Wed, 06 Aug 2003

'Bomb set to rock newly revived economy'

Dadan Wijaksana, The Jakarta post, Jakarta

The deadly bomb blast at the JW Marriott Hotel in Jakarta on Tuesday will undoubtedly hurt confidence in the an economy that had just started to recover as nervous investors and tourists shun the country, experts said.

"Investors are shocked from the psychological point of view. The bombing will shatter the confidence of investors in the economy, which has just started to recover from the Bali attacks," Raden Pardede of the Danareksa Research Institute told The Jakarta Post.

The rupiah closed on Tuesday 2.1 percent lower against the U.S. dollar from the day before, while the Jakarta stock index lost even more ground to end the day at 3.1 percent lower than Monday's close.

"This had to happen just when we were experiencing a rise in indirect investment, such as in stocks and the bond market.

"I could see that there was also direct investment waiting to come here, but all this will be disrupted by the bombing," said Aburizal Bakrie, the chairman of the Indonesian Chambers of Commerce and Industry (Kadin).

The two agreed that the attacks had the potential to further slow down the pace of the country's economic recovery.

Analysts also said that the country's hard gained macroeconomic stability might be adversely affected by the bomb blast unless the authorities took serious measures to mitigate the impact.

Since the start of the year, sentiment in the country's macroeconomy had been improving, with the rupiah finally stabilizing, supported by capital inflows from foreigners seeking higher returns amid low global interest rates and weakening dollar assets.

In order to help minimize the impact, Raden called for a swift response from the government to provide some respite for shocked investors, and at the same time assure them of its commitment to cracking down on terrorism.

"Market players and investors are now waiting to see how the government will react to this," he said.

There are at least two things that the government could do to help mitigate the impact, Raden said: "One involves a security and legal approach, while the economical approach is the other."

The security approach meant that the government had to be able to show its seriousness in finding the culprits behind the attack while also making sure that such a bombing would not happen again.

"Tough gestures from, let's say, the President, would be helpful in rebuilding confidence," Raden said.

As for the economic approach, the government should make the most use of the current budget to provide a further stimulus for the economy to help it weather the effects of the blast.

Dradjad Wibowo, an economist with the Institute for the Development of Economics and Finance (Indef), was also of the opinion that the authorities could help lessen the impact.

Regarding the monetary authority, Dradjad stressed the importance of the central bank closely guarding the movement of the rupiah to avoid further panic selling or speculation.

Containing the rupiah within a relatively stable band, he said, would be crucial as it this would serve as a benchmark for the country's macroeconomics indicators.