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Jakarta bomb's economic
toll
By
Bill Guerin
JAKARTA - Indonesia is bracing itself for
more hardship following Tuesday's Jakarta hotel bomb
attack. As well as the death toll of at least 14
Indonesians and one foreigner, there may be serious
consequences for an economy that had been on the mend.
The second major terrorist strike in the space
of 12 months is a serious blow to President Megawati
Sukarnoputri's administration after it appeared that she
was slowly but surely gaining control of the country and
reviving the economy.
Analysts have warned that
the fate of the economy now depends greatly on the
government's will to crack down even more on terrorism.
This will affect the perception of risk and without it
the confidence of investors in an economy, which had
just started to recover from the Bali attacks, will
remain shattered. And, as in Bali, the bombing will hit
Indonesians much harder than foreigners despite the fact
that foreigners were the focus of the attack.
There had been a growing sense of optimism over
the past 12 months. Some of the militant groups seemed
to be on the run and the Bali trials were up and
running. Amrozi, the "smiling bomber" has just been
sentenced to death for his part in Indonesia's last
major terrorist strike, the October 12, 2002, bombing of
two crowded Bali nightspots, which killed 202 people.
The severe acute respiratory syndrome (SARS)
pandemic and the Iraq war came and went, leaving
Indonesia relatively unscathed. As the world economy,
slowed Indonesia's own year-on-year growth of 3.4
percent in the first quarter of this year encouraged the
government to restart large infrastructure projects that
had been mothballed.
The rupiah had been slowly
appreciating during the past year or so. Following
several months of stability near Rp10,500 per US dollar
around the end of 2001, it appreciated quite steadily,
interrupted only by the Bali bombings last October, to
approach Rp8,000 per US dollar by late May.
Tuesday's carnage is a major setback and certain
to put the issue of law and order back into the news
again. The ease with which the attack on the JW Marriott
Hotel occurred despite supposedly heightened security in
the capital may result in Jakarta being a "no go" area
for many Westerners, at least in the short term. There
are concerns about confidence in the ailing economy as
nervous investors might shelve investment plans and the
local corporate sector could find problems in raising
cash overseas.
Tourism is the cause for most
concern as tourism receipts are certain to plunge. While
Jakarta has never been a must-see destination, the
combination of the current bomb blast with the Bali
blast a year ago is certain to reinforce tourist
perceptions that Indonesia is a dangerous destination.
Tourism is Indonesia's biggest hard-income earner,
sustaining some 8 million people. In 2002, tourism
brought in $4.3 billion in foreign exchange, 20 percent
less than the preceding year. If tourism is badly hit
the malaise will spread to other related sectors and
affect the jobless total. An estimated 40 million are
still unemployed.
Offices, other hotels,
especially international hotels and offices, now have
virtual rings of security around them. Australian
resource companies surveyed at the Kalgoorlie Diggers
and Dealers conference held in the Western Australian
gold mining town of Kalgoorlie Wednesday said that they
see no need to beef up security at their Indonesian
operations but they would stop all non-essential travel
through Jakarta.
The macroeconomic consequences
of Tuesday's blast are predicted to be substantial
though the short-term response from the financial
markets appears to be one of "wait and see". Dradjad
Wibowo, an economist with the Institute for the
Development of Economics and Finance (Indef), warned
that the central bank should closely guard the movement
of the rupiah to avoid further panic selling or
speculation.
Containing the rupiah within a
relatively stable band, he said, would also serve as a
benchmark for the country's macroeconomic indicators.
Stocks and currency rose Wednesday as investors
saw buying opportunities. Some fund managers were even
discounting the latest terror threat, mindful of the
fact that immediately after the Bali bombing, Indonesian
blue chips were a great buy.
The Jakarta
Composite Index rose 1.2 percent after falling to an
11-week low Tuesday after the blast. It had risen more
than 47 percent since the Bali bombing and soared 21
percent this year alone, making it Asia's
fourth-best-performing stock-market index in dollar
terms.
Dealers warn that although shares ended
higher Wednesday as bargain hunters, mostly locals,
bought blue chips that were hit badly Tuesday, overall
sentiment remains wary. Many investors are watching for
what the government might do to uncover those behind the
bombing.
This is the same point made by local
analysts. Pande Raja Silalahi, a leading economist the
Center for Strategic and International Studies (CSIS),
believes the crucial task now is for the government to
show that it is in earnest in fighting terrorism and not
merely talking about it.
Following the Bali
carnage last year, Jakarta delivered up Rp10 trillion
($1.22 billion) in a stimulus package designed to
cushion the economic impact. Minister of Finance
Boediono said on Wednesday that the government would
introduce a similar stimulus package to help revive
investments after the latest terror attack, which the
International Monetary Fund (IMF) said was a "terrible
tragedy" to the economy,
The agency has full
confidence in the government's ability to restore
economic stability, according to Daniel Citrin, a senior
IMF advisor. "I'm sure the government will do whatever
it needs to do to stabilize the situation, and to
maintain its economic program on course," Citrin said in
Jakarta.
Coordinating Minister for the Economy
Dorodjatun Kuntjoro-Jakti, who said he was confident
that economic recovery would remain on track, struck a
similar note of optimism. "The recovery after the Bali
bomb was faster than expected, showing our economy's
resilience," he said.
Long-term damage to the
economy was discounted by Singapore's Trade and Industry
Minister George Yeo. Urging Singaporeans to continue
investing in Indonesia, he said the latest terror attack
would dampen business confidence in Singapore and Asia
in the short-term, but it should not affect longer-term
economic recovery.
The fallout from the bombing
will have an impact on trade, though not all of it
negative. A sustained depreciation of the rupiah would
increase the cost of imports but would drive up the cost
of debt denominated in foreign currencies. Conversely,
exports would be boosted as they become more
competitive.
The general consensus is that it’s
all down to the government now. Actions taken in the
next few weeks will determine whether or not any
remaining confidence foreign investors still had in the
country will return.
(Copyright 2003 Asia Times
Online Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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