Bali blast hits Indonesian economy badly
THE economic damage caused by the September 11, attacks in America has been estimated to be tens of billions of dollars, but experts believe that rise in Islamic extremism and terrorist activities in Indonesia, and finally the October 12, bomb blasts in Bali, could do more harm to Indonesian economy. Many apprehend that this development may turn Indonesia a failed state. The country has not yet fully recovered from the economic setback it suffered in 1997; the recent incidents and the resulting psychological shock wave would jeopardize its efforts to regain economic affluence it once enjoyed in early 1990s. Muhammad Chalib Basri, the associate director of the institute for social and economic research at the Jakarta based Indonesia University, says : “the bomb blast in Bali hurts Indonesian economy that is already bad. It may lead the country into bankruptcy. The country could sink to the status of the pariah status such as Pakistan and Congo”.
Indonesia, with a land area of 20, 42, 300 sq km (near by 63 per cent of
divide India) and a population of nearly 23.5 crore, is the fourth largest
populous country in the world. And out of 23 crore Southeast Asian Muslims, 18
crores are Indonesians. Despite having a predominantly Muslim population, the
country boasts a secular democracy with a secular constitution. In 1999,
military backed Muslim mobs went on a murders rampage for several weeks in East
Timor, killing nearly 2000 Christians. A rough estimate says that more than
200,000 Christians have so far being killed during past 24 years occupation of
East Timor by Indonesia.
Since America’s military campaign in Afghanistan, Jakarta, the capital
of Indonesia has come a scene of bomb and
attacks and wide spread anti US demonstrations. In the eve of first
anniversary of the September 11 attacks in this year, America had to close its
embassy at Jakarta, after receiving a secret report of possible terrorist
attack. Nearly two years ago, a bomb explosion in a building that housed the
Jakarta Stock Exchange killed 15 people. There are reasons to believe that the
recent Bali bombing have jointly been
carried out by the Jemmah Islimia and al-Qaeda.
The
above development has already started to take effect on Indonesia economy. The
country depends heavily on foreign direct investment (FDI) to develop
infrastructure, build and run factories explore oil and natural gas and create
new jobs. The country receives highest level of FDI in 1996, amounting to
$ 6.2 billion. But at present, investors are avoiding Indonesia and
relocating their factories to China. In 1997 and 1998, Indonesia receive
$ 4.7 billion and $ 400
million of foreign investments, but now investors are pumping money out of the
country and investing it in somewhere else, mainly in China. “In 2001 the net
foreign capital out flow from the country was $ 5.9 billion that made Indonesian
economy worst hit among the Southeast Asian countries”, says Hans Vriens, the
managing director of PTAPCO Indonesia, a research and consulting firm. During
previous two years, 1999 and 2000, the withdrawal of capital from the country
was $ 2.7 billion and $ 4.6 billion respectively. “Economic revival, not only
in Indonesia but also in entire Southeast Asia, could be jeopardized by the Bali
blast. Economics would be further marginalized and geo-political risks raised in
the region forcing the investors to shun the region”, says Shri Daniel Lian,
an economist of the renowned investment house Morgan Stanley.
According to an estimate of the World Bank, Indonesia needs at least 6
per cent growth to create enough jobs for its burgeoning labour force where 2
million young Indonesians join the labour market every year. But in 1999, the
country registered a growth on only 0.9 per cent. But in subsequent years, it
could recover the setback and the growth rate improved to 4.8, 3.3 and 3.5 per
cent in 2000, 2001 and 2002. For the year 2003, the forecast was 4.4 per cent,
but after Bali bombings, it has been re-estimated to 3.7 per cent. In the
previous year, the total GDP of the country was
$180 billion, to which the contribution of the manufacturing industry was
46.5 per cent, while agriculture, the service sector tourism contributed 16.4,
34.1 and 3.0 per cent respectively.
Many apprehend that its $5 billion tourism industry would be devastated
by the Bali bomb blasts for years to come. Just after the October 12 bombings,
the Mandarin Oriental Hotel in Jakarta had to cancel 700 room-bookings. Markus
Schneider, the executive assistant of the hotel, says. “The blast has taken
hotel traffic back to 9/11 figures. We were going back to normal when the blast
occurred”. He also said that in the second week of October, a regional soccer
tournament was scheduled to take place in Jakarta. But after the Bali blasts, it
was hastily moved to Malaysia and thus the country suffered a loss of several
thousands of tourist dollars. “Tourism supports 12 million Indonesians and a
drop in one million tourists would create a million unemployment”, says
Alistair Speirs, chairman of the Indonesian chapter of the Pacific Asia
Association. It may be pointed out here that the majority populations of the
island of Bali are Hindus and they will be hard hit by the expected drop of
tourists visiting Bali.
