Sunday, July 22, 2018

Kerry B. Collison Asia News: Russia’s disinformation game in Southeast Asia

Kerry B. Collison Asia News: Russia’s disinformation game in Southeast Asia: Russia’s disinformation game in Southeast Asia In December, two Russian strategic bombers made an unusual flight to the Indonesian...

Russia’s disinformation game in Southeast Asia

Russia’s disinformation game in Southeast Asia

In December, two Russian strategic bombers made an unusual flight to the Indonesian airbase on Biak in the province of Papua, where they conducted an air alert drill. Across the Arafura Sea in Darwin, Royal Australian Air Force squadrons went into a state of heightened alert.


To the extent there is a Russian challenge to the liberal order in Southeast Asia, it is most likely to make progress in the information space.

Then, the unarmed bombers flew home.

A number of analysts have raised the alarm on Russia’s more pronounced presence in the Asia-Pacific. Russia’s capabilities upgrade to the Pacific fleet, continued efforts to increase arms sales, and token deployments such as those to Biak of the Tu-95 Bear bombers catch Canberra’s attention.

But there is little evidence to suggest that Russia’s ambitions run beyond arms sales and occasional harassment of the US and its allies. Russia is still primarily focused on Europe and the US, and too much attention paid to Russia’s defence engagement in the region can distort policy – as US Secretary of Defense James Mattis has argued Congressional sanctions on Russian arms sales to Vietnam and Indonesia would do.

There is a risk, moreover, that a focus on military deployments and arms sales will divert attention from the information space, where Russia poses a credible challenge.

Sputnik and RT: agents of distrust

Since 2017, the Kremlin’s disinformation apparatus has ratcheted up its operations in Southeast Asia. In a region where illiberal tendencies run deep, the expansion of an effort notorious for undermining trust in independent institutions, such as international news agencies, should be a matter of grave concern.

Take Malaysia’s official news agency, Bernama. In December 2017, Bernama signed a memorandum of understanding on news exchange with Sputnik, a Kremlin-funded media outlet. The deal was struck by Malaysia’s previous government, which had been badly damaged by the Wall Street Journal’s reporting on corruption at the 1MDB sovereign wealth fund.

As the government sought to cast doubt on the allegations by criminalising discussion of them in a controversial new “fake news” law, Bernama praised Sputnik, a world leader in sowing doubt about the credibility of reports in Western media. Their partnership, Bernama’s editor-in-chief said, would provide a “wider variety of news” – a variety which it is safe to assume would not have included stories on the alleged corruption at 1MDB. 

Sputnik and its sister organisation, the Russian television and digital outlet RT, deny being agents of disinformation, and argue that their reporting merely challenges the “Anglo-American mainstream” media by providing alternative views. But while both lean on mostly straightforward news coverage to provide a patina of credibility, their editorial, analysis, and commentary narrate and reinforce one story: Western decline, Western imperialism, and conspiracy theories connected to Western funding.

While RT relies on highly emotive op-eds, Sputnik’s approach is subtler and more insidious. Its editorials include analyses that might seem plausible to a reader without much background knowledge, but which are unsupported by facts. Consider Sputnik’s commentary on the Rohingya crisis, which the outlet’s contributors argued last year (herehere, and here) was either a plot to seize Myanmar’s oil or the product of George Soros’s efforts to destabilise the country. Such arguments validated a desire in Myanmar to evade responsibility for atrocities committed in Rakhine State and widely reported by mainstream news organisations.

Russia is not only exporting illiberal content, but also its experience in producing it. In late 2017, Russian Prime Minister Dmitry Medvedev and Philippine President Rodrigo Duterte signed a deal for cooperation in the field of “state information dissemination”. Under the agreement, Duterte’s communications staffers would travel to Russia for training. Critics of Duterte, such as Rappler’s Maria Ressa, have cautioned against this move, citing Russia’s known use of disinformation tactics and patriotic trolls.

Russia does not need to dominate the information space in Southeast Asia; it just needs to do enough damage through its media properties and those of similarly minded Southeast Asian governments to erode confidence in mainstream news organisations, advocacy groups, and other independent institutions. As it does so, authoritarian leaders and corrupt officials are less likely to be made to answer for abuses of public trust.

Australia’s response

A free and independent press is not often spoken of as one of the institutions of the liberal international order, but can such an order operate without it? To the extent there is a Russian challenge to the liberal order in Southeast Asia, it is most likely to make progress in the information space. 

Canberra should meet this challenge by making more meaningful contributions to supporting a free press in the region. Long-running media exchanges facilitated by the Department of Foreign Affairs and Trade and the Walkley Foundation are a start, but could be much more robust with greater funding. Instead of whirlwind, five-day tours of Australian institutions, what about placing someone from the Irrawaddy in a Fairfax newsroom for a year, or someone from ABS-CBN in a position in the ABC’s Parliament House bureau?

