COLUMN ONE : Muslim Tide Rising in the East : Islamic fundamentalism has gained a foothold in Malaysia. The country’s moderate neighbors fear that it will spread across Southeast Asia.

At a Chinese-run grocery store here, the Scotch, gin and creme de menthe are kept under lock and key. “Alcohol is strictly forbidden to Muslims,” says a sign over the cash register.

At an Islamic court, Judge Rawi Bin Mat Yaman recounts the “many, many” cases he has handled involving the Islamic crime of “close proximity”--a single woman being caught alone with a man, even if just for an innocent conversation. The penalty for each of them: one year in jail and an $800 fine.

And now, a new religious controversy: The government of Kelantan, a northeastern Malaysian state, plans to replace the criminal laws left by Britain at independence with Islam’s tougher Hukum Hudud. Thieves’ hands would be cut off and adulterers stoned to death.

Islamic fundamentalism has gained a secure beachhead in Southeast Asia. And there is fear that it will spread well beyond this one Malaysian state.

Thailand worries that Islamic radicalism will spill over to the Muslim minority in the country’s south. Singapore, which has a Chinese majority wedged between much larger Muslim neighbors, frets about an outburst of fundamentalism threatening its very survival. The Philippines, with its own vocal Muslim minority, fears the resumption of secessionist wars.

Islam’s roots in Southeast Asia are deep. Imported from India in the 14th Century, Islam became the state religion of Malacca, a powerful trading nation that straddled what is now the countries of Malaysia and Indonesia.

But within the great Islamic crescent that stretches here from North Africa, Malaysia and Indonesia have always been regarded as moderates. Their governments were secular; their clergy leaned away from the extreme. The region’s Muslims were more tolerant than their religious brethren in the more conservative Middle East.

At the heart of today’s fears about an outbreak of fundamentalism are history and demographics. Both Malaysia and Indonesia experienced painful, racially targeted violence in the 1960s that left thousands of non-Muslims dead, primarily for political reasons rather than overt religious hatred.

Both countries have large non-Muslim minorities, primarily Chinese, who fear that moves toward Islamization will tear apart the fragile social fabric that has been carefully stitched together over the past two decades.

Almost entirely non-Muslim, the Chinese--relatively late arrivals who now control the majority of business activity in both countries--are increasingly resented by a growing share of the Muslim majority.

In what was widely regarded as an election-year gesture to the growing political power wielded by orthodox Muslims, Indonesian President Suharto, a Muslim who discouraged Islamic activism when he came to power in 1965, made his first pilgrimage to Mecca last year.

A rebellion in the northern Sumatran province of Aceh, which has left several thousand dead in clashes with security forces, has gathered momentum in part because the region is home to the most radical Islamic preachers in Indonesia, where more than 80% of the nation’s 181 million or so people are Muslims.

Malaysia, with a population of nearly 18 million, is 60% Muslim, virtually all of them ethnic Malays. Malaysians of Chinese and Indian descent make up the remainder.

It is perhaps no accident that the test case for fundamentalism in Southeast Asia is unfolding in Kelantan, on the east coast of peninsular Malaysia adjacent to the Thai border.

Kelantan is backward economically. It was left relatively untouched by Britain’s colonizing civil servants. And it is almost 93% Muslim. Indeed, many of the street signs in Kota Baharu, the capital, are still written in Jawi, the ancient Malay language using Arabic script.

“Muslim fundamentalism, what I call Muslim consciousness, is on the rise throughout Malaysia, but nowhere is it stronger than here in Kelantan,” said a senior official of the Malaysian federal government’s education system, who asked not to be identified.

In October, 1990, the fundamentalist Parti Islam defeated the central government’s ruling National Front in state government elections and took power in Kelantan, where it had ruled from 1959 to 1978.

Chosen as the state government’s chief minister--the equivalent of an American governor-- was a soft-spoken 61-year-old Muslim ulama , or religious teacher, named Nik Aziz Nik Mat.

Nik Aziz, who like many religious elders in Kelantan was trained at the famed Al Azar Islamic Institute in Cairo, moved quickly to put the state under a strict regime, going far beyond the conservative society that had evolved in the state over generations. The administration dubbed its new state newspaper “The Dawn of Islam.”

State funds were abruptly transferred out of commercial banks and placed in the Bank Islami, where they earn an unpredictable return in keeping with the Koran’s injunction against usury.

