Bill Guerin, Jakarta – For Indonesia the pretense is well and truly over. President Megawati Sukarnoputri, reading out a prepared seven-point official statement more than 13 hours after the carnage in Bali occurred, said the government expressed its condolences to the relatives of victims in the brutal and inhumane violence, which was against the existing laws, religious teachings and moral values adopted by the Indonesian nation.

In the so-called Island of the Gods where 95 percent of the 3 million population are Balinese Hindus, with very small Muslim and Christian minorities, three bombs exploded almost simultaneously shortly before midnight Saturday, just when the extremely lively nightlife scene kicked off in Kuta. The mainly young and foreign crowds heading out to seek action and fun in the Sari Club and Paddies, two of the most "in" venues close to the center of the original Kuta village, fell victim to a massive car-bomb explosion that killed at least 180 and injured more than 400, many of them seriously.

Since September 11, 2001, the Indonesian government and police have been able to balance domestic interests and dangers against the security concerns of foreigners. Kuta has changed that forever. The terror in Bali that the national police chief General Dai Bachtiar called the greatest act of terrorism in Indonesian history has placed Indonesia directly in the world spotlight over it's support for the war against terrorism.

The sheer horror and evil of this incident, one year, one month and one day after the destruction of New York's World Trade Center, will have extremely far-reaching consequences for Indonesia.

Balinese life is culturally and spiritually linked to satisfying and appeasing the gods, spirits and demons, but the gods have deserted them this time. A driver, Putra, summed it all up: "It was horrible. I am devastated. Bali has always, always been safe. We depend on tourism for our livelihood. Our name has been smeared by this horrible blast, what are we going to do now?"

Bali's economic lifeblood, tourism, will quickly drain away after the terror. A steadily increasing influx of Australian surfers drawn by the waves at Kuta and those seeking spiritual solace in Ubud made tourism in Bali one of the few sources of stability in the New Order economy. An estimated 75 percent of the injured were Australians who had flocked to Kuta in droves and the attack caused the greatest single loss of Australian lives overseas during peacetime.

Ninety percent of the province's total income comes from tourism, and Bali attracted nearly 1.5 million foreign tourists last year, compared with five million for Indonesia as a whole. Some 406,000 foreign tourists arrived in July and 153,500 entered via Bali.

Previous blows to the island's tourism were from a cholera scare (which proved unfounded) and from the knock-on effect of the bombing incidents in Jakarta, notably the blast at the Jakarta Stock Exchange, but this time the effect on the Balinese economy will be devastating. The hotels and restaurants in Bali now face their most severe test ever and the thousands upon thousands of locals who live off the tourism sector will likely be driven into hardship.

Their Hindu status in the Islamic nation has cost the Balinese dearly. In the bloody anti-communist purges of the late 1960s, given the green light by Suharto when he took over power, as many as 100,000 Balinese were killed, some as suspected communists, others because of their Chinese heritage. The Balinese are now not only shocked but very angry. There are unconfirmed reports of vigilante extremist Hindu groups setting up roadblocks in Kuta, Sanur and elsewhere to target Muslim Indonesians.

For the Indonesian people as a whole the main responses are likely to one of great shame and also anger at their own authorities who have been unable to come to grips with the terror in their own country.

The risk of destabilization in Indonesia has for long been exacerbated by the political crisis that started under Abdurrahman Wahid and continues under a different guise within the Megawati administration. During the final months of Wahid's presidency, the more militant and radical Islamist groups such as the Front Pembela Islam (FPI - Defenders of Islam) and Laskar Jihad (Holy Warriors) Islamic militia, seeing the political impasse, seized the opportunity to act outside the law particularly following Wahid's expulsion of military hardliner General (ret) Wiranto from the cabinet and his removal of the army from matters of internal security, which were handed over to the police. These violent and aggressive elements of the Indonesian Muslim community were able to exercise an influence vastly out of proportion with their tiny representation in society.

Sixty-four-year-old Muslim cleric Abu Bakar Ba'asyir, a self-confessed admirer of al-Qaeda leader Osama bin Laden, is claimed by Malaysian and Philippines authorities to be the leader of Jemaah Islamiah, which in turn is said to have ties with al-Qaeda. Ba'asyir denies Jemaah Islamiah exists and that he has links to terrorism.

Though there has been no official comment or suggestions from Indonesia of a link between the Kuta bombs and Ba'asyir, only three days before the Bali attacks the cleric had threatened the Indonesian government with a jihad. True to form, at a news conference on Sunday, Ba'asyir blamed the United States for the attacks. "It would be impossible for Indonesians to do it," he said. "Indonesians don't have such powerful explosives ... I think maybe the US are behind the bombings because they always say Indonesia is part of a terrorist network."

Less than a week ago, Australian Foreign Minister Alexander Downer said during a regional meeting in Malaysia: "The organization that we are most concerned about is a group called Jemaah Islamiah. We think Ba'asyir is a significant figure in JI." On Sunday, after the blast, Downer said, "Jemaah Islamiah does have links to al-Qaeda and it's conceivable that an organization like that could be behind this action."

Powerful interest groups, including active, or retired, senior officers in TNI, are also said to be intent on destabilizing and undermining the authority of Megawati's secularist and shaky coalition government and further stalling reformist policies as a means of protecting their own vested interests. There have even been suggestions this weekend that the carnage was indeed the work of disgruntled generals who hate Australia for its interference in East Timor.

