Economic fallout of Aceh war will spread

Economic fallout of Aceh war will spread

Martin P.H. Panggabean, Visiting Researcher,
Institute of Southeast Asian, StudiesThe Straits Times,
Asia News Network, Singapore

It shouldn't just be the people of Aceh who are concerned that
last- minute peace negotiations have failed in Tokyo, and that
war is now imminent. People in neighboring Sumatran provinces, as
well as those in countries such as Singapore, Malaysia and
Thailand should be concerned too.

What the people of this region need least at this time is
another source of economic uncertainty. The region has been
battered by bad news since September 2001.

There are those who think Aceh is too small and insignificant
for war there to matter much. After all, they argue, the
province's contribution to Indonesia's gross domestic product has
continued to dwindle, from 3.6 percent in 1990 to only 2.2
percent in 2001 (the year for which the latest provincial data is
available).

The only time Aceh appeared in the news in the context of an
important economic story was in relation to its gas field in
Arun/Lhok Semauwe. These oil/gas fields are operated jointly by
Indonesian government-owned Pertamina, Exxon-Mobil and Jilco, a
Japanese company.

Even in the oil and gas business, Aceh's contribution to
Indonesia's GDP has continued to decline, from 13 percent in 1990
to only 5 percent in 2001, partly due to the substantial
depletion of its gas reserves after years of exploration.

Aceh's contributions in other economic sectors have also been
minimal. Agriculture contributed to only 3.6 percent of the
nation's 2001 agricultural output, while manufacturing's share
contracted from 4.2 percent in 1990 to only 1.8 percent in 2001.
Other sectors exhibit the same tendency.

Given these statistics, it is easy to ignore Aceh.

But war in Aceh will have regional economic implications,
through Aceh's interaction with other provinces, both directly
and indirectly. Those provinces may, in turn, have commercial
linkages with Indonesia's neighboring countries.

A protracted war in Aceh will disrupt production activities
there. Given Aceh's status as a supplier of primary products to
other regions, a production disruption will, first and foremost,
hurt the Aceh economy itself. Some studies show the estimated
impact to be a 14 percent decline in output.

By making it difficult for Aceh businesses to maintain their
production schedules, the war will also hamper the province's
ability to supply raw materials to other regions. My estimates
show that the entire island of Sumatra, outside Aceh, can be
expected to suffer an output contraction of almost 11 percent,
with the brunt borne by South Sumatra (6.7 percent), followed by
North Sumatra (1.3 percent) and Riau (1.1 percent).

The combined provinces in Java will have their output reduced
by 0.6 percent as a result of Aceh's inability to supply raw
materials, while the rest of Indonesia will feel only minor
economic effects.

The biggest economic impact of the impending Aceh war will be
through the disruption of oil and gas delivered from Aceh. This
implies that if the war cannot be avoided, the next best thing
that the Indonesian government can do to minimize the economic
impact would be to secure the oil and gas fields around Aceh and
the shipping routes.

But even if the oil and gas fields are secured, the economic
impact of the war on other regions cannot be completely
eliminated.

For the Indonesian government, there are clear economic
incentives to settle the Aceh situation peacefully. A peaceful
solution will put less pressure on the already-strained state
budget, and will indirectly help the country's image in the eyes
of foreign investors.

But war or no war, it is imperative for the Indonesian
government to implement a new economic development paradigm in
Aceh. Economic mishandling has turned a once-rich province into
one of the poorest and slowest-growing. Its people are suspicious
of foreign influence. Such a vicious circle of poverty and
suspicion must be eliminated if the welfare of the people is to
be increased. This, of course, is also in the best interests of
neighboring countries along the Malacca Straits.

The economic well-being of the Acehnese is best represented by
those who speak and act in peace. Unfortunately, this message
gets lost at the negotiating table.