Deadly Indonesia Quake, Tsunami Deliver Fresh Economic Risk
(Bloomberg) -- In the aftermath of Indonesia’s most destructive earthquake and tsunami since 2009, President Joko Widodo’s government continued to search for survivors in desperate need of medical attention in a disaster with a death toll expected to top the already 800-plus confirmed dead.
It’s a tragedy set to deliver multiple shocks to Indonesia--first and foremost the massive loss of life on the island of Sulawesi, where authorities are making preparations for mass burials of victims. The government also seems likely to face questions over why a buoy system designed to detect tsunamis in Indonesian waters hadn’t been operational.
Then there’s the possible hit to the budget from reconstruction costs and to the nation’s all-important tourism industry, as well as the rupiah, a currency that had already been under pressure from an emerging market currency sell-off.
“This latest event puts more strain on budgeted government resources," said Edward Gustely, managing director of Jakarta-based investment advisory firm Penida Capital. “Not sure how much fiscal space (the government) has to underwrite rebuilding efforts given its recent policy decisions to halt infrastructure projects dependent on large capital outlays that impact rupiah volatility,” he said.
Southeast Asia’s biggest economy has been among the hardest hit in the region following a sell-off in global emerging markets triggered by rising U.S. interest rates. The rupiah has slumped 9 percent against the dollar this year.
Meanwhile, Bank Indonesia has hiked its key rate five times since mid-May to shield the nation’s currency even as the economy continues to underperform by Indonesian standards and failed to hit the government’s 7 percent growth target.
The 7.4-magnitude earthquake on Friday unleashed a tsunami that flattened residential and commercial buildings in the city of Palu and Donggala Regency -- with a combined population of almost 600,000 -- in Central Sulawesi province.
Some 844 are confirmed dead, and the toll may top 1,200 based on preliminary estimates of casualties from a housing complex in Palu destroyed by soil liquefaction, Sutopo Purwo Nugroho, a spokesman at the National Disaster Mitigation Agency, told reporters on Monday.
Right now, the government is focused on repairing a damaged airport in Palu and rushing heavy equipment and personnel to the coastal city, where workers were scrambling on Monday to rescue people trapped beneath the debris of a collapsed buildings.
Next will come a massive and expensive reconstruction effort to restore power systems and provide shelter for the estimated 48,000-plus who’ve lost their homes. The government on Monday appealed for international aid for the relief and rehabilitation efforts.
The island of Sulawesi, which features several long peninsulas radiating from a mountainous center and some of the world’s best diving sites, is primarily an agricultural area focused on coffee and nickel ore production. Asian and European foreign nationals were among the confirmed dead.
Yet the region isn’t a critical tourist destination like Bali. The quake "happened in areas that are not too significant economically," said Kevin O’Rourke, an independent political analyst.
Despite a run of natural disasters in recent years, Indonesia has continued to be a tourism draw, with visitors topping 14 million in 2017, up 22 percent from 2016, according to the Ministry of Tourism. Foreign exchange earnings from tourists are expected to reach $20 billion this year, up from $15 billion last year, according to the ministry.
Widodo, known as Jokowi, has depended on the tourism and travel sector, which kicks in about 5 percent of economic growth, as a way to shore up the country’s dollar earnings in its battle to defend the nation’s currency that’s slumped to the lowest point since the late-1990s Asian financial crisis.
The scheduled International Monetary Fund and World Bank meeting in Bali in mid-October should help prop up the tourism sector, according to Wisnu Wardana, an economist at PT Bank Danamon in Jakarta. "No one wants, nor is ever fully prepared for, a wide scale natural disaster," he said. We "just need to make them feel safe enough so that they can travel back to Indonesia."
That hasn’t been an easy thing to do for Indonesian tourist promoters. In July and August, a series of deadly earthquakes killed more than 500 people in the popular tourist destination of Lombok island, near Bali. Foreign tourist arrivals have been disrupted by a volcanic eruption at Mount Agung on Bali island late 2017 and Mount Merapi near Yogyakarta this year.
Indonesia’s 17,000 islands are prone to earthquakes because the country straddles the Pacific Ring of Fire, an arc of fault lines and volcanoes that causes frequent seismic upheavals. At least 160,000 people were killed on Sumatra island as a result of a 9.1 magnitude earthquake and tsunami on Boxing Day in 2004. More than 1,100 people were killed in another tsunami and earthquake in the same island in 2009.
Jokowi flew to the disaster-struck island over the weekend, and his ability to ensure a speedy rehabilitation of the ravaged provinces will be under scrutiny -- as will the failure of government’s tsunami buoy system to warn residents on Sulawesi.
None of the 22 buoys spread over Indonesia’s open water to help monitor for tsunamis had been operational for the past six years, the New York Times reported, citing the disaster management agency’s Nugroho.
The Indonesian president is in the middle of a re-election campaign to seek a second five-year term in office. With the government already battling a weak currency and high crude oil prices, it may find it difficult to raise massive resources required to rebuild the affected regions.
“It’s a chance for Widodo to show concern in practice and in a high profile way, and actually increase his prestige if the recovery is handled well," said O’Rourke, the political analyst.
While Jokowi enjoys a double-digit lead over his challenger Prabowo Subianto in recent opinion polls, he’s missed his 7 percent economic growth target and is also being accused of piling on public debt to implement his ambitious infrastructure agenda to connect the islands.
Many of the dead were found at beaches near the city of Palu, about 1,560 kilometers northeast of Jakarta, where an annual festival was being held. Many people on the beach were unaware of the threat of a tsunami as there was no siren to warn them, Nugroho wrote on his Twitter account.
Citizens from France, Belgium and South Korea are among foreigners still missing from an estimated 114 tourists estimated to be in the region, Nugroho said.
Tsunami waves as high as six meters hit the coast after a massive quake damaged thousands of buildings in Palu and caused a major power failure and cut communication. Information from Donggala and two other towns is limited because of communication problems.
National carrier PT Garuda Indonesia canceled at least 18 flights to and from Palu until Oct. 2. The airport has been partially opened for commercial flights even as the priority is for emergency and rescue efforts, according to Indonesia’s air navigation provider.
More than 600 people were treated at hospitals for injuries and thousands of people displaced from their homes and are being housed in emergency tents, Nugroho said. There were also reports of the quake impacting towns outside of Palu and Donggala, which could signal more victims from the disaster, he said.
The Central Sulawesi government has declared a state of emergency for 14 days to improve rescue efforts, Nugroho said. At least 250 aftershocks hit the island as of Monday morning, according to Indonesia’s meteorological agency.
©2018 Bloomberg L.P.