Shock Waves

INDONESIA MAY survive the combined assault of an ailing economy, deepening separatism, and a failing state. Such an outcome is certainly desirable, but it is not likely. American leaders must therefore brace for the possibility that Indonesia could still collapse in chaos and disintegrate in violence. Alternatively, the current instability could continue until economic recovery and political compromise give rise to a country of a rather different shape and size. With Wahid gone and Megawati in place, this is now somewhat more likely. Even the loss of Aceh and West Papua need not spell national disintegration; without such provinces Indonesia would still retain the critical mass to endure as a state. The second of these denouements is preferable to the first, but both will create strong shock waves.

Indonesia's size and location are the reasons why. The three major straits that slice through it are pivotal passages for the global economy. Malacca is by far the most important, particularly for energy shipments. Some 450 vessels and about 10 million barrels of oil pass through daily, and East Asian demand, driven by China, is expected to rise from 12 million barrels a day in 2000 to over 20 million barrels in twenty years. Japan, China, Taiwan and South Korea would suffer severely and soon if fallout from turmoil in Aceh (at its northern end) or Riau (at its southern end) blocked this passage. Its narrowness, 1.5 miles in the Phillips Channel in the Singapore Strait, and ten miles between Singapore and the Riau archipelago, adds to the danger. The Lombok Strait, which ships use to sail to northeast Asia through the Strait of Makasar between Borneo and Sulawesi, is next in importance, although it handles a far smaller volume of traffic than Malacca and is of negligible importance for energy shipments. The L ombok-Makasar route is, however, a critical corridor for Australia's coal and iron ore exports to northeast Asia and for manufactured exports moving south from there. It is also the most likely detour were Malacca rendered impassable or hazardous. By comparison, Sunda is a minor shipping channel; the consequences of its closure would be minimal for transcontinental trade.

Rerouting Malacca traffic through Lombok would strain the capacity of the world's merchant fleet, increase transportation costs, and create severe bottlenecks. The problems would be even worse if all three straits were unusable and ships had to transit northeast Asia by skirting Australia's northern coast. Market signals would eventually add other carrying capacity but the question is how quickly and smoothly the adjustment occurs, and what the economic and political consequences would be in the meantime. The ramifications of blocked or delayed maritime traffic, or even just panic over the possibility, would spread speedily throughout globalization's many circuits. Insurance rates would rise; coverage may even be denied if underwriters deem the risks excessive. The effects of obstructed energy, machinery and manufactured goods would register in capital markets, short-term investors would be scared off, and the flow of much-needed foreign direct investment into a region still convalescing from the blows of 1997 would slow.

Piracy in the seas around Indonesia would also worsen if the Jakarta government either ceased functioning or were so busy holding the country together that it could not police its waters. The hijacking of ships has increased since Indonesia's upheavals began. There were 113 incidents in its waters in 1999 compared to 60 the year before, and between January and March of 2001 alone, pirates attacked ships in Indonesian waters 29 times and on nine occasions in the Malacca Strait. The vessels victimized near Malaysia, Singapore and Indonesia included several oil tankers and ships carrying aluminum and palm oil. The three countries began to coordinate operations against the menace in 1992, and in 2000 Japan proposed that its coast guard join the effort along with China and South Korea. Yet how serious piracy becomes, and how effective any joint solution is, depends primarily on the extent of Indonesia's stability.

Refugee flows will also accelerate if Indonesia starts to break apart. The refugee population of one million already within its borders will soar, dragging the economy down further and aggravating communal violence. Refugees could also be driven beyond Indonesia into neighboring countries that are neither prepared to receive them nor able to bear the burden of caring for them. Malaysia, which lies across the water from Aceh, has already seen rising illegal immigration from Indonesia, and its officials worry about the social tensions that could result. The refugee problem also figures prominently in Australian and Singaporean discussions of Indonesia.

