Economy bombed out

Economy bombed out

The bomb terror in Bali will certainly have a devastating
effect on the local economy, which depends largely on tourism,
and will cause even wider disruption to the fragile Indonesian
economy.

The bomb attack would abort the process of economic recovery
which had just started on the back of the strengthening
macroeconomic and political stability, destroying whatever little
confidence the market still had in the economy, currently in the
fifth consecutive year of its crisis.

The immediate impact certainly would fall on Bali, hitherto
dubbed the island of gods, which had previously been spared from
the spate of ethnic and religious violence and bomb attacks
raging in various parts of the country since 1998.

Almost 1.4 million foreign tourists entered Bali directly
through Denpasar's international airport last year and quite a
portion of the 3.7 million other foreign tourists who flew in
through other Indonesian gateways also proceeded to the island.

Obviously, the bomb terror would force many tourists to cancel
trips to Bali. In fact quite a number of those already staying in
Bali have decided to cut short their visits, inflicting
devastating impact on the business of hotels, airlines,
restaurants and handicraft shops.

Numerous suppliers to hotels and other tourism-related
businesses such as transportation and food producers would suffer
as well. Further down the line, worker layoffs would follow and
the cash-strapped local administration would have to retrench on
spending due to anticipated smaller tax receipts.

Certainly the damage would not be limited to Bali. The
newspaper headlines around the world about the horror, the
splashing display of pictures of burnt bodies would build up an
international perception of Indonesia being an unsafe place to
visit, a target and bastion of terrorists.

And given the large number of fatalities, most of them were
foreign travelers, it would take more than one year for the
country's tourism industry to recover from the trauma.

That is quite saddening indeed because Indonesia is supposed
to be a paradise for foreign tourists now that its currency
(rupiah) is still more than 70 percent cheaper against the dollar
compared to mid-1997 before the economic crisis struck the
country.

Moreover, tourism, besides being labor intensive and resource-
based, is an industry with multiplier virtuous impact on other
activities that the crisis-ridden economy badly needs to help
sustain its recovery process.

Further down the line, the tourism crunch would further worsen
the service accounts of the balance of payments. The deficit of
the service accounts would likely be much higher than the US$16.8
billion estimated for this year and $17 billion projected for
2003.

This in turn would threaten the current account of the
external balance. Imports might have to decrease to prevent a
widening current account deficit, but a curb on imports would
kill the export-oriented manufacturing industry that depends
mainly on imported inputs, parts and components.

Yet still more worrisome is the damage the international
perception of Indonesia being a target of terrorists would
inflict on foreign investor sentiment in the country.

Many foreign portfolio investors, who had of late fueled a
mild recovery on the Jakarta stock market, would, at least for
the time being, delete Indonesia from their computer screens.
This would also adversely affect asset sales by the Indonesian
Bank Restructuring Agency and privatization programs that are
badly needed for fiscal sustainability and corporate
restructuring.

Had it not been for the bomb terror, the strengthening
macroeconomic and political stability since early this year would
have been a momentum for the economy to gain a stronger recovery,
building stronger foundations to weather the anticipated
political turbulence in the run up to the general elections in
2004.

But the momentum seemed to have been destroyed now.

However, the damage could still be contained and the healing
(confidence-rebuilding) process could be speeded up if the
government, including the legislative and judicial branches,
become more united now to save the economy from plunging into an
abyss.

It is precisely in this time of crisis that the three branches
of the government need to strengthen cooperation and demonstrate
stronger resoluteness in pushing ahead with the reform measures
to improve political stability, security and law enforcement and
build market confidence in the economy.

It is completely futile and even self-damaging for officials
or politicians to resort to blaming foreign parties for our
problems, let alone bashing the International Monetary Fund (IMF)
and other foreign creditors.

The credibility of the government is now so low that the whole
country, the entire nation, urgently needs international
understanding and cooperation to get us out of the current multi-
dimensional crisis.