East Asian Tinderbox

A civil war in Aceh could destabilize not only Indonesia but the rest of the region

Under a shady tree in a tranquil village on the northwestern tip of Indonesia, Free Aceh Movement commander Teungku Tarzuna is waiting for orders, Nokia cell phone in hand. If Indonesian troops begin attacking rebel camps, the phone will ring with the order for 10,000 guerrillas to cut off the two highways leading out of the provincial capital, Banda Aceh. Next Tarzuna will order them to seize the airport and the shipping port at the mouth of the Strait of Malacca--a busy waterway critical to international trade. Full-scale fighting "will have an impact on our neighbors' economies," says Tarzuna, flanked by four bodyguards in black T-shirts. "But that's the risk of what we call war."

That threat from separatists in Indonesia's northernmost province of Aceh is rattling governments and investors, not only in Southeast Asia but around the world. It may never be realized. But if it is, the security of international shipping lanes, the future of regional investment and economic recovery, and the stability of Southeast Asia are at risk. For these reasons, both Washington and Beijing have made strong statements against any independence attempts in the region. Only Libya, which has trained many of the rebels over the years, is a source of support. "Aceh is a test case," says Bruce Gale of Political & Economic Risk Consultancy in Singapore. "It could get pretty bad."

That's what worries the governments of Southeast Asia, which only took off economically after the Vietnam war subsided in the mid-1970s. Local independence movements, in various stages of dormancy ever since, have been encouraged by East Timor's precedent in breaking away from Indonesia, the changing political dynamics in their capitals, and deep anxieties caused by the Asian crisis. While Aceh is the most militant, Indonesia is a diverse collection of over 200 ethnic groups. Melanesian tribesmen in the province of Irian Jaya want independence, too. And Islamic fundamentalists from southern Thailand to the Philippines are increasingly active after decades of muted conflict.

FRAGILE REBOUND. Without international support, separatists have little chance of succeeding. But even small insurgencies can jeopardize economic growth. Keeping rebels in check is costly for central governments, which already are running budget deficits and struggling to leave last year's recessions behind. "Political stability is very important to recovery and sustained growth in the region," warns S. Hafeez Rahman, an economist at the Asian Development Bank in Manila. "The economic rebound is still fragile."

Small-scale conflict also causes multinationals to question the wisdom of maintaining operations in contested areas--or even in the country at all. That concern is intensified when rebels issue veiled threats. In Aceh, rebel leaders say foreign companies, including Mobil Oil Indonesia Inc., and ships passing through the Malacca Strait might find themselves the targets of stray fire--and that such "accidents" would call attention to the rebels' cause.

At least one company is considering pulling out of Indonesia, and another is delaying new investments, according to a management consultant in the region. Exxon Mobil Corp., which owns Mobil Oil Indonesia's $3 billion natural gas production and liquefaction plants in North Aceh, has scaled down operations. By early December it had suspended exploration for new natural gas reserves and evacuated 191 staff dependents. "Nobody can guarantee security now," says an official at Mobil's partner Pertamina, the national oil company. Mobil, however, says production at existing fields in Aceh will continue through 2018 as planned.

The possible threat to shipping lanes is a big concern, particularly for Singapore. The Strait of Malacca is the world's second-busiest waterway after the Strait of Dover in Europe. Port revenues accounted for 5% of Singapore's gross domestic product last year. If full-scale fighting breaks out in Aceh, Singapore's status as the region's trading hub could suffer--as could Malaysia's ports of Malacca and Penang, where large numbers of computers and electronics are exported. Because the narrow shipping lane is crowded, the hundreds of freighters and tankers using the Strait every day must pass close to the shoreline of Aceh, within artillery range if war breaks out. "That would raise insurance costs by maybe 50%," says an insurance underwriter in Singapore. Piracy is also a concern. "Any breakdown of government in that part of the world would cause problems for international trade," says Gale.

Not surprisingly, the region's governments are unified in their opposition to separatism. Indonesia is a cornerstone of the Association of Southeast Asian Nations (ASEAN). A breakup of Indonesia would make that regional group even less effective. Those leaders, recently meeting in Manila, declared support for Indonesia's "territorial integrity." A spokesman for Philippine President Joseph Estrada told reporters: "Any successful secession will spread like flu in the region and would lead to greater destabilization in Southeast Asia." A savage crackdown in Aceh would probably provoke protests from Washington. But for now U.S. officials insist on a unified Indonesia and support the army's plan to keep Aceh and other provinces from breaking away.

East Asian Tinderbox (int'l edition)

CONTAGION EFFECT. The contagion effect is worrisome. In Thailand's four southernmost provinces, where the population is predominantly Muslim, the 31-year-old Pattani United Liberation Organization (PULO) has resumed attacks on government buildings after a brief respite. PULO, like the Acehnese, has received training from Libya. And if Philippine Islamic groups fighting for independence for the Muslim-dominated island of Mindanao ever wanted peace, they may be less likely to negotiate now. They recently killed several Philippine soldiers ahead of peace talks scheduled for Dec. 13. In Malaysia, the opposition Islamic Party of Malaysia has won control over the state of Trengganu, the second it now governs. While it does not have secessionist leanings, the Islamic government in Trengganu is proposing a special tax on non-Muslim residents, such as ethnic Chinese, to redistribute wealth to the poorer Malay majority.

The popular President Abdurrahman Wahid has vowed to use "repressive force" and invoke "the privilege of the President to do whatever necessary" to keep Aceh from seceding. Yet while Wahid has offered Aceh and others more autonomy from Jakarta, the rebels don't trust Jakarta officials. "They all lie," says Rampagoe Kleng, the rebels' chief negotiator in North Aceh. If Wahid and the rebels are unable to reach an agreement, civil war is possible. Meantime, Tarzuna, the rebel commander, waits for his orders to shoot.

Before it's here, it's on the Bloomberg Terminal.