Aceh tsunami only slightly affects economy

Aceh tsunami only slightly affects economy

Phelim Kyne, Dow Jones, Jakarta

Indonesia's economy won't suffer much from the impact of the
earthquake and tsunami that devastated northwestern Aceh
province, a Deutsche Bank AG (DB) senior economist said on
Wednesday.

Aceh generates only a small fraction of Indonesia's gross
domestic product, while reconstruction loans, donations and debt
relief will cushion the economic fallout of the Dec. 26 disaster,
said Michael Spencer, the bank's chief economist for Asia.

"Aceh province as a whole accounted for 1.6% of GDP, and the
economic impact in terms of GDP growth particularly will be very
small since reconstruction will provide a burst of activity in
construction and other services," Spencer told Dow Jones
Newswires.

Spencer spoke on the sidelines of the official release of the
Indonesia section of Deutsche Bank's Asia 2005 Outlook. His
comments echo the assessments of other analysts who note that
Aceh's key industrial sector, liquid natural gas production
facilities such as those of Exxon Mobil Corp. (XOM), weren't
harmed by the tsunami.

Conversely, domestic cement and heavy equipment producers,
including Semen Gresik (SMGR.JK) and Komatsu Indonesia (KOMI.JK),
and will reap a windfall in new business from Aceh reconstruction
efforts, analysts predict. Domestic life insurers are also
expecting an uptick in policy sales from an Indonesian public
more mindful of the need for protection from unpredictable risks.

Indonesia's total tsunami-related economic damage and losses
are estimated at US$4.5 billion, Sri Mulyani Indrawati, state
minister of national development planning, told international
lenders on Wednesday. That represents 2.3 percent of Indonesia's
GDP and 97 percent of Aceh's annual economic output.

But Jakarta insists international relief and reconstruction
aid will allow the government to achieve a pre-tsunami projection
of 5.5 percent economic growth this year. That would be an
acceleration from estimated 4.8 percent growth in 2004. Foreign
governments and multilateral lenders have already pledged about
$5 billion to Indonesia and other tsunami-affected countries,
including Thailand, Sri Lanka and the Maldives.

Some analysts have warned of the possibility that Indonesia
might get unintentionally hurt by aid from creditor governments
if they suspended debt payments but attached conditions, such as
requiring Indonesia to negotiate similar terms with private
creditors. Such "comparability" conditions could hurt Indonesia's
credit rating and make it harder for Jakarta to borrow money.

But Spencer said it's unlikely that planned debt relief for
tsunami-hit nations by the Paris Club of donor countries will
impose such counterproductive conditions.

"I think the most likely thing is the Paris Club will allow
the Indonesian government to negotiate bilaterally so there's no
risk that it triggers" comparability, Spencer said. "The
Indonesia government has made it clear that if (comparability)
conditions are part of the offer, they aren't interested. And
that's the right approach to make."

An infrastructure investment summit in Jakarta this week gave
the government "a tremendous opportunity" to rejuvenate flagging
private and foreign investor interest in the country, Spencer
said.

Approved foreign direct investment in Indonesia fell 26% last
year as investors headed for the exits due to a combination of
perceived rampant corruption, poor infrastructure and an
unpredictable judiciary.

At the summit the government unveiled 91 infrastructure
investment projects in areas ranging from toll roads to
telecommunications valued at around $22 billion.