It may also be time to explore cooperation with likeminded countries, such as Japan, for support of an Australian or multinational public broadcaster in the region. If its Southeast Asia operations were resourced properly and run with appropriate levels of probity and cultural sensitivity, the ABC – like the BBC throughout Africa – could become the media organisation that partisans of every stripe turn to when they want to hear dispassionate, fact-based reporting and analysis on events in their own region.

When Russian bombers approached Australian airspace last year, Canberra was prepared to respond. Yet Russia’s presence in the information space of the region is established and growing, even as the Australian Government cuts funding for overseas broadcasting and independent news organisations retrench.

A rethink is required. Without it, Australia may find it is dealing with a much more illiberal region in the years to come.



Tuesday, July 17, 2018

Kerry B. Collison Asia News: Jokowi’s Soft Diplomacy: Global Islamic Network Of...

Kerry B. Collison Asia News: Jokowi’s Soft Diplomacy: Global Islamic Network Of...: Jokowi’s Soft Diplomacy: Global Islamic Network Of Moderation – Analysis In the face of rising conservatism, President Jokowi recentl...

Jokowi’s Soft Diplomacy: Global Islamic Network Of Moderation – Analysis

Jokowi’s Soft Diplomacy: Global Islamic Network Of Moderation – Analysis

In the face of rising conservatism, President Jokowi recently launched a new endeavour to promote “moderation in Islam” both domestically and internationally. Can Indonesia be a power house for promoting ‘smiling’ Islam internationally?

A few days before Ramadhan 2018, the extremists of Jamaah Ansharut Tauhid (JAT) and Jamaah Ansharud Daulah (JAD) launched suicide bombing attacks in Depok, West Java and Surabaya, East Java, respectively on 8 and 13 May. Terrorist attacks such as these are detrimental to the Islamic philosophy of wassatiyat (middle path) that can create a peaceful and safer world.

Such an idea has long been advocated by Nahdlatul Ulama (NU) and Muhammadiyah, Indonesia’s two largest Islamic organisations. Both have recently co-sponsored The Bogor Message, a high-level consultation of 100 World Muslim Scholars on Wassatiyyat Islam. The consultation was inaugurated by President Joko “Jokowi” Widodo in Bogor, on 1-3 May 2018.

The Bogor Message & Jokowi’s “Middle Way”

The Bogor Message emphasises seven characters of moderation in Islam; namely, tawassut, (middle of the road position); i’tidal (fairness with responsibility); tasamuh (recognition and respect for differences); shura (consultation and consensus in problem-solving); islah (reform); qudwah ( exemplary behaviour); and muwathanah (recognition of the nation state).

President Jokowi advances his foreign policy and diplomacy by emphasising the growing significance of moderation in Islam as a reflection of his international and domestic policy towards Islam. In international forums, he seems to continue former President Susilo Bambang Yudhoyono’s public diplomacy to promote harmony between “Islam, democracy and modernity”.

Compared to his predecessor, Jokowi’s soft power diplomacy based on “moderate Islam” intends for Indonesia to have broader bilateral and multilateral roles. To counter extremism and to promote peace in South and Central Asia, Jokowi organised the High Consultation of 100 World Muslim Scholars on Wasattiyah Islam and the Afghan Peace Talks, consecutively held in Bogor on 1-3 May and 11 May 2018.

The Bogor Talks, which involved Pakistani, Afghan and Indonesian clerics, were perceived as a concrete diplomatic endeavour to promote peace in Central and South Asia.

Indonesia under Jokowi also shows its concern and commitment on resolving the Rohingya issue in Rakhine State, Myanmar through “Sarong Diplomacy” ̶ borrowing Vice President Jusuf Kalla’s term. Indonesia offers a comprehensive, sustainable solution: humanitarian aid and peace talks involving all conflicting elements.

Partnering with moderate Islamic philanthropic institutions such as Muhammadiyah’s Board of Philanthropy (Lazismu) and Nahdlatul Ulama (NU)’s Board of Philanthropy (Lazisnu), Jokowi sent humanitarian relief and aid to Rohingya refugees in Cox’s Bazar, Bangladesh. This humanitarian initiative elevates Indonesia’s credibility on the world stage.

Strengthening Moderation

Jokowi tries to promote these initiatives amid popular perception of his lack of Islamic credentials and rising Islamic conservatism. He has appointed some moderate figures to join his administration such as Din Syamsuddin and Ahmad Syafi’i Maarif from Muhammadiyah; alongside Said Aqil Siradj and Ma’ruf Amin from NU.

Jokowi’s support for Islamic moderation is his response to his opponents who are more conservative in their ideological positions – by declaring himself a “moderate Muslim” who supports moderation as a national character and identity.

In practice, Jokowi vigorously assured the need for moderation-inclined religious networks including those favouring Pancasila and the Unitary State of Republic of Indonesia (NKRI). To this end he dissolved Hizbut Tahrir Indonesia (HTI) in July 2017, an organisation which opposes Pancasila and wants to replace NKRI with a transnational Islamic caliphate.

