JAKARTA, Jan 30, Reuter - Visit Indonesia Year, a festival of tourism that began with much fanfare and high hopes on New Year's Day, is already threatening to go bust, killed off by war in the Gulf 5,000 miles (8,000 km) away.

In Bali, the island that attracts most tourists to Indonesia and that was bursting at the seams this time last year, only one hotel room in 10 is occupied, hoteliers said.

"We're hurting and we're hurting bad," the owner of one Bali hotel and convention centre said.

"We don't usually talk about occupancy but if you tell hotel owners now you have occupancy of 10 per cent they all say 'My God, that high? Lucky you'," he said.

Garuda Indonesia, the national flag carrier, has cancelled five of its 14 weekly flights to Europe, the source of most of Indonesia's high-paying, long-staying tourists. Tour groups from Europe, the United Sates and Japan are cancelling in droves.

Fear of terrorist attacks on air travel, warnings to citizens from governments such as Japan not to travel and a sense that the sympathies of predominantly Moslem Indonesia may lie with Iraq are keeping people away, travel agents said.

"It's crazy. Indonesia is probably one of the safest destinations because we're neutral in this war, but people think Moslem equals danger," a travel agent said.

Indonesia, which has the world's largest Moslem population, maintains religious freedom and the government acts firmly against any sign of Islamic fundamentalism.

Jakarta supports the United Nations resolutions condemning Iraqi President Saddam Hussein's invasion of Kuwait but has sent no troops to the Gulf.

Although there have been some bomb threats no attacks against foreigners have been reported in Indonesia.

Business travellers have yet to be deterred, with occupancy at some of Jakarta's five star hotels still above 90 per cent.

"As long as there's money to be made businessmen will come. It's those tourists who are paying out of their own pockets to have a good time who are saying why risk it?" a travel agent said.

In 1990, tourist arrivals to Indonesia leapt by more than a third. Just a month ago many were anxious that Visit Indonesia Year would bring in more tourists than the country's creaking infrastructure could handle.

Not any more.

"I know I said we needed to consolidate but the truth is we don't want to consolidate, we want to keep on growing as fast as we can," the hotel owner said.