Oil
and gas industry is Indonesia’s largest foreign exchange earner. Foreign
capital is still being invested in this sector despite considerable increase in
operational risks. The Caltex Pacific Indonesia a subs diary if Chevron Texaco,
was running an oil fields in the Ache province of Sumatra for past 30 years. In
August this year, the production contract of Caltex expired and was asked to
operator as a joint-venture company and share production with a local company
based in the province of Riau, the biggest domestic producer. Caltex expected
usual extension of the contract by it denied. The incident cause alarm among
potential investors board.
In June this year, a similar incident happened, power struggle between
the Canadian insurance company Manu life Financial Corporation and its domestic
partner rist breaking point. Matter went to the court, which by an order
declared the Manu life bankrupt, because it did not pay dividend to its
Shareholders in 1999. The incident received international publicity and scared
the foreign investor as the Western press narrated it as disfavour by the
Indonesia old to a foreign investor. However, the two incident created an
atmosphere that the Indonesia government is hostile to foreign investment in
several key sector dried up. Apart from that social unrest, militant trade
unionism wrong economic policy, or in the words, political risk virtually
stopped the in flow of new FDI.
The
country has not yet fully recovered from the economic setback it suffered in
1997 and the recent incidents and the resulting psychological shock wave would
Jeorpardic its efforts to regain economic affluence it once enjoyed in early
1990s.
PT Duson Indonesia is a footwear company that ran factories as a supplier
of Nike. But at present, Nike is sifting production, mainly to China and few
others to the Southeast Asian countries. In 1998, Indonesia accounted for 34 per
cent of Nike’s footwear production, but at present, it has come down to less
than 20 per cent. China has now emerged as the larger supplier and accounts for
more than 40 per cent of production followed by Thailand and Vietnam, producing
15 per cent each. “Many orders from America could be moved away from Indonesia
in the wake of Bali blast”, says Anton Supit, chairman of Indonesia Footwear
Association. “As a result, export may come down to $ 1.5 billion, which was
$2.2 billion in 1996. Employment has been dropped from 500,000 to 50,000 in past
six years”, adds Supit.
Indonesia textile industry is also showing a decline in recent years.
Total export was $8.4 billion in
2000, but in 2001, it registered a decrease of 7 per cent. Benny Soetrisno, the
head of Indonesia Textile Association, says, “Indonesia’s textile industry
is now suffocating. In the current year its export may fall by 10 per cent and
by 2005, the sector may be dead along with 1.3 million loss of jobs”.
Another vital reason for which investors are withdrawing capital from
Indonesia is the rise in wage. In fact, minimum wages in Indonesia have grown
very rapidly. For example, it has increase by 40 per cent in Jakarta within last
one year and now it is higher than that in its Southeast Asian neighbours.
Moreover, new labour loss are forcing the companies to pay the workers even when
they go on strike. In addition to that, aggressive trade union is on the rise
and the number of unions has exploded. During the time of Suharto, their was
only one but well organized union in the country. But at present there are as
many as 64 national labours union and 247 regional once.
Above all the rise in Islamic militancy and finally the 12th
October bomb blasts had griped the investors with a sense of insecurity. Hence
Vriens, while commenting on this developments, said, “Indonesia is turning
into the Nigeria of Asia”.
Megawiti Sukarnaputri is the Third President of Indonesia since 1999, and
she is doing practically nothing to bring rule of law in the country. Even her
supporters level her slow moving and indecisive. Much belief that she is
reluctant to take any positive step against Islamic insurgency for fear to
losing popularity among the majority Muslim population.
The unemployment rate in Indonesia today stand s at 8 per cent, and in
near future it is expected to rise steeply. Many apprehend that a rise in
unemployment and resulting frustration will drift more and more young Indonesia
towards Islamic militancy and terrorists’ activities, turning the country into
an Afghanistan or Pakistan. “The Bali attack places Indonesia at a cross road.
Deterioration of economy or resulting unemployment could plunge the country into
bloody sectarian violence and turn its far-flung islands into increasingly
fertile grounds for terrorism”, says on Analyst.
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