JAKARTA, 13 October 2002 - Devastating weekend bomb blasts in Indonesia, one of the world's worst attacks against tourists, are likely to further aggravate the core economic problem facing the vast archipelago -- its huge foreign and domestic debt burden. Analysts said the explosions, which killed almost 200 people on Saturday night, are likely to hit the rupiah first through higher capital outflows and lower inflows on the back of weaker investor confidence.
This in turn would affect efforts to service total external debt of around $130 billion, close to Indonesia's annual GDP, and a weaker local unit would also push up inflationary pressures as many key necessities are still imported. "These blasts could hit the economy hard with the rupiah exchange rate likely to be hit first to be followed by interest rates as the weaker rupiah will prompt concerns over higher inflationary pressures," economist Anton Gunawan of Citibank told Reuters.
Analysts said as an early indication the rupiah could soon weaken by 100 points to test a support level of 9,100 against the dollar while the stock market could also fall to test the psychological barrier of 350 points from its Friday figure of 376.47. Nobody has claimed responsibility for the attacks, which killed mostly foreigners, and authorities have not assigned any blame although President Megawati Sukarnoputri said the explosions were a warning terrorism was a threat to national security.
Said Tjandra Lienandjaja, head of research at brokerage GK Goh: "Political stability had helped boost prices of domestic assets but these Bali blasts because of their political nature could have a damaging impact on investor confidence." Relatively strong confidence in political stability had been singled out as the most important factor for the rupiah's 15 percent rise against the dollar so far this year but the weekend carnage altered all that.
Some analysts even said the blasts could be seen as a direct challenge against the ruling party as they took place in Bali, a key stronghold for the president. International political ramifications are also seen strong as the blasts took place amid criticism by some foreign countries that Indonesia, the most populous Muslim nation in the world, is not doing enough in the US-led war against terror.
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