No panic reaction<\/p>\n
Although the financial market in Jakarta did not panic after
\nThursday's bomb attack near the Australian embassy compound, it
\nis no longer business as usual in so far as the market's
\nperception of Indonesia's country risk is concerned.<\/p>\n
The huge terrorist attack, the third in the past three years,
\ncertainly increased the degree of concern about security and
\nsafety affairs -- the No. 1 enemy for investors and tourists.<\/p>\n
Stocks on the Jakarta Stock Exchange (JSX) did tumble more
\nthan 4 percent on the news of the mid-morning bomb blast but
\nrecovered quickly in afternoon trading so that the JSX price
\nindex was down only a mere 0.8 percent to end that day at 782.65.<\/p>\n
Likewise, the rupiah weakened 1.2 percent against the dollar
\nimmediately after the attack but rebounded later to regain most
\nof its loss to close at Rp 9,300. The financial market also
\nremained firm on Friday.<\/p>\n
Businesses in the country have indeed been operating under
\ncontinued fear and warnings of terrorist attacks, especially
\nafter the first devastating bombs in Bali in October, 2002. But
\nthe financial market seemed already capable of distinguishing an
\nisolated incident from deep-rooted trend that could damage the
\nfundamentals of the economy. Whether this perception would
\nsustain or turn into heightened fears depends on the speed and
\ncredibility with which the government can resolve these terrorist
\nthreats.<\/p>\n
However insignificant the initial impact of the bomb attack
\nseems to be, the blast will certainly slow down the process of
\nregaining investor confidence. If before last week's terrorist
\nattack, it was mainly the political risks related to the
\npresidential election that stood in the way of capital inflows,
\nthe causes of uncertainty have now increased to include high
\nsecurity risks.<\/p>\n
The financial market is most vulnerable to uncertainty as
\nportfolio investors can easily shift their investment from one
\nplace to another. True, volatility is the natural character of a
\nfinancial market, but too-high fluctuations make sensible
\nbusiness-risk calculations almost impossible.<\/p>\n
Moreover, due to its huge foreign and domestic debt burdens,
\nthe state budget is also highly vulnerable to the movements in
\nthe currency and interest rates. The government has estimated
\nthat every Rp 100 depreciation of the rupiah rate against the
\nU.S. dollar will immediately add Rp 9.70 billion to its foreign
\ndebt-servicing burdens.<\/p>\n
Yet more damaging is that a weakening rupiah always increases
\ninflationary pressures (imported inflation) as the costs of
\nimports accordingly become higher and this in turn will require
\nthe central bank to tighten its money policy by raising interest
\nrates to control inflation.<\/p>\n
The problem though, is that higher interest rates will
\nimmediately increase the interest charges on government bonds.
\nThe finance ministry has estimated that every single percentage
\npoint rise in the central bank's benchmark interest rate will add
\nalmost Rp 2.3 trillion (US$247 million) to the domestic debt-
\nservicing burden.<\/p>\n
Tourism is another sector that could immediately get a severe
\nhit. The growth of tourist arrivals, which reached as high as 31
\npercent in the first seven months of this year, may slow down,
\ncutting into the revenues of airlines, hotels, restaurants,
\nsouvenir shops and other related businesses such as suppliers of
\nfood and water and land transport services.<\/p>\n
Insurance premiums on doing business in and with Indonesia
\nwill also rise. Worse still, heightened fears of security
\ndisturbances may prompt buyers overseas to divert orders from
\nIndonesia to other countries out of concerns about delivery.
\nFurther down the line, sharp drops in exports would adversely
\naffect the balance of payment conditions and consequently
\nincrease downward pressures on the rupiah.<\/p>\n
These ominous signs are quite saddening indeed because the
\npace of Indonesia's economic recovery was poised to increase
\nafter the presidential election.<\/p>\n
However, the damage could still be contained and the healing
\n(confidence-rebuilding) process could be speeded up if the latest
\nbomb attack can be resolved quickly and credibly -- meaning that
\nthose masterminding the attack are caught -- and the presidential
\nelection on Monday runs smoothly and fairly. Anything less would
\nabort the economic recovery and could lead the country into an
\neven worse crisis.<\/p>\n
------------<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/no-panic-reaction-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }