Bombs, fuel could hurt rupiah and stocks
Bombs, fuel could hurt rupiah and stocks
Reuters, Jakarta
Indonesian stocks and the rupiah could suffer a double blow this
week after deadly bomb blasts on the island of Bali on Saturday
and higher-than-expected fuel price rises that came into effect
the same day, analysts said.
The coordinated blasts at restaurants in Indonesia's prime
tourist destination killed 25 people and wounded more than 100.
"This is one of the worst combinations ever," Purbaya Yudhi
Sadewa, an economist at Danareksa Research Institute, said,
referring to the bombs and fuel price increases.
"The decline might not be as steep as after the first Bali
bomb, but still it will be very hard on the market. Fundamentally
the rupiah could be pushed weaker due to higher expected
inflation and, sentiment-wise, it is being hammered by these
bombs," he added.
The almost simultaneous explosions in Bali came nearly three
years after militants linked to al Qaeda bombed nightclubs there,
killing 202 people, mostly foreign tourists.
The rupiah lost 3.2 percent in the first trading day after the
2002 bombings and the stock market plunged 10.4 percent.
The Indonesian government unveiled the huge increases in fuel
prices late on Friday.
The aim is to reduce state subsidies on domestic fuel and thus
bring down the government budget deficit, as well as to curb
demand for fuel imports to help the trade balance, which should
support the rupiah.
But, whatever the longer-term beneficial effects for the
economy, some analysts fear social unrest and higher inflation in
the short term.
"I would say this is (President Susilo Bambang Yudhoyono's)
biggest political gamble ... If there is no social unrest, then
he's done fiscally the most prudent thing, but if there is social
unrest, all that economic logic doesn't work," Standard Chartered
economist Fauzi Ichsan said.
The Jakarta Composite Index rose nearly three percent on
Friday, closing at 1,079.275, after protests ahead of the fuel
price rise proved relatively limited, but that was before the
size of the increase was known.
The rupiah gained more than one percent at one stage on Friday
to around 10,190 per dollar as worries about social unrest linked
to the fuel price rise eased, but it was last indicated around
10,300. It hit a four-week low of 10,450 on Thursday.
"We could have some correction. The rupiah would suffer more
than the stock market. But I think the government's move to
steeply raise fuel prices is actually very positive," said Winang
Budoyo, an analyst at Mandiri Sekuritas.
"If the police can deal with this quickly, as happened in the
Kuningan bombings, the market would recover soon," he added.
Around a year after the first Bali blast, a car bomb hit the
J.W. Marriott Hotel in Jakarta's diplomatic area of Kuningan and
a year after that a bomb in a van exploded at the gate of the
Australian Embassy, also in the Kuningan area.
Those events were followed relatively quickly by a series of
arrests.
The latest blasts are another blow to the tourist industry,
Bali's lifeblood, which has only recently recovered from the
devastating 2002 blasts.
Bali, 960 km (595 miles) east of Jakarta, has been packed with
tourists in recent weeks, including many young Australians.
Restaurants, hotels and shops were brimming with visitors in
similar numbers to pre-October 2002 levels.
Police have blamed Jemaah Islamiah, which intelligence experts
say is al Qaeda's Southeast Asian network, for a series of
attacks against Western targets in the world's most populous
Muslim nation, including the 2002 Bali blasts.