Financial Times (UK): Aceh at risk of economic collapse

Financial Times (UK)

April 15, 2008

Aceh at risk of economic collapse

By John Aglionby in Jakarta

A failure to develop agriculture and other sustainable economic activities in Aceh threatens to destabilise the Indonesian province over the next year, the author of a study of areas devastated by the 2004 Indian Ocean tsunami warned on Monday.
Craig Thorburn, from Monash University in Australia, said tensions could be exacerbated by the unreasonably high expectations of provincial and district leaders, combined with their low capacity to deliver economic growth and resentment over the allegedly inequitable distribution of funds to ex-combatants after the end of a 29-year separatist conflict in 2005.
The uncertainty, heightened by national and local elections next year, has resulted in investors staying away from the northern tip of Sumatra island. Some 168,000 people were killed and 500,000 left homeless by the earthquake and tsunami that affected 14 countries around the Indian Ocean.
Dr Thorburn said 14 companies had signed significant deals but none had actually invested.
“There’s a great risk in the next couple of years,” he said at the launch of a multi-donor report on assessing local capacity and reconstruction assistance. “People are adopting a wait-and-see attitude [towards investing] to see if [the province] blows.”
Agriculture is likely to absorb most survivors currently in reconstruction, but recovery efforts in the sector are “barely getting under way”, the report says, because fields remain largely unrehabilitated since people have sought more lucrative short-term employment.
A World Bank report on Aceh published last week reached similar conclusions. It warned that because of “scant evidence of private investment in the primary or secondary sectors of the economy ... there will be upward pressure on the unemployment rate”, while food imports increased for the third consecutive year in 2007.
Dr Thorburn forecast that Aceh would have a bright future if economic and social collapse could be avoided over the next two years.
The assessment report, involving input from the Australian and Indonesian governments, United Nations, Oxfam, Muslim Aid, and Catholic Relief Services, concludes that much of the housing reconstruction was too hurried, without sufficient community input or co-ordination. The result is that, in many areas, up to 40 per cent of newly built or repaired houses are uninhabited.