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.