Indonesia's neighbors have other worries, as well, as they watch this wobbly behemoth. For Malaysia, one is that the Malaysian Islamic Party, already powerful in northern Malaysia, could receive a fillip were militant Islam to become more significant in Indonesia's politics as a result of the turmoil-or were it to dominate its successor states. Thailand and the Philippines, which have breakaway Islamist groups in their southern regions, fear that Indonesia's collapse could produce an undesirable demonstration effect. Papua New Guinea, which borders West Papua, could be swamped by refugees and also face an older problem: incursions from the Indonesian military in hot pursuit of Papuan guerrillas. Singapore and Malaysia have invested in pipelines carrying energy from Riau and from Indonesia's Natuna gas fields (located in the South China Sea between peninsular Malaysia and Sarawak) and are watching nervously. ASEAN, whose economic and political clout has fallen short of members' hopes, will be reduced to a sal on if Indonesia, its keystone, crumbles.

Neither is it clear how Japan, China and Australia would react to various scenarios in Indonesia. Few convergent interests unite them, and history has done much to divide them. This augurs ill for cooperation on economic assistance, refugee relief, piracy, or peacekeeping to stem Indonesia's unraveling or to deal with the consequences if that proves impossible. Indeed, anarchy in Indonesia could start a scramble among these states that is driven more by fear, uncertainty and worst-case thinking than by the opportunistic pursuit of advantage. A process leading to sponsorship of competitive proxy proto-statelets that rise from Indonesia's wreckage is an extreme scenario, but cannot be ruled out.

Beyond the general tendency of states divided by suspicion to jockey for position when uncertainty or opportunity prevails, there are other specific motives for intervention. China could be drawn into the fray if Indonesia's seven-million-strong Chinese population, which has often been a scapegoat in times of trouble, were to be victimized. Beijing's increasing concern for secure energy supplies since becoming a net importer in 1993 has already made it more assertive in the South China Sea, and could provide another motive. Given Indonesia's uncertain future, Chinese maps depicting Beijing's jurisdiction over Indonesia's Natuna gas fields are a worrisome portent, particularly for Malaysia and Singapore, who envision energy pipelines from this site.

Japan would move cautiously if Indonesia begins to resemble a lost cause, but it depends on Indonesia's straits and owns most of the ships that ply them. Tokyo cannot remain utterly passive if Indonesia's crisis disrupts the Japanese economy, or if others states assert their interests in ways that could do so.

Indonesia's importance for Australia goes beyond the significance of the Lombok-Makasar passage. In a region being shaped by China's growing power, Indonesia, by virtue of its location and size, is central to Australian national security. Its collapse would lay waste to much of Australia's strategic planning.

The consequences of Indonesia's breakup would affect American interests, as well. American energy and raw materials companies (Exxon-Mobil, Texaco, Chevron, Newmont Mining, Conoco and Freeport-McMoRan, among others) operate in Indonesia, particularly in Aceh, Riau, and West Papua, and many of the ships that traverse the Strait of Malacca are American-owned. The United States is also a major trader and investor in East Asia and is to some degree hostage to its fate, especially now that the American economy is slowing. Moreover, if Indonesia fractures, worst-case thinking and preemptive action among its neighbors could upset regional equilibrium and undermine the American strategic canopy in East Asia. The United States has a network of bases and alliances and 100,000 military personnel in the region, and is considered the guarantor of stability by most states-a status it will forfeit if it stands aside as Indonesia falls apart. America's competitors will scrutinize its actions to gauge its resolve and acumen. So will its friends and allies-Australia, Japan, Singapore, Thailand and South Korea-each of whom would be hurt by Indonesia's collapse.

Prevention and Protection

SO WHAT SHOULD the Bush Administration do? Any plan to keep Indonesia whole and to restore its political and economic stability must be multilateral and multi-faceted if it is to have any chance of success. The size of the problem demands shared responsibility among Executive Branch agencies and U.S. allies, while its nature necessitates using multiple means: diplomacy, economic assistance and, more likely than not, military power. The United States should immediately begin regular, intensive consultations with friends and allies in East Asia both to lay the groundwork for future cooperation and to inform its policies with the assessments of states whose geography and history force them to pay close attention to Indonesia's drift.