(FORTUNE Magazine) – I TELL American friends to stop worrying about layoffs at home and come to this region,'' says Laksamana Sukardi, 37, managing director of the Lippo Group, a financial services company in Indonesia. ''You can touch anything here and make money.'' Sukardi is inviting his pals to what could be called Southeast Asia's growth triangle: Singapore, Malaysia, and Indonesia. Despite a slowdown in the West and Japan, these countries continue to expand at an average of more than 6% a year. Indonesia has become a favorite place for making expensive running shoes. Singapore turns out over half the world's hard disk drives. Malaysia, the largest producer of rubber and palm oil on earth, is also a champion exporter of computer chips. Much of their success stems from a new atmosphere of cooperation among them. Singapore and Indonesia, for instance, have jointly developed a $370 million, 1,235-acre industrial park on the Indonesian island of Batam. In January the Association of Southeast Asian Nations, which along with the three growth champs includes Brunei, the Philippines, and Thailand, agreed to dismantle tariff barriers gradually over the next 15 years. At the same time, the three countries are taking advantage of their comparative strengths. Singapore brings capital, links with international markets, management expertise, and technology. Indonesia and Malaysia provide what Singapore lacks: competitively priced labor and land. Over the past few years Singapore, host to over 3,000 international companies, has encouraged more than 500 of them to move labor-intensive operations into neighboring Malaysia and Indonesia. Thomson Consumer Electronics of France, for example, makes components in Malaysia and Indonesia that go into TV sets assembled in its highly automated plant in Singapore. These three countries have great ambitions for the next century. Singapore, an island republic whose average citizens now are almost as rich as Australians, aims to be in the top league of nations by the turn of the century. Malaysia has a higher annual per capita income ($3,000 a year) than Turkey or Argentina, but is hotly pursuing what its leaders describe as a vision for becoming a fully developed industrial state by the year 2020. And Indonesia, which though rich in natural resources struggles to support a teeming population of 185 million, hopes to double its per capita income to around $1,000 annually by 2000 -- still only about half the amount of money that Thais earn today. Realizing such grand plans, of course, depends on each country's ability to keep sharpening its competitiveness. All share the important advantage of stable government but face varying other challenges. Indonesia cannot be a worldclass economy without cleaning up corruption that imposes heavy costs on business. Malaysia needs more technicians and people who can communicate well in English. With an average per capita income of $15,000 annually, Singapore is under the greatest pressure to improve productivity. Says Philip Yeo, 45, chairman of the Economic Development Board, which promotes investment in Singapore: ''In the next ten years there will be no shortage of cheap labor in Asia, especially with such places as India and Vietnam opening up. But there will be a serious shortage of educated, skilled people.'' Singapore is the overachiever of Southeast Asia. An island nation of 220 square miles, about three times the size of Washington, D.C., it has virtually no natural resources except for a deepwater harbor (with the world's busiest container port) and nearly three million industrious people -- mostly ethnic Chinese. Stern political leadership has produced roads free of traffic jams (car ownership is restricted), an airport that ticks like a Swiss watch with a Japanese movement, and the most squeaky-clean government in Asia. To be sure, Singapore, a former British colony, sacrifices some Western- style freedoms for the sake of progress. The government has banned the sale of chewing gum because discarded wads kept mucking up the immaculate subway system. Individuals can't own satellite-TV dishes and must watch only programs approved by officials. Nor is all rosy on the economic front. Prime Minister Goh Chok Tong worries that Singaporeans, who already feel on top of the world, may not have the drive to ''compete in the developed world.'' Most troubling to Singapore's leaders have been wage hikes that outpaced productivity growth for the past three years. Last year productivity grew just 1.5%, compared with 3.5% in 1990. Goh devoted much of a recent national TV address, complete with charts, to exhorting Singaporeans to expand productivity 3% to 4% annually -- as Japan did during its comparable stage of development. Another worry: Rising overhead for business, coupled with an appreciating currency, is causing Singapore's exports to become less competitive compared with those of Hong Kong, Taiwan, and South Korea. As always, Singapore has a strategy for remaining a nimble global competitor: working smarter. By constantly upgrading the skills of its work force, Singapore can staff highly automated factories for such