Gambling was banned and nightclubs and discos placed on a strict regimen of opening only three hours a day. Unlike the rest of Malaysia, which adheres to a secular Monday-to-Friday workweek, Kelantan rests on Friday and Saturday.

Alcohol consumption by Muslims was banned, and Chinese restaurants that serve beer must now offer a separate, enclosed room for drinkers. Singing groups that featured men and women performing together were prohibited.

These strictures are enforced by a group known as “religious enforcement officers,” state officials who are trained in Islam and operate side by side with the police. Although alcohol has been banned for Muslims for 18 months, officials said they haven’t prosecuted any violators yet. The punishment spelled out is public whipping.

When Nik Aziz suggested that women should not work at night in factories, Chinese businessmen were appalled. Although not yet a law, the advice has cast a pall over efforts to industrialize Kelantan, which has an unemployment rate of 8%, compared with a national average of just 4.5%.

Women in the state, as is traditional in most of peninsular Malaysia, rarely venture outdoors without a dudong , a head covering similar to those worn in Egypt; they conceal the hair but not the face. In a distinctly Asian twist, however, women wear bold, bright colors and not the black garb of the Persian Gulf.

Under the rule of Parti Islam, Kelantan is now a state where the late Ayatollah Ruhollah Khomeini of Iran is revered and President Saddam Hussein of Iraq is cheered when he appears on television in another confrontation with the United States.

But by far the state’s most controversial gesture was its decision last month to introduce the hudud criminal laws in the state legislature in November. The hudud are spelled out in the Islamic holy book and prescribe maximum punishments for crimes such as fornication (100 strokes of a cane) and apostasy (punishable by crucifixion).

“It has nothing to do with crime rates in Kelantan,” Nik Aziz said in an interview. “It is the will of Allah that this be practiced in society. We don’t have to wait for the crime rate to go up.”

While Parti Islam officials have tried to calm fears in minority communities about the proposed changes, Nik Aziz made clear that “nobody should be exempted from the law.”

Some members of the Chinese business community have reportedly already left for greener pastures, though there are no official statistics on migration within Malaysia. There is one bellwether statistic: At a time when investment is pouring into other parts of Malaysia, investments in Kelantan have completely dried up.

“It’s not a question of whether Islamic law is good or bad. It’s undemocratic to force one’s religion on others,” said Lim Jit Keng, head of Kelantan’s Malaysian Chinese Assn., a political opponent of the Parti Islam.

The debate over Kelantan’s criminal laws has already spilled over into the national political arena because the federal constitution must be amended before the changes can be implemented.

Prime Minister Mahathir Mohammed, whose political party was defeated by Parti Islam, has ridiculed the proposed changes, saying: “If we apply them only to Muslims, then there will be many Muslims without hands or legs. These people are expected to compete with the non-Muslims in Malaysia. Surely their capacity to do so would be lessened.”

But Mahathir has since stated that he would not stand in the way of the adoption of Islamic laws. According to politicians, there is genuine concern in Kuala Lumpur, Malaysia’s capital, that the dispute in Kelantan could destroy the coalition that has supported National Front rule in the country.

If Mahathir opposes the hudud laws, he will be denounced as un-Islamic from every pulpit in the country. But if he supports the laws, he faces the defection of non-Muslim supporters and other key components of his ruling coalition.

“Mahathir is really cornered,” said Tunku Razaleigh Hamzah, an opposition political leader from Kelantan.

Officials in Kelantan maintain that the state government has been squeezed by the central government in Kuala Lumpur in an effort to bring pressure on the Islamic administration.

“Money that was agreed upon has not been forthcoming. They are holding back, and it has to be political,” said Wan Yayha Wan Salleh of the state’s economic planning unit.

In one sign of its rebelliousness, the state government has set up 89 religious high schools, the Islamic equivalent of parochial schools, as rivals to the federal government’s high schools.

Haji Hashem ibn Abu Bakar, a teacher at one religious school with 1,500 students, said that material life in Kelantan has improved under Islamic government despite the controversy.

“The fruit is better, the rice is better, the crops are all better now,” Hashem said. “As the Koran says, ‘The more you are at peace with God, the more rich you will become.’ ”

Islam’s Influence: Indonesia and Malaysia are undergoing a blossoming of Islamic fundamentalism. Thailand worries that Islamic radicalism in northern Malaysia will spread to the Muslim minority in the country’s southern flanks: Malaysia: 60% Muslim Thailand: 3.8% Muslim Philippines: 5% Muslim Indonesia: 87% Muslim