India 1990 - 2010

Indonesia Today

THE hoardings on the slow car journey out of the centre of Jakarta are advertising just two items at the moment: smartphones and scooters. Banks occasionally intrude, but only to offer cheap loans to buy one or the other. Lucky customers. And at the moment, what’s good for the customer is good for Indonesia.

The country is in the middle of a consumer boom, which is fuelling growth in South-East Asia’s giant. With a population of 238m, Indonesia has long had the potential to become one of the world’s biggest economies—if it could get the economic fundamentals right. Can it?

Last year Indonesia had one of the best-performing economies in the G20 club, growing by 6%. Even as the rating agencies busily revise rich countries’ creditworthiness downwards, Indonesia’s has been going the other way. It is now only a notch below investment grade. Indonesians think their economy could soon join the informal club of Brazil, Russia, India and China as a leader of the new world economic order: they want to be among the BRIICs.

Yet this is optimistic. Like Brazil, but unlike China and India, Indonesia owes much of its success to nothing smarter or more high-tech than a commodities boom. Coal and gas go to China and India, palm oil to the world. Money is pouring into the country, yet little goes into fixing long-term problems that impede growth. Indonesia has a once-in-a-generation chance to move beyond its commodities-based economy. It is not clear it will take it.

At the moment, consumption accounts for almost half of GDP growth. Nomura, a Japanese bank, reckons Indonesia is creating a middle class (defined as one with disposable household income of over $3,000 per year) helter-skelter. The country’s bourgeoisie, 1.6m in 2004, now numbers about 50m. On Nomura’s measure, that is more than India and bigger than elsewhere in the region (see chart). The number could reach almost 150m by 2014, representing one of the world’s most enticing markets. Newly affluent Indonesians are certainly spending.

Take one of their principal objects of desire, two-wheel scooters. Last year about 8m were sold in Indonesia, dwarfing sales in the rest of South-East Asia (1.7m in Thailand, for instance). Sales in India were only slightly greater, at 11.3m (China sold 16m). With rising incomes comes a desire for flashier brands. For years Honda and Yamaha had the market largely to themselves. But Italy’s Piaggio has relaunched its relatively expensive Vespa in Jakarta, after being squeezed out in the 1980s. Car sales are also growing rapidly, to about 750,000 last year.

Or take smartphones. Indonesians have leap-frogged a generation of technology, and now download data and use social media largely through smartphones, rather than mobile phones and personal computers. The increase in sales has been extraordinary; the country is one of the largest markets for Research in Motion (RIM), makers of the BlackBerry. Indonesia claims the second-largest number of Facebook members in the world, and the third-largest number of Twitter users. Companies struggle to keep up with demand for the essentials of a consumer society. Unilever has been squeezing out most of Indonesia’s toothpaste for decades; now its fastest-growing product is ice-cream, followed by skincare products.

James Castle, a consultant and former head of Indonesia’s International Business Chamber, argues that, whereas big companies used to be able to ignore Indonesia for more obvious destinations, nowadays “if you’re not here, you have to have a reason.” That is a big change. But Mr Castle also gives warning that too many companies do find a reason—and certainly do not set up manufacturing plants. Unlike in regional competitors such as Vietnam, manufacturing has lagged behind almost every other sector of the economy. It is noticeable that a high share of the new consumer desirables is imported.

For Indonesia remains, in many respects, a hard country to do business in, especially compared with the rest of the region. Its infrastructure is poor, adding hugely to production costs. Almost every other neighbour is building new ports or expanding old ones, but Indonesia’s lag far behind in efficiency and productivity. In the World Bank’s 2010 Logistics Performance Index, it ranks a lowly 75th, well below Thailand, Malaysia and even the Philippines. This means a lot of foreign investment that might want to go to Indonesia now goes elsewhere.

And then there are continuing problems of corruption and what Mr Castle calls “non-transparent random regulations”, which he says are the biggest impediments to business. In Indonesia’s murky political system, regulations often emerge out of the blue, and can contradict existing ones. At least there are signs of change. A land-acquisition bill wending its way through parliament would, if passed, make it easier to force through infrastructure projects. The government even wants to ban some raw-material exports, hoping to dragoon mining companies into building smelters and exporting higher-value goods. But more needs to be done while the going is good.

Pakistan Today

“TYPICAL Blackwater operative,” says a senior military officer, gesturing towards a muscular Westerner with a shaven head and tattoos, striding through the lobby of Islamabad’s Marriott Hotel. Pakistanis believe their country is thick with Americans working for private security companies contracted to the Central Intelligence Agency; and indeed, the physique of some of the guests at the Marriott hardly suggests desk-bound jobs.

