U.S. attacks may derail RI's recovery

U.S. attacks may derail RI's recovery

JAKARTA (JP): Economists warned that terrorist attacks on the
U.S. could create a deeper global economic recession and derail
Indonesia's fledgling economic recovery.

"The terrorist attack on New York's World Trade Center towers
and Washington's Pentagon could drag the United States into a
longer and deeper economic crisis which could degenerate into a
global economic recession," economist Sri Adiningsih of the
Yogyakarta-based Gadjah Mada University told The Jakarta Post on
Saturday.

She explained that the impact on Indonesia's economy could
include a drop in exports and foreign investment.

"This is worrisome since both the 2001 state budget and the
2002 budget draft cannot stimulate economic growth," she said.

The government has targeted economic growth of around 5
percent in 2002 compared to the 3.5 percent growth targeted for
this year.

Two hijacked airplanes slammed into the WTC, and another into
the Pentagon last week, creating new uncertainty in the world
economy.

There has also been speculation that the attacks will cause
the government's macroeconomic assumptions as set out in the 2002
draft budget to be revised. In addition to the above economic
growth target, the assumptions include an inflation rate of 8
percent, exchange rate of Rp 8,500 per U.S. dollar, and an
international oil price of US$22 per barrel.

Local exporter associations had earlier predicted that the
terrorist attacks on the U.S. could cause exports to drop by
between 10 percent and 20 percent this year.

Economist Sjahrir said the terrorist attacks would prompt the
U.S., Indonesia's second biggest trading partner and one of the
country's large foreign investors, to focus on its own economy
and security rather than on international economic issues.

"The U.S. will likely shift from its current multilateral
foreign policy to a unilateral policy," Sjahrir said.

The government's plan to push the private sector to play a
greater role in bringing about a recovery in the country's
economy through accelerating the privatization program and the
sale of assets under the Indonesian Bank Restructuring Agency
(IBRA), could also be undermined as investors would likely adopt
a wait-and-see approach for quite sometime.

"What we are afraid of is international investors will think
that since doing business and investing in the U.S. is no longer
safe, doing business and investing in other countries, including
Indonesia, is also not safe," Sri said.

"If that happens, they will adopt a wait-and-see attitude,
which means that the flow of international investment and trade
will be sluggish," she added.

Meanwhile, economist Hadi Soesastro of the Centre for
Strategic and International Studies (CSIS) and Didik J. Rachbini
of the Institute for Development of Economics and Finance
(Indef), played down the real impact of the terrorist attacks on
Indonesia's economy, arguing that the country's economic
difficulties stemmed from domestic problem.

"The impact (of the terrorist attacks) is insignificant and
indirect," said Hadi.

He admitted, however, that the attacks might affect the
country's exports to U.S., but argued that any fall would have
little bearing on Indonesia's economic growth.

"Export-driven economic growth is not sustainable since it
does not reflect good and sound economic conditions," said Hadi,
adding that increased exports do not necessarily mean sound
economic conditions.

He said the priority for Indonesia was to implement the
economic reform agenda pledged to the International Monetary Fund
(IMF) if it wanted to put its economy back on track.

Didik concurred with Hadi, saying Indonesia was too far from
the U.S. to suffer the impact of the terrorist attacks.

He said the attacks could, in fact, serve as a blessing in
disguise for Indonesia. (03)