Eurasia Group | Risk 9: Identity politics in southern Asia

Risk 9: Identity politics in southern Asia

2 January 2018

IDENTITY POLITICS IN EUROPE and the US has taken center stage in recent years, and we'll see more evidence of a similar phenomenon in Southeast Asia and on the Indian sub-continent in 2018. This trend threatens the future of these increasingly prosperous regions, creating unexpected challenges for economic planners and foreign investors.
Identity politics in southern Asia comes in several forms: Islamism, aversion toward Chinese and other minorities, and an intensifying Indian nationalism.
Islamism in parts of Southeast Asia fuels local forms of populism, most prominently in Indonesia and Malaysia. In Indonesia, fears that the country's majority Muslim population are victims of economic and political injustice empower Islamist groups, working in parallel with other opponents of President Joko Widodo (Jokowi), to exploit this resentment for political gain. Identity politics will continue to shape the Indonesian political landscape as the country heads toward the 2019 presidential election. Political Islam is also becoming more prominent in Malaysia, where Prime Minister Najib Razak continues to court the Muslim Malay vote to win reelection later this year.
A belief that Muslims are victims of economic and political injustice empowers Islamist groups in Indonesia.

There is also growing anti-Chinese and anti-minority sentiment across the region. Resentment of the ethnic Chinese, who hold a disproportionate share of several countries' wealth, has long been an issue in Indonesia. But these sentiments have made a strong recent comeback, most notably during the successful activist-led campaign to defeat and imprison the ethnic Chinese former governor of Jakarta. Elsewhere in Southeast Asia, the persecution of Myanmar's minority Muslim Rohingya, not formally recognized as citizens by Myanmar's government, has triggered the worst humanitarian crisis the region has seen in decades. 
In India, after the secularism, socialism, and engagement with Muslim-majority countries that were cornerstones of the Congress party's vision for the country, Prime Minister Narendra Modi and the ruling Bharatiya Janata Party (BJP) will try to use Hindu nationalist rhetoric and policies to win and retain support from Indians angry over the “appeasement” of Muslim and other minority groups. Even agnostic or moderate Hindus question the decades-old Congress model, making the BJP's opposing vision palatable to them. Hinduism (or Hindutva) will increasingly form the basis on which the BJP seeks to unite a majority of Indians.
Islamism, anti-Chinese and anti-minority sentiments, and ever-fiercer Indian nationalism create risks for the region's business environment. Secular democracy in Indonesia will prove resilient, but populist pressures and the Islamization of politics will undermine the legitimacy of the country's democratic institutions and governance, and they will weaken the country's rule of law. 
On the fiscal side, Jokowi is likely to address inequality by engaging in social welfare spending that, while beneficial to Indonesians, will hurt the country's macroeconomic balance. On regulatory issues, mandatory Halal labeling will take effect in 2019, affecting products sold in sectors including food and beverage, pharmaceuticals, and cosmetics. This will increase regulatory costs for corporates. Rising Muslim populism also reinforces economic nationalism and protectionism. 
The Islamization of politics has also made it harder to pass tougher anti-terror laws, and Islamic populism creates a more conducive environment for Islamic State fighters returning from the Middle East to spread their ideology and find recruits, increasing the risk of attacks in the region. Heightened social tensions also make wealthy ethnic Chinese business owners less likely to repatriate money they have long held in offshore locations such as Singapore, negatively impacting Indonesian and Malaysian attempts to raise tax revenue. 
In India, the danger is that Modi's use of nationalism to consolidate his support ahead of the 2019 election could give cover to radicalized elements of society that want to target Muslims and lower caste Hindus, leading to risks of localized instability. 

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