JAKARTA • Indonesia's economy took a US$16 billion (S$22.5 billion) hit this year from forest fires that cloaked South-east Asia in haze, more than double the sum spent on rebuilding Aceh after the 2004 tsunami, the World Bank has said.

The fires and resulting haze are an annual occurrence caused by slash-and-burn land clearance. But the blazes this year were the worst for some years, causing air quality to worsen dramatically and many people to fall ill across the region, including in Singapore.

In a quarterly update on the Indonesian economy, the World Bank said yesterday that the fires had devastated 2.6 million ha of forest and farmland across the archipelago from June to October.

The cost to South-east Asia's biggest economy is estimated at 221 trillion rupiah (S$22.5 billion), equivalent to 1.9 per cent of predicted gross domestic product this year, it said.

In contrast, it cost US$7 billion to rebuild Indonesia's westernmost province of Aceh after it was engulfed 11 years ago by a quake-triggered tsunami, with the loss of tens of thousands of lives, the World Bank said. "The economic impact of the fires has been immense," said World Bank Indonesia country director Rodrigo Chaves.

Fire has long been a popular way of quickly and cheaply clearing land on Sumatra Island and the Indonesian part of Borneo, to make way for lucrative palm oil plantations. However, the fires burn out of control and produce noxious haze during the months-long dry season, particularly when started on carbon-rich peatland.

The World Bank said that if every hectare burned this year were converted to palm oil, the value would be about US$8 billion.

Indonesia is the world's biggest producer of palm oil, used in everyday goods from biscuits to shampoo.

"So, on the one hand, US$16 billion cost to the public, on the other hand, US$8 billion - lots of money - to a handful of individuals," said World Bank environmental specialist Ann Jeannette Glauber.

The estimated costs are based on an analysis of the types of land burned and take into account the impact on agriculture, forestry, trade, tourism and transportation, as well as the short-term effects of the haze such as school closures and on health.

More than half a million people suffered acute respiratory infections in Indonesia, while many in neighbouring Singapore and Malaysia also fell ill.

AGENCE FRANCE-PRESSE