Wildfires in Indonesia Pose Economic Risk, Central Bank Says

(Bloomberg) -- Wildfires that have been raging in Indonesia may hurt economic growth if the problem persists, Bank Indonesia Deputy Governor Dody Budi Waluyo said.

“The impact of forest and land fires that cause smoke disruption, if prolonged, will certainly have an impact on economic and business activities,” Waluyo said via text message on Wednesday, without quantifying the effect. “For this reason, we fully support the steps taken by the government to overcome this.”

The fires, which have caused a thick haze across Indonesia, Malaysia and Singapore for weeks, turning skies blood red in some parts, are damaging agriculture in the country. Along with a longer than usual dry season and drought in some parts of Indonesia, they have curbed palm oil and rice production.

Waluyo said the central bank is sticking to its forecast for growth to be in the lower half of the 5%-5.4% range in 2019, before picking up toward the midpoint of the 5.1%-5.5% range in 2020.

“Impacts that are more difficult to quantify are social and environmental impacts that are more long-term, including impacts on public health, impacts on educational activities that have been disrupted, and environmental damage caused,” he said.

While it’s still too early to measure the effect on growth, a World Bank report published after deadly wildfires in 2015 put the cost of that haze crisis at $16 billion. That price tag was at the time equivalent to 1.9% of GDP and twice the amount it took to rebuild the country after a tsunami devastated parts of Indonesia back in 2004.

Read: Air pollution from fires is putting 10 million Indonesian children at risk

The wildfires are another potential hit to an economy already feeling the effects of a global slowdown and escalating trade war between the U.S. and China. Food inflation, which is already close to a three-year high, is also at risk.

Food prices across the region “are already under some upward pressure from bad weather especially around the Mekong region, as well as the worsening African swine fever pandemic in China and Vietnam,” said Koh Hui Koon and Darren Tay, both Asia Country Risk Analysts with Fitch Solutions.

Read more: Drought, Wildfires Inflict Double Whammy on Indonesian Crops

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