As always, Singapore's senior minister Lee Kuan Yew is keeping a wary eye on the big powers in his region-especially Indonesia and China. In Davos for the recent meeting of the World Economic Forum, he spoke with Newsweek's Lally Weymouth. Excerpts: Newsweek: How will the situation in Indonesia unfold?

Lee Kuan Yew: Indonesia is going through a very difficult transition from one-man rule by President Suharto to a form of government as yet unsettled. The media is open and free. Anything you say is immediately published. The result is that Army officers' reputations have been tarnished, former leaders have been damaged. And now attacks are going on against all leaders in government and in the legislature. [Moreover,] the executive and the legislature are boisterously uninhibited in their attacks on each other. It's a vast and complex country. There are demonstrations going on every other day. In the midst of all this, they are supposed to run a democratic government? How?

It's said that the government is unraveling and things could come apart.

I think it is difficult to hold the situation indefinitely. Whether it will unravel I don't know. [President Abdurrahman] Wahid's constitutional successor, Megawati [Sukarnoputri], is not eager on taking over in an unconstitutional way, and she holds the largest bloc of votes in Parliament.

Do you believe Megawati would make a good president?

It is improper for me to comment. The Clinton administration was uncomfortable that Megawati was close to the Army. It wanted to send the Army back to the barracks and under civilian control. Whether any president could do this depends on whether he or she differentiates between the Army as an institution and certain officers who have violated the rules. You can't govern that country without the Army.

Are you concerned about the rise of Islamic fundamentalism in Indonesia?

If you say that political Islam is now a force in Indonesia, I would say yes. They were not in the seats of power before because Suharto kept them out. He did not allow Islam and politics to go together. [Former president B. J.] Habibie changed that and liberated everything. Now there is a proliferation of Islamic parties, but what is interesting is that in the total vote, they did not gain a majority. They are still a minority, but a vocal and significant minority-well organized. Among them are extremists who went to Maluku and shot Christians.

Could this extremism spread beyond Indonesia?

There is no way of getting them out of the political arena. The hope is that the secular and nationalist parties, such as Megawati's PDI-P, Wahid's PKB and Akbar Tanjung's Golkar-Islamic but secular-will combine. If they do, they would easily form the majority.

Can they combine is the question. There is an incompatibility of personalities and styles between the leaders. That is the problem.