RI economic growth could be slower with long war: Economists

A'an Suryana, The Jakarta Post, Jakarta

If the war in Iraq goes on for more than six months, the global economy will be in tatters, and Indonesia's economic growth will be much slower than expected, economists said on Monday.

Economist Iman Sugema from the Institute for Development of Economics and Finance (Indef) predicted that gross domestic products would grow by only 2.4 percent this year -- compared to the government's target of 3.8 percent -- if the war dragged on for more than six months.

Iman Sugema attributed the lower growth target to less investments, decreasing exports and the collapse of the tourism sector due to the long war.

In the event of a long war, he said, Indonesia's exports would likely decrease by 5.5 percent due to disruptions to sea transportation around the Middle East.

A long war would likely also discourage long term investment in Indonesia, and therefore, investment growth in Indonesia could decline by 4.8 percent.

Economist Umar Juoro from the Center for Information and Development Studies (CIDES), shared Iman's view, noting that international trade would be affected by increasing transportation charges and insurance premiums.

"The long war will also disrupt international flights and tourism," said Umar at a media conference at the CIDES' headquarters here.

Monday's news of U.S. and British casualties in Iraq triggered fears in the foreign exchange and stock markets that the war in Iraq might last longer than expected.

In order to prevent the adverse effects of a possible long war, the economists said that the government should prepare various anticipatory programs.

Meanwhile, businessman Aburizal Bakrie, who is also the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), called on Bank Indonesia to loosen some of the requirements for commercial banks so that the latter could provide cheap loans to local businesses to propel growth.

Nowadays, banks remain reluctant to increase lending for fear that their capital condition could fall below the central bank's minimum requirement and that their non-performing loans could rise above the set ceiling, Aburizal said recently.

Nevertheless, if the war proceeds quickly, the prospects for average growth of three percent to four percent would remain, economists said.

If the war lasts for only two weeks, for example, Indonesia's exports will likely slide by only 0.31 percent, said Iman.

Moreover, if the war ends in one week's time, the impact would be kept to a minimum.

Therefore, Iman said, it all depends on the war. If it's long, Indonesia will have a difficult time, but if it's short, the war will not inflict any losses on the country's economy.