July 18 (Bloomberg) -- Indonesiaâ€™s economy is resilient enough to withstand yesterdayâ€™s bomb attacks on the Ritz Carlton and JW Marriott hotels in Jakarta, economists said.
â€śTerrorist threats in Indonesia are nothing new,â€ť said Johanna Chua, head of Asian economic research at Citigroup Inc. in Hong Kong. â€śThe economic impact will likely be limited.â€ť
A decade of continuous expansion in Indonesia hasnâ€™t been interrupted by six major terrorist bombings since October 2002 as the assaults have done little to harm consumer spending, which accounts for almost two-thirds of the economy. Fitch Ratings said an â€śisolated incidentâ€ť wouldnâ€™t impact the nationâ€™s credit outlook.
â€śAs tragic as it is, this isnâ€™t a macro-policy-changing event,â€ť Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney, said of yesterdayâ€™s attacks. â€śI think itâ€™s got a short-term impact.â€ť
Indonesiaâ€™s $433 billion economy, the largest in Southeast Asia, grew 4.4 percent in the first quarter from a year earlier, compared with a 6.2 percent contraction for Malaysia and Thailandâ€™s 7.1 percent slump.
Growth could accelerate to â€śsignificantlyâ€ť more than 7 percent if President Susilo Bambang Yudhoyono fulfils his pledge to fix the nationâ€™s congested roads, neglected ports and ageing power plants, according to Joachim von Amsberg, the World Bankâ€™s representative in Jakarta.
The rupiah declined the most in three weeks and stocks dropped after the bombings in the nationâ€™s capital, which killed eight people and injured at least 53 others. The currency slid as much as 1 percent to 10,223 per dollar and the Jakarta Composite Index of shares slumped as much as 2.7 percent.
The bombings in Jakarta donâ€™t represent a credit risk for Indonesia, said James McCormack, head of Asian sovereign ratings at Fitch Ratings in Hong Kong. The nation had foreign-currency reserves of $57.6 billion at the end of June, near the highest since July 2008.
â€śObviously if this episode were repeated then it becomes a national-security concern,â€ť McCormack said in an interview with Bloomberg Television. â€śBut weâ€™re not there yet.â€ť
Indonesia went ahead yesterday with a 35 billion yen ($374 million) sale of 10-year samurai bonds after the bombing. The sale is the first by a nation to tap Japanese investors since Lehman Brothers Holdings Inc. collapsed in September.
â€śWe do not see any major economic shock as a result of these blasts,â€ť said Helmi Arman, an economist at PT Bank Danamon Indonesia in Jakarta. â€śThe country has lived out numerous other terror attacks in the past five years.â€ť
Accor SA, Europeâ€™s biggest hotelier and operator of 37 hotels in Indonesia, said it will push through with plans to develop 15 locations in the country.
The Paris-based company, which has 11 hotels in Jakarta, â€śremains committed to Indonesia,â€ť Gerard Guillouet, vice president for Accor operations in Malaysia, Indonesia and Singapore, said in an e-mailed statement.
â€śGlobal factors are still in favor of Indonesia,â€ť said Fauzi Ichsan, senior economist at Standard Chartered Plc in Jakarta. The economy is â€śfundamentally strong,â€ť he said.
Indonesiaâ€™s economy slowed in the months following the October 2002 bombing in Bali, which killed 202 people. Growth eased to 4.75 percent in the quarter ended December 2002 from 5.2 percent in the previous three months, as tourism revenue for the year dropped 20 percent to $4.3 billion from 2001.
The pace of expansion also weakened in the wake of the August 2003 assault on the JW Marriott hotel in Jakarta and the second Bali bombing in October 2005, which saw a halving in the number of tourist arrivals on the island.
â€śWhile tourism and general retail and travel-related activities could be affected by the latest events, we expect the impact to be temporary,â€ť said Citigroupâ€™s Chua.
Indonesiaâ€™s economy has also benefited in recent years from a more stable political environment and the success of government efforts to crack down on extremists. President Yudhoyono earlier this month was re-elected for a second term.
â€śThere has been a lot of progress made in Indonesia on the terrorist front,â€ť said Stephen Vickers, chief executive of Hong Kong-based FTI International Risk Ltd. â€śThey managed to get completely through the elections without any major incidents.â€ť
Economic growth may still weaken if yesterdayâ€™s bombing is the start of a new campaign by Jemaah Islamiyah, a Southeast Asian militant group with links to al Qaeda.
â€śSmaller, nastier, grittier bombings involving smaller numbers of people are quite likely,â€ť said Vickers. â€śThere are likely to be some more low-intensity, low-scale attacks in the coming weeks.â€ť