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JAKARTA: Indonesia was rudely awakened from its false sense of security on Friday when a coordinated bomb attack ripped through two of the capital's five-star hotels.
The bombs went off in the early morning when both hotels were filled with breakfast guests, mostly local and foreign business people. The repercussions of the latest in a long string of bomb attacks stretching back seven years will be widely felt as they underscore the continuing security concerns in the sprawling archipelago.
The country's financial markets, as expected, reacted sharply in early trading with the Indonesia Composite Index falling 40 points before recovering in afternoon trading to close 11 points down. The rupiah buckled, but ended marginally down.
But the longer-term impact on the economy could be severe, especially on the tourism and hospitality sectors. The first casualties are the 100,000 fans who were eagerly awaiting the arrival of Premier League champions Manchester United. The team was scheduled to stay at the Ritz Carlton Kuningan, one of the hotels damaged by the attacks. The English football team has since cancelled its visit.
Tourism industry players now fear the worst. Hotel occupancies, which were back to pre-1997 levels, could drop sharply. The airline industry could, too, be impacted if tourists and business travellers stay away.
Indonesia has been one of only a handful of countries that are expected to record positive growth this year. The economy has been coming along nicely and was on course to grow by 4.5 per cent this year. Just this week, Finance Minister Sri Mulyani Indrawati announced that the government had raised its growth forecast for 2010 to between 5 and 5.5 per cent.
It is too early to say whether the attacks will unhinge the county's economy. It depends heavily on whether the government can restore confidence quickly by apprehending the perpetrators, as was the case in previous bomb attacks. A number of foreign governments have already issued warnings to their citizens against travelling to Indonesia unless absolutely unnecessary.
The real damage is to Indonesia's reputation. Since the 2002 Bali blasts and the first Marriott bombing in 2003, the government had embarked on a serious effort to root out terrorist cells in the country. To a large extent, they succeeded in keeping the country safe, but Friday's attack proves that security remains a grave concern.
The medium-term impact will be the drying up of new foreign investments. Potential investors who were considering parking some funds in Indonesia will now think twice. Businesses here are already also likely to reconsider new investments.
President Susilo Bambang Yudhoyono, who is expected to start a fresh term in office this year with Vice-President Boediono, now faces an enormous task convincing Indonesians that the government has the resources and will to tackle the terrorist threat.
Indonesia's political and economic hub has once again been attacked at will. This has sent a chilling message that no major hotel, government office or public place is safe from future attacks.
The author is Associate Publisher of GlobeAsia Magazine in Indonesia
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