Tourism Disaster

World Tourism Decline Portends Severe Economic Repercussions

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Threat to Stability
2230 GMT, 011026

No region has been immune to the fallout. But certain countries, primarily
emerging markets, depend heavily on tourism to generate employment
and tax receipts and to maintain hard-currency reserves. With the
prospects of both the war in Afghanistan and the worldwide economic
downturn extending well into next year, global tourism will continue to
suffer as tourists and business executives stay close to home.

A sustained drop-off in tourism will translate into a serious economic
downturn in some of the world's major emerging markets. This could even
threaten the fiscal, social and political stability of countries such as Egypt
and Indonesia. Washington would like to avoid problems in such key
countries because they could force it to divert attention and resources
away from Afghanistan.

The economic impacts of the Sept. 11 attacks on the world economy and
the $500 billion global tourism industry are unprecedented. International
travel is down across the board, hotels are reporting record vacancy rates
and restaurants and related services are struggling to survive.

The airline industry has been the hardest hit, with global airline layoffs
surpassing 200,000. Credit Suisse First Boston estimates transatlantic
travel this quarter will fall 40 percent, travel to the Middle East will drop 25
percent and to Asia by 10 percent.

An airline analyst at Merrill Lynch told the Associated Press global air
traffic could fall by as much as 10 percent next year, far surpassing the
only other recorded annual contraction of 1.5 percent in 1991 due to the
Gulf War. People have simply stopped traveling, and they are unlikely to
return to the skies in large numbers until global anxiety over airline safety,
the war in Afghanistan, anthrax and unrest in countries such as Indonesia
and the Philippines abates.

This reduction in travel comes on top of an already slow year for tourism
receipts due to the global economic slowdown. Japan will officially enter
recession when third-quarter growth numbers are announced, and the
United States and European economies were running very close to zero
growth even before Sept. 11. The Wall Street Journal puts the total cost of
the attacks on the U.S. economy this year at at least $100 billion, while the
World Bank estimates the attacks and their fallout will trim 1 percent off of
global growth in industrialized countries and 1.3 percent in the developing
world for 2001.

A combination of economic and security concerns, and its impact on
tourism, presents serious economic and political challenges to countries
whose economies depend on tourist revenues.

One such country is Egypt. It earns foreign currency mostly through
tourism, with 5.4 million travelers providing $4.5 billion in revenue last
year, Middle East Times reports. Most of these tourists are Europeans
and Americans, who are now reluctant to book travel to the Middle East.
Egyptian Minister of Tourism Mamdouh al-Beltagui said Oct. 7 that,
following the attacks on the United States, Egyptian tourism fell by 18
percent from levels a year ago.

The tourism industry is also the country's largest employer, with more than
2.2 million Egyptians holding jobs in the sector, according to Egyptian
government figures cited by the Middle East Times. This number, though,
likely doubles when related service sectors are included. The prospect of
a spike in unemployment as hotels, tour companies and restaurants cut
jobs or fail is particularly troublesome in a country with a long-term
employment problem.

The U.S. Energy Information Administration estimates the Egyptian
unemployment rate to be between 17 percent and 19 percent. With an
annual population growth rate of 2 percent and an estimated 500,000 new
job seekers entering the labor market each year, Cairo must continue to
create jobs and can hardly afford a hit to its largest employer.

Egypt faces the concern that rising unemployment will lead to greater
social and political instability. While this is a problem for many countries,
in Egypt's case the stakes are particularly high. Egyptian President Hosni
Mubarak is seeking to avert a surge of unrest led by radical Islamic
groups, some of which have ties to al Qaeda. Mubarak's government, long
concerned that rising unemployment will fuel the growth of these groups,
has sought to maintain stability through new job growth; the government
may now be swimming against the tide.

Indonesia also depends on tourism for employment and foreign currency.
And like Egypt, Jakarta's already fragile government faces a rising wave
of Islamic fundamentalism, fueled by unemployment and separatist
violence.

Indonesia also faces a deteriorating fiscal position. With an external debt
exceeding 22 percent of gross domestic product last year, falling tourist
revenues will complicate efforts to meet debt-servicing obligations. The
Economist Intelligence Unit points out that for Indonesia and a handful of
other emerging markets like China, Turkey and Thailand, "the burden of
principal payments outweighs the current-account surplus, and efforts to
acquire fresh funds will still be required."

Indonesia's Minister of Culture and Tourism estimates a loss of 1.6 million
prospective tourists and nearly $2 billion in foreign exchange this year due
to the war in Afghanistan, further undercutting Indonesia's fiscal position.

Instability in either Indonesia or Egypt could give al Qaeda an opportunity
to interfere with the U.S. campaign against terrorism. If either country fell
into chaos, U.S. forces would likely have to respond or face challenges to
supply lines and operations in the Arabian Sea.

Both countries are important, but they are not alone in facing post-Sept.
11 economic difficulties. The Asian Wall Street Journal points out that net
travel receipts account for 50 percent of the Thai current account surplus,
while accounting for 31 percent in Malaysia, 22 percent in Indonesia and
14 percent in the Philippines.

The same principle applies in varying degrees throughout the developing
world, from Tunisia to Poland to Ecuador. Industrialized countries are not
immune, either. The economies of Australia, New Zealand, Austria, Spain
and Greece all depend heavily on tourism. Healthy current accounts and
ample foreign reserves should keep developed countries safe from debt
problems, but they will still feel the pinch on tax revenues and employment.