Bali bombings will help slow growth: Minister

The Jakarta Post, Jakarta

The economy -- already facing inflationary pressures from soaring oil prices -- may be further hurt by the latest bombings in Bali, according to a minister, who predicts they could cut 0.3 percent off national growth.

State Minister for National Development Planning Sri Mulyani Indrawati was quoted by AFP as saying on Sunday the bombings would hurt national growth, after the government more than doubled fuel prices over the weekend.

"I think the fourth quarter will be double-hit, because, first, we are increasing quite significantly the fuel price, which may increase inflation and to some extent reduce the potential growth we are expecting," she said at the sidelines of the World Islamic Economic Forum in Kuala Lumpur.

"With this Bali bomb, it will be reduced even more. If we are lucky, we can still maintain 5.7 or 5.9 (percent) by the end of 2005."

The government is forecasting a 6 percent GDP growth for the year, but Sri Mulyani had already predicted a slowdown to 5.8 percent amid rising oil prices and interest rates.

In an effort to keep inflation in check and break the rupiah's recent slide as surging oil prices eroded fiscal sustainability, the central bank has raised its key interest rates to 10 percent, pushing up commercial loan rates which in turn could hurt businesses.

Bali, with its white-sand beaches and rich cultural heritage, is Indonesia's main tourist spot, and Saturday's bombings may put the island's tourism sector back into a slump it once suffered after similar bombings occurred in 2002.

The Central Statistics Agency (BPS) data shows tourism contributes to some 6 percent of Indonesia's gross domestic product (GDP) and employs up to 8 percent of the total workforce.

The government expects to reap in US$6 billion from 6 million foreign tourist arrivals this year, up from $4.8 billion it managed to generate from 4.5 million overseas visitors last year.

While Sri Mulyani said the year's last quarter would be a "very hard one", she expected quick action by the government to deal with the bombings' aftermath would mean "normal growth in 2006."

She however said the bombings would likely undermine the government's efforts to attract investors, and set back the recovery of Bali's beleaguered tourist industry.

Standard Chartered economist Fauzi Ichsan said the tragedy would dent Indonesia's aim to sustain 15 percent investment growth this year.

"Investors are sure to question again the government's capabilities to provide security and legal certainty," he told The Jakarta Post on Sunday.

Tourism, Fauzi added, would also take a severe hit from the bombings, although its relatively small GDP contribution would mean a relatively slight impact on national growth.

Fauzi said the London-based bank had been considering slightly revising upwards its 5.5 percent GDP growth prediction for Indonesia, but would likely hold off for now, following the bombings and the fuel price hike.

Economist Kahlil Rowter of Mandiri Sekuritas, meanwhile, said the impact from the fuel price hike on the economy would still overshadow the bombs.

"Tourism's contribution to the economy is still small compared to (the influence of) consumption and investment. Even if the bombings affect investments, it would likely be to those in Bali, but not in other areas in the country," he said.

"The fuel price hike, meanwhile, has a larger potential to push up inflation, resulting in people cutting back their consumption."

Bank Mandiri currently estimates Indonesia's GDP will grow by 5.3 and 5.5 percent this year, but is now likely to revise it down to 5 percent.