Former president Wahid accused those who had earlier been members of the Indonesian government itself. He said the terrorists within "want to create instability in the country and create an environment of fear so that tourists will not come here", adding that he was not prepared to name those he believed were behind the action, because the police had asked him to keep quiet. Harnessing Muslim discontent with Western and American influence and perceived arrogance, and undermining US influence in Indonesia to pressure the government toward a more Islamist stance are tactical options that may no longer be available to these shadowy commanders

The United States was quick to condemn the bombing and is likely to force the pace on strengthening Indonesia's capability to tackle terrorism. "It was a despicable act of terrorism, the likes of which Indonesia has never seen," US Ambassador to Indonesia Ralph Boyce said in a statement, which concluded, "The United States has offered all appropriate assistance to the government of Indonesia to see that those responsible for this cowardly act face justice."

The events in Bali, however, have also greatly strengthened the hand of the Indonesian military (TNI). TNI chief General Endriartono Sutarto said only last week that if the government wants to beef up the "fight against terrorism" it must impose a tough law that provides a legal basis that enables the military to move fast. Sutarto's power play follows rising concerns over the ability of the police, currently the only institution authorized by law to deal with internal security issues, to crack down on terrorists operating in the country.

The military has always justified itself as the guardian of the country against political extremes, defender of the Pancasila (the philosophical basis of the Indonesian state) and the guarantor of domestic stability. With communism no longer a threat, militant Islamic fundamentalists and terrorist acts could be used to justify military intervention and continuing political involvement. TNI will also see the post-Kuta situation as an opportunity to create a more favorable impression with the US, and it also has a vested interest in backing up the US-led campaign against international terrorism in cracking down even harder on Free Aceh Movement (GAM) insurgents.

The country's leaders show little sign of rising to meet the challenges and have preferred to slam the US in public as being anti-Indonesian and anti-Muslim rather than take warnings of terrorism seriously.

For a month, the ambassador Boyce has been warning of a high risk of terrorist acts in Indonesia, but has been repeatedly slammed by religious leaders and many leading politicians, including Indonesia's Vice President Hamzah Haz. The embassy was closed for five days after an undisclosed threat of terrorist attacks on staff. Soon after, Time magazine said a senior al-Qaeda member in Indonesia, Omar al-Faruq, had been masterminding a car-bomb attack on the Jakarta embassy when he was arrested in June.

The CIA interrogated al-Faruq after he was deported to the US and he confessed to planning a series of terrorist attacks in Indonesia, which the US embassy confirmed. Al-Faruq admitted that he was in the region to plan wide-scale attacks against Western interests in eight countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, Taiwan, Vietnam and Cambodia) and to assassinate Megawati Sukarnoputri (before she became president) as she was a secular threat to al-Qaeda's future goals in Indonesia. He also said he had been behind a series of 24 attacks against churches and leisure venues on Christmas night 2000 and logistical support had come from Abu Bakar Ba'asyir.

Akbar Tanjung, the House of Representatives (DPR) Speaker and chairman of the Golkar party, as well as a convicted felon, last week slammed the US government's plan to withdraw all of its representative staff from Indonesia, with the immortal words: "There is no proof Indonesia is unsafe."

Megawati's support for the chairman of the United Development Party (PPP), Hamzah Haz, as her vice president has also created an image problem all of its own. Haz, who leads Indonesia's largest Muslim political party that forms a key plank in the Megawati administration is widely seen as blatantly vying for support from among Indonesian Muslims, including the militant groups, to strengthen his run for the presidency in the country's next general elections in 2004.

Over the last few months the vice president has overtly supported the Muslim hardline clerics, and held meetings with Ba'asyir, visited the detained leader of the Laskar Jihad, Jafar Umar Thalib, whose troops have fought to evict Christians from the sectarian-ravaged Moluccas islands, and played down the recent violence by members of the FPI.

Haz has also challenged recent US State Department allegations that radical Islamic groups were active in Jakarta and continued to threaten US interests, saying there is no terrorist network in the country: "There are no terrorists here. I guarantee that. If they [terrorists] exist, don't arrest any Muslim clerics, arrest me," he said during a meeting with Ba'asyir's followers.

Though conspicuously saying nothing about the victims, Haz was quick to point the finger at Coordinating Minister for Politics and Security Susilo Bambang Yudhoyono, saying on Sunday that the minister ought to explain why the explosion had happened. "Our weakness lies in the management of politics and security," Haz said. Such crass insensitivity is nothing new for Haz, who said after the September 11 attacks on New York and Washington that the attacks "will cleanse the sins of the United States".

The challenges for Megawati, her shaky coalition government, and the moderate Muslim majority in Indonesia to keep on track with such economic reform as has been planned now becomes more of an impossible mission. The domestic political strife brought about by electioneering, and the readiness of the Islamic-oriented parties to exploit nationalist and anti-foreign sentiments for political gain, added to the likely pressure from the US after Bali, will be too heavy a burden for a leader like Megawati with such a dearth of political experience.

This political manipulation using Islamic symbols is extremely dangerous and poses the greatest danger ever to Indonesia's stability since the downfall of Suharto. The crisis of leadership suffered by Indonesia that allows Islamic fundamentalism and terrorism to be confused with all Islamic movements, political and social, non-violent and violent, is driving a wedge between the West and the Indonesian Muslims. If the West and the Islamic world cannot meet in the middle, then the future holds only the frightening prospect of more hatred and radicalism, the rise of more extremist movements, and a breeding ground for recruits for the bin Ladens of the world.