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)