Indonesian President Abdurrahman Wahid may be praying for stability in his beleaguered country. "Gus Dur" is apparently trying to divert attention away from problems at home by aiming criticism at his neighbours

A TIMELY call or just ironic timing? Singapore's Deputy Prime Minister Lee Hsien Loong late last week called on Asean countries to rebuild foreign investor confidence by - among other things - strengthening co-operation among themselves, restructuring their corporate sectors and undertaking structural reforms.

But Association of Southeast Asian Nations members lately have been doing just the opposite.

For example, one need only look at President Abdurrahman Wahid's extraordinary outburst, basically accusing Singaporeans of being rich, selfish, unfriendly Chinese with no respect for the native Malays of the archipelago.

Mr Wahid said he was miffed because Singapore had undermined Indonesia's efforts to include East Timor and Papua New Guinea in Asean, but some analysts reckoned he was playing to the domestic gallery - to take attention off his own shortcomings. I reckon he was just irritated that Singapore's elder statesman Lee Kuan Yew had been less than glowing in his recent assessments of the Indonesian political environment.

Mr Lee recently said that "until Indonesia's leaders restore order in Indonesia, investor confidence will be weak".

All I can say is Mr Lee was only saying very politely what commentators and analysts have been saying less diplomatically for months.

Whatever his reasons, Mr Wahid had bared for all to see the fragile facade of unity in Asean. So much for Southeast Asian countries putting up a unified front in the face of the competitive threat from the northeast.

Then came the awful defeat in Malaysia of Dr Mahathir Mohamad's ruling National Front coalition in a by-election in the north of the peninsula. I say awful because it was a political litmus test and it reaffirms the suspicion that many analysts in the West have that Asean's economic problems have been compounded by issues of political transition.

The loss to the opposition party, Keadilan, which was set up by supporters of jailed former deputy prime minister Anwar Ibrahim, has raised the stakes in the political battle in Malaysia.

It's not just a simple equation of Mr Mahathir versus Anwar, either. The loss would have weakened Mr Mahathir's own grip over his people in the United Malay National Organisation (Umno) - the coalition leader.

Meanwhile, Umno will probably be more defensive now, possibly adopting less market-friendly policies or even a more fundamentalist approach towards Islam in Malaysia to placate the conservative Malay heartland.

It will also embolden the fundamentalist Islamic opposition party PAS. This is not the kind of stuff you want if you're wooing foreign capital.

Then on the corporate scene, the market has been less than impressed with a couple of Malaysian debt-restructuring related deals, not least of which involves one-time golden boy Halim Saad's Renong.

The deal, announced a couple of weeks ago, will allow Renong to unload its assets to subsidiary United Engineers (Malaysia) (UEM) at prices which many in the market reckon are on the high side. The thing that sticks in the market's throat is the perception that Renong has transferred its problems to UEM. The deal will leave Renong with a clean balance sheet, but dilute UEM's earnings and net asset value.

UEM will pay for the assets through the issue of new UEM paper. Granted, the UEM shares will be issued at a 25 percent premium to the market, but it is still an unattractive deal for UEM minority shareholders. To begin with, UEM's shares are now at their year low.

Besides, the issue price will still be a deep discount to UEM's estimated net asset value. On the other side of the deal, the Renong assets being injected into UEM are largely non-cash generating and their returns are poor. All of which means the deal will dilute UEM's earnings, to the detriment poor minority shareholders.

Then there is the example of Tajuddin Ramli of Malaysian Airlines System (MAS), telecommunications company TRI and Naluri fame.

His company TRI has just succeeded in deferring payment on US$535 million worth of Eurobonds until May 2002. The deal also allows TRI to avoid paying interest charges, issuing new shares in lieu.

Mind you, there's nothing wrong with that if it will work. But TRI may have to issue as many as 208 million new shares - equivalent to 27 per cent of its share capital - to meet interest payments. Now, of course, the lower the share price at the time of issue, the greater the dilution. That is, the lower the share price at the time of the exercise, the more shares TRI will have to issue to bond holders instead of interest payments. And the more the market will anticipate the coming dilution and sell down the stock. It could make for a pretty vicious downward spiral.

So, another one of Malaysia's bigger, troubled corporate debts remains unresolved - it has only postponed its day of reckoning.

Speaking of which, the Thais have also been doing a pretty good job of making their market unattractive to foreigners by postponing their corporates day of reckoning. Not only has the massive Thai Petroleum Industry debt remained unresolved three and a half years after the baht crisis started, but workers have taken industrial action against a debt restructuring plan approved by creditors.

To think, only a few years ago international capital loved this part of the world for its strong government, political stability, flexibility, foreign investor friendliness and pro-business culture.

So, Southeast Asia is in transition. But to what?

Lim Say Boon is a Director at OCBC Investment Research Private Limited in Singapore. The views expressed above are his own.