Analysts cut GDP growth predictions after Bali terror

Analysts cut GDP growth predictions after Bali terror

The Jakarta Post, Jakarta

Economists revised downward this year's economic growth target
for Indonesia, predicting the Bali bomb blasts would squash
tourism revenue and investment spending for the remainder of this
year.

University of Indonesia economist Chatib Basri and economists
quoted by AFP had estimated a growth of below the government
targeted 4 percent even before the Bali terrorist strike.

"Our base growth prediction was 3.8 percent before the attack,
now we've cut it to about 3.6 percent," Chatib of the University
of Indonesia's Institute for Economic and Social Research said.

The tourism sector contributes about US$5 billion in foreign
exchange earnings, making it the largest non-oil and gas dollar
earner after the textile and garment industry.

Bali accounts for about one-third of all tourism earnings, but
now faces empty beaches and hotels in its November-December peak
season after more than 180 people, mainly foreign vacationers,
died in the weekend bomb blasts.

"I'd say the incident will chip off about 0.15 percentage
points from this year's GDP," Chatib said, referring to
Indonesia's gross domestic product, which measures the value of
services and goods produced in a year.

The Bali attack is also adding pressure to the rupiah and
deterring investors with security fears and higher risk premiums
for Indonesian assets.

A sluggish rupiah driving up inflation would weaken domestic
consumption, which at about 70 percent of GDP is the backbone of
Indonesia's economy, said Chatib.

Bank Indonesia intervention has helped reverse some of the
rupiah's losses from Monday, bringing the local unit up to 9,200
against the US dollar from 9,285 on Tuesday.

Analysts said Indonesia must secure an economic growth of at
least 5 percent to 6 percent to be able to cut unemployment and
poverty.

They have urged the government to come down hard on suspected
terrorists to help restore investor confidence and prevent the
impact of the Bali bombings from spilling over to next year.

An economist at state-run Bahana Securities, Budi Hikmat, has
revised downward his 2002 GDP growth forecast to 3.1 percent from
3.8 percent, on the assumption that private consumption in the
fourth quarter will be dampened.

GK Goh Stockbrokers economist Song Seng Wun said he was
downgrading his 2002 GDP growth forecast to between 3.1 percent
and 3.2 percent from 3.4 percent, and his 2003 forecast to 3.0
percent from 4.0 percent.

Meanwhile, Lehman Brothers said it had tentatively revised
downward its GDP growth forecast to 3.3 percent in 2002 and 4.0
percent in 2003, from 3.5 percent and 4.5 percent respectively.

It said the need to confront domestic terrorism represented
President Megawati Soekarnoputri's greatest challenge since
taking office last year.

"The need to confront domestic terrorism will further stretch
the Indonesian government's limited resources at a time when it
is already struggling with the mountain of reform challenges
stemming from the Asian crisis," it said in its latest report.

"Although we do not expect the fallout from the weekend
terrorist attack in Bali to completely derail Indonesia's
fledgling recovery, it is likely to dent growth, both this year
and next."

Economists said they did not expect any major changes to the
government's monetary policies, with the rupiah's fall following
the blast to be limited by central bank intervention.