Jokowi believes only moderate Islam can eradicate the ideology and network of extremism-radicalism. He believes moderate Islam shares the same national goal of developing a safe, peaceful, prosperous and just Indonesia. NU’s “Islam Nusantara” emphasises the tradition of openness and tolerance in the archipelago, whereas Muhammadiyah’s “Islam Berkemajuan” is oriented towards progressiveness in education and socio-economic development.

It is worth noting that the two movements – Muhammadiyah and NU – have also been actively crafting people-to-people contacts with their counterparts. Being actively engaged in global interreligious and inter-civilisational dialogue such as the World Peace Forum (WPF) and World Conference on Religions for Peace (WCRP), the two organisations are Jokowi’s best partners to promote Indonesia’s multi-track and soft power diplomacy. It is aimed to promote dialogue and cooperation between various religions and civilisations based on the principles of Islamic moderation.

Opportunities and Challenges

Jokowi is very committed to develop a global network of moderate Islamic scholars and organisations. His state visit to Bangladesh, Pakistan and Afghanistan in early 2018, not only aims to further develop economic and political ties with these countries, but also to build a global Islamic network of moderation.

The Afghan Peace Talks of 11 May 2018 in Bogor is a follow-up to Indonesia’s soft diplomacy for peace in the region. This shows that Indonesia’s leadership among Muslim-majority nations is relevant, amid the weakness of the Organisation of Islamic Cooperation (OIC) and the Middle East-North Africa (MENA) countries which are currently plagued by sociopolitical conflicts.

Nonetheless, periodic acts of violent extremism still make Indonesia – the largest predominantly Muslim country in the world ̶ to be perceived as a ‘hotbed’ of terrorism. In this vein, Wassatiyat Islam can be a counter-narrative against any negative reputation on Indonesia due to the acts of the violent extremists.

To that end, the domestic and international network of Islamic moderation needs to be complemented by a consultative institution – either permanent or semi-permanent, in which state and non-state actors can come together to formulate strategies to disseminate Islamic moderation.

Cooperation across actors and sectors will strengthen the growth and expansion of the global Islamic network of moderation, especially to pool funding for sustainable programmes to expand moderate Islamic ideology.

Nevertheless, given the ongoing economic, political, and technological challenges, building the foundation for Wasatiyyat Islam remains a big challenge. If this issue is not immediately addressed, the ideology of extremism would remain a powerful magnet for a vulnerable young generation.

*Andar Nubowo is a Research Associate at the Indonesia Programme, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Monday, July 16, 2018

Kerry B. Collison Asia News: India And Its South Asian Neighbors: Perceptions O...

Kerry B. Collison Asia News: India And Its South Asian Neighbors: Perceptions O...: India And Its South Asian Neighbors: Perceptions Of Threats And Realities – Analysis Shift in India’s Approach Towards its Neighbors ...

India And Its South Asian Neighbors: Perceptions Of Threats And Realities – Analysis

India And Its South Asian Neighbors: Perceptions Of Threats And Realities – Analysis

Shift in India’s Approach Towards its Neighbors was Short-lived

The most formidable obstacle to the South Asian regional integration process has been pre-occupation of the states with a state-centric approach to security. In the initial years since South Asian Association of Regional Cooperation (SAARC) came into existence in 1985, India hesitated to get actively involved in the regional forum as it believed the group was intended to be a platform for smaller powers to gang up against India given the initial move for establishing the South Asian regional grouping was made in January 1980 in the in the context of the Soviet military intervention in Afghanistan and the US and Pakistani resolve to resist the intervention.

The Gujral doctrine, propounded by the former Minster of External Affairs I.K. Gujral in 1996 who later became Indian Prime Minister, was a response to address an atmosphere of distrust that characterized India’s relationship with its neighbors for long starting from India’s unequal treaties with Nepal and Bhutan keeping the protectorate arrangements of British India intact under Nehru’s leadership to the evolution of Indira doctrine designed to keep the external powers out of the South Asian region and compel the neighbors to seek India’s assistance to resolve their problems onto Rajiv Gandhi’s commitment to follow Indira doctrine to its conclusion by intervening in Sri Lankan civil war.

The doctrine marked a departure from India’s earlier obsession with keeping the region within its orbit of influence to an inclination for non-interference and non-reciprocity. For instance, India stopped intervening in neighboring states’ foreign policy decisions that was previously considered crucial to India’s security. For instance, India did not contest Sri Lanka’s arms purchase from Pakistan. The principle of non-reciprocity which demanded unilateral positive gesture from India to maintain neighborly relations irrespective of the capacity of other small states to reciprocate allowed India to gradually convert existing treaties with neighbours into free-trade agreements.

However, euphoria surrounding the Gujral doctrine subsided quickly, as the Chinese footprint in the region became more pronounced and likelihood of China-Pakistan axis in the region became palpable to India’s foreign policy makers. New Delhi began to view regional developments from a military security driven perspective instead of pushing for regional integration.