Pakistan is not a country for those of a nervous disposition. Even the Marriott lacks the comforting familiarity of the standard international hotel, for the place was blown up in 2008 by a lorry loaded with explosives. The main entrance is no longer accessible from the road; guards check under the bonnets of approaching cars, and guests are dropped off at a screening centre a long walk away.

Some 30,000 people have been killed in the past four years in terrorism, sectarianism and army attacks on the terrorists. The number of attacks in Pakistan’s heartland is on the rise, and Pakistani terrorists have gone global in their ambitions. This year there have been unprecedented displays of fundamentalist religious and anti-Western feeling. All this might be expected in Somalia or Yemen, but not in a country of great sophistication which boasts an elite educated at Oxbridge and the Ivy League, which produces brilliant novelists, artists and scientists, and is armed with nuclear weapons.

Demonstrations in support of the murderer of Salman Taseer, the governor of Punjab, in January, startled and horrified Pakistan’s liberals. Mr Taseer was killed by his guard, Malik Mumtaz Qadri, who objected to his boss’s campaign to reform the country’s strict blasphemy law. Some suggest that the demonstrations were whipped up by the opposition to frighten the Pakistan People’s Party (PPP) government, since Mr Taseer was a member of the party. Others say the army encouraged them, because it likes to remind the Americans of the seriousness of the fundamentalist threat. But conversations with Lahoris playing Sunday cricket in the park beside the Badshahi mosque suggest that the demonstrations expressed the feelings of many. “We are all angry about these things,” says Gul Sher, a goldsmith, of Mr Taseer’s campaign to reform the law on blasphemy. “God gave Qadri the courage to do something about it.”

Pakistani liberals have always taken comfort from the fundamentalists’ poor showing in elections and the tolerant, Sufi version of Islam traditionally prevalent in rural Pakistan. But polling by the Pew Research Centre suggests that Pakistanis take a hard line on religious matters these days (see chart 1). It may be that they always did, and that the elite failed to notice. It may be that urbanisation and the growing influence of hard-line Wahhabi-style Islam have widened the gap between the liberal elite and the rest. “The Pakistani elites have lived in a kind of cocoon,” says Salman Raja, a Lahore lawyer. “They go to Aitchison College [in Lahore]. They go abroad to university…A lot of us are asking ourselves whether this country has changed while our backs were turned.”

The response to another death suggests that the hostility towards Mr Taseer may not have been only about religion. Two months later Shahbaz Bhatti, the minister for minorities, was murdered for the same reason. Yet his killing did not trigger jubilation. Mr Taseer’s offence may have been compounded by the widespread perception that he, like most of the elite, was Westernised. His mother was British, he held parties at his house, and he posted photos on the internet of his children doing normal Western teenage things—swimming and laughing with the opposite sex—that caused a scandal in Pakistan.

The West in general, and America in particular, are unpopular. It was not always thus. Before the Soviet Union left Afghanistan, around a third of Pakistanis regarded Americans as untrustworthy. Since then, a fairly stable two-thirds have done so. The latest poll on the matter (see chart 1) suggests that Pakistanis see America as more of a threat to their country than India or the Pakistani Taliban. It was carried out in 2009, but anecdotal evidence confirms that the views have not changed. “America is behind all of our troubles,” says Mohammed Shafiq, a street-hawker. That may be because America is thought to have embroiled Pakistan in a war which has caused the surge in terrorism; or because many Pakistanis, including senior army officers, genuinely believe that the bombings are being carried out by America in order to destabilise Pakistan, after which it will grab its nuclear weapons.

Four horsemen

From the complex web of factors that have fostered intolerance and violence in Pakistan, it is possible to disentangle four main strands. The first is Pakistan’s strategic position. Big powers have long competed for control of the area between Russia and the Arabian Gulf, and the unresolved tensions with India have dogged the country since its birth in 1947. Nor has Pakistan tried to keep out of its neighbours’ affairs. It was America’s enthusiastic ally in the war to eject the Soviet Union from Afghanistan in the 1980s, which it sold to its people as a jihad. “We used religion as an instrument of change and we are still paying the price,” says General Mahmud Ali Durrani, former national security adviser and ambassador to Washington. Pakistan helped create the Taliban in the 1990s to try to exert some control over Afghanistan. And with much trepidation on the part of its leaders, and reluctance on the part of its people, it has supported America in its war against the Taliban over the past decade.

By trying to destabilise India, Pakistan has undermined its own stability. “When the Soviets went away,” says a senior military officer, “we had a very large number of battle-hardened people with nothing to do. They were redirected towards India. The ISI [Inter-Services Intelligence, the main military-intelligence agency] was controlling them…20:20 hindsight is very good, but this decision was perhaps wrong.” According to the officer, after al-Qaeda’s attacks against America on September 11th 2001 the army decided to wind down the policy. “We started taking them out. But many of them said, ‘Nothing doing.’ They had contact with people in the Afghan jihad, and they joined those people again.” Because the Pakistanis were helping the Americans in their fight against the Afghan Taliban, the Pakistani jihadis turned their fury on the government.

The second strand is the unresolved question of Islam’s role in the nation. Muhammad Ali Jinnah, Pakistan’s founder, made it clear that he thought Pakistan should be a country for Muslims, not an Islamic country. But since then, according to General Durrani, “Every government that has failed to deliver has used Islam as a crutch.” Zulfikar Ali Bhutto, for example, though fond of a drink himself, banned alcohol. Zia ul Haq, his successor, tried to legitimise his military coup by pledging to Islamise the country.

The relationship between religion and the state is not an abstruse question of political philosophy. A treatise on the Pakistani constitution published in 2009 by Ayman al-Zawahiri, al-Qaeda’s number two (who is believed to be in North Waziristan), argues that the Pakistani state is illegitimate and must be destroyed. This tract is widely read in the madrassas from which the terrorist groups draw their recruits. Its popularity exercises Qazi Hussein Ahmed, the grand old man of the Jamaat-e-Islami, the most fundamentalist of the political parties, for the Jamaat works within the state, not against it. He argues that Pakistan’s failure to adopt an Islamist constitution “has given the Taliban and such extremist elements a pretext: they say the government will not bow to demands made by democratic means, so they are resorting to violent means.”

The third strand is the uselessness of the government. Democracy in Pakistan has been subverted by patronage. Parliament is dominated by the big landowning families, who think their job is to provide for the tribes and clans who vote for them. Except for the Jamaat-e-Islami, parties have nothing to do with ideology. The two main ones are family assets—the Bhuttos own the PPP, and the Sharifs (Nawaz Sharif, the former and probably future prime minister, and his brother Shahbaz, chief minister of Punjab) own the Pakistan Muslim League (N). The consequence is dire political leadership of the sort shown by Asif Ali Zardari, who is president only because he married into the Bhutto dynasty. When Pakistan desperately needed a courageous political gesture in response to the murders of the governor and minister, the president failed even to attend their funerals.

Pakistan’s rotten governance shows up in its growth rates (see chart 2). In a decade during which most of Asia has leapt ahead, Pakistan has lagged behind. Female literacy, crucial as both an indicator of development and a determinant of future prosperity, is stuck at 40%. In India, which was at a similar level 20 years ago, the figure is now over half. In East Asia it is more like nine out of ten.

Given the government’s failings, it is hardly surprising if Pakistanis take a dim view of democracy. In a recent Pew poll of seven Muslim countries they were the least enthusiastic, with 42% regarding it as the best form of government—though, since the country has spent longer under military than under democratic rule, the army is at least as culpable.

The armed forces’ dominance is the fourth strand. Tensions with India mean that the army has always absorbed a disproportionate share of the government’s budget. Being so well-resourced, the army is one of the few institutions in the country that works well. So when civilian politicians get them into a hole, Pakistanis look to the military men to dig them out again. They usually oblige.

Terrorism is strengthening the army further. In 2009 it drove terrorists out of Swat and South Waziristan, and it is now running those areas. Last year its budget allocation leapt by 17%. Nor are the demands on the armed forces likely to shrink. Although overall numbers of attacks are down from a peak in 2009, they have spread from the tribal areas and Khyber-Pakhtunkhwa (KPK), along the border with Afghanistan, to the heartland. Last year saw an uptick in attacks on government, military and economic targets in Punjab and Karachi, the capital of Sindh province. Since then, security has been stepped up; and with the usual targets—international hotels, government buildings and military installations—surrounded by armed men and concrete barriers, terrorists are increasingly attacking soft targets where civilians congregate, such as mosques and markets.

