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Bali Blast has Limited Impact on GDP

 

The government has stated that the latest bombings in Bali will not significantly hold back this year’s economic growth, especially since as a steep downturn in the resort island’s tourism sector has yet to be seen. The Minister-Coordinator for the economy, Aburizal Bakrie, said on October 3 that the government had immediately worked out two scenarios vis-à-vis the effect on the country’s gross domestic product (GDP) projection for the year.

In the first scenario Indonesia’s GDP is estimated to drop by 0.25-0.30 percent, if the bombings result in a 25 percent decrease in tourist arrivals in Bali and other tourist destinations throughout the country until the year’s end.

In the worst-case scenario, Indonesia’s economy could contract by up 0.5-0.6 percent, if the number of visitors drops by 50 percent. “But we have not seen exodus of tourists from Bali, so I think the impact will not be too great,” the minister-coordinator said after a meeting with the Consultative Group on Indonesia (CGI). “I don’t even think the first scenario will happen, and the impact would be far less than in 2002.”

Three bombs rocked Bali’s two main tourist sites of Jimbaran and Kuta on October 1, killing at least 23 people and injuring more than 100 others, bringing back memories of a similar tragedy in Kuta three years ago which killed at least 202 people, mostly foreign tourists, and plunged the resort island’s tourism sector into the doldrums.

National Development Planning Minister Sri Mulyani Indrawati believed the bombings could determine the government’s target of reaching 6.0 percent GDP growth this year, fearing their impact on investor-confidence and Bali’s tourism sector.

Data from the Central Statistics Agency (BPS) show that tourism contributes some 6 percent of Indonesia’s GDP and employs up to 8 percent of the total workforce. The government expects to reap US$6 billion from 6 million foreign-tourist arrivals this year, compared to the US$4.8 billion it managed to generate from 4.5 million overseas visitors last year. According to BPS figures, the number of foreign tourists as of August this year reached 2.85 million, which was 5.39 percent less than that in the same period last year.

With regard to the country’s investment prospects following the bombings, Aburizal said this, too, would not be significantly affected. “No major infrastructure facilities or tourist sites have been severely damaged, so Bali would still be attractive for investment,” he said, while acknowledging that it would surely shake the confidence of investors for the time being. For this, the government has held discussions with the CGI on using some of its pledges for improving Indonesia’s security system.

Also on a positive note, the International Monetary Fund (IMF) stated on a separate occasion that the impact of the bombings, while it was too early to assess the total damage, was likely to be limited.
The impact of the bombings on the local stock and currency markets was negligible, as well, overshadowed by the market’s positive perception of the government’s fuel price-hike decision.

Inflation at 9%

On-month inflation hit 9.06 percent in September, according to the Central Statistics Agency. However, the government is still keeping its single-digit target for the year-end, despite the inflationary pressures likely to come in the months ahead from the fuel price hikes.

Unveiling its monthly report on October 3, the BPS said inflation had increased by 0.69 percent in September from August, or by 9.06 percent from the position in the corresponding month last year. It has, meanwhile, accumulated 6.39 percent during the year’s first nine months.

“The increase in the prices of goods and services has happened across the board,” BPS deputy chief Mulyono Muah said, citing a 1.43 percent monthly rise in educational costs from the new academic year, while clothing and processed food also increased by 1.18 percent and 1.16 percent, respectively. However, he declined to comment on the inflation outlook for the remainder of the year after the October 1 fuel price pushed fuels up by an average of 126 percent.

Separately, National Development Planning Minister Sri Mulyani Indrawati said the recent fuel price hike could raise inflation expectations by 3 percent, resulting in a full-year inflation of some 12 percent. “But this still depends on the central bank’s policies to contain inflation by raising interest rates,” she added.

Mulyani acknowledged that rising interest rates could hurt businesses and later slow down the economy, but trade-offs between the two were inevitable in the current situation. “We are, of course, aiming to strike a balance inflation and economic growth, but raising interest rates while sacrificing a little short-term economic growth would be tolerable, as the policy is expected to ease down inflationary pressures within the next three months,” she said.

Minister-Coordinator for the Economy Aburizal Bakrie and Finance Minister Jusuf Anwar were upbeat that inflation would not break into double-digits by the end of the year. “[Full-year] inflation is estimated to be just slightly below ten percent,” Aburizal said. “And next year, we can expect it to be around the eight percent level.

The government had earlier targeted full year inflation to reach 8.6 percent this year. Inflation earlier shot up by 1.91 percent in March, after the government raised fuel prices by an average of 29 percent at the beginning of the month. Such heavy inflationary pressure is expected to reoccur, considering the significant increase in the latest fuel price hike and the usual rising trend in inflation, in light of the year-end festivities of Idul Fitri, Christmas, and the New Year.

The central bank recently increased interest rates to 10 percent and hinted at further hikes to stem the rising inflation. Higher rates can make loans to businesses and industries pricier, hampering their growth.

World Bank country director for Indonesia, Andrew Steer, said the fuel price hike would eventually be for the better of the country’s economy, although the bank was still assessing its possible impact on the economy, including on inflation and economic growth.

Exports still grow

Indonesia’s exports over the first eight months of the year were still up on strong global demand for the country’s mining, industrial, and agricultural products, the Central Statistics Agency reported on October 3. Indonesia’s exporters grew by 0.56 percent to US$7.03 billion in August, and reached US$54.77 billion from January to August, representing a 23.94 percent increase over the same period in 2004.

Non-oil/gas exports, which account for more than three-quarters of Indonesia’s total revenue from international trade, rose 24.55 percent to reach US$42.57 billion in the first eight months of the year. Sales of oil and gas, meanwhile, rose 21.85 percent in the same period to US$12.2 billion.

 

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