Asia to pay 'terror tax', IMF says

No one knows how far the fall out could reach

Incidents such as Saturday's bomb blast in Bali represent a "terror tax" on the Asian economy, a top financial policymaker has said.

[The attack] is clearly a blow, but how long lasting and broad-based the effects will be is impossible to say

Kenneth Rogoff, IMF

Kenneth Rogoff, chief economist of the International Monetary Fund (IMF), told a conference in Singapore that the Fund would not be revising down its forecasts for Asian economic growth as a result of the attack.

But substantial risks remained, he said, mainly because terrorism was "slowing the gains from increased globalisation."

The attack, he said, was "clearly a blow, but how long-lasting and broad-based the effects will be is impossible to say at this juncture".

The price of fear

The Bali attack came at an awkward time, just as Asia was completing its recovery from the dramatic economic crisis of the late 1990s.

Asia was performing well, Mr Rogoff says

Compared with other parts of the world, Asia "has so far proved stronger than expected", Mr Rogoff said.

"There are signs of domestic demand growth becoming established more broadly"

Now, increased fear of terror attacks - whether real or imagined - were adding substantially to business costs, and so undermining economic growth.

By raising costs for insurance and corporate security, terrorism at least blunted the benefits of positive trends in productivity and technology, Mr Rogoff said.

Mixed messages

There is still little consensus on the likely extent of the economic fall out from the weekend's bomb attack.

Markets have see-sawed since Saturday

Stock markets in Asia and Europe reacted with predictable panic on Monday, but by the end of the day, Wall Street had regained its composure.

And on Tuesday, Japanese shares enjoyed their strongest day's performance for many months.

Few investors now seem to fear prolonged ill-effects for the global economy, aside from yet more bad news for a handful of travel and tourism companies.

For Indonesia, however, the attacks could derail this year's lively economic performance, as tourists stay away and foreign investors reassess their position.