Attacks further damage SE Asia investor confidence

Attacks further damage SE Asia investor confidence

Alan Yonan Jr., Dow Jones, Singapore

The deadly weekend bombings in Bali have dealt a major blow
not only to Indonesia's economy but to efforts across southeast
Asia to win back investor confidence after economic setbacks in
the past five years.

Businessmen and analysts worry that the massive car bomb which
tore apart a nightclub on the Indonesian resort island Saturday
night, killing at least 188 people and injuring hundreds more,
indicates Indonesia has become a base for international terrorism
with links to al-Qaeda.

If so, that could mean further such attacks in coming months,
not only in Indonesia but in the Philippines, which is fighting a
Muslim secessionist movement, or Malaysia and Singapore, which
have had to act against terrorist groups since last year's Sept.
11 attacks in the U.S.

"This just puts an exclamation point on the concept that
southeast Asia is a hotbed of international terrorism," said Dick
Baker, Indonesia specialist at the East-West Center in Honolulu.

Although nobody had claimed responsibility for the attacks by
Monday, the Bali bombings significantly expanded the violence in
Indonesia beyond previous attacks, which were carried out mainly
by separatist movements, Baker added.

"This has all the earmarks of an international terrorist
attack," he said.

If the idea of southeast Asia as a terrorist danger spot
becomes entrenched among U.S., European and Japanese investors,
analysts said, capital flows into southeast Asia will shrink
further, some institutions may pull long-term money out, and
trade and tourism could suffer serious damage.

"This comes at a very bad time for everyone," said Paul
Schymyck, regional economist at IDEAglobal in Singapore. "With a
possible double-dip recession coming in the U.S., this is the
last thing you need."

HSBC economist John Edwards said the uncertainty created by
the Bali bombings had probably eradicated any remaining chance of
Australia's central bank raising rates at its next board meeting
on Nov. 5. But he added that the central bank likely retained its
tightening bias, given economic factors such as Australia's
housing boom.

Fund manager William Pitman at Henderson Global Investors,
which has about US$2 billion invested in Asia, said it was too
soon to think there would be an exodus of foreign money from
southeast Asia.

"It really depends whether (terrorism) is perceived to be more
of an endemic problem, which it has probably not proved to be
yet," he said, adding that ultimately, economics would drive the
stock markets.

But the region's economies are vulnerable to any confidence
shock, analysts noted. Singapore last week reported growth in the
third quarter that was well below expectations. The Philippine
economy is coming under increasing pressure from its growing
budget deficit, and Malaysia's export sector is threatened by a
possible slowdown in the event of a U.S. invasion of Iraq.

Foreign companies, which are already directing a larger
portion of their overseas investment to China, may now have one
more reason to avoid southeast Asia.

"The bomb blasts illustrate the risks involved in many
countries in Asia, particularly southeast Asia," said Steve
Brice, chief economist at Standard Chartered Bank in Singapore.

The Bali attacks may reinforce the perception that China and
northeast Asian economies such as South Korea and Taiwan are
better placed in terms of their risk-return profile than
southeast Asia, he said.

Singapore, a traditional safe haven in Southeast Asia, "may
now appear more vulnerable", Brice added.

Song Seng Wun, regional economist at securities house G.K. Goh
in Singapore, said the Bali attacks were unlikely to have any
long-term impact on Asian economies unless they were followed by
more terrorist incidents.

But if there is a string of further attacks, there will be
negative implications across a range of commercial activities, in
tourism, the services sector, the travel industry and domestic
consumption, he said.

As it is, the Bali tragedy may mean an expected lift in
regional economies in the fourth quarter of this year could be
less than originally expected, even though economic indicators
will have support from their low bases during the post-Sept. 11
period last year.