companies as Motorola, Apple Computer, and Sony. Motorola used its Singapore operation to design and produce a credit card-size telephone pager. In addition, the Singapore government is investing in research, including an institute for magnetic technology in collaboration with disk-drive makers. Says Lee Hsien Loong, 40, Minister of Trade and Industry: ''For companies to be in Singapore, there must always be an edge in terms of return to the investor.'' Evidently confident of Singapore's resilience, U.S. companies this year are expected to commit $1 billion of investment, up 31% from last year. Looking ahead, Singapore hopes to gain comparative advantage by becoming a computerized society. An information technology plan envisions that in 15 years Singapore will be ''the intelligent island,'' with every home, office, school, and factory connected via computers that hook into phones and TV sets. The idea is not far-fetched. Singapore is already handling trade documentation through an electronic system called TradeNet, which has reduced paperwork and delays for government and business. Forms for medical treatment and legal work have been replaced by similar on-line systems. Says Ko Kheng Hwa, chief executive of the National Computer Board, which aims to make Singapore's networking global: ''We can be a switching system, not just for goods but also for information and knowledge.'' With almost $40 billion in foreign reserves, Singapore also hopes to prosper from overseas investments, though success so far has been elusive. Says a U.S. government economic report on Singapore: ''With few exceptions, its companies still lack the necessary savvy to go global.'' Singapore Technologies Ventures, a state-owned corporation, lost over $100 million during the past two years on investments mainly in Silicon Valley startups, including a joint venture with Sierra Semiconductor. Still, Chairman Yeo of the Economic Development Board is undaunted. ''If you don't venture,'' he says, ''of course you will have no failures.'' Singapore's part in the development of Batam is a good example of its new spirit of regional cooperation. Starting in the early 1980s Indonesia tried to develop Batam, one of the Riau islands at the south end of the Strait of Malacca, but managed to lure few investors. Then, three years ago, Lee Kuan Yew, 69, who was Singapore's Premier at the time, persuaded Indonesian President Suharto to drop his aversion to 100% foreign ownership of factories. Says Singapore Trade and Industry Minister Lee, son of the former Premier: ''When Indonesia changed on that, the investors flooded into Batam.'' For a glimpse of Indonesia's future export prowess, take a 45-minute boat ride from Singapore to Batam. You'll see AT&T, Seagate, and Smith-Corona among the scores of multinationals that are investing a total of $1 billion over the next couple of years in an industrial park carved out of jungle. The cost of Indonesian workers, including fringe benefits, is about $136 a month -- one- third the Singapore rate -- and Batam is a duty-free haven. The island has its own water supply, electric power, and microwave links to the world via the Singapore phone system. Extending the cooperation, Singapore is also helping to develop Bintan, another Indonesian island, with over 11 miles of pristine beach, into an international resort. A high-speed ferry will zip tourists from a pier near Singapore's airport to the beaches of Bintan. And far inland on Bintan (which has 73 square miles of empty land) another industrial park is rising. Neighboring islands in Indonesia's Riau group are sites for a new shipyard, an oil storage center, and a pig farm -- all linked to markets via Singapore. Says Radius Prawiro, Indonesia's Economic Coordinating Minister: ''We hope to use the Riau experience as a model for developing other Indonesian islands.'' Despite the success of these joint ventures, Indonesia still has lots of problems. An archipelago of 13,667 islands, the former Dutch colony has long squandered revenues from its rich storehouse of oil, minerals, and timber. The late President Sukarno, a flamboyant leftist who misruled for 15 years and even attempted war against Malaysia in the Sixties, bankrupted his nation. President Suharto, a former general who took over after an abortive communist coup, has been repairing the damage for the past 25 years. Jakarta, the Indonesian capital, has all the symbols of a dynamic economy -- skyscrapers, new hotels, luxurious shopping centers, and traffic jams. But not far beneath this modern veneer is a vast, backward economy. Street cleaners wield hand brooms. Canals that lace the city are open sewers. Getting a phone call through is a roulette game, and electric power outages are routine occurrences. (The government has finally agreed to let international companies build, own, and operate generating stations.) Finding competent managers for government and business is tough, since only about 1% of Indonesians are university graduates, and less than 10% have completed junior high. Considering its circumstances, however, Indonesia is relatively successful and is potentially a significant