Magazine article Business Asia

Asia Unites against Terror: Asia Now Stands United in the Fight against Terror. How Has the Recent Terrorist Attack on Bali Affected the Region, and What Is Being Done to Ensure Future Stability? (Cover Story)

Magazine article Business Asia

Asia Unites against Terror: Asia Now Stands United in the Fight against Terror. How Has the Recent Terrorist Attack on Bali Affected the Region, and What Is Being Done to Ensure Future Stability? (Cover Story)

Article excerpt

If their own short histories are anything to go by, large regional groupings such as the Asia Pacific Economic Cooperation (APEC) and the Association of South-East Asian Nations (ASEAN) find it extremely hard to find common ground on most topics.

The horrific bombing of a crowded Bali nightclub on 12 October, however, has quickly galvanised the region's governments behind one common purpose. Bali bought home the awful truth that terrorism is at Asia's doorstep, and that Asia must do something about it.

Where previously the fight against terrorism was met with various levels of urgency throughout the region, the 21 member economies of APEC and the 10 member ASEAN group have now all firmly agreed that security must be at the forefront of their agendas. The growing realisation throughout the Asia Pacific is that the region's economic future is inextricably linked with security and safety.

Short-term

While the long-term economic effects of the Bali bombing on the region is unknown, most analysts agree that Asia, particularly South-East Asia, is in for some short-term pain.

Tourism, an essential part of the economic mix of countries like Indonesia, Thailand, Malaysia and the Philippines, will take a severe hit. Indonesia alone derives US$5.4 billion ($9.6 billion) from its tourism sector, with Bali accounting for 35 per cent of the country's total tourist arrivals from January to August. Almost 52,000 visitors fled Bali in the wake of the 12 October bombing, and expectations for the near future remain bleak.

The bombing will also have a ripple effect on neighbouring countries. Malaysia has already cut its forecast for tourist arrivals this year by 7.7 per cent. The Malaysian Government now expects 12 million arrivals this year compared with an earlier forecast of 13 million, according to Deputy Minister for Tourism Ng Yen Yen. Tourism is the second largest foreign exchange earner for Malaysia.

"The 11 September events affected our market from America, and Bali has surely affected our market from Australia," Ng said. "Taiwan is slowing as well."

Investment doubts

Foreign investment in South-East Asia will also be affected, analysts say.

Investment to South-East Asia was already under pressure this year as foreign companies looked increasingly towards North Asia, particularly China. The taint of uncertainty and danger in the region, while it remains, will continue to have a negative effect on investor sentiment.

Malaysian Prime Minister Mahathir Mohamad has conceded that the Bali terror attack would drive away investors.

"It will affect the investment climate because people feel now more insecure," he said. "You can have all kinds of security measures, but people will continue to feel insecure because there is no security measure that is foolproof."

Daniel Lian, a Singapore-based economist with Morgan Stanley, said the Bali attack could permanently raise the risk-premium investors demand for putting their money in South-East Asia.

"If Western tourists and capital--ie, foreign direct investment and portfolio money--further shun Indonesia and South-East Asia at large because the region is perceived to be a hotbed of active terrorism, the region's economies will be further marginalised."

Standard Chartered Bank agreed and said the upshot could be to make China and other fast-growing economies of North-East Asia even more attractive in the eyes of international investors.

Growth slowing

With tourism and investment set to be drastically affected, the region's economies can also expect to post lower than expected growth rates. Forecasts for Indonesia and Malaysia have already been revised. The Indonesian Government has predicted growth of 3.8 per cent this year, down from earlier forecasts of four per cent. The Malaysian Institute of Economic Research, one of the nation's leading think-tanks, has cut its 2002 growth prediction by half a percentage point to four per cent. …

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