Terrorism will damage the Balinese tourist industry, but there are deeper structural problems which threaten the broader Indonesian economy.

Five thousand airline passengers have returned to Australia from the Indonesian holiday island of Bali since the weekend suicide bombings which killed 22 of various nationalities. The tourist industry on which Bali depends could take years to recover.

But what of the effect on the wider economy and investment? Growth rates could slow next year in Indonesia, but issues other than terrorism are more likely to be the cause, as Karon Snowdon explains.

Snowdon: It might seem like dry economics but its widely considered that Indonesia needs to achieve at least 6 per cent annual economic growth to provide the necessities for its population – beginning with jobs.

Showing the best growth in eight years, GDP expanded by 5 per cent last year. Before Saturday's suicide attacks, forecasters thought six per cent plus was possible for the next five years.

Roger Donnelly is the Chief Economist for the Australian Government's Export Finance and Insurance Corporation.

Donnelly: Yes it is a setback. I suspect it's not a setback that's going to precipitate a crisis, but it is something we need to watch closely.

Snowdon: Bali supplies almost all tourism related national income, but it contributes only a small fraction of overall GDP.

The government is focussed on improving the investment climate and boosting infrastructure development as key planks to its poverty reduction plans.

Recent initiatives have helped, including an anti-corruption drive, the peace deal in Aceh and the possibility of something similar for Papua.

The increase in fuel prices on the weekend has been welcomed by markets as a sign of improving budget management by cutting massive spending on subsidies.

On average fuel prices climbed by an unexpectedly high 126 per cent, a coincidence of timing that Roger Donnelly says has helped contain protests against the price hikes.

Donnelly: The coincidence of the bombings with this decision of the government I think has muted the impact in financial markets. On the one hand, they're seeing a setback to the economic and the investment outlook, but on the otherside, they're seeing something that actually improves the outlook and I think that is one factor that has muted the impact. In otherwords, there are other important things going on here and it does need to be kept in perspective, I believe the suicide bombings.

Snowdon: The decision to raise fuel prices has the potential to give investor confidence a boost, even though it risks higher inflation.

However, President Yudhoyono's much hyped infrastructure agenda is lagging – only a few of the 90 projects valued at 22 billion dollars unveiled at a summit in January have been put to tender.

Half of the one billion dollars Australia pledged after the December tsunami in Aceh is targeted for infrastructure.

Changes to investment laws are yet to happen, and another summit is planned for November.

Eric de Haas, the President of the Australia-Indonesia Business Council says business people are not about to leave Indonesia because of the Bali bombings, but foreign investors won't come until the weak and at times corrupt legal system is reformed.

De Haas: The legal system has always been a bit of an impediment to investment, to doing business in Indonesia. We've seen some signs recently though I think the government is getting much more serious about making improvements to the legal system. But that's going to take some time to flow through, throughout the whole judicial system, that's going to take several years. There's a hell of a lot that needs to be done up there, power generation, transmission, distribution, the roads, the hospitals etc.

Snowdon: Do you think you should be taking special measures in relation to some of these projects and perhaps making special arrangements that give investors certainty for say one off projects, just move some things along?

De Haas: It was suggested several months ago that they have some sort of test projects to test the water so to speak. The government has said no, we'd rather go ahead with the projects, rather than just do a couple of test runs and delay everything else until we get the results. So you can understand that I guess. But it would be nice to have some runs on the board, definitely.