Bali attack puts fragile economy at risk<\/p>\n
Berni K. Moestafa, The Jakarta Post, Jakarta<\/p>\n
Economists feared an overall weakening of the economy
\nfollowing the deadliest terrorist strike this country has ever
\nseen.<\/p>\n
They warned of bearish markets in a reaction that could stoke
\ninflation and capital flight as the country braced for new
\ninstability.<\/p>\n
Coordinating Minister for the Economy Dorodjatun Kuntjoro-
\nJakti would meet businessmen Monday to brief them about the
\ngovernment's planned response to the apparent terror, said a
\npress statement by Dorodjatun's office.<\/p>\n
Saturday's bombings killed at least 182 people in a crowded
\ntourist area of Bali. The popular island was long viewed as a
\nsafe heaven, exempt from the numerous armed conflicts across the
\ncountry, including bomb blasts and unruly protests in Jakarta.<\/p>\n
\"The first reaction will be a run on the U.S. dollar,\" said
\nBank Mandiri chief economist Martin Panggabean on Sunday.<\/p>\n
A steep fall in the rupiah would add to inflationary pressures
\nand might prompt Bank Indonesia to raise its benchmark rates. \"If
\nit (the rupiah) starts to drive interest rates up then there is a
\nrisk to the overall economy,\" Martin said.<\/p>\n
The explosion has stirred new concern over Indonesia's fragile
\ncrawl up from the impacts of the 1997 economic crisis.<\/p>\n
Investment continues to fall but the rupiah's relative
\nstability this year has driven Bank Indonesia's rates down and
\nmade bank loans more affordable. A jump in the central bank's
\nrates would choke off lending and raise interest payments on
\ngovernment and private debts, pulling money away from much needed
\ninvestments to drive the economy.<\/p>\n
\"I think the central bank will stop cutting its rates for the
\nmoment and might even start raising them again,\" Martin said.<\/p>\n
The rupiah has been hovering at around 9,000 to the dollar
\nover the past few weeks. Yet the stock market has already been
\nunder selling pressure since September, led by a downturn in Wall
\nStreet. Last week the Jakarta Stock Exchange Composite index lost
\na hefty 7 percent to end trading at 376.46.<\/p>\n
Analysts commenting on the blast in Bali now predicted panic
\nselling on the money and stock market when trading opens Monday.<\/p>\n
According to Martin, the damage to the economy however would
\nbe manageable if the rupiah fell to no further than 9,500.<\/p>\n
University of Gadjah Mada economist Sri Adiningsih said the
\ninvestment climate would take a big hit. \"We might see weaker
\nexports and foreign direct investment.\"<\/p>\n
Overseas buyers could cancel orders from Indonesia and place
\nnew ones elsewhere, she added.<\/p>\n
\"How bad the impact will be on our economy depends on how
\neffectively the government deals with the terrorism threat,\" she
\nsaid.<\/p>\n
Martin, however, said that cracking down on suspected
\nterrorists would do little to halt the loss of capital.<\/p>\n
\"Capital is pouring out of Indonesia, with or without
\nterrorists here, it has been this way for the past five years,\"
\nhe said, citing corruption and legal uncertainties as the main
\nreasons why investors had been leaving the country in droves
\nsince 1997.<\/p>\n
Chairman of the National Economic Recovery Committee Sofyan
\nWanandi warned the government that the Bali terrorist strike
\ncould squash what little was left of investor confidence here.<\/p>\n
\"I am to meet 300 Singaporean businessmen tomorrow (Monday)
\nwho are mulling investments here, and on Wednesday a Swedish
\nbusiness delegation,\" said an emotional Sofyan. \"What am I going
\nto tell them?\"<\/p>\n
He said several local and foreign businessmen called him up,
\nand \"the foreigners talked about leaving, and the local investors
\nsaid they would not make any new investments with security like
\nthis... this is bad,\" Sofyan mumbled.<\/p>",
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