In this issue:

Indonesia Declares Martial Law in Aceh, and War on Free Aceh Movement

Malaysia: Power Plants and Airbuses

Malaysia's Dr. Mahathir Hits U.S. for 'Out-Terrorizing the Terrorists'

Russian Defense Minister Visited Malaysia

Kashmiri Leader Proposes 'Face-Saving' Solution

Security in Afghanistan Is Deteriorating

The Chinese Renminbi Is Becoming a Regional 'Hard' Currency

From Volume 2, Issue Number 21 of Electronic Intelligence Weekly, Published May 27, 2003
Asia News Digest

Indonesia Declares Martial Law in Aceh, and War on Free Aceh Movement

Indonesian President Megawati Sukarnoputri issued the decree, to take effect at midnight on May 18, after the failure of last-minute talks in Japan over the weekend of May 17-18, when the Free Aceh Movement (GAM) refused government demands that it renounce the goal of independence, and negotiate within the framework of autonomy "within the unitary state of Indonesia." The government has already positioned military forces, planes, warships, and supplies in the region in preparation for war. Martial Law will initially last for six months.

Over the first week, GAM forces burned down over 200 schools, and fighting in several areas drove thousands from their homes.

The failed ceasefire, signed in December, had offered Aceh autonomy and the right to retain 70% of the revenue generated by the oil and other resources in the province.

Malaysia: Power Plants and Airbuses

Malaysia will contract either German industrial giant Siemens or Japan's Mitsubishi Corporation to build a 2.1-gigawatt power plant. The $1.6-billion project by Malaysia's SKS Power will be a coal-fired plant in southern Johor state, to supply electricity to state utility giant Tenaga Nasional. The Tanjung Bin power station will comprise three units of 700 megawatts each, the first coming online by August 2006.

Siemens launched its regional transportation hub in Malaysia during the visit by German Chancellor Gerhard Schroeder this month, giving the country a big boost in its aim to become an industrial powerhouse.

Meanwhile, Malaysia's national airline announced that it expect to finalize the purchase of six Airbus A380-800 super-jumbo passenger jets next month, partly purchased through a bond issue by Malaysian Airline System's parent company, Penerbangan Malaysia Bhd (PMB). Analysts estimate the deal to be worth $1.5 billion. The 555-seater planes will be the biggest in the world.

Malaysia's Dr. Mahathir Hits U.S. for 'Out-Terrorizing the Terrorists'

Malaysian Prime Minister Dr. Mahathir Mohamad warned on May 17, in commenting on the Morroco terrorist bombings, that if the United States is "trying to out-terrorize terrorists," this will only result in being made the target of attacks in many other places. He pointed out that he had repeatedly said that when a country tried to counter terrorism through killing or by invading another country, this would bring about consequences like suicide bombings. He said there was still not enough being done to stop Israeli aggression against the Palestinians, which was causing a lot of anger among Muslims.

On the U.S. travel advisory warning against visiting Malaysia, Dr. Mahathir said, "We know Malaysia is safe.... The people who are not safe are the people who attack other countries and kill other people. If one attacks other countries and other people, it does not matter where they are. They are not safe," he warned, adding that those who were not safe were the Americans, British, and Australians.

Russian Defense Minister Visited Malaysia

Sergei Ivanov became the first Russian Defense Minister to visit Malaysia last week, in a followup to Prime Minister Dr. Mahathir bin Mohamad's trip to Russia earlier this year (see RUSSIA/EURASIA DIGEST for more).

From Malaysia, Ivanov flew to Washington on May 20.

Kashmiri Leader Proposes 'Face-Saving' Solution

Pakistani Kashmiri leader Sardar Sikandar Hayat Khan has issued a proposal to end the longstanding conflict between India and Pakistan over Kashmir; he proposes the partition of the disputed region along religious lines. Khan told Britain's Reuters news service in a telephone interview May 20: "This proposal is the closest to the 1947 partition plan under which India and Pakistan came into being." He didn't elaborate on the horrific loss of life on both sides in the aftermath of that political separation.

Khan is a central leader of the All Jammu and Kashmir Muslim Conference, which has usually called for Pakistani rule of Kashmir. Khan said his "solution can be face-saving for India, Pakistan, and Kashmiris."

Security in Afghanistan Is Deteriorating

Aid workers in Afghanistan report a deteriorating situation in the countryside, undermining the U.S.-sponsored Karzai government and postwar reconstruction. Rafael Robillard of ACBAR, an umbrella group of 86 aid agencies in Kabul, told AP, "There's been a very, very big deterioration in security countrywide, especially for aid workers. Aid workers are being specifically targetted by people trying to destabilize the government, which is very dependent on aid. We're easy targets. It's a serious problem." Four U.S. soldiers have also been killed in firefights in the last two months.

The UN has responded by suspending travel on some roads and restricting UN vehicle movements to daylight hours. On May 15, they announced staff would only travel in six of the most volatile southern provinces if they were given armed escorts by the government.

Robillard added that several international aid groups had pulled out of the south altogether and many others had scaled down operations. The ICRC has suspended projects in some provinces and ordered expatriate staffers to stick to the major cities.

The Chinese Renminbi Is Becoming a Regional 'Hard' Currency

According to an article in the May 29 issue of Far Eastern Economic Review, China's renminbi is growing in use as a hard currency outside China, despite the fact that it is not fully convertible. "China is effectively managing a hard currency," says Michael Kurtz, chief analyst for Bear Stearns in Hong Kong.

"In Burma and Laos, the Chinese currency is a hard substitute for weak local currencies like the Burmese kyat and Laotian kip," writes FEER. "Cross-border trade has increased in recent years—consumer goods, machinery, and fruit come in from China; timber, minerals, and smuggled cars leave Burma, Laos, and Thailand. All these transactions, amounting to hundreds of millions of dollars in annual value, are settled in renminbi—greatly helped by lax controls over carrying currency in and out of China. Along the Thai banks of the Mekong River, Chinese traders from Yunnan do business without converting their renminbi into Thai baht. All over Thailand, an underground banking network enables traders to transfer funds in and out of the Chinese currency. A similar system works in the Pearl River Delta region connecting Hong Kong with Guangdong province.

"It's a curious situation because the renminbi is still subject to rigid capital controls," writes FEER. "Regional central banks will not hold the renminbi as a reserve currency, nor do they issue debt in renminbi because China keeps it to a de facto peg of nearly 8.28 to the dollar. The renminbi is not freely convertible on the capital account, and most analysts don't expect this to change for some years."

Says Marc Faber, one of Asia's leading financial analysts: "The renminbi is the strongest currency in Asia right now; the problem is there isn't enough of it in circulation." There are about 30 billion renminbi ($3.6 billion), or about 2% of the currency, outside China.

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