Bombs unlikely to hurt Indonesia's economy
October 4, 2005
Jakarta - Indonesia's economy would not be badly affected by the weekend blasts on the resort island of Bali, despite fears of damage to the tourism industry, the International Monetary Fund (IMF) and Indonesia's top economy minister said yesterday.
"We don't see a massive exodus of foreign tourists as yet, like what happened in 2002," said co-ordinating minister for economic affairs Aburizal Bakrie, referring to similar attacks on Bali's nightspots.
"Should the number of foreign tourist arrivals decline, [the drop] is unlikely to reach 25 percent."
Badrie said a 25 percent decline could cut the country's economic growth by between 0.25 and 0.3 percentage points. If arrivals dropped by half, it could cut growth by between 0.5 and 0.6 percentage points.
The government projects gross domestic product (GDP) growth of 6 percent this year. Tourism income contributes about 5 percent of GDP.
Despite the Bali tragedy and last week's fuel price hike, Bakrie was optimistic that growth this year could reach 5.9 percent.
The IMF's Asia and Pacific department director, David Burton, said the bombings were unlikely to have a significant effect on the Indonesian economy, using as a guide the 2002 attacks, which did not cause lasting damage.
However, national development planning minister Sri Mulyani Indrawati said at the weekend that the blasts would deal another blow to growth after the fuel price hike.
"If we are lucky I think we can still maintain [growth of] 5.7 percent or 5.9 percent by the end of 2005."
Meanwhile, Indonesia's rupiah erased its biggest slump in a month as the central bank said the currency should be "stable" after the bombings.
The currency earlier plunged as the government blamed a group linked to al Qaeda for the bombs.
The rupiah closed trade at 10 305 a dollar in Jakarta yesterday, compared with 10 290 on Friday, after falling as much as 1.6 percent to 10 451.
"The Bali bombing will have insignificant impact" on the rupiah, Aslim Tadjuddin, the central bank's deputy governor for monetary policy, said yesterday.
The rupiah slumped 3.8 percent on the first trading day after the bombing on October 12 2002.
Some investors may buy the rupiah on speculation that the increase in fuel prices will cap the cost of subsidies for the government and narrow the budget deficit. Indonesia almost tripled kerosene prices and more than doubled diesel tariffs.
Indonesia needs to reduce subsidies to keep the budget deficit within government estimates and maintain its debt ratings. On Sunday, Standard & Poor's trimmed the outlook on the country's B+ foreign currency debt to stable from positive.
The price increase will allow the government to keep its budget deficit at 24.9 trillion rupiah, or about 0.9 percent of GDP.
The rupiah last week completed a fourth quarter of losses, partly on concern that price increases would lead to street protests.
The unit may still decline on concern that tourists and investors will shun Indonesia after the bombings.
It might fall to 10 500 this week, said Osamu Takashima, the chief analyst of the foreign exchange and treasury division at Bank of Tokyo-Mitsubishi.
The rupiah slid 7.6 percent from June to September.
The possibility of purchases by the central bank might help the rupiah, said analysts such as Simon Flint, the head of emerging Asia currency strategy at Merrill Lynch Singapore. "The elevation in the dollar rupiah is going to be short lived," he said.
-From Sapa-AFP and Bloomberg
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