Haze Deeply Cut Into Indonesian GDP, Says World Bank

January 21, 2016Indonesiaby EW News Desk Team

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While forest fires may represent a common sight around the world, as is the damage they wreak, few regions have suffered more economic harm, as a percentage of GDP, than Indonesia did in 2015. Last year, Indonesia's fires cost the economy at least $16 billion. That amounts to 1.9 percent of Indonesia's gross domestic product (GDP), according to the World Bank.

The problem was not so much the fires themselves, though they did cause a significant amount of devastation. Unfortunately, Indonesia made some mistakes when choosing how to deal with the fires. Those mistakes led to a thick haze cloud. According to World Bank Country Director, Rodrigo Chaves, that haze was the real cause of damage to the Indonesian economy, costing the nation twice as much as it took to rebuild after the 2004 tsunami. 

The haze is not only an unsightly and unhealthy blight on the landscape. It has a direct and palpable impact on the nation's agriculture, tourism, forestry, trade, and transport. It is an almost annual ritual, but the smoke from these fires -- often caused by illegal burning in the tropical rain forests -- blanket Singapore and parts of Indonesia, Malaysia, and Thailand. It can be bad enough to cause school closings, respiratory distress, and flight cancellations. 

According to Bloomberg Business, Indonesian authorities were not able to respond to the fires in a sufficiently timely manner. Small agricultural property holders and companies that use the technique to clear the land for farming set many of the fires. This practice is especially popular for the local palm oil industry. These companies and individuals prefer to burn the forests rather than clear them by hand or with large machines, because burning is cheaper than the alternatives.

While this summer rite usually passes by the wet and rainy fall (as was the case in early November 2015), the rains were simply too little, too late for the Indonesian economy. Though the rain cleared the skies, it did little to improve the nation's employment rates, tourism numbers, or other financial problems. 

On Tuesday, Indonesian President, Joko Widodo, took to his Twitter account to warn Indonesia that new "hotspots" were reappearing on the map. He urged the people of Indonesia to spread the word and work together to prevent the spread of further such wildfires. Unlike in more well developed nations, fires in Indonesia can literally cause production to grind to a halt in a number of key economic sectors. Coupled with the problems of climate change, this leads to millions of dollars in property losses as well as these secondary effects.

As a result, the World Bank warns, Indonesia needs to develop a better; more comprehensive plan for preventing wildfires in the first place and dealing with their aftermath, or it may find itself hemorrhaging money in an unhealthy and growth-stagnating way.