market as well as a low-cost production base. Says Augusto P. ''Gus'' Nilo, group managing director of Sinar Mas, a giant producer of vegetable oils and paper: ''Our population is so huge that anything we cannot export can be sold locally.'' Indonesia is the world's largest exporter of natural gas and a popular manufacturing site for foreign shoemakers. Economic expansion is imperative for Indonesia. With $78 billion in foreign debt, and some two million Indonesians joining the job market every year, the economy has to grow at least 5% annually. It's doing better, averaging 7% over the past three years and 6% this year. But the average Indonesian is still poorer than the average Egyptian. Millions of farm families live at or near the subsistence level, though the country has become largely self-sufficient in rice. For now local businessmen see Indonesia's low wages as a comparative advantage. But, says Suharto, ''low wages are a reflection of low skills, which in the final analysis means low efficiency.'' Like his neighbors, Indonesia's leader knows that the future depends on improving the quality of his nation's work force. Suharto is a fairly new convert to the magic of market forces. Indonesian state corporations still run 25% of the economy, including hotels, plantations, and even a department store. The collapse of oil prices in the early Eighties finally prompted Suharto to deregulate the economy gradually and welcome -- rather than merely tolerate -- foreign investors. In the past three years, international companies have agreed to invest some $22 billion. Liberalization has risks too. Says Christianto Wibisono, director of the Indonesian Business Data Center, a financial rating service somewhat like Standard & Poor's: ''With the equivalent of $7.5 million in capital you can open a bank now, so everyone has.'' He frets that some of them are bound to fail.

A pattern of corruption, at least by Western standards, bothers many foreign investors. So does nepotism. President Suharto's six children are visibly flourishing in business with more than a little government help. Tommy, 29, Suharto's youngest son, has a monopoly in supplying cloves to the Indonesian kretek cigarette industry. A company partly owned by Suharto's son Sigit, 40, got the exclusive license to collect government fees from owners of TV sets. The Indonesian government assigned AT&T a local partner for producing digital telephone switching equipment. The company is controlled by Siti Hardijanti Rukmana, 43, whose nickname is Tutut and whose dad is President Suharto. Such arrangements have drawn criticism from both the Indonesian parliament and the World Bank, but the President doesn't seem to hear. In contrast with Indonesia, which is the world's fourth most populous country, Malaysia has only 19 million people, less than the population of California. Even so, like Indonesia, it is trying to move its economy from commodity exports to manufacturing. A large Matsushita plant near the airport of Kuala Lumpur, the capital, produces about one million color TV sets a year for the Japanese market. On Penang, a small island off the country's northwestern coast, nearly 100 international companies assemble semiconductors. And Malaysia even has an auto industry of sorts. Proton, a state-owned company, turns out 100,000 cars a year, though Japan's Mitsubishi Motors supplies most of the technology, parts, and management. Becoming a full-fledged industrial nation, however, is going to be difficult. The economic vision of Prime Minister Mahathir Mohamad, 67, requires doubling the size of the economy every ten years for the next two decades. Yet Malaysia is running short of skills for moving up the technological ladder. Currently 20% of Malaysian students fail math and languages. Mahathir shaped the education system to help ethnic Malays, about 52% of the multiracial population, by changing the language of instruction from English to Malay. As a result, many Malays in this former British colony do not speak or write English well enough to work for international companies. Mahathir, who ardently woos foreign investors, could make Americans feel a little more comfortable by taking fewer verbal potshots at the U.S. In a speech to the U.N. General Assembly last year, for instance, he suggested that Western democracy ''means to carry guns, to flaunt homosexuality, to disregard the institution of marriage.'' Said he: ''Our concept of being developed does not simply focus on per capita income, but quality of life and morality as well.'' Playing to the Third World hardly seems in tune with making already prosperous Malaysia a developed country by early in the next century. His economy, though, is on a better course than his rhetoric. All the members of this growth triangle have to keep running hard. After all, China has similar hopes of emerging as a bigger player in world business. As Lee, Singapore's Trade and Industry Minister, puts it: ''There's always someone on your heels, catching up with you.'' Even so, if any countries are well positioned to be major players in the year 2000, it's this dynamic trio of Southeast Asian nations.