Bali bombings will help slow growth: Minister

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.