Aceh urgently needs alternative economy: World Bank

Aceh urgently needs alternative economy: World Bank

Fayen Wong, Reuters/Singapore

Reconstruction and aid cash pouring into Indonesia's tsunami-hit Aceh province could put livelihoods at risk once the money dries up unless the economy is strengthened, a World Bank official said on Thursday.

The Dec. 26 quake and tsunami killed or left missing about 170,000 people, left half a million homeless and shaved 20 percent off Aceh's economy, said Scott Guggenheim, lead social development specialist at the World Bank in Indonesia.

"The immediate need for short-term aid in the wake of the tsunami is quickly shifting to the need for help with reconstruction and long-term economic recovery," Guggenheim told reporters during a two-day seminar in Singapore called the Singapore Humanitarian Conference.

The province's unemployment rate is 27 percent and economic stagnation will likely push 600,000 people below the poverty line of daily earnings below US$1 within the next 6 to 18 months.

"Foreign investment is also a very important part of the process. It will help to develop local capacities, engage the Acehnese and sustain the economy," he said.

The flow of international aid workers, along with supply and distribution constraints have sent food, housing and transportation prices soaring.

World Bank data showed Aceh's annual inflation rate to be running at a high of 17 percent, compared with the average 7 percent in other parts of Indonesia.

"Another downside risk to the economy is that it is facing the 'Dutch disease'," said Guggenheim.

"The Dutch disease means you get inflationary bubbles which suddenly collapse. That might happen in Aceh and create a huge shock for the local economy which will take a long time to recover from," he warned.

Huge amounts of aid streaming into Aceh through non- governmental organizations have created an artificial economy in the province, which until the recent signing of a peace agreement, had been saddled with a three-decade conflict.

"It is essential that the local government anticipates this (inflation) and take this into the planning process of economic reconstruction," he said at the conference, where regional non- governmental organizations shared their experiences on providing aid in Aceh.

A crucial part of that process is preparing for the day when oil reserves run dry.

"Aceh is facing a huge decline in it major export -- which is oil. An ExxonMobil study now shows that by 2011 they won't have anymore oil so it's very important that they generate alternative sources of income," Guggenheim said.

Oil and gas production dominates Aceh's gross domestic product at 43 percent.

"The province's growth prospects will heavily depend on resuscitating the non-oil and gas industry," he said.

Guggenheim said Aceh's economic future lies in looking toward its northern neighbors for economic integration.

"Apart from looking at reintegrating into areas like Sumatra, another way is that they can look north, into Malaysia, Singapore, Japan and the rest of the region," he said.

The local government could build basic port facilities which would enable Acehnese to export agricultural or fisheries products, such as rice and shrimps, to regional countries and expand its non-oil industry, Guggenheim said.

Still, the overarching concern was for the government to put in place a stable regulatory framework to boost investors' confidence.

"The rules of the game are still sketchy and changing too often. No one really knows who to go to or what to expect," Guggenheim said.