Bali may be an island, but it is part of the global economy
Its truly amazing how seemingly unconnected events can combine to affect people miles away. Indonesia has been struggling with it oil situation for a while now. The country produces oil and subsidizes local petrol so that the country can keep moving. When domestic prices of petrol and rice go up a couple of points people blame the government and this can seriously threaten the government. Raising petrol prices to a realistic level would certainly bring riots on the streets, so he government has to be careful with price increases.
Indonesia's lack of refining capabilty means it consumes more oil than it can produce, so its has to use prescious foreign currency to buy oil from overseas. Oils prices reached $60-$65 a barrel last week and then an unexpected event happened. A hurricane!!!
The Gulf of Mexico is the place where oil refining was developed and still is a crucial part of the US economy. Hurricane Katrina damaged oil refineries and US production may be hurt. That sent world oil prices straight up to $70 a barrel. The exchange rate has made Indonesia's buying power weak on top of all that.
I bet President SBY and every taxi driver in Jakarta is regretting that happened. How will it affect Bali? We will have to wait and see.
By Nick | Permalink
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