Riots imperil Pacific Rim Violence in Indonesia puts regional economy at considerable risk; Humanitarian crisis could result; U.S. businesses begin airlifting employees, families out of country


WASHINGTON -- While the world frets over India's high-tech nuclear-weapons tests, an old-style explosion of street rioting in Indonesia is posing a more immediate danger to America's stake in Asia.

With 210 million people, billions of dollars in U.S. investment, close military ties with the United States and a strategic position astride vital sea lanes, Indonesia is a quiet giant that, if badly hurt, could damage the Pacific region and, by extension, the United States.

Indonesia "is the core of Southeast Asian stability, on which the region's prosperity has rested for three decades," said James Clad, a professor of Southeast Asian studies at Georgetown University.

Four days of rioting against the military-backed rule of 76-year-old President Suharto have claimed at least 165 lives. There were sporadic reports of burning and looting in several cities yesterday.

In the capital of Jakarta, the airport was packed with people desperate to flee. The bodies of more than 100 people, mostly looters, were found in the aftermath of a fire set at a shopping center Thursday night.

Oil powerhouses such as Mobil, Atlantic Richfield and Conoco said they had begun airlifting employees out of the capital, as did Citicorp, Merrill Lynch and other financial giants.

General Motors halted its car-making operations in Bekasi, just outside Jakarta, andevacuated its expatriate employees and their families.

Suharto, who returned home after cutting short a visit to Egypt, ordered his top officials to crack down on rioters, according to news reports, but said he would not use force to stay in office if he decided he had lost the trust of the people.

Indonesia's disturbances are of the kind that used to be familiar in the developing world: economic hardship fueling domestic discontent, which tends to result in student-led riots against authoritarian rulers and attacks on a wealthy ethnic minority -- in this case Chinese residents of Indonesia.

But these latest troubles have the potential to produce global shock waves. The response of the United States and other world governments so far has been confined to urging the military to show restraint.

Deeper U.S. involvement in the crisis might become politically unavoidable in an era when satellites transmit horrifying images from the remotest parts of the globe onto U.S. television.

Indonesia's population is so vast -- it is the world's fourth-largest, after China, India and the United States -- that a large-scale humanitarian crisis could result if the current violence gives way to large numbers of refugees or widespread hunger.

"Any global leader who would not let Bosnia or Somalia collapse due to internal chaos could not let such as large strategic and friendly country [as Indonesia] go under," said Linda Lim, director of the Southeast Asia business program at the University of Michigan Business School.

Refugees could seek a haven in Malaysia, Thailand or even Australia. One key escape route for refugees to Malaysia is the Strait of Malacca. The strait is also a leading factor in Indonesia's strategic importance to the region, the West and the United States.

World's busiest waterway

The waterway, which separates Indonesia and Malaysia, is the world's busiest, conveying much of Japan's exports to Europe and its imports of oil by tanker from the Middle East. Through the strait also pass U.S. warships that cruise between the Pacific and Indian oceans.

Though poor and nowhere close to major Asian economies in its level of trade with the United States, Indonesia has drawn billions of dollars in U.S. investment. And, because of its size, the country has been widely recognized as one of the potentially big "emerging markets." Two-way trade between the United States and Indonesia last year amounted to $15 billion.

A major U.S. investor is New Orleans-based Freeport-McMoran Copper and Gold, which runs a copper mine on an island 2,000 miles from Jakarta. Hewlett-Packard and Lucent Technologies also have stakes there. Planet Hollywood and Hard Rock Cafe franchises have opened.

IMF bailout

Apart from Indonesia, the nations whose economies were imperiled by last fall's financial crisis have largely been stabilized by more than $100 billion in International Monetary Fund bailouts.

Indonesia's share of the bailout amounts to $1 billion a month, which might end up being money down the drain, experts say. But Jakarta's crisis poses a renewed peril to the region. Its economy is linked to those in Thailand, Malaysia and the Philippines.

Since much of Indonesia's corporate debt is held by South Korean and Japanese banks, "This has potential follow-on effects in Korea and Japan, where the banks are already in a difficult position," said Alasdair Bowie of George Washington University.

Perhaps more important to the region's economic future, however, is a psychological impact. The region's stunning economic growth over the last two decades "all happened because of one thing -- political stability," says Clad, the Georgetown professor.

Much of American business' interest in Indonesia stems from its huge potential as one of the "big emerging markets," Clad said. Without money in consumers' pockets, this interest will dry up.

Inevitably, Indonesia's problems will likely discourage investment elsewhere in east Asia.

"Financial markets often tend to tar all countries in a region with the same brush," said Lim of the University of Michigan.

The betting in Washington is that, even if Suharto is eased out, a military-backed regime will remain. The country has only a smattering of insurgents and no strong opposition party. PTC Compared with other events in modern Indonesian history, the army's conduct so far has been restrained.

This summer may bring a lull in the violence as students return home. But unless a political solution is achieved in the next few months, "I think the cycle is going to peak in the fall," says Douglas Paal, president of the Asia-Pacific Policy Center here.

Pub Date: 5/16/98

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