JAKARTA (Reuters) - Hillary Clinton's nomination as U.S. secretary of state could prove tricky for Indonesia, a key ally in Southeast Asia in the U.S.-led war on terror, because of a past funding scandal and her stance on trade and human rights.
Indonesia welcomed Barack Obama's presidential election victory, as he spent part of his childhood in Jakarta, and many Indonesians hope he will forge closer ties with Southeast Asia's largest democracy and biggest economy.
The Clintons also have a connection -- through Indonesian businessman James Riady, whose family has substantial interests in real estate, retailing, and media in Asia.
In 2001, Riady paid a record $8.6 million in fines in the United States for making illegal campaign contributions to former president Bill Clinton in the 1990s.
Now the Clinton-Riady relationship could come under scrutiny again, the question being whether it's an advantage or an encumbrance for either side. The relationship "has always been toxic for U.S.-Indonesian relations and requires the utmost vigilance on both sides of the Pacific now that Hillary Clinton is slated to become the next Secretary of State," said Jeffrey Winters, professor of political economy at Northwestern University, Chicago, in an email.
"The fact that the Riadys were involved in a corruption scandal in the U.S. involving the Clintons is unimportant compared to the leverage the Clinton connection gives the Riadys in Jakarta business and government circles.
"To avoid a devastating scandal, Barack Obama should place the Riadys high on the Clinton Watch List of sordid relationships and potential political land mines."
Riady did not reply to e-mailed questions on the relationship.
"Clearly, both Indonesian and U.S. business interests will be exploring every potential point of leverage to gain advantage in trade and investment dealings, both at the policy level and privately," said Richard Robison, emeritus professor at Murdoch University, Perth.
U.S.-Indonesian relations have oscillated over the years.
Indonesia recently said it wanted to ban the book "Legacy of Ashes: The history of the CIA" by Tim Weiner because it alleges that Adam Malik, who later became Indonesia's vice president, had been controlled by the CIA in the 1960s.
The United States was increasingly alarmed by former president Sukarno's pro-communist stance at that time. In 1965, general Suharto seized power in a coup, followed by an anti-communist purge in which as many as 500,000 people died.
The United States supported Suharto for more than three decades. It gave him the green light to invade East Timor in 1975, and largely turned a blind eye to his regime's human rights abuses.
With the fall of Suharto in 1998 and subsequent reforms, Indonesia's democratic and human rights image has improved.
And as the security threat in the region increased due to militant Muslim group Jemaah Islamiah's bomb attacks, Indonesia and the United States strengthened security and defence ties -- even though President George W. Bush was particularly unpopular in the world's most-populous Muslim country because of his Middle East policy and invasion of Iraq.
Hillary Clinton, who has taken a tough line on human rights in China, might put pressure on Indonesia to improve its handling of Papua province, the Indonesia half of New Guinea island, where the separatist Free Papua Movement has waged a low-level rebellion against Indonesian rule for several decades.
Some business leaders and academics warn the Democrats are likely to be more "intrusive" on domestic issues, and on the trade front would take a tough line on market protectionism and the use of non-tariff barriers.
"An Obama administration might well take a harder line view towards Indonesia than expected," said one U.S.-educated Indonesian businessman, who asked not to be quoted by name.
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