The perception and narrative of Chinese threat has been built around many developments such as India’s defeat in the 1962 border war which was considered a breach of trust and violation of the spirit of ‘Panchasheela Agreement’ signed between the two countries, continuous Chinese supply of arms and nuclear technology to Pakistan irrespective of India’s concerns, Beijing’s flexing of muscle in its neighborhood, occupation of Tibet and expansionist territorial claims by portraying Arunachal Pradesh-an Indian territory as part of China and its palpable intrigue in its unwillingness to disrupt its ally Rawalpindi’s alleged connection with religious radical groups for instance, New Delhi’s move to question Islamabad and seek UN Security Council sanctions against Hizbul Mujahideen Chief Syed Salahuddin, the mastermind of the Mumbai attacks, was blocked by Beijing.

India’s Military Strategy and the Region

The lesson that India learnt since 1962 border war was its lack of conventional military ability to take on China. India has ever since more focused on developing its military capacity by modernizing and investing larger portion of its budget towards defence preparedness.

As per data on arms transfers released by Stockholm International Peace Research Institute (SIPRI), arms imports by India increased by 24% between 2008-12 and 2013-17 periods. More intriguingly, the data project India as the world’s largest arms importer accounting for 12% of the total global imports for the period 2013-17. It is very much clear that India’s defence preparedness is directed more towards China than Pakistan over which India already enjoys military superiority.

However, what is glossed over in this strive for military build-up is that India is continuously bleeding as a result of growing instances of cross-border terrorism and proxy-wars which cannot be contained let alone wiped out by its increasing conventional military capacity. Outcomes of a 74-day long military stand-off between India and China in Doklam located on the strategic tri-junction of Bhutan, China and India went in favor of India as both China and India not only agreed to return to their previous position, Beijing stopped its road construction activities in the area. While this action pointed to India’s military resolve to insulate the South Asian region from Chinese territorial incursion, this has also fed into the narrative that India needs to continue to strengthen and modernize itself militarily not only to avoid a humiliating defeat of 1962, it would also be able to deter China from making military inroads into the South Asian region.

India’s Perception of Looming Chinese Threat in the South Asian Region

India perceived a greater threat from Chinese foray into the South Asian region than threats emanating from Pakistan in the form of terrorism and proxy wars. Many Indian leaders and experts expressed their concerns regarding Chinese inroads into the region and a parliamentary committee report on external affairs noted “China is making serious headway in infrastructure projects in our neighborhood…..the Indian government is committed to advancing its development partnership with Bhutan and Nepal, as per their priorities”.

Experts on Security Affairs furnished a geopolitical theory on Chinese foray into the region known as ‘String of Pearls’ strategy in academic literature. While Beijing uses catchphrases like ‘One Belt One Road’, Silk Road and Maritime Silk Road project to emphasize its economic thrust and regional necessity, India perceives a threat of ‘encirclement’ in the Chinese move. The Chinese project has already taken off in the form of construction of roads, railways and air ports in landlocked Nepal to creation of ports, bridges and airport facilities in Pakistan, Sri Lanka, Bangladesh and the Maldives.

What makes India’s concerns look more genuine is roads, railways, bridges and ports can be used for dual purposes – civil and military. There may be ulterior military objectives underlying Chinese mega connectivity project which cannot be denied only on the basis of official declarations from Beijing. These threats are getting more pronounced when India, under Modi’s leadership and in line with his ‘neighborhood first’ policy, played a leading role in the deliberations of the 18th SAARC Summit held at Kathmandu on November 26-27, 2015 to strengthen the regional integration process, his proposals for having three agreements on road, rail and power (electricity) connectivity not only invited tough resistance from Pakistan as was expected, most of his unilateral gestures were viewed with skepticism in the region. Moreover, the South Asian countries including Pakistan, Nepal, Sri Lanka and the Maldives expressed their willingness to induct China from an ‘observer’ status since 2007 to full membership in SAARC.

India’s Non-Military Response to Chinese Threat Perceptions

Due to its long-standing political and cultural penetration in the neighborhood, India believed it could manipulate internal political and cultural conditions within neighbors to foster its influence and undercut nascent Chinese foray into the region.

It kept anchoring certain political parties to maintain its dominance in the region, increased the amount of aid and extended lines of credit and quickly responded to humanitarian disasters in the region such as Tsunami affected South Asian countries – Maldives and Sri Lanka in 2006, earthquake affected Pakistan in 2005 and Nepal in 2015, relief assistance for Rohingya refugees to mitigate humanitarian crisis in Bangladesh 2017.

However, the nature of the assistance that India extended to its neighbors was bilateral and driven more by India’s concerns related to Chinese growing investment and influence in the region than any desire for removing the barriers to regional integration.

