Only a panic reaction<\/p>\n
The financial market predictably reacted quite negatively to
\nthe terrorist bomb attack at the J.W. Marriott hotel here on
\nTuesday, as evidenced by the 3.1 percent decline in the Jakarta
\nstock exchange main index and the 2.1 percent depreciation of the
\nrupiah.<\/p>\n
However, the negative sentiment seemed short-lived, reflecting
\nmore a panic reaction rather than a great concern over the
\neconomic fundamentals, as the market immediately began to
\nrebound, though slightly, on Wednesday.<\/p>\n
This development once again demonstrates the strength and
\nresilience of macroeconomic stability. A similar trend took place
\nin the aftermath of the October, 2002 terrorist bomb attack in
\nBali, proving that the market has been more rational, more able
\nto distinguish the main factors that influence economic
\nfundamentals from developments that could turn out to be only
\nisolated incidents.<\/p>\n
Senior economic officials and analysts also share the same
\nview that the blast at the Jakarta business hotel would not
\nsignificantly affect the market perception of the economic
\noutlook for the rest of the year.<\/p>\n
This optimism, however, is heavily qualified, as it assumes
\nthat a similarly devastating bomb attack will not occur in
\nanother public place in the near future and that the police will
\nsoon be able to solve the Marriott bombing case.<\/p>\n
Certainly, the impact of Tuesday's terrorist bombing should
\nnot be exaggerated. But complacency and a laid-back attitude,
\nexpecting that things would automatically become normal again, is
\nnot well advised either.<\/p>\n
However short-lived the market panic seemed to be, the
\nMarriott bombing surely added a new negative factor to
\nIndonesia's overall outlook. The bomb blast in the heart of
\nJakarta heightened security concerns, thereby increasing
\nIndonesia's country risks.<\/p>\n
This in turn will raise the costs of Indonesian borrowing from
\nthe international market at a time when the government and an
\nincreasing number of private and state companies are planning to
\nfloat foreign-currency debt instruments.<\/p>\n
The bitter fact that even such a prestigious business hotel as
\nJ.W. Marriott, which is well known for its elaborate security
\nsystem, turned out to be highly vulnerable to a terrorist bomb
\nattack, is making foreign visitors more jittery about Indonesia's
\nsecurity situation.<\/p>\n
This concern would not only further dampen whatever little
\nconfidence foreign investors still have in the country but could
\nprompt existing investors to put on hold any business plans,
\nespecially in connection with the political turbulence and high
\nemotions the nation will likely face during the 2004 election.<\/p>\n
Whether the financial market will regain the losses incurred
\nby the bomb attack and soon return to the path of robust recovery
\nfor the rest of the year will depend on new positive factors the
\ngovernment could create within the next few weeks.<\/p>\n
A quick investigation and solving of the incident and the
\nestablishment of effective security precautions at public places
\nare surely positive factors that could accelerate the recovery
\nprocess.<\/p>\n
Timely and adequate intervention by Bank Indonesia into the
\nforeign exchange market could arrest speculative attacks on the
\nrupiah and prevent a negative self-fulfilling prophesy about the
\ncountry's economic condition.<\/p>\n
A credible verdict for the first defendant in the Bali bombing
\nscheduled to be meted out on Thursday also would help increase
\npublic confidence in the government's ability to handle
\nterrorists.<\/p>\n
The restoration of confidence would be accelerated if the 2004
\ndraft budget the government will propose to the House of
\nRepresentatives on Aug. 15 is perceived by the market as
\nrealistic, especially with regard to the assumptions to be taken
\nfor fiscal sustainability. The market sentiment would be more
\nbullish if the new reform agenda, which will be unveiled next
\nweek to replace the reform program with the International
\nMonetary Fund next year, is highly credible.<\/p>\n
The confidence-building process will be faster if the current
\nreview by the IMF of Indonesia's policy performance for the third
\nquarter concludes with a positive endorsement.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/only-a-panic-reaction-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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