Exporting terror

Pakistani terrorism has also gone global. The Tehrik-e-Taliban Pakistan (TTP, or Pakistani Taliban), announced when it was formed in 2007 that it aimed to attack the Pakistani state, impose sharia law on the country and resist NATO forces in Afghanistan. But last year Qari Mehsud, now dead but thought to be a cousin of the leader, Hakimullah Mehsud, who was in charge of the group’s suicide squad, announced that American cities would be targeted in revenge for drone attacks in tribal areas. That policy was apparently taken up by Faisal Shahzad, a Pakistan-born naturalised American who tried to blow up New York’s Times Square last year.

Pakistan’s new face?

That prompted an increase in American pressure on the army to attack terrorists in North Waziristan. The army is resisting. The Americans suspect that it wants to protect Afghan Taliban there. The Pakistani army says it is just overstretched.

“We are still in South Waziristan,” insists a senior security officer. “We are holding the area. We are starting a resettlement process, building roads and dams. We need to keep the settled areas free of terrorists. It is not a matter of intent that we are not going into North Waziristan. It is a matter of capacity.”

The growth in terrorism in Punjab poses another problem for the army. “What we see in the border areas is an insurgency,” says the officer. “The military is there to do counter-insurgency. What you see in the cities is terrorism. This is the job of the law-enforcement agencies.” But the police and the courts are not doing their job. One suspected terrorist, for instance, a founder member of the Lashkar-e-Jhangvi, was charged with 70 murders, almost all of them Shias. He was found not guilty of any of them for lack of evidence. In 2009 the ISI kidnapped 11 suspected terrorists from a jail in Punjab, because it feared that the courts were about to set them free.

So where does this lead? Not to a terrorist march on the capital. Excitable Western headlines a couple of years ago saying that the Taliban were “60 miles from Islamabad” were misleading: first because the terrorists are not an army on the march, and second because they are not going to take control of densely populated, industrialised, urban Punjab the way they took control of parts of the wild, mountainous frontier areas and KPK.

Yet even though they will not overthrow the Pakistani state, the combination of a small number of terrorists and a great deal of intolerance is changing it. Liberals, Christians, Ahmadis and Shias are nervous. People are beginning to watch their words in public. The rich among those target groups are talking about going abroad. The country is already very different from the one Jinnah aspired to build.

The future would look brighter if there were much resistance to the extremists from political leaders. But, because of either fear or opportunism, there isn’t. The failure of virtually the entire political establishment to stand up for Mr Taseer suggests fear; the electioneering tour that the law minister of Punjab took with a leader of Sipah-e-Sahaba last year suggests opportunism. “The Punjab government is hobnobbing with the terrorists,” says the security officer. “This is part of the problem.” A state increasingly under the influence of extremists is not a pleasant idea.

It may come out all right. After all, Pakistan has been in decline for many years, and has not tumbled into the abyss. But countries tend to crumble slowly. As Adam Smith said, “There is a great deal of ruin in a nation.” The process could be reversed; but for that to happen, somebody in power would have to try.

Dodko or Takeshima?

The mild bouts of seasickness and the boredom that comes with hours on the open sea finally seem worth it. The deck of the ferry erupts with excited chatter and the clicks of camera shutters as two rocky edifices take shape in the haze of a summer evening.

These remote islets, now obscured by thousands of hungry black-tailed gulls, are at the heart of a dispute that has cast a shadow over relations between South Korea and Japan for more than six decades. The Liancourt Rocks (or, if you are Japanese, Takeshima, or, if you are Korean, Dokdo) is a group of volcanic islets roughly midway between the two countries in the Sea of Japan (or the East Sea, if you are Korean).

The politically charged nomenclature says everything about the schism these islands have inflicted on bilateral ties, 65 years after defeat in the second world war loosened Japan's colonial grip on the Korean peninsula.

The islands' symbolic importance, not to mention their rich fishing grounds and untapped gas deposits, still have the potential to drive a deep diplomatic wedge between Seoul and Tokyo.

With both united in condemnation of North Korea's nuclear weapons programme and the March sinking of the Cheonan, the Takeshima question is at its most delicately balanced for years.

The competing claims are mired in historical ambiguity, and complicated by several name changes and cartographical evidence from myriad Korean, Japanese and western sources stretching back centuries. Only this month South Korea's media reported the discovery of a 1949 US military map that, according to the Chosun Ilbo newspaper, "clearly states that Dokdo belongs to Korea".

South Korea insists the islands were among the territories Japan was forced to return at the end of the war. By the time the sixth and final draft of the treaty of San Francisco appeared, however, confusion reigned. Takeshima had been omitted, along with thousands of other tiny islands.

"Dokdo is a Korean territory, so there is no need for a dispute with Japan," said Shin Yeon-sung, the general secretary of the Northeast Asian History Foundation, a Seoul-based body partly funded by the South Korean government. "As far as we are concerned, Dokdo's omission from the San Francisco treaty was purely for convenience's sake."