The South Asian Neighbors’ Security Perception

The neighbors while perceived threat to their sovereignty and territorial integrity from India’s neighborhood policy for long and many times took the form of resentment and statements suggesting India not to interfere in their internal affairs, China, a relatively new player in the region has not been viewed from this perspective.

As a result, the small South Asian countries either used the Chinese card to dissuade India from embarking on a robust regional policy or they allowed China a bigger role in the economic development and modernization of the countries. China’s mega connectivity project ‘OBOR’ received warm welcome from the small states as they saw a huge development potential from the initiative and some expressed their willingness to see China as a full member of SAARC.

While such pro-China gestures in the neighborhood is not seen favourably by India, small states are hard-pressed to walk a cautious path given India’s deep economic, political and cultural penetration in the region much before China’s entry. The Sri Lankan leadership, for instance, quickly responded to India’s security concerns on Chinese maritime strategy around Hambantota port facilities and made it clear that Beijing would limit its activities to commercial development of the port and no maritime strategies would be allowed.

When the Indian Prime Minister Modi made a visit to Nepal in May 2018, he received warm welcome from the communist leadership there despite recent history of animosity arising out of Nepalese accusations of India’s political interference in Nepal in the process of new Constitution-making and the irritant of economic blockade. Despite Bangladeshi regime’s invitation to China for infrastructural development, it turned to the Indian government for putting pressure on the government of Myanmar to take back Rohingyas in order to defuse the humanitarian crisis.

India’s Fixation with Chinese Threat is more Imaginary than Real

Notwithstanding the Doklam standoff, a war or direct military confrontations between the two countries is unlikely given the shifts in regional and global power configurations since 1962. The outcomes of the stand-off indicated India’s ability to project its power in the neighborhood cannot be challenged without serious risks.

India is not only a nuclear power, it has developed its conventional military capacities and naval presence to an extent which may not be to the proportion of projecting its power beyond the region but can defend the region. The Indo-US strategic relationship, India’s naval cooperation with Japan and Australia in the Indian Ocean along with the US can go a long way in tearing apart the ‘String of Pearls’ strategy of China. China’s foray into the South Asian region is of comparatively recent origin, while India has already deep socio-political and economic penetration into the region.

India enjoys a geostrategically better location to project its power in its immediate neighborhood and in the Indian Ocean than China. Perhaps, for all these reasons, India’s neighbors while resent its interference in their internal affairs, they remain vigilant to India’s security concerns and allow China a role limited to infrastructure development. Apart from this, the large volume of trade between India and China precludes the possibility of armed confrontation because that would not only sabotage existing trade and investment, prospects for trade relations would get suspended for an indefinite period.

China, which is predominantly an export-driven economy, has not only flooded the South Asian markets with cheap products, it has moved a large amount of capital in the shape of concessional loans to the South Asian countries for infrastructural project. The flip side of these projects is that when loans accrue without timely repayments these turn into debt-burden for the South Asian countries.

The projects ensure not only the Chinese companies are engaged in the infrastructure development works; all the raw materials and products necessary for the works are imported from China. When a South Asian country expresses its inability to repay loans, attempts were made to acquire land on lease as the Sri Lankan experience exemplifies. The Sirisena government of Sri Lanka leased out land to China for 99 years, under debt pressure, for the development of Hambantota port which aroused resentment from different quarters of the country. Pakistan, Nepal and the Maldives, on a few occasions, objected to the terms, conditions, negligence of local economy and modus-operandi of the projects. While the Chinese projects involve a huge amount of movement of capital, these may backfire in the long-run.

On the other hand, India’s aid to the South Asian countries is of lesser amount but they are targeted towards sectors like housing and railways with greater impact on local population.

According a World Bank report, around 5 million South Asian migrant workers in India sent more than $7.5 billion back to their home in the form of remittances in 2014; in the same year only 20 thousand South Asian workers in China sent a meager amount of $107 million back home. These statistics drive home the point that India’s economy and that of the South Asian neighbors is more organically inter-linked due to socio-cultural and geographical reasons than their economic linkages with the China’s export driven economy. Due to stronger economic linkages, India’s growth has a ripple effect on the South Asian countries.

For all these reasons, India should engage with its neighbors as a confident power and play a major role in the regional integration process instead of looking at the region from a security perspective. Many a times, its neighborhood policies largely dictated by a security perspective has led it to meddle in the internal affairs of the countries much to their chagrin.

South Asia: A Region of Hope and Despair

South Asia remains a region hope because it is the fastest growing region and shows prospects of further growth as findings of a recently released World Bank report indicated. Notwithstanding this optimistic note, the Bank’s chief economist for South Asia Martin Rama observed “the acceleration of growth that we see in the region is not necessarily that all countries are doing much better…..but given the size of India, India’s bouncing back is driving the growth”.

What this statement implied is as the negative fall outs of Demonetization and Goods and Services Tax (GST) policies in India gradually settled, it induced the regional growth to the top of the order given India’s size, population and remittances that migrant population of the South Asian countries generated. The average growth rate of other South Asian countries were below 6 per cent.

