Indonesia's sharia push may scare investors, moderates - Reuters

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By Sunanda Creagh - Analysis

JAKARTA (Reuters) - Recent moves in Indonesia, including plans by one province to stone adulterers to death, have raised concerns about the reputation of the world's most populous Muslin country as a beacon of moderate Islam.

The provincial assembly in the westernmost province of Aceh -- at the epicenter of the Indian Ocean tsunami that killed 170,000 people there nearly five years ago -- this week decreed the ancient Islamic penalty of stoning to death for adultery.

The decision could still be overturned once Aceh's new parliament is sworn in next month.

But many, including Aceh's governor, the central government in Jakarta, and local businessmen, are concerned about the impact a broadcast public execution by stoning could have on Indonesia's international reputation.

"The perception and the reaction from the international community would be condemnation," said Anton Gunawan, chief economist at Bank Danamon, who stressed he thought an actual stoning unlikely.

"For investors who are relatively familiar with Indonesia and know it is mostly moderate, it might not have an impact. But for people who don't know Indonesia, they will think 'Oh, now I have to be careful of it'," he said.

The Aceh case is one of several showing how hardline Muslim groups are influencing policy in Indonesia.

Local governments, given wide latitude to enact laws under Indonesia's decentralization program, have begun to mandate sharia regulations, including dress codes for women.

One ethnic Chinese Indonesian businessman, a practicing Christian who asked not to be quoted by name, said he feared if the trend continued it could lead to capital flight by the wealthy Chinese, Christian minority.

"A lot of regional laws are going in that direction. It's already alarming the way it's going. It's a minority who are doing this, but the problem is that the silent majority just keep silent."

ANTIPORNOGRAPHY LAW

Last year, the government imposed restrictions on Ahmadiyya, a minority Muslim cult, following intense lobbying by hardline Muslim groups to have them banned.

President Susilo Bambang Yudhoyono's party also backed an anti-pornography law, which imposes restrictions on certain forms of dance, traditional dress and the depiction of nudity in art.

The law was widely condemned by minority religious and ethnic groups, including Balinese.

A new film law passed this month goes even further, prohibiting depictions of drug use, gambling and pornography, and requiring film-makers to have their plots approved by the Minister of Culture before production can begin.

"I think the Islamic parties will be a strong influence on the law-making of the next cabinet," said Suma Mihardja, who led a campaign against the anti-pornography law.

"Tension could be directed toward xenophobia, racism, or religious conflict as we see in Malaysia today."

Other legislation on the cards at the national level includes a bill making halal certification compulsory, instead of voluntary as is now the case.

That would result in higher costs for many food and pharmaceuticals companies, domestic and foreign, ranging from Nestle and Unilever to Kraft Foods Inc and Cadbury Plc, said Suroso Natakusuma from the Indonesian Chamber of Commerce and Industry.

"Every single item will need halal certification and an external audit process may follow," he said.

"The auditor may need to be sent to the country where the product was made to check the process is halal. That means air tickets, hotels. This will mean a lot of extra costs."

ISLAMIC VOTE FALLING

The religiously-inspired laws seem to run against the wishes of the electorate.

In the 2009 parliamentary election, the vote for the conservative Islamic party PPP declined 2.8 percentage points to just 5 percent of the total vote, while the vote for another Islamic group, the Prosperous Justice Party (PKS), rose only 1.5 percentage points to 9 percent of the total.

Overall, the share of votes for Islamic parties has steadily declined.

"People appear to be pandering to an audience that isn't really asking for anything," said James Bryson of HB Capital, which invests in Indonesian stocks. "The halal bill is not winning any votes and it's making an already complex system of certification even more expensive."

"Many of these laws lately are becoming more conservative,' said Said Abdullah of secular opposition party PDI-P who is on the committee debating the halal bill. "The government is trying to accommodate the Muslim community but they are actually not following our real constitution."

President Yudhoyono, a former general, won a second five-year term in July on promises to continue the battle against corruption and spur economic growth.

In the run-up to elections, Yudhoyono and his secular Democrat Party shifted closer to a clutch of religious parties including the hardline Islamist PKS, as relations with his main coalition partner, Golkar, grew increasingly strained.

Resources-rich Aceh suffered a decades-long conflict between secessionists and the Indonesian military. The tsunami and the 9.1 earthquake that spawned it brought billions of dollars in aid to the devastated land. That paved the way for a peace agreement with separatists -- whose political party won April's election, and now must deal with the new adultery law.

Aceh wants to attract more investment, just like many other parts of Indonesia. Holding public executions by stoning, which could be televised and shown around the world, could well make that more difficult.

(Editing by Sara Webb and Bill Tarrant)