The bomb attack on the JW Marriott hotel is unlikely in itself to derail the Indonesian economy but it clearly puts investor confidence -- especially among the foreign community -- to the test, analysts said.
For the moment, it appears that after an initial sharp negative reaction in the stock market and in the rupiah, which have since recovered, there is no reason to think that the economy will suffer permanent damage.
Should there be another significant attack in the near-term, however, involving heavy loss of life or major economic loss, or if it seems the authorities are making no progress in tracking down the bombers, then the investment community might review its risk assessment on Indonesia.
PHOTO: AFP
Analysts say that despite the blast, Indonesia is on track to achieve economic growth of 3.5 percent to 4.0 percent this year in line with government and private-sector forecasts.
"It will not send the economy into a tailspin. The fundamentals of some sectors -- infrastructure and mining and gas -- remain attractive," Raden Pardede, chief economist with the Danareksa Research Institute, told reporters.
At the same time, Pardede said the capital markets and tourism clearly reacted to the bombing, showing their sensitivity to bad news.
"It is very sensitive. Foreign investors are concerned about security," he said. "For another one to two months, foreign arrivals will suffer."
Pardede said foreign investors were already asking state-run gas company Perusahaan Gas Negara, which plans to issue bonds, for a higher interest rate.
"Over time investors will regain confidence but it also depends on how effective the government response is to contain repeat attacks," he said, adding that the impact could be cushioned by increased public spending.
Philip Wee, an economist with Singapore-based DBS Bank, said the shock from the bombing was proving to be temporary.
The stock exchange ended down 3.06 percent Tuesday on panic selling after the blast but closed higher on Wednesday and Thursday to recover virtually all of the losses. The rupiah initially fell but it too recovered later in the week.
"As long as the underlying focus of the market is the recovery, and the Indonesian government exhibits responsiveness in dealing with such acts, sell-offs are likely to remain a knee-jerk reaction, as in Bali," Wee said in a note on the attack.
Wee noted that the Marriott blast was less severe than the Bali bombings last October which killed 202 people and dealt a heavy blow to tourism. Those blasts were also blamed on Jemaah Islamiyah.
"The fundamentals in Indonesia today are also stronger, as evidenced by rising consumer confidence and retail sales," Wee said.
Wee said the central bank was keen to put monetary policy back on track towards the twin goals of maintaining monetary stability and stimulating economic growth.
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