Despite registering robust growth rate, India is still facing serious challenges from all the non-conventional threats that affect others in the region. The primary reasons for this have been uneven distribution of resources within India and lack of regional and sub-regional integration within South Asia. Even achievement of a modest level of regional integration has the possibility of not only inducing growth rates, it can steer the South Asian economies towards inclusive growth by opening up larger market, keeping the rates of products low and providing different access points to avail health and education services. So far as the regional integration is concerned, South Asia provides a gloomy picture as it is one of the least integrated regions with intraregional trade accounting for only around 5% per cent of total South Asian trade.

India and its neighbors are fixated on state-centric or conventional threat perceptions as they see the source of threats to their sovereignty and territorial integrity only in powerful nations or in perceived aggressive moves of neighboring or external powers within the South Asian region. It is no gainsaying the fact that the region is home to many non-conventional threats like terrorism, poverty, illiteracy, unemployment, underdevelopment and illicit trafficking of people and drugs to name a few which can only be addressed through a non-conventional security perspective, regional integration and cooperative participation of extra-regional players in the regional attempts at handling these issues.

Eurasia Review


Kerry B. Collison Asia News: IS INDONESIA’S LIPPO IN TROUBLE?: IS INDONESIA’S LIPPO IN TROUBLE? INDONESIANS HAVE SEEN NOTHING quite like it. The Lippo Karawaci development 30 km west of Jakarta ha...



INDONESIANS HAVE SEEN NOTHING quite like it. The Lippo Karawaci development 30 km west of Jakarta has hundreds of houses, two apartment towers, three high-rise office buildings, a hospital - and the country's largest shopping center, the 200,000-sq-m Super Mall. Korea's Hyundai is building two more condominiums, one 62 floors high, the other 47 stories. There is a country club with a swimming pool and other amenities. A school has three other swimming pools and a horse-riding facility. Cables pipe 23 television channels into every home. When developer Lippo Land pre-sold units in the township, says estate manager Gordon Benton, there were long queues of buyers. Resale prices, he claims, are now up 250%.

Except that few are making offers. High interest rates and a glut in the high end of the property market are dampening demand. And only about 500 families - a fifth of what the whole development can accommodate - live in Karawaci. Key problems: the long commute to Jakarta and heavy traffic. Then there are security concerns. Some 3 million people, most of them poorly paid workers, make their homes in the surrounding Tangerang area. Benton has assembled a small army of Karawaci guards. "We have to teach them things like community policing," he says, complaining of the "brutalization" they went through in the military. The landscaping, he adds, is designed to "keep the crap out of sight" - the low-cost housing around Karawaci.

Will retailers set up shop in the $125-million Super Mall? Will Lippo make money on the partially completed Carita Bay Resort in West Java? How about the just-announced $100-million township project in Ujung Pandang in Sulawesi? For that matter, will the Hong Kong real-estate operations ride out the property slump in the British-run territory? Profits for the Hong Kong-based holding company Lippo Limited in the first half of 1995 are down 62% from the same period last year. Lippo Bank, Indonesia's tenth-largest commercial bank, has $3 billion in assets, but analysts say it may not be able to rescue Lippo Land if things go sour. "It has some excellent visions but a poor sense of timing," says an executive with the group. "Jakarta will not be ready for [its projects] for another five to eight years."

Tell that to the Riady family. Lippo founder Mochtar Riady, 66, says there are no problems at all. "Whenever you do something different, you're always going to have people who agree and not agree with you," his eldest son James, 39, told Asiaweek. In Hong Kong, younger brother Stephen, 35, declared: "When we build, people say we build so big. In Indonesia, the middle-income group has been formed. This is the [right] time for us." Mochtar had left day-to-day operations to his two sons after a heart by-pass operation in 1990. But in a move that may signal the founder's worries about his empire, Mochtar has been taking a more active part in Lippo affairs, particularly in re-emerging as the family spokesman.

Last week, Lippo Land released its annual report for the year ending June 1995 - on the last day of the deadline set by stock market authorities. (All listed companies must publish their reports no later than four months after the end of their fiscal year.) It reported profits of $13.8 million - up 46% from last year but less than the expected $17.6 million. Analysts zeroed in on the company's liabilities, which topped $477 million, up 992% from fiscal 1994. These include long-term debts of $174 million and $48 million in convertible bonds. Assets grew 651% to $1 billion. Part of that, however, comprises unsold properties. A senior Lippo Land executive who recently quit claims few units have been sold since July, if any.

He is one of some 30 managers who have left the Lippo Group in the past few months. James, who is in charge of Indonesian operations, denies the departures were the result of cost-cutting. One of those to be sacked, American marketing executive Michael Farley, jumped to his death from the 16th floor of a Karawaci office tower in September. A former Peace Corps volunteer and USAID worker, Farley, 47, had a history of manic depression. Among important players no longer with the group: Lippo Land CEO Ken Winn, off to Bali to look after his own interests, Filipino property specialist Nestor Padilla, who took over from Winn for just two months, and ace Lippo Securities salesman John Mitton, now with Global Asset Management in Hong Kong.

