Brunei sultanate reaches historic crossroads

By Nelson Graves

KUALA LUMPUR (Reuters): The secretive sultanate of Brunei has broken with its past as it tackles threats to its prosperity and an extravagant prince who left behind billions of dollars of debts.

In the last week the government announced a plan to pull the economy out of a deepening quagmire and sued Sultan Hassanal Bolkiah's estranged brother.

While the two developments were not directly linked, they underscored how much life has changed in the 600-year-old absolute monarchy as its population grows and it faces pressure from the world economy to open up.

"I have never seen anything like it," a Western diplomat in Brunei's capital said by telephone. "It's not the way Brunei operates normally, to have things openly discussed."

First the powerful Brunei Economic Council, headed by the sultan's brother Prince Mohamed and advised by members of the private sector, released a report that said the economic situation was unsustainable and needed urgent fixing.

"Although Brunei Darussalam still has the appearance of great affluence, there are warning signals of fundamental economic problems which threaten to undermine the prosperity and with it the social stability enjoyed by the people," it said.

Then on Thursday the government announced it was suing the sultan's youngest brother, Prince Jefri, over alleged misuse of state funds and had frozen his assets at home and abroad.

The surprise legal moves marked the most bitter chapter in an unprecedented public split in the royal family whose patriarch, the sultan, was once the world's richest man but who with the onset of Asia's financial crisis has slipped from the top.

"Prince Jefri wanted to settle this quietly. It is a surprising move to take him to court," a business executive said.

The 53-page economic report, endorsed by the sultan and his cabinet, says Brunei is "at a crossroads", its living standards -- among the highest in the developing world -- under siege.

Brunei's per capita gross domestic product of US$14,800 in 1997 was second highest in Southeast Asia behind Singapore and fourth highest in Asia.

The report said Brunei's affluence stems from bountiful oil and gas reserves relative to its small population of about 330,000, as well as from plentiful government spending on a large civil service, social programs and infrastructure.

But it cited symptoms of an unsustainable economy.

Economic growth has lagged behind population growth since 1984. The government has been drawing on foreign reserves to fund a budget deficit which since 1994 has averaged B$1 billion (US$590 million) a year, or 15 percent of gross domestic product.

Unemployment has risen to 5.1 percent. Up to one quarter of school leavers between 1992 and 2001 may not be able to get jobs.

"The situation is increasingly unsustainable," the report said, noting that three quarters of the work force is employed by the government.

The council, supported by committees comprised of bankers, accountants, retailers, shippers, energy experts and construction and tourism executives, proposed a B$200 million working capital credit fund backed by a 75 percent government guarantee.

Over the longer term the council recommended privatization, a broader tax base, an end to subsidies, a stock exchange, more competition in oil and gas and a national oil firm -- moves that would shift power from the state to the private sector.

"There is a realization that Brunei cannot depend on oil and gas forever," a foreign banker said.

Equally unprecedented was the government's decision to sue Prince Jefri, whose development conglomerate Amedeo collapsed in 1998 leaving US$6 billion in debts and legions of unhappy creditors.

Prince Jefri's extravagant lifestyle -- he reputedly owns 2,000 cars and 17 aircraft, and owns a yacht called Tits, with tenders Nipple I and Nipple II -- has long been an embarrassment to the royal family.

Prince Jefri has dismissed allegations he misused money belonging to the Brunei Investment Agency, which manages the oil riches estimated at US$40 billion to US$60 billion.

He said he would defend himself.

Jefri's associates say the prince is a victim of Moslem conservatives seeking tighter control over the sultanate, and predict that feuding will eventually undermine the monarchy.

Two years of efforts to reach a quiet out-of-court settlement have now failed, leading to the court case.

"The impact on the monarchy is anyone's guess," a diplomat said. "How involved were members of the royal family?"