To prove his point, Shin produces a copy of an 1877 map belonging to Japan's department of the interior that appears to rule out Japanese ownership, then another Japanese map that makes no mention of the islands. The first Japan really knew of the Takeshima, he said, was when imperial forces landed there in 1905 on their way to colonising the Korean mainland five years later.

"We have written, historical proof that Dokdo is part of Korea. The islands are first mentioned in 512 in the diary of the king of the Silla dynasty."

At the highest level, the feud is being played down by Seoul and Tokyo. Japan recently postponed publication of its annual defence white paper – which promotes its claims to Takeshima – to avoid causing friction with South Korea ahead of the centenary of the start of Japanese colonial rule on 29 August.

In another move designed to quell anti-Japanese sentiment, Japan's prime minister, Naoto Kan, last week expressed "deep remorse" for his country's 35-year occupation of Korea, a gesture welcomed by his counterpart, Lee Myung-bak, as "a step forward".

But ordinary South Koreans attach huge symbolic importance to Dokdo. Schools are being encouraged to deepen pupils' emotional connection with the islands, while nationalists have toured the world to push Seoul's claims.

Any counterclaim from Japan is guaranteed to provoke an angry backlash. When, in 2005, the Japanese prefecture of Shimane proclaimed 22 February "Takeshima day", a South Korean mother and son sliced off their fingers in protest outside the Japanese embassy in Seoul.

Today the islets are administered by a South Korean coastguard garrison and government officials, who live alongside the only permanent residents, an elderly fisherman and his wife. Japan, meanwhile, describes this presence as "an illegal occupation". The Japanese foreign ministry notes that Seoul has consistently refused a 60-year-old offer to settle the dispute at the international court of justice in The Hague.

"There is no change in our position," said Takeshi Akamatsu, a ministry spokesman. "But we don't want the territorial issue to harm our relations with South Korea.

"This is very simple. In light of the historical facts and international law it is clear that Takeshima is an inherent part of Japan. The Koreans have yet to demonstrate that they exercised control over the islands before the Japanese occupation. And we have documentary evidence to prove that they didn't."

Shin, however, dismisses an international solution as a diplomatic red herring. "We won't go to The Hague because this is not a legal issue," he said. "But we also want to avoid this becoming a thorn in the side of bilateral ties. A hundred years after Japan's colonisation of Korea, it is time to look forward."

Kim Seong-do, who has lived on the islets with his wife for more than 30 years, denies he is part of Seoul's propaganda machine. "I went there voluntarily," he told the Guardian during a rare trip to the mainland for emergency dental treatment. "As a Korean citizen, I am free to come and go as I please."

The 70-year-old describes a life of comfortable detachment from mainstream society, but with long periods in which he and his 74-year-old wife, Shin-yeol, are at the mercy of the elements. "Sometimes the wind is so strong we can't open the door or windows for days," he said. "But we feel comfortable there. We don't like coming back to the mainland. Dokdo is such a beautiful place."

After the long sea crossing, with just one quick refuelling stop on Ulleungdo island, 54 miles (87km) away, there are groans when the ferry's skipper informs us that high waves have made it impossible to dock at Takeshima/Dokdo.

But a fleeting glimpse of the two rocks, now cast in silhouette as dusk descends, is enough for Lee Jae-eun. "Even the American occupation forces said the islands are ours," said Lee, an office worker from Seoul. "They are Korean. There's absolutely nothing to discuss with Japan."

Rich source of a feud

The Takeshima-Dokdo islets, located 134 miles from South Korea and 155 miles from Japan, are the peaks of a 2,300-metre-high undersea volcano. They are made up of two main islands and almost 90 rocks and reefs.

Known in the west as the Liancourt Rocks, after a French whaling ship that was almost wrecked there in 1849, the islets appeared above the water about 2.7m years ago.

A freshwater lagoon helps sustain about 80 species of plants, and dozens of birds and insects. The meeting of cold and warm water currents has led to a profusion of fish and other marine life.

South Korean researchers say they have discovered dozens of new plankton and other species on Takeshima, but the presence of about 50 coastguard personnel, lighthouse keepers and government officials has also brought pollution to the area's coastline.

The islands house people's accommodation, a dock, helicopter pad, and postbox as well as a solar power station that will provide 30%-40% of the energy needs. Tourists have been allowed to make short visits to Takeshima since 2004. Only a handful of Japanese take the trip each year.