If not to save on salaries, why the exodus? James cites personal reasons. Sources say his management style may be one of them. Known for his evangelistic Christianity, James has yet to establish a reputation as a leader who listens to advice. While Mochtar says he backs Karawaci and the other ventures, the eldest son is said to have pushed some of them without marketing studies. Not that James, who holds a commerce degree from the University of Melbourne, admits there is a problem. "We believe strongly in Indonesia's economy," he says. "In a short time, the country will achieve GDP per capita of $1,000." Average income is currently $780.

But some investors have already voted - with their feet. Lippo Land shares lost 25% of their value in September. A month earlier, its own sister company Lippo Securities placed a "sell" on the stock. "Lippo Land's high gearing skyrocketed from 102% to 188% in three months," wrote analyst Marcia Yu. "With heavy exposure to the slowing resort developments outside Jakarta, Lippo Land's net asset value is more vulnerable than those of its peers." The counter has been slowly recovering, but some analysts suspect that Lippo itself is lending a supporting hand.

The market has yet to be convinced that Super Mall will contribute a steady income stream. "People could be looking at monster traffic jams going and coming," says one analyst. "I can't see why they'll bother when there is already plenty of elite shopping in Jakarta." Given the rise of the middle class, James says the shopping center will recover its cost in five years. For his part, Mochtar says Super Mall is already 90% booked: "A few days ago, a newspaper quoted a Hero [supermarket] general manager as saying they didn't want to move [to Karawaci] because the market is not big enough. But they're already here."

Well, yes and no. There is an outlet of Indonesia's leading supermarket chain - but it is just a Hero mini-mart. Hero director Steve Sondakh told Asiaweek that the chain has informed Lippo it wants to postpone full-scale operations in Super Mall for at least a year, and that there is no problem if someone else were to take up its option. "I always try to imagine myself as a consumer," says Sondakh. "Am I willing to spend that much time in my car in my leisure hours? I don't see myself doing that." How about the 3 million low-wage people nearby that Lippo says will soon have the means to shop at Super Mall? Sondakh notes that retail centers being built near Karawaci may draw away custom from the mega-shopping center.

Despite estate manager Benton's claim that all completed Karawaci housing units were pre-sold, the Lippo Land executive who just left is dubious. "The last stage is very expensive at Rp1 million [$440] per square meter," he says. "No one is buying at that sort of price so far out of Jakarta." He is equally doubtful about the Ujung Pandang project in Sulawesi: "I just can't see why they're going there. Surabaya, Bandung [both in Java] or Medan [in Sumatra] would make much more sense." Lippo's Carita Bay Resort includes a four-story line of condominiums along one of West Java's best beaches, with 100 villas stretching back into the hills. Rivals scoff at staff claims that 40% of the units have been sold. With prices averaging $3,000 per sq m., Carita is three times more expensive than a similar development to the north.

So what's the bottom line? If all three projects bomb, Lippo Land will be in trouble, as Mochtar himself admits. But his empire is unlikely to collapse. Core company Lippo Bank remains strong. Unlike the other divisions, it has not suffered from brain drain. "There may be some sentiment if something happened to Lippo Land," says Jakarta analyst Ian MacCallum. "There would be knock-on effects, but I think the bank is above others in the sector." Agrees Michael Chambers of Singaporean stock brokerage G.K. Goh: "The bank is strong with a good consumer base." There are the inevitable rumors about its loans to other companies in the group, including Lippo Land, but there is no evidence that Lippo Bank is overextended to any one entity.

But at least two other Lippo companies are in a slump. "Multipolar scored a strong start with a computer order from Lippo Bank, but since then it has been going nowhere," says a source at the group's information technology company. Business at Lippo Securities is down after it lost Mitton, and a partnership in Indonesia with the Swiss Bank Corp. will soon end. SBC has taken over British securities house S.G. Warburg, which makes Lippo Securities a rival.

Another tough challenge is the current property downturn in Hong Kong. Lippo Limited, the Riady holding company in the territory, reported first-half earnings of only $37.7 million. "Compared to last year, it represents a decrease," says Lippo Limited chairman Stephen Riady. "But that is true of most listed companies here." He was investigated by Hong Kong's Securities and Futures Commission in 1993 for an alleged breach of takeover-and-merger rules in Lippo's attempt to acquire Asia Securities with local conglomerate Allied Group. The findings were inconclusive. Stephen denies any wrongdoing.

