Bill Guerin, 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.