Indonesia and Malaysia spar in the Sulawesi sea

Michael Vatikiotis, Singapore

Things were going so well between Indonesia and Malaysia, it is hard to believe that one of ASEAN's most critical relationships is foundering on a territorial dispute. The war of words and dispatching of warships to a disputed area of the Sulawesi Sea threatens the closest relationship the two countries have enjoyed since either gained independence, and could undermine a crucial investment lifeline that has helped Indonesia emerge from years of economic sterility with the help of capital from neighboring countries like Malaysia.

The new Indonesian-Malaysian bilateral relationship was built around a personal chemistry established between newly elected Indonesian president Susilo Bambang Yudhoyono and Malaysian Prime Minister Abdullah Badawi. It was driven along by the desperate need for investment in Indonesia and an almost equally desperate need for Malaysian corporate players to expand into a friendly market. The closeness of ties was demonstrated in the aftermath of the Dec. 26 tsunami tragedy, when Malaysian volunteers were the first to hit the ground in ravaged Aceh. Now Malaysian firms are at the forefront of reconstruction plans in the province.

The relationship was tested over the expulsion of illegal Indonesian workers from Malaysia. President Yudhoyono was able to persuade Abdullah to extend the amnesty by several weeks, at some risk to Abdullah's own standing with his civil servants.

It's also a relationship that feeds off similarities at the top. Both men are sincere and value integrity in politics; both are also accused of being slow and indecisive. That's no great price to pay for the upside, which is prudence and moderation in a region that has seen its fair share of demagoguery and rhetoric.

More importantly, this meeting of minds between Southeast Asia's two Muslim leaders is a constructive one for the region as a whole. It is helping to rebuild the badly damaged image of a tolerant Muslim society in Southeast Asia; it could also contribute to more projection of moderate Islam in the wider world.

So it is imperative that this dispute over oil-rich waters off the island of Borneo be settled amicably and finally. This won't happen so long as emotions on the Indonesian side run high and the government in Jakarta stokes the issue, which has already brought fighter planes and warships to the area in an unseemly show of force. Nor is Malaysia helping with a show of magnanimity and compromise following the decision by an international court in 2002 to back its claim to the nearby islands of Sipadan and Ligitan.

For now, both sides seem content to let the issue fester. Kuala Lumpur perhaps because it wants to assert its administrative rights over the area to cement a legal decision on Sipadan and Ligitan that Indonesia was never happy with. Maybe Jakarta's real aim is to deflect public anger away from a hefty fuel price increase that has provoked almost daily demonstrations against the government.

It's an old trick. With trouble at home, look for a foreign bogey. Malaysian flags have been burnt outside the Malaysian embassy in Jakarta, and mobs are mobilizing under banners that recall the "Crush Malaysia" slogan Indonesia's first president Sukarno deployed when he deflected domestic criticism by launching a confrontation against Malaysia in the 1960s. The speaker of Indonesia's parliament has even called for the use of military force to assert Indonesia's claim.

Thankfully there are precedents and formulas deployed elsewhere in the region that might help defuse the problem, for this isn't the first overlapping claim in oil-bearing waters to test relations in Southeast Asia.

In fact, Malaysia successfully defused a similar dispute with Thailand more than twenty years ago with the establishment of a Joint Development Authority to manage overlapping claims in the Gulf of Thailand. The same Malaysian oil company involved in the disputed Sulawesi Sea, Petronas Carigali, joined forces with Thailand's state Petroleum Company PTT and agreed on a gas sales and purchase agreement under which each party bought gas from the JDA on a 50:50 basis and brought their respective share of gas back to Malaysia and Thailand.

Jointly developing the area wasn't only a way to shelve the territorial dispute, it also helped split the cost of a pipeline that needed to be built in order to bring the gas onshore. Could not the same deal be hammered out in the case of the disputed waters off Borneo? It's a small price to pay, perhaps no price at all given the joint investment possibilities, in exchange for a closer bilateral relationship that everyone in the region benefits from.

The writer is a former editor and chief correspondent of the now defunct Far Eastern Economic Review. He can be reached at michaelvatikiotis@yahoo.com.