Sunanda Creagh – Recent moves in the country, including plans by Aceh to stone adulterers to death, have raised concerns about its reputation as a beacon of moderate Islam.

The provincial assembly in Aceh – at the epicenter of the Indian Ocean tsunami that killed 170,000 people there nearly five years ago – this week decreed the ancient Islamic penalty of stoning to death for adultery. The decision could still be overturned once Aceh's new assembly is sworn in next month.

But many, including Aceh's governor, the central government and local businessmen, are concerned about the impact a broadcast public execution by stoning could have on the country's international reputation.

"The perception and the reaction from the international community would be condemnation," said Anton Gunawan, chief economist at Bank Danamon, who stressed he thought an actual stoning unlikely.

"For investors who are relatively familiar with Indonesia and know it is mostly moderate, it might not have an impact," he said. "But for people who don't know Indonesia, they will think, 'Oh, now I have to be careful of that place.'?"

The Aceh case is one of several showing how hard-line Muslim groups are influencing policy. Local governments, given wide latitude to enact laws under regional autonomy, have begun to mandate Shariah regulations, including dress codes for women.

One ethnic Chinese-Indonesian businessman, a practicing Christian who asked not to be quoted by name, said he feared if the trend continued it could lead to capital flight by the wealthy Chinese, a Christian minority.

"A lot of regional laws are going in that direction," he said. "It's alarming the way it's going. It's a minority who are doing this, but the problem is that the silent majority just keep silent."

Last year, the government imposed restrictions on Ahmadiyya, a minority Muslim cult, following intense lobbying by hard-line Muslim groups to have it banned.

President Susilo Bambang Yudhoyono's party also backed an antipornography law, which imposes restrictions on certain forms of dance, traditional dress and the depiction of nudity in art. The law was widely condemned by minority religious and ethnic groups, including the Balinese.

A new film law passed this month goes even further, prohibiting depictions of drug use, gambling and pornography, and requiring filmmakers to have their plots approved by the Minister of Culture and Tourism before production can begin.

"I think the Islamic parties will be a strong influence on the law-making of the next cabinet," said Suma Mihardja, who led a campaign against the antipornography law. "Tension could be directed toward xenophobia, racism or religious conflict as we see in Malaysia today."

Other legislation on the cards at the national level includes a bill making halal certification compulsory, instead of voluntary as is now the case. That would result in higher costs for many food and pharmaceuticals companies, domestic and foreign, said Suroso Natakusuma from the Indonesian Chamber of Commerce and Industry (Kadin).

"Every single item will need halal certification and an external audit process may follow," he said. "The auditor may need to be sent to the country where the product was made to check the process is halal. That means air tickets, hotels. This will mean a lot of extra costs."

The religiously-inspired laws seem to run against the wishes of the electorate. In the 2009 legislative elections, the overall vote for Islamic parties declined.

"People appear to be pandering to an audience that isn't really asking for anything," said James Bryson of HB Capital, which invests in Indonesian stocks. "The halal bill is not winning any votes and it's making an already complex system of certification even more expensive."

Said Abdullah of the secular Indonesian Democratic Party of Struggle (PDI-P) said many of these laws are becoming more conservative. "The government is trying to accommodate the Muslim community but they are actually not following our real Constitution."