IMF calls Bali blasts another 'terror tax' on economy

IMF calls Bali blasts another 'terror tax' on economy

Alan Wheatley, Reuters, Singapore

Deadly attacks like the weekend's bomb blasts in Bali are akin
to a "terror tax" on a global economy that is already facing a
raft of risks, the International Monetary Fund (IMF) said on
Tuesday.

Kenneth Rogoff, chief economist at the Washington-based IMF,
said the bombings on the Indonesian island clearly dealt a blow
to Asia's economy but it was highly speculative at best to judge
how serious it would be.

"It's plausible that the economic effects on growth next year
in the region will be limited, but that outcome is of course
sensitive to how the security situation evolves, how policy
responds and above all what the effects are on business and
consumer confidence, domestically and in the rest of the world,"
Rogoff told a news conference.

But by raising costs for insurance, security and protection,
Rogoff said attacks like those in Bali and those on the United
States on Sept. 11, 2001, at the very least blunted the benefits
of positive trends in productivity and technology.

"One can think of there being a terror tax on the global
economy," Rogoff said.

As with the attacks on the United States and the earthquake
that devastated the Japanese city of Kobe in 1995, he said the
direct economic consequences of the Bali blasts, which killed
more than 180 people, could be fairly narrow and short-lived.

Indonesia had a broad economic base and had made notable
progress on a number of policy fronts recently. But all would
depend on the secondary impact on confidence.

"Economic analysis is ill-equipped to come to grips with the
human tragedy of terrorist attacks where consequences for our
sense of safety, our sense of well-being, go infinitely beyond
anything that can be captured in numbers," Rogoff said.

"Overall, recognising the great uncertainty and also that this
comes at a time when the global recovery is tepid, with many
risks on the downside, the appropriate policy response is to
remain calm," he added.

Rogoff said he was cautiously optimistic about the world
economy but placed the emphasis on caution rather than optimism.

The outlook for Latin America had seriously deteriorated in
recent months, while Asia faced substantial risks, not least
because of the prospect of a subdued recovery in the industrial
countries that are the main buyers of the region's exports.

In the United States, Rogoff said investors' extreme
reluctance to take risks meant a further decline on Wall Street
could not be excluded, even though price-earnings ratios were now
in line with the average of the past 15 years.

Domestic demand in the euro zone was growing much less than
gross domestic product, underscoring the need for sweeping labour
market and other structural reforms to complement the European
Central Bank's appropriate bias toward easier monetary policy.

Rogoff said the case for further monetary easing in Japan was
compelling, but he acknowledged the risks that inflation could
spin out of control and the yen fall too far if the Bank of Japan
succeeded in crushing deflation, now in its fourth year.

That being so, Rogoff said the rest of the world, especially
the major industrial countries, should be ready to help Japan by
undertaking a modest reflation of their economies to support
world demand and offset any slide in the yen.

"This level of cooperation would be extraordinary, but,
certainly, ending Japan's 10-year series of recessions and
prolonged deflation would also be extraordinary," he said.