‘We never thought this could happen.’ These
were not the words of an individual suddenly faced with perhaps
a burned down house or a serious accident but those of many
senior members of the US government in the aftermath of Hurricane
Katrina which devastated New Orleans and the surrounding area.
While the authorities were well-prepared for hurricanes they
were not prepared for the breaching of the levees which caused
the below-sea level city to be almost completely submerged.
What has this got to do with Bali?
Quite a lot when you think about it. New Orleans may be on
the other side of the world but there are lessons to be learned.
Bali has had its fair share of disasters of course so this
is nothing new. But the tragedy of Katrina shows just how
poorly prepared even the supposedly most advanced nation on
earth can be. Let’s look at the main cause of the tragedy,
the breaching of the levees. The hurricane itself caused a
lot of damage and cost a few lives but the subsequent flooding
cost hundreds of lives. In terms of money, it would have cost
several million dollars to strengthen or rebuild the levees.
But by failing to do so the ultimate cost could run to a hundred
billion dollars. Compare this to the case of someone who tries
to save a bit of money by not insuring his house or car. Or
an expat who thinks he or she is perfectly healthy and does
not need medical insurance. Is the hundred dollars or so a
month saved worth the risk of a potential bill for $25,000
or more for evacuation alone in the event of a sudden grave
illness or serious accident?
Could you recover in a similar situation?
Hundreds of thousands physically survived the tragedy in New
Orleans. But most were very poor. Very few had home insurance,
most almost certainly had no financial or other assets outside
their homes. None would have been prepared for what befell
them. They are now penniless and homeless. If a similar disaster
occurred in Bali would you be better prepared? We are not
in hurricane territory but we are in one of the most geologically
active parts of the world where earthquakes, tsunamis and
volcanic eruptions can cause catastrophic damage. Agreed,
the chances of disaster are still relatively small, but having
a strategy in place can provide peace of mind.
What should be the components of such a strategy?
As mentioned already, insurance is a must. This includes medical
insurance, critical illness insurance (if you can afford it),
life insurance if you have dependents and property insurance.
Then make sure you don’t have all your assets in one
place. If your home was destroyed or you were suddenly forced
to leave Bali, have you somewhere to go? Do you have a bank
account outside the country? Do you have a credit card or
debit card based on a bank outside Indonesia? I have a client
who went to Singapore around the time of the 1998 riots and
his major credit card was refused because it was issued by
an Indonesian bank. Do you have ample assets elsewhere in
the event of catastrophic loss of all your assets in Indonesia?
Are your travel documents always current?
The oil story will affect us all
Just two articles ago I covered the growing oil crisis and
its possible impact on our lives here. This was before hurricane
Katrina had even left the coast of Africa as a small depression.
With a large part of US oil production and refining capacity
knocked out the situation is now much worse. It is being alleviated
slightly by the release in the US of strategic reserves but
the fact is that everyone is going to have to pay a lot more
for petroleum products. The now even larger domestic fuel
subsidy will put further pressure on the Rupiah. If the US
is forced to import refined products the pressure on the international
market will be even greater. Many countries will see long
lines at the pumps and we could see the ‘habis’
sign more often. Air fares are sure to rise and at some point
this may affect tourism.
What about the financial markets?
Surprisingly, at the time of writing they have not been too
badly affected. If the oil price can stabilize global growth
may continue at a reasonable rate. Should the oil price reach
$100 a barrel however the world could be thrown again into
recession and stock markets and property values could tumble.
This is one reason why investment portfolios should be properly
balanced. As for currencies, the direction of the US Dollar
may be strongly influenced by the movement in the price of
oil. The consequences of the recent disaster are clearly going
to put further pressure on the dollar but the robust American
economy may still come through it all. Oil and gold are good
hedges against a fall in any currency and can be accessed
via mutual funds. Always spread the risk across a range of
assets. No-one can accurately predict the best asset to hold
at any one time. We all know in retrospect, but today’s
success story can be tomorrow’s failure and vice versa.
Just be prepared!
At the end of the day the chances are that we will never have
to live through the kind of horrific scenes we have seen on
the TV screen, whether in Bali, Aceh or Louisiana. But a little
planning and a few precautions can go a long way to prevent
a serious event from becoming a total tragedy. Let’s
just be a little better prepared for the unthinkable than
America was for Katrina.
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions regarding personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