Hong Kong is an important part of the Lippo empire. It has interests in six major office blocks there, including Lippo Center in the Central business district. It has big stakes in four residential buildings and aims to complete three commercial developments in Wanchai district next year. Stephen has been criticized for buying 60% of upscale residential property Tregunter Towers in 1993, when property prices were at their peak. "That was a good buy," he told Asiaweek. Stephen says a subsidiary acquired the Tregunter interest at only HK$5,000 per square foot, much lower than the HK$10,000 to HK$13,000 then being asked for similar developments. "Now, the market has dropped 40% to only slightly below our cost," he says. "This is already close to the bottom."

The territory's property sector has yet to recover from government moves last year to cool speculation. "We believe there will be an improvement, especially in the second half of next year," says Stephen. Can Lippo see the downturn through? "A lot of our properties were bought cheaply in 1991 and 1992," he says. "We've sold some in the past two years." Adds Stephen: "We're very liquid. We have plenty of room for more loans if we want them." Long-term debt last December was less than one-sixth of shareholders' funds.

The Hongkong Chinese Bank, a subsidiary of Lippo-controlled HKCB Bank Holding Co., is certainly doing well. Lippo is looking for assets in Hong Kong and elsewhere in Asia, such as the Philippines. Notes Mochtar: "As Hong Kong moves toward its new status as a special administrative region [in 1997], its inherent economic strength will provide new avenues for expansion."

The group has been busy with spade work in China. In October last year, a subsidiary bought 40% of a 120-hectare tourist development on Meizhou island off Fujian province. Chung Po Investment Holdings, owned 60% by Lippo, is developing a commercial and retail site in Guangzhou. Chung Po has a 43% interest in another retail project in the Zhuhai Special Economic Zone. "China, Hong Kong and Indonesia have been going so well in the past few years that they have pushed up interest rates," says Stephen. "It's time for rates to come down in the next few months, or at least in the next year. When China relaxes, the first to benefit is Hong Kong."

Still, the Lippo empire seems to be retrenching. An advertising campaign for Carita Bay in Indonesia was dumped two months ago. Sources say Lippo Land cited "internal problems" for the cancellation. The group is also cashing in some assets. Hong Kong billionaire Li Ka Shing recently bought 5% of the Karawaci development. Beijing-controlled China Resources bought another 5%. James Riady says the sales brought in $57 million. Karawaci is expected to be taken out of Lippo Land and listed separately. "They look like they're selling major properties in Jakarta and Bandung," says the recently resigned Lippo Land executive. And Lippo has a valuable land bank. "We paid Rp28,000 per square meter but today the price is Rp1 million [$440]," says Mochtar. "If we can sell 10% of our land, our money has already come back."

The founder's new prominence is seen as part of the effort to show the world that nothing is amiss. Unlike other Indonesian conglomerates such as Liem Sioe Liong's Salim Group, Lippo actively courts journalists. "The way Mochtar and James handle the media is amazing," says a Lippo executive. Company officials join the Riadys in pounding home the theme of competitor jealousy as the reason for the rumored company troubles. "The greatest problem we had was in the conservatism that is rife, that lies in the education system in this country, that does not lead to innovative thinking," says Karawaci estate manager Benton. "Many people would have said, 'we know this is the right thing to do but we have never done it before and we don't want to risk our jobs.'"

But there are indications that Lippo may be mulling more traditional methods to guard its flanks. Long considered to lack significant connections to political power centers, the Riadys are said to be reaching out to the Bimantara group, owned by Bambang Trihatmodjo, second son of President Suharto. The family's present major partner, Hashim Ning, is considered a spent force. Lippo has worked with Bambang on his Sentul Highlands real estate project south of Jakarta. James has been busy networking with other influential people - including U.S. President Bill Clinton. The Hong Kong connection has already proved useful. Both Li Ka Shing and China Resources are fellow shareholders in Hongkong Chinese Bank.

Above all, there is Mochtar Riady. Born to immigrant Chinese parents in Surabaya in eastern Java, he single-handedly built up his banking and property empire. Mochtar had traveled to Jakarta in 1959 and started working in a bicycle shop. But his ambition was to be a banker, and he got the chance when he joined Bank Buana in the 1960s. He was in charge by 1966. Mochtar is credited with the rise of Liem's Bank Central Asia, now Indonesia's fifth-largest bank. He created Lippo Bank in 1982. It was the ideal foundation for empire-building. Son James says the Lippo Group is not shy about using Lippo's extensive branch network to sell insurance, securities and land.

The enormous respect Mochtar commands is helping ease worries about the group's direction. But some analysts remain leery of Lippo Land. "I wouldn't touch [the stock] with a barge pole," says one. "I think the land ventures are visionary, but this is not the right time. We view them with a mix of befuddlement and consternation." Others are more positive. Lippo Land's projects are "head and shoulders" above the competition in terms of quality, says Chambers. But that is no guarantee of profit. Only a buoyant property market and economic growth can assure Lippo of that. Mochtar Riady can help, but in the end it is his heirs, especially James, who must continue what the patriarch started.

By Keith Loveard, Jakarta With reporting by Alexandra Seno/Hong Kong

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