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Indonesia Stock Prices Plunge After Hotel Blast - 2003-08-05

Panic selling sent share prices in Indonesia lower as investors reacted to a bomb blast in Jakarta's central business district. At least 10 people died in the attack and dozens were injured. The attack could cut short the recovery in Indonesia's tourism industry.

Jakarta composite share index fell about three percent Tuesday following the explosion outside the J.W. Marriott hotel in the Indonesian capital. The index closed at 488 points.

The explosion comes just as Indonesia's tourism industry was beginning to recover from last year's Bali terrorist bombing, which killed 202 people, most of them foreign tourists. The bombing prompted many Western governments to advise their citizens to avoid traveling to Indonesia for fear of more attacks, and the country's tourism industry shrank as much as 70 percent late last year.

The Marriott is one of the newest luxury hotels in Jakarta and is popular with foreign business people, as well as tourists.

One analyst said Tuesday's bombing may damage the country's tourism sector if authorities cannot prevent further attacks.

"We have seen travel pick up on the back of very attractive tour packages," said Song Seng Wun, an economist with G.K. Goh Securities in Jakarta. "I don't think over this weekend that will really change very much unless of course the law and order situation deteriorates further. That depends on whether this is a one-off [event]."

It is not clear who is responsible for the explosion, which police say was a car bomb.

The Marriott bombing comes two days before judges are to issue a verdict in the first trial of a suspect in the Bali attack. Indonesian authorities say the bombers are members of Jemaah Islamiyah, a regional Islamic terror group.

Mr. Song says that if Tuesday's blast is tied to the Bali trial, it could reflect badly on Indonesia's reputation for controlling terrorist organizations. That could make Indonesian interest rates rise, as international lenders will become reluctant to lend money in Indonesia if they think it is unsafe.

"This comes at an inconvenient time," explained the economist, "because the government of Indonesia is looking to exit from the IMF program at the end of this year, and they will be looking to borrow quite a substantial amount of money from the capital markets to pay the IMF, so it could cost them a tad more this time around."

That also could make it harder for Indonesian companies to pay their debts or borrow money to expand and hire workers.