When U.S. law firms first started making major pushes into Asia in the 1990s, there were really only two markets that mattered.

“Fifteen years ago, our biggest practices were focused on China and Indonesia, and Indonesia was not a far second,” recalls Alan Schiffman, the Hong Kong-based head of the Asia energy practice for Skadden, Arps, Slate, Meagher & Flom.

Then Indonesia became perhaps the biggest market impacted by the 1997 Asian financial crisis, when a devastating currency freefall and a weak regulatory environment brought the nation’s economy to the brink of collapse. The ensuing slowdown saw a host of international law firms shut down once-thriving Indonesia-focused practices in Singapore and Hong Kong, with some, such as New York’s Chadbourne & Parke and Philadelphia’s Morgan, Lewis & Bockius, leaving Asia altogether.

But now Indonesia is booming again, with an economy expected to grow almost 7 percent by year end. Foreign investors have been pouring in, eyeing not only the country’s bounteous natural resources but also a consumer sector catering to a growing middle class. Predictably, law firms are eager to join in, and a number have significantly expanded their Indonesia-oriented practices. But many are also proceeding cautiously, mindful of the traumas that came before.

International law firms are not permitted to have offices in Indonesia, and most run Indonesia practices out of Singapore. But many have lately been lining up what they believe to be the next best thing: alliances with local firms. Last month, Los Angeles-based O’Melveny & Myers and U.K. firm Stephenson Harwood announced Indonesia tie-ups with Jakarta firms Tumbuan & Partners and Christian Teo Purwono & Partners, respectively. Norton Rose entered into an alliance with Susandarini & Partners earlier this year, while Allen & Overy established one with Ginting & Reksodiputro in July 2010.

O’Melveny partner Joel Hogarth, who is relocating from Singapore to Indonesia to manage his firm’s new alliance, says that it’s no secret why Indonesia looks good to investors right now: Most other places look really bad.

“The global meltdown mostly left Indonesia untouched,” says Hogarth, noting that both the government and corporate sector in the country had kept debt levels low, in no small part due to the fallout from the 1997 crisis.

Many lawyers working in the market note that the Indonesian government has taken a number of steps to improve corporate governance over the past decade. “It’s really a different place than it was in the 1990s, when it was like the wild, wild West,” says Schiffman.

David Zemans, Singapore managing partner for Milbank, Tweed, Hadley & McCloy, agrees that Indonesia is a much more stable market than it was 15 years ago but notes that many things that were issues back then continue to be so.

“The sorts of things that would come up frequently in due diligence are structural issues, ownership issues, who people’s partners are,” says Zemans.

Indeed, such issues are at the core of the recent well-publicized spat between British financier Nat Rothschild and the Indonesian Bakrie family, from whom he bought stakes in two Borneo coal mines. In a recent letter he sent to the chief executive of the Bakrie-controlled PT Bumi Resources, Rothschild criticized the opaque relationships between the company and some of its affiliates and shareholders and called for a “radical cleaning up” of its management.

Zemans says there are many investors now coming to Indonesia who have been drawn by recent hype and don’t have any memory themselves of the 1997 crisis.

“There are a lot of people here who weren’t there then,” he says. “There’s clearly a risk that some people could go in and not do their homework.”

That could be true of lawyers as well. One of the attractions of Indonesia for U.S. and U.K. law firms is that Western expatriates without language ability are still much in demand in that market, whereas non-Chinese speakers are finding it harder and harder to work in mainland China or Hong Kong. But while some of the barriers to entry in Indonesia may be lower than elsewhere in Asia, Hogarth says clients would be ill-served by lawyers who don’t have much understanding of Indonesian culture or politics.

“The number of lawyers that have real country knowledge is pretty small,” he says.

Which may be one reason that, despite a fair amount of recent buzz, there isn’t quite the stampede into the market that there has been in China. Matthew Bersani, Asia managing partner for Shearman & Sterling, says the lack of a Singapore office may be an obstacle for some firms as well.

While leading New York firms Sullivan & Cromwell, Davis Polk & Wardwell, Simpson Thacher & Bartlett, and Cleary Gottlieb Steen & Hamilton all launched local Hong Kong law practices in the past 18 months, none currently has a Singapore office. Simpson did have one for a while but closed it in 2003. Other firms still active in Asia that closed Indonesia-focused Singapore offices in recent years include Freshfields Bruckhaus Deringer and Vinson & Elkins.

Bersani says Shearman, which currently has 15 lawyers in Singapore, plans to double the size of its Southeast Asia-oriented practice in the next few years. He says most of the risks in the Indonesian market are already well known to investors, who clearly think they are outweighed by the potential returns.

“I am very bullish on Indonesia and Southeast Asia generally,” says Bersani, who also thinks it wise for firms to build more balanced Asia practices. “I do think firms have put too many eggs in the China basket.”

Email: alin@alm.com