FIAT DEALERS GARAGES

The Gulf state has escaped the kind of mass popular protests that forced four Arab dictators out of office in 18 months. But the success of those uprisings has heightened opposition calls for a full parliamentary democracy in Kuwait in which governments are chosen by elected majority blocs.

The Gulf state's cabinet resigned on Monday, days after a top court annulled a February election that gave the Islamist-led opposition a majority. It ruled that a previous assembly friendly to the government should replace it instead.

Most parliamentarians and analysts expect that Kuwait's 83-year-old emir, who has the last say in politics, will dissolve the reinstated parliament soon, triggering elections some time after the holy month of Ramadan which starts around July 19.

Last week, politicians from the outgoing assembly raised the stakes in their standoff with the government, when they said that a "full parliamentary system" had become a necessity.

"The basis of this crisis is the same as all the others...it is a deep political crisis and relates to the chiefdom mentality of the powers which is not allowing Kuwait to develop into the modern and democratic state," said Ahmad al-Deyain, a member of Kuwait's leftist "Progressive Current".

"Kuwaiti opposition is now much more widespread and the population is a lot more aware."

Kuwait was buffeted by regular demonstrations in 2011, including one in November in which hundreds of angry men stormed parliament to press for the sacking of the premier at that time.

Politicians from the previous parliament have now called for protests against the annulment of the February election result.

"The Arab Spring may have exacerbated existing tensions that were already there," said Sam Wilkin, associate analyst at Control Risks in Dubai. "That may have played a role in the limited amount of popular protest that did occur in Kuwait."

While the latest turn of political events came as a surprise, some said it would give Kuwait the chance to wipe the slate clean, at least in the short-term.

"My understanding is that this crisis will pass smoothly," Ghanim al-Najjar, professor of political science at Kuwait University, said. "The parliament might meet once then it will be dissolved as it should then fresh elections will be called for and we will move on."

Political turmoil is not new in Kuwait, which has ushered in four parliaments in six years.

One of the world's wealthiest countries per capita, the OPEC member state has struggled with a corruption scandal implicating political figures and poor parliament-government relations that have hampered policymaking.

LIMITED DEMOCRACY

Although Kuwait has one of the most democratic systems in a Gulf region ruled by autocrats, political parties are banned so politicians tend to form blocs based on religious and tribal ties. This has complicated Kuwait's political scene and at times aggravated underlying sectarian tensions between majority Sunni Muslims and Shi'ite Muslims, who include some vocal politicians.

The current crisis is different to the one that engulfed the country late last year, Najjar said, because the unpopular prime minister, a nephew of the emir, has been removed.

Sheikh Nasser al-Mohammad al-Sabah's government resigned last year after some opposition lawmakers accused it of having made a series of illegal financial transfers via Kuwait's overseas embassies.

A judicial tribunal cleared him of any wrongdoing but the suspicions against him and other political figures helped Kuwait's mainly Islamist opposition make gains in February's election when they campaigned on an anti-corruption platform.

Opposition lawmakers failed to strike a deal with the ruling family in February for a significant share of cabinet posts. They were offered four out of a possible 16 following the election, but they held out for nine, scuttling any deal.

Since then, the emboldened opposition has sought to question cabinet ministers in parliament and forced the resignation of two, including the finance minister.

INFIGHTING HAMPERS DEVELOPMENT

The infighting has distracted lawmakers from legislation and threatened the timetable of Kuwait's 30 billion dinar ($107 billion) economic development plan that includes major infrastructure projects supposed to draw in foreign investment.

The next parliamentary election might bring in a more government-friendly assembly, Wilkin from Control Risks said, as the aftermath of the corruption scandal runs its course.

Opposition parliamentarians came in on an anti-graft platform but then pushed for Islamist legislation instead, he said, instead of sticking strictly to their manifestos.

"Since being elected they have pursued Islamist legislation to a degree not representative of Kuwait's population, which is relatively secular in outlook," he said, citing a push to make Islamic law the main source of all legislation and efforts to bring in the death penalty for blasphemy.

Emir Sheikh Sabah al-Ahmad al-Sabah blocked both proposals, according to MPs.

But governance in the state of 3.6 million people is complicated by its ungainly political structure.

Kuwait's hereditary emir picks the prime minister, who selects 15 ministers to join his cabinet, usually with members of the Sunni ruling family in senior posts.

This cabinet has to work with an elected parliament of 50 lawmakers and relations have been fraught. The emir also has the power to dissolve the assembly as many times as he pleases.

He has often exercised this power when fighting between the parliament and cabinet peaked and when senior government ministers are under pressure.

"The emir remains determined to prevent the opposition from challenging the regime's structural pillars," analyst Ayham Kamel from Eurasia group wrote in a note last week.

"Many within the ruling family have come to believe that the emir's accommodation of opposition demands have weakened the al-Sabah family and the foundations of the political system."

(Additional reporting by Layla Maghribi in Dubai; Editing by Mark Heinrich)

Southeast Asia's biggest banking takeover bid was thrown into limbo in April, when Bank Indonesia (BI) announced it would not approve the deal to buy its sixth-biggest lender until it had published new regulations to cap ownership stakes in banks.

