With elections over in both Indonesia and Malaysia the political situation should settle down. This is more so in Malaysia than Indonesia. Although the political scene in Malaysia is different after the elections in November, the NF government continues to be in firm control. Any changes in the leadership will take place in an orderly manner.

However, the political situation in Indonesia, although greatly improved with a legitimate President, still remains complicated. The government faces demands for independence in Aceh, accompanied by armed clashes. Bloody racial and religious riots in Ambon, Moluccas, Lombok and calls for jihad have heightened tensions.

A few days after PM�s visit in mid January to Jakarta to show confidence in and attract investments to Indonesia, demonstrators demanded more compensation money for their land in Bintan, land that had been acquired and paid for by Singapore�s Indonesian partners through local officials. It was a pointed message to Singaporean and other investors that the Indonesian president and his government cannot deliver on their promise to provide security and stability, without first settling with the political opposition and local interest groups.

President Gus Dur said these outbreaks of sectarian violence were products of a conspiracy of "dark forces". "There is a kind of frustration because we are chipping away at their power," the President said, but without spelling out who the dark forces were. "We are trying to make the rule of law supreme," he said. "They don't like it. In the past, they were used to doing whatever they want. We are patient to a certain point, but when that's transgressed, then we will take harsh action. I think the time has now come for that," he said.

It is unrealistic to expect the newly elected president to get all his orders obeyed when he has yet to establish the supremacy of his office. Various political forces are challenging the president�s authority. The military is not used to taking orders from a civilian president. Other political groups want to carve out more space for themselves in the pluralistic political order that the President is determined to preserve in the interest of national unity.

These problems will be solved when Gus Dur as the legitimate president has consolidated his leadership. Indonesia has undergone profound political changes. New political forces have been let loose after the fall of the Suharto presidency. They had their respective strengths defined by the general elections in June last year and the election of the president by the People�s Consultative Assembly. The major winners have been brought into a coalition government by Gus Dur; but they have not muted their differences and have continued to contend for power. Although elections are not due till 2004, they are jostling for advantage in preparation for the next elections.

But if Gus Dur maintains his present energy levels and popular support, there is a fair chance he can establish his ascendancy, and these problems will be contained. Finding this equilibrium will be the major challenge for the new government because in a diverse and far-flung archipelago with many ethnic and religious communities it is easy to instigate sectarian violence when the armed forces has not found its place in the evolving political system.

Whatever the immediate difficulties it is in the interests of regional stability that Indonesia restores its political balance and stability. It is in Singapore�s interest to help Indonesia, wherever practical, to revive its economy and eases its transition towards a more pluralistic, accountable and open government.

The economic outlook for 2000 has considerably improved. East Asia�s economies are recovering. The rebound has come much sooner than anyone expected. US demand for electronic products has given East Asia's economies a boost. Japan is slowly recovering. Europe may do better this year. However, both together cannot support East Asia's recovery if the American demand for East Asia's exports were to decline. This may happen if there is a substantial drop in the US stock market. I believe, in an election year, the US Federal Reserve Board will do its best to avoid sharp increases in interest rates to avoid a strong stock market correction. If the American economy does not turn downwards, Singapore should make 5 to 6% growth this year.

Two and half years after the financial crisis, Singapore's overall position has improved. We have differentiated ourselves from the afflicted economies. Investors know of our sound macro economic policies, rigorous supervision of our banks and financial houses by the MAS, and our open, transparent and corruption-free system. This different system has helped us to get fresh investments. However, the next phase of economic development will require different strengths. To maximise the opportunities we have to make basic changes in our approach.

For 30 years, we were able to chart our way forward by following in the paths set by America, Europe and Japan. We concentrated on those industrial and service sectors which were suitable for our small economy. In that phase, risk taking and entrepreneurship were not critical. The risks were taken by the MNCs. What we needed were engineers, managers, professionals and skilled workers to help MNCs and our own companies to grow. The MNCs provided much of the enterprise and innovation.

However, rapid changes in technology, especially IT that will endure for many years, will give the advantage to young men and women with bright ideas who have the enterprise, the dare and the drive to bring their ideas to fruition. We must also encourage our investing public to be less reluctant to bet on them and their ideas. We can get help from experienced venture fund managers to provide the expertise on how to assess and back these new ventures. In America such venture fund capitalists have the skills to appraise the commercial viability of the new ideas and projects of entrepreneurs and, more important, help them with the management and the marketing expertise.

This was the way the Americans built up Silicon Valley enterprises. The Japanese, Koreans, Taiwanese and Hongkongers are adopting similar methods. So must we. The framework of such a system is not difficult to install. But what is difficult is to change the social software, the culture and mindset of our young, to get them to take risks, to bet their careers and fortunes on their ideas. This needs a major change of attitudes and values, a supportive social environment, the understanding and encouragement of parents and friends, and a society that does not write off those who have tried and failed. Instead they should be cheered on to try and do better the next time.

Hongkongers are better prepared than Singaporeans for this next phase because they have always been risk takers. By history, our young have always taken the safer course of joining a big corporation, usually an MNC or local corporations, and climbing up within their ranks. Hongkongers, after joining a company, leave as soon as they have learned the ropes to start up their own, betting their last shirt on their venture in order to hit that jackpot.

Not everybody has got the inventiveness and shrewdness to go for such ventures. We must encourage and support those who have. We must help them spawn many new small enterprises, some of which will grow big. An experienced and successful venture capital manager explained to me that out of 10 projects he puts money into, on average 5-7 will fail, three will break even, and one or two will do well. If one really succeeds, the returns are high for the ten investments.

That was the way Microsoft, Sun Microsystems, and America Online have travelled. We have to get this message across to our young, to encourage a new entrepreneurial group that can give our economy that extra zip.

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