest and lawlessness and haunted by the risk that scattered violence could boil over and rend the sprawling archipelago along its ethnic, religious and regional fault lines.

Even if the country manages to stagger relatively unscathed through a tumultuous year of parliamentary elections and the nomination of a new president, the paralysing fear of a descent into mayhem could stifle prospects of economic recovery.

The only certainty, analysts say, is uncertainty.

``Indonesia still seems to us to be the riskiest country in Asia in that it is the most difficult to predict,'' said Sandra Lawson, Asia politics analysts at Goldman Sachs in Hong Kong.

``Some of the possible outcomes are very extreme.''

As a devastating economic crisis pushes millions into poverty a mounting wave of unrest is sweeping the nation of 200 million.

Almost daily there are fresh reports from across the sprawling archipelago of mobs attacking police stations and government buildings, rioting crowds turning towns into battlefields, looters plundering plantations and attacking food convoys.

Indonesia's beleaguered financial markets rarely pay any attention. Most speculative money has already fled from the rupiah currency and analysts say the presence of constant, simmering violence across the country has already been factored in.

``In terms of violence in Indonesia, people really seem to have discounted that and as long as it remains isolated incidents outside Jakarta, people have incorporated that into their risk analysis and are content to live with that,'' Lawson said.

The risk, however, is that sparks from localised unrest in an increasingly anarchic Indonesia set the whole country ablaze.

``The political fear we have is event-shock fear, in the sense that one day something could happen, there could be huge riots and the rupiah could really be anywhere,'' said Desmond Supple, director at Barclays Capital in Singapore.

``That's something we can never factor in to forecasts. But where it does come into play is in risk-reward calculations. If we are marginal in deciding whether to advise someone to buy an Indonesian asset, event-shock potential really comes into play.''

Localised violence outside Jakarta will not worsen Indonesia's already sky- high political risk ratings, analysts say. The danger comes from unrest which threatens to widen the country's deep fissures -- regional, ethnic, religious and political.

The run-up to elections in June is expected to be increasingly chaotic, with the potential for unrest to erupt across Indonesia.

``My own concern would be the conduct of the elections. That's what I'll be watching,'' Lawson said. ``If people are not satisfied or elections are called off there could be a lot of violence.''

Another threat to stability is Moslem-Christian or anti-Chinese unrest. Around 10 percent of the predominantly Moslem country's population is Christian, including most of the ethnic Chinese minority who have been frequent targets of mob violence.

Such violence has the potential to spiral and infect the whole country -- Moslem-Christian riots in Jakarta in November which left at least 13 dead sparked a wave of tit-for-tat arson attacks on mosques and churches across the archipelago.

Separatist unrest is also a potential flashpoint, analysts say. The rebellious, staunchly Moslem province of Aceh erupted into fresh violence last week and a clash in the former Portuguese colony of East Timor reportedly left two people dead on Monday.

``Violence in peripheral areas can really spark concerns,'' Supple said. ``If there were concerns that the integrity of the state would not survive, you couldn't hold the currency because you couldn't define what the currency was representing.''

Indonesia faces secessionist movements mainly in three areas -- Aceh, East Timor and the eastern province of Irian Jaya. Analysts say trouble in one area could fuel unrest in the others.

The greatest concern remains further unrest in the capital Jakarta. Analysts say mass demonstrations and violence in Jakarta have the most potential to shake the frail government of President B.J. Habibie and plunge the nation into fresh uncertainty.

``The violence in itself is not our main concern. Our concern is what political changes could be created by that violence,'' Supple said. ``If instant change is being demanded, if the rules of the game are being rewritten, would you really want to hold an Indonesian asset through this transition period?''

Hamid said uncertainty would continue to grip Indonesia.

``You just can't tell with Indonesia, you don't know whether in a month the situation will be quiet or all hell will break loose,'' he said. ``So many players are just afraid to do anything, they just have to watch and wait.''