NEIGHBORS AND FENCES

Singapore has lots of advice to give Indonesia

Without mentioning names, he panned Suharto's apparent choice of vice president (Research and Technology Minister B.J. Habibie), pointing out it had not been well received by financial markets. He went on to say the turbulence and uncertainty would not end until after March's presidential selection process and, even then, further upsets and nervousness could continue to jolt currencies and markets in the region.

Lee's remarks drew a quick response. Demonstrators gathered at the Singapore embassy in Jakarta a few days later to protest against what they charged was the island-state's interference in Indonesia's internal affairs. Habibie himself retorted later that, while he respected Lee as "a very wise statesman," Indonesia would forge its own destiny and not "offer our future to strangers." An editorial in the Indonesian newspaper Republika (linked to Habibie) scolded Lee: "[He] should be wiser when making comments about neighboring countries."

It's not the first time Lee has upset an ASEAN member. Last year he remarked upon crime in Malaysia's Johor state, sparking sharp protests across the causeway. But Singapore's relations with Jakarta have never been anywhere as prickly. That Lee felt he had to speak out this time probably reflects the deep concern with which he and other regional leaders are watching Indonesia's turmoil. Leonard Sebastian, a fellow at the Singapore-based Institute of Southeast Asian Studies, says Lee is most worried about the contagion effect. "The longer the rupiah is stuck where it is, the regional crisis will be a relatively prolonged one," he says, adding that Lee wants Suharto to understand he needs to implement reform to address the troubles quickly. With Indonesia's financial system teetering on the brink of collapse and international banks refusing to recognize the country's letters of credit, Indonesian trade threatens to grind to a halt. That, says Bruce Gale of the Political & Economic Risk Consultancy, would be catastrophic not only for Indonesia but also for Singapore, the region's trading hub.

Acknowledging that Indonesia's problem is everyone's problem, Singapore Prime Minister Goh Chok Tong himself has been "interfering," though not in the same manner as Lee. During a recent meeting with Suharto, he proposed a plan in which several nations would pledge to guarantee payments for Indonesian imports. A Singapore banker says he thinks the plan is a good idea, despite the risk of greater exposure to troubled Indonesian banks. "The alternative is the situation only gets worse -- and everybody suffers," he says.

Jakarta has yet to accept Goh's proposal, but even if it is rejected, more neighborly advice is likely to be forthcoming. Malaysian Prime Minister Mahathir Mohamad has also been touring the region peddling his solution of using local currencies instead of the U.S. dollar in intra-ASEAN trade. On Feb. 16-17, Mahathir and Goh held a two-day meeting in Kuala Lumpur to discuss bilateral matters as well as the crisis. They said that "Malaysia and Singapore would cooperate with one another and their ASEAN partners to restore stability to regional currencies. Officials of both countries will study the proposal of using regional currencies and other options to finance intra-ASEAN trade."

To top it all, the dreaded haze is back. Barely three months after the smog that choked the region last year had subsided, reports of rekindling fires on Sumatra and Kalimantan have neighbors worried anew that the skies will once again cloud over. Malaysian Information Minister Mohamed Rahmat said Kuala Lumpur wants Jakarta to "take immediate measures," but Indonesia may be too distracted.

As to what else Singapore can do to help Indonesia, "they are using what they have, which is their reserves," says Gale. In addition to proposing the import-payment guarantee idea, Singapore has reportedly pledged $2.5 billion, to come from the $5 billion it already offered as part of the IMF aid package late last year. As Singapore's Straits Times recently editorialized: "If the house of one's neighbor is on fire, would one desist from lending him one's spare water hose? Or would one rush over and offer it?" The answer is the latter of course -- but the real question may be whether or how the neighbor uses the hose.n

-- With reporting by Jose Manuel Tesoro / Jakarta and Santha Oorjitham / Kuala Lumpur