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Tue, May 30, 2006 - Page 10 News List

Big economic hit from quake unlikely

INDONESIA'S RECOVERY The central bank said it would relax its credit requirements for quake survivors, while some small businesses may have their loans written off


Indonesia's economy is unlikely to be seriously affected by a powerful earthquake that killed more than 5,100 people and flattened tens of thousands of houses, the central bank said yesterday.

"Such an earthquake will of course disturb our [economic] growth assumptions going ahead, but I don't think the impact will be so huge," Bank Indonesia Governor Burhanuddin Abdullah said.

"We believe many things can be done to catch up [on lost economic growth] in the second half" of the year, he told reporters.


Abdullah said Bank Indonesia would relax its credit requirements to ease the burden on quake survivors unable to pay back their debts by allowing commercial banks to carry the non-performing loans over in the short-term.

Some small- and medium-sized businesses receiving credit from the central bank would also have their debts written off, he said.

The central bank implemented a similar measure for victims of the 2004 tsunami in Aceh and the 2002 bombings on Bali.

The magnitude-6.3 quake destroyed at least 21,000 buildings, according to the Red Cross. It was centered south of Yogyakarta, a tourist destination and the location of two large UNESCO World Heritage sites, the Buddhist temple complex of Borobodur and the Hindu temples of Prambanan. Tourist arrivals are expected to fall in the near term but then rebound.

Yogyakarta contributes 1.3 percent of Indonesia's total annual GDP, and estimated reconstruction costs of US$100 million are unlikely to strain the national budget, analysts said.


On Sunday, Vice President Yusuf Kalla declared a three-month emergency period in the quake zone and allocated 75 billion rupiah (US$8 million) for emergency relief.

He said a total of 1 trillion rupiah had been earmarked for reconstruction and rehabilitation efforts, with the assumption that 35,000 houses or buildings were damaged in the earthquake.

Indonesia's government has forecast 6.2 percent economic growth this year, up from 5.6 percent growth last year.

However, the government has hinted that actual growth may only reach 5.9 percent because of a slowdown in consumption due to high interest rates.

Meanwhile, the Jakarta Composite Index climbed 14.47, or 1.1 percent, to 1337.62 at 2:31pm local time, set for its highest close since May 19. About five stocks rose for every two that fell.

"The impact of the earthquake on stocks is limited," said Rani Sofjan, head of equity research at PT Mandiri Sekuritas in Jakarta. "The contributions to overall GDP from areas struck by the earthquake are not much."

Separately, Indonesia will repay half of its total debt of US$7.8 billion to the IMF this year, the central bank said yesterday.


The government plans to repay the rest of its outstanding IMF loans next year, Abdullah told reporters.

"We will see if we can repay [the IMF debt] faster," he said, without elaborating.

Jakarta has come under political pressure in recent months to pay off the loan, which the IMF gave Indonesia after the 1997 to 1998 Asian financial crisis as part of a multi-billion dollar bailout package.

Indonesia, which ended the IMF program more than two years ago, started reviewing the possibility of repayment last month as its official foreign exchange reserves rose to a record high of US$42.81 billion.

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