The central bank says it wants to prevent its lenders falling captive to single interests and ensure they have a diverse shareholder base holding management to account.

The new rules, first flagged more than a year ago, are due to be published by the end of June. Contrary to initial fears, industry watchers say they may still allow some foreign banks to buy control of Indonesian lenders.

"There are hints dropped every couple of days that it might be allowed through," said Derek Ovington, a Singapore-based banking analyst at CLSA.

In the latest sign, Deputy Governor Muliaman D. Hadad said on Tuesday majority foreign ownership might be approved by the central bank, depending on the bank's financial strength.

"Stake ownership in general will be 20, 30, 40 percent," he told reporters. "If more than 40 percent, it will be decided case-by-case and must get BI approval."

That followed other hints in recent days from Bank Indonesia officials that they may allow the current 99 percent single ownership threshold to remain in exceptional cases, where the single shareholder is a well-governed financial institution, raising hopes for DBS's Bank Danamon bid.

Previously, Bank Indonesia had suggested that it would allow individuals or families to only hold up to 30 percent of local lenders, while financial institutions' holdings would be capped at 40 percent.

Indonesia's economy has been drawing strong investor interest in recent years for its booming domestic demand and resources, but policymakers have rattled sentiment with a series of proposals on foreign asset ownership.

Recent proposals limiting foreign ownership in mining companies to 49 percent has fuelled concerns Indonesia is becoming increasingly hostile to foreign investment.

TESTING THE MARKET

Indonesia is one of the rare emerging markets in Asia where foreigners can currently hold controlling stakes in domestic banks. Many countries including, China, India, Thailand and Malaysia have capped foreign ownerships at below 51 percent.

Indeed, eight of the G20 economy's top 11 banks by market value - including Bank Danamon itself - are controlled by foreign banks, business families, private equity firms or wealth funds. The central bank has said the new rules will apply to new investments, and would not force existing shareholders to instantly sell-down their stakes to below the new thresholds.

Lawyers and analysts say the central bank has been testing market appetite for its proposed changes through comments to the media and then modifying its plans according to the reaction.

"What's been happening is that Bank Indonesia has been communicating to the market informally through the press without actually stating the formal position," said CLSA's Ovington.

Expectations that the deal may go through after all have boosted Bank Danamon's share price by 12 percent in June, after it dropped about 5 percent last month. It is still trading around 15 percent below the 7,000 rupiah per share offered by DBS to minority shareholders.

"I think it will get done but BI will ask for tons of requirements, including capital control stuff as well as how long DBS can own Danamon's shares," said Jemmy Paul, equity fund manager at Indonesia's Sucorinvest Asset Management who helps manage 2.1 trillion rupiah.

Under a long-mooted deal that was announced in April, Singapore state investor Temasek will sell its 67.4 stake in Danamon in exchange for DBS shares, boosting the sovereign investor's stake in DBS to 40 percent from about 29 percent now.

DBS shares, which fell nearly 4 percent after the deal was announced, are down about another 2 percent since that slide.

RECIPROCAL DEAL?

One hurdle DBS could face is an Indonesian demand to allow reciprocal treatment in Singapore for the country's biggest lenders such as Bank Mandiri, which has a restricted licence to operate in the city-state.

Mandiri and other Indonesian lenders are keen to expand to better serve the large Indonesian community in Singapore in areas such as remittances. But Indonesian banks have found it hard to penetrate Singapore's banking market, which is dominated by DBS and its local rivals United Overseas Bank and Oversea-Chinese Banking Corp.

"Indonesians get off the plane, as they often do in Singapore, and there's no Bank Mandiri ATM when they land," said a s o urce with direct knowledge of the DBS-Danamon deal. "Indonesia banks' ability to open branches and things like that in other markets and get market access is sharply limited, if at all."

DBS chief executive Piyush Gupta, who wants to expand the bank outside its main markets of Singapore and Hong Kong, had expected that the deal would go through under current rules.

DBS and its deal team, which comprised Credit Suisse and Morgan Stanley, were also hoping an approval would come before next year, when risks are high that the deal would become mired in political debate ahead of the 2014 presidential election.

But the Indonesian central bank surprised the Singapore lender by saying that it would review the deal under new rules, a source told Reuters.

A DBS spokeswoman said the bank was unable to comment on the subject and was awaiting formal announcements from Bank Indonesia.

Lawyers say on paper Bank Indonesia's approach now looks to have captured the balance between a push for better corporate governance and allowing well-run foreign banks a route into their banking market.

"The key test, however, will be how Bank Indonesia implements the exemption regime and whether this is done in a transparent and consistent manner," said Jake Robson, a partner at Norton Rose law firm in Singapore.

"Some of the small banks owned by domestic groups or families may find it hard to comply with the governance requirements and may be forced to sell-out, but there's unlikely to be a huge M&A wave as a result of this new regulation." ($1 = 1.2771 Singapore dollars) ($1 = 9437.5000 Indonesian rupiah) (Additional reporting by Rieka Rahadiana and Adriana Nina Kusuma in JAKARTA and Rachel Armstrong in SINGPAORE; Editing by Denny Thomas and Alex Richardson)