Economy at risk after Bali horror
Economy at risk after Bali horror
Berni K. Moestafa
The Jakarta Post
Jakarta
Economists feared a panic sell-off of rupiah and stocks and an
overall weakening of the economy following the deadliest
terrorist strike this country has ever seen, in a reaction that
could stoke inflation and capital flight as the economy braces
for new instability.
Coordinating Minister for the Economy Dorodjotun Kuntjoro-
Jakti would meet businessmen Monday to brief them about the
government's possible response to the apparent terror, said a
press statement by Dorodjatun's office.
Saturday's bombings killed at least 187 people in a crowded
tourist area of Bali. The popular island was long viewed as a
safe heaven, exempt from the numerous armed conflicts across the
country, including bomb blasts and unruly protests in Jakarta.
"The first reaction will be a run on the U.S. dollar," said
Bank Mandiri chief economist Martin Panggabean on Sunday, which
would weaken the rupiah.
A steep fall in the rupiah would add to inflationary pressures
and might prompt Bank Indonesia to raise its benchmark rates. "If
it (the rupiah) starts to drive interest rates up then there is a
risk to the overall economy," Martin said.
The explosion has stirred new concern over Indonesia's fragile
crawl up from the impacts of the 1997 economic crisis.
Investment continues to fall but the rupiah's relative
stability this year has driven Bank Indonesia's rates down and
made bank loans more affordable. A jump in the central bank's
rates would choke off lending and drag down interest payments on
government and private debts, pulling money away from much needed
investments to drive the economy.
"I think the central bank will stop cutting its rates for the
moment and might even start raising them again," Martin said.
The rupiah has been hovering at around 9,000 to the dollar
over the past few weeks. Yet the stock market has already been
under selling pressure since September, led by a downturn in Wall
Street. Last week the Jakarta Stock Exchange Composite index lost
a hefty 7 percent to end trading at 376.46.
Analysts commenting on the blast in Bali now predicted panic
selling on the money and stock market when trading opens Monday.
According to Martin, the damage to the economy would be
manageable if the rupiah fell to no further than 9,500. Anything
below that, however could cast start eating into economic growth
well into 2003.
University of Gadjah Mada economist Sri Adiningsih admitted
that the investment climate would take a big hit. "We might see
even weaker exports and foreign direct investment."
Overseas buyers could cancel orders from Indonesia and place
new ones elsewhere, she added.
"How bad the impact will be on our economy depends on how
effectively the government deals with the terrorism threat," she
said.
Martin, however, said that cracking down on suspected
terrorists would do little to halt the loss of capital.
"Capital is pouring out of Indonesia, with or without
terrorists here, it has been this way for the past five years,"
he said, citing corruption and legal uncertainties as the main
reasons why investors had been leaving the country in droves
since 1997.
Chairman of the National Economic Recovery Committee Sofyan
Wanandi warned the government that the Bali terrorist strike
could squash what little was left of investor confidence here.
"I am to meet 300 Singaporean businessmen tomorrow (Monday)
who are mulling investments here, and on Wednesday a Swedish
business delegation," said an emotional Sofyan. "What am I going
to tell them?"
He said several local and foreign businessmen called him up.
"The foreigners talked about leaving, and the local investors
said they would not make any new investments with security like
this ... this is bad," Sofyan mumbled.