JAKARTA - Singapore's aggressive regional investment strategy has already taken
bilateral relations with Thailand to an all-time low, but a rising tide of
economic nationalism and unresolved extradition issues with neighboring
Indonesia potentially represents a more crucial test for the island state's
economic diplomacy.
Last week the Indonesian navy seized and later released three vessels flying
Singaporean flags in waters separating Singapore from Indonesia's nearby Riau
Islands. One week later, eight warships from Indonesia's Western Fleet continue
to patrol the
waters to enforce a recent government ban on sand exports to Singapore.
Controversy over Singapore's land-reclamation projects, which entail huge
imports of foreign sand and soil, represent the latest spat in a historically
prickly bilateral relationship - one that is coming under increasing strain
that threatens Singapore's Indonesia-based investments.
Former Indonesian president B J Habibie famously referred to Singapore as that
"unfriendly little red dot" built from Indonesian sand and migrant Indonesian
laborers. Such sentiments are long-standing, but Singapore's sandbagging over
Jakarta's request for a bilateral extradition treaty has kept relations on a
high boil for the past decade.
The two sides have been negotiating the issue on and off for more than three
decades, although the issue became particularly heated after the 1997-98 Asian
financial crisis, when a number of ethnic-Chinese Indonesian businessmen
absconded with huge amounts of cash they allegedly illegally deposited in
Singaporean bank accounts.
In Singapore's drive to position itself as a regional financial center, it
maintains strict banking-secrecy laws, earning it the reputation as the
"Switzerland of Asia". Officials claim they have put enough safeguards in place
to prevent the island state from becoming a money-laundering center. However,
until recently Singapore conspicuously refused to include any economic crimes
in the draft of a proposed extradition treaty between the two countries.
News this month suggests the two sides are moving closer to a draft agreement
that would potentially include extradition for certain still-undefined economic
crimes. However, a final agreement is still likely a long way off because the
two countries agreed in October 2005 that any extradition treaty must be linked
to a defense-cooperation agreement, of which negotiations have barely begun.
Nationalistic communications
As the sand ban and other bilateral tensions mount, Temasek Holdings,
Singapore's state-linked investment arm, is starting to stir nationalistic
sentiments through its growing list of Indonesia-based acquisitions. Temasek
now holds significant stakes in Indonesia's biggest mobile-telecommunication
operators, PT Telekomunikasi Selular (Telkomsel) and PT Indosat - controlling
stakes that are now under the scrutiny of the government's anti-monopoly
agency.
Singaporean Prime Minister Lee Hsien Loong, the son of Lee Kuan Yew, previously
headed Temasek when he served as deputy prime minister. It is now headed by his
wife Ho Ching. Temasek now controls more than US$100 billion of government
investments, including 67% of Singapore Telecommunications (SingTel) and 100%
of Singapore Technologies. ST Telemedia, a subsidiary of Singapore
Technologies, in January 2002 bought a 41.94% stake in Indosat, Indonesia's
giant satellite-telecommunications company, from the Indonesian government for
US$650 million. SingTel later in 2003 paid US$1billion for a 35% stake in
Indonesia's leading mobile-phone operator.
Both deals came soon after the government broke PT Telekomunikasi's monopoly on
telecommunications, and foreign expertise and capital was expected to improve
the country's laggard infrastructure and services. Five years on, nationalist
legislators are alleging that both operators - which between them dominate
80-90% of the local cellular market - have joined forces to fix prices and
block new entrants to the market.
Legislators say this has made international Internet network tariffs in
Indonesia prohibitively expensive, badly stunting the country's Internet growth
rate. Bakrie Telecom, part of Indonesia's top conglomerate Bakrie Brothers,
controlled by the family of Indonesia's coordinating minister for welfare,
Aburizal Bakrie, is allegedly behind the legislative backlash.
Bakrie Telcom currently has only a million subscribers, but last month the
government granted the politically connection company a license to operate
nationally, expanding on its original concession, which restricted it to the
archipelago's main island of Java. Drajad Wibowo, a member of the parliamentary
budget commission, has recently warned that foreign dominance in the national
telecommunication industry could have dangerous national-security implications
and has urged the government to buy back Temasek's Indosat shares.
That echoes the sentiments of Thailand's nationalistic military-coup makers,
who have publicly accused Singapore of eavesdropping on military officials'
telephone communications through the communications satellite Temasek obtained
through its controversial US$1.9 billion purchase of the Shin Corporation in
January 2006. It's also similar to the nationalistic policies Malaysia has put
in place on exporting sand and possibly limiting water supplies to the island
state.
Parliamentary grandstanding has undermined Indonesian President Susilo Bambang
Yudhoyono's diplomatic attempts to reconcile bilateral ties and encourage more
Singaporean investment into the country. Earlier Yudhoyono had vowed to resolve
"rationally" outstanding issues and avoid the "megaphone" diplomacy through the
media that in the past had complicated bilateral relations.
Three months into his term, Yudhoyono in 2004 came under fire from the
parliamentary commission of defense and security, which demanded that military
training and cooperation with Singapore be halted if the island state continued
to dally on signing a comprehensive extradition treaty.
That conciliatory approach has often brought him into conflict with Parliament,
which has frequently played the nationalist card in an attempt to turn public
opinion against his pro-Singapore and pro-foreign-investment stance. He will
likely be more sensitive to those xenophobic calls as competing political
parties gear up for general elections in 2009. And, significantly for
Singapore, those calls are mounting.
Opposition politician and popular political soothsayer Permadi Satrio Wibowo
recently demanded that the government sever diplomatic relations with Singapore
if it doesn't soon sign an extradition treaty. House of Representatives
commission member Djoko Susilo, who is charged with overseeing security and
international affairs, led angry lawmakers in a rally last year to demand a
public apology and explanation from Singapore's Mentor Minister Lee Kuan Yew
for comments he made insinuating Indonesia's minority Chinese community was
"systematically marginalized".
Even with that growing public and parliamentary outcry, Singaporean lawmakers
are still putting more fuel on the fire. Singaporean legislator Madam Ho Geok
Choo asked in parliamentary session this week if actions like Indonesia's
recent ban on sand exports arose from the "politics of envy". Perhaps, but the
wealthy island state may soon find it has one fewer regional destination in
which to invest its huge surplus of capital.
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