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Economy

Bali's economic losses mount as volcano rumbles

Empty hotels, canceled flights, sour loans -- and worst may be to come

Passengers mill about the international terminal at Ngurah Rai International Airport, in Kuta, on the Indonesian island of Bali, after the gateway reopened on Nov 29.   © Reuters

JAKARTA -- The rumbling, ash-spewing volcano on the eastern edge of Bali is sending shock waves through the local economy. Major and minor conventions are being relocated or scrapped, hitting hotels with losses. Flights are being canceled. Loans are going sour. And the scope of the damage could still widen if Mount Agung refuses to settle down.

Following heightened volcanic activity since late September, and after a brief period of subdued tremors, the 3,000-meter mountain slowly began erupting on Nov. 20. Bank Indonesia, the central bank, on Wednesday downgraded its economic forecast for Bali to 5.2-5.6% this year, below its initial target of 6.3-6.5%.

The National Disaster Mitigation Agency on Monday said the economic toll from the volcano situation could amount to 20 trillion rupiah ($1.47 billion).

The island's Ngurah Rai International Airport closed on Monday and reopened Wednesday afternoon. But with potentially larger eruptions looming, the airport looks likely to close again -- perhaps for a longer period. Flagship carrier Garuda Indonesia said nearly 300 of its flights have been canceled or diverted since Sunday. That figure is expected to continue to climb.

A total of 445 flights by various airlines were impacted by the Bali airport's closure on Monday alone.

The broader impact on business is beginning to crystallize.

Until Thursday, officials had been holding out hope that the Bali Democracy Forum -- a headline event once attended by former U.S. President Barack Obama -- could go ahead as planned on Dec. 7-8. But the Indonesian Foreign Ministry gave up and moved the forum to Serpong on the outskirts of Jakarta, far from the long, sandy beaches of Bali's Nusa Dua.

The number of countries sending delegates to the BDF is down to just 16, from 95 last year.

A plume of smoke above Mount Agung is illuminated at sunset in this photo taken from Bali on Nov. 30.   © Reuters

The BDF is hardly the only event affected. Ida Bagus Surakusuma, the head of the Bali chapter of the Indonesia Congress and Convention Association, said half of corporate meetings and events were canceled or moved out of Bali over the past month, even ones scheduled for February. International events especially have been relocated to mainly Singapore, Malaysia and Thailand.

"We're concerned that they will keep canceling -- probably soon 60-70% of them, up until zero [of such events] is left," Surakusuma said. "We can only hope that this [situation] will soon pass."

Even next year's International Monetary Fund and World Bank meetings, scheduled to be held in Bali in October, may be in doubt, though Indonesia's steering committee refused to comment on whether they are making relocation plans. "We're still closely monitoring the situation, until we get some certainties," an Indonesian official involved in the event said.

Certainty is hard to come by, however. Indonesia's Volcanology and Geological Disaster Mitigation Center, or PVMBG, which monitors volcanic activity, cannot yet predict if major eruptions will happen quickly or drag on. From 1963 to 1964, Mount Agung erupted for a year.

11,000 room cancellations

State lender Bank Rakyat Indonesia said the volcanic eruptions have hurt the businesses of many of its customers in the Karangasem district, where Mount Agung is located, over the past three months. "Volcanic ash has damaged and isolated farming fields and animal farms. And many of those productive lands have been abandoned by people who sought refuge," said BRI Finance Director Haru Koesmahargyo. "The refugee situation also has dampened activities in traditional markets."

Teguh Setiadi, a senior official at the Bank Indonesia representative office in Bali, said nonperforming loans in Karangasem reached 3.41% in October, above Bali's average of 3.04%, and are likely to continue to increase.

We're concerned that they will keep canceling -- probably soon 60-70% of them, up until zero [of such events] is left...We can only hope that this [situation] will soon pass

Ida Bagus Surakusuma, the head of the Bali chapter of the Indonesia Congress and Convention Association

Citing local hotel associations, Setiadi said reservations for 11,000 room nights in Bali up until December have been canceled, leading to an estimated 11.6 billion rupiah in losses. But that figured could have already ballooned, given that it was based on data as of Oct. 31, before the airport closure.

"And if the airport continues to close, the economic growth can be even lower than 5%," Setiadi said. 

Officials, in Bali especially, have been under pressure to help President Joko Widodo's administration achieve its ambitious target of increasing the number of tourist arrivals by 30% to 15 million this year. The airport interruptions and spate of event cancellations could ruin any progress made, even though most of Bali's tourist sites and convention centers are concentrated on the southern parts of the island, far from the danger zone.

Still, analysts at investment bank Nomura do not see the volcano having much impact on the Indonesian economy as a whole. A Nomura report said Bali and the neighboring West Nusa Tenggara province -- whose main airport also has been affected by Mount Agung -- account for only 1.5% and 1%, respectively, of Indonesia's total gross domestic product, so the impact "should be contained."

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