Bangkok stays dry, but Thai economy badly affected by flooding

Updated On: Oct 18, 2011

Most of the Thai capital of Bangkok has escaped flooding, but officials warn the city remains under threat from heavy rains.

Thailand's worse flooding in decades has swept two-thirds of the country, swamping farmland and factories and leaving 300 people dead. More than 700,000 homes have been destroyed. Thailand is used to monsoon rains at this time of year, but not of the intensity of the past few weeks. Like most of South-east Asia, Thailand has been experiencing an unusually long wet season this year.

Over the weekend, Thai authorities launched a major effort to build barriers and keep Bangkok safe. Despite waters pushing down on the city’s northern outskirts, authorities say flood waters are receding and fast dredging of canals helped divert much of it away from the capital and out to sea.

But residents outside the capital are worried that their homes and businesses in outlying areas could be overrun with flood waters because of the focus on the city.

Economic Impact

One of Thailand's oldest and largest industrial estates has been evacuated after flood waters breached its defences. Water began seeping into Navanakorn industrial estate in Pathum Thani, 45 km from Bangkok, on Monday. The estate houses some 250 factories, employing over 270,000 people.

Other industrial estates have also been affected by the flooding. A number of firms - including Japanese carmakers Toyota and Honda - have been forced to suspend production because of damage to facilities or disruption to local supply chains.

Thailand's government predicts that damage to the economy could total more than 120 billion baht (US$3.9 billion).

Finance Minister Thirachai Phuvanatnaranubala said the flooding will reduce Thailand's economic growth by 1 to 1.7 percent this year. The government had previously forecast a Gross Domestic Product (GDP) of 3.5 to 4.5 percent for the year.

"The impact might be larger than this if the situation is beyond our control for a long time but if it is under control and restoration is fast, the impact could be restricted at this level," Mr. Thirachai said, after an economic ministries meeting yesterday.

Deputy Prime Minister Kittiratt Na-Ranong, who chaired the meeting, said the Thai government needs to borrow billions from overseas to finance flood prevention projects as the existing budget is not enough for long-term investment.

The Bank of Thailand has warned that the final flood damage may be higher than the current predictions, as the situation is worsening. However, the central bank's governor Prasarn Trairatvorakul said the crisis will not have a significant impact on the banking industry, and the central bank has asked commercial banks to help affected companies by extending debt repayment periods.

Report: Thai flooding: Key business park Navanakorn evacuated [BBC, 17 Oct 2011]

Report: Cost of deluge estimated to be 'massive' [Bangkok Post, 18 Oct 2011]

Report: Focus on Bangkok endangers other Thai cities [Al Jazeera, 17 Oct 2011] (Video)

Wage Increase

Meanwhile, the Thai government said yesterday it will push ahead with a plan to raise the country's minimum wage. The move comes despite appeals from industry to shelve the plan as they cope with financial losses from the floods.

At a meeting of a tripartite wage committee yesterday, employers were outvoted by government and worker representatives and a minimum daily wage of 300 baht (US$9.70) was approved for Bangkok and six other relatively well-off provinces from January 2012, an increase of about 40 percent. The rest of Thailand will see a similar 40 percent increase, though for the time being wages in poorer provinces will remain beneath 300 baht.

A rise in the minimum wage to a uniform 300 baht around the country was one of the main policies of the party of Prime Minister Yingluck Shinawatra in July's election. Her party received strong support from rural areas and the working class.

Former Prime Minister Thaksin Shinawatra, Yingluck's brother, has argued in favour of the increased.

"If you think it will cost businesses more, slashing their profitability, that is the one-dimensional view," he told the Bangkok Post in an interview published yesterday, "but for me, the policy will reallocate resources in society and is also a good way to boost productivity."

He saw a rise as part of the government's aim of "rebalancing society," after a destabilizing political crisis that has pitted the rural and urban poor, who largely back Thaksin, against Thailand's traditional elites over the past six years.

The wage rise will add to Thailand's dilemma when the country's central bank holds its rate review on Wednesday. Core inflation in Thailand is near three percent, the top of its target range, but the economy is under threat from both the floods and a slowdown in European and United States export markets.

Analysts expect the central bank will err on the side of caution and keep rates unchanged this week.

Report: Thailand ups minimum wage as firms struggle with floods [Reuters, 17 Oct 2011]

Report: Thai Floods Adding to Global Risks May Bring Yingluck Rate Pause [Bloomberg, 18 Oct 2011]

Challenge for Yingluck's Government

The flooding in Thailand is the biggest test thus far for the country's newly-elected government. Ms. Yingluck has been touring the flooded areas, offering moral and economic support.

But her government’s response has still been criticised as tardy and ineffective. On top of the short-term damage to the government’s reputation, the economic consequences of the floods will be a longer-term problem for Ms. Yingluck and her ministers.

A downturn in Thailand from the floods could affect the government's ability to implement its ambitious economic and social policies. Proposals such as a new form of rice subsidy, a doubling of the salaries of new civil servants and free tablet computers to all children starting school will cost a lot of money. Even with a good economy, these schemes would have probably led to higher inflation and increased public debt.

Analysis: Swept away [The Economist, 18 Oct 2011]

Relief Efforts

Intense relief efforts are underway in the country. Aside from government plans, hundreds of volunteers have massed at Bangkok’s Don Muang airport to help with flood relief for those forced to evacuate their homes.

The Royal Thai Embassy in Singapore said it is accepting donations for the flood victims. Details are available at the embassy website.

Report: Thai Officials Say Bangkok Still Threatened By Flooding [VOA News, 17 Oct 2011]

Report: Bangkok spared fury as flood barriers hold firm [TODAY, 18 Oct 2011]

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