2011 Thailand flood could be more destructive than Asian Economic Crisis

This story was updated at 10:33 Nov 9, 2011.
Edited text in green type

For the second consecutive weekend residents of Bangkok have been alerted to prepare for wide-spread flooding as an estimated 12 billion cubic meters (12 trillion liters / 3.17 trillion gallons) of water from months of rain in Thailand’s central and northern provinces rushes towards the Gulf of Thailand in what has come to be known as the 2011 Thailand flood crisis.

While the government of recently elected Prime Minister Yingluck Shinawatra has attempted to put on a brave face, the lack of ministerial experience, along with old political rivalries, have done little to ease the situation with the destruction left in the wake of the 2011 Thailand flood threatening to be more severe than the early stages of the 1997-98 Asian Economic Crisis.

Industry contributes about 44% of Thailand GDP but employs only about 14% of the workforce
Industry contributes about 44% of Thailand GDP but employs only about 14% of the workforce. Photo: John Le Fevre

When the Asian Economic Crisis hit Thailand in 1997 the country was still heavily reliant on its agriculture industry and while it remains the largest industry for employment and Thailand remains the world’s largest exporter of rice and rubber and the second-largest exporter of sugar, agriculture today contributes only about 8 percent to the country’s GDP.

Since the Asian Economic Crisis of the late 90s Thailand has grown less reliant on agriculture, with about 34 percent of GDP now coming from the manufacturing sector, with industrial output as a whole contributing about 44 percent of GDP, but employing only about 14 percent of the workforce.

Today Thailand is just as well known as a manufacturing base for machinery, automobiles and automotive parts, electric appliances and electronic components, as it is for shrimp, canned fish, coconuts, soybeans, and tapioca.

1997 Asian Economic Crisis

Thousands of building projects in Thailand ground to a halt during the 1997-98 Asian Economic Crisis
Thousands of building projects in Thailand ground to a halt during the 1997-98 Asian Economic Crisis . photo: John Le Fevre

When the Asian economic crisis started in 1997 Thailand sent more than 600,000 workers back to their home countries, while there was a mass exodus of workers back to the provinces as misguided IMF policies of the time resulted in a record number of bankruptcies.

There is ample evidence that the 2011 Thailand flood is having a similar affect with the country’s workforce, with border crossings to Burma and Cambodia reporting large numbers of people returning home.

Thailand’s Ministry of Labour says more than 700,000 workers are now without employment, more than 14,800 businesses, including those located in seven industrial estates ‚Äì Bang Kadi, Lad Krabang, Bangchan, Nava Nakorn, Rojana, Ban Wa Hi-Tech, Bangpa-in ‚Äì are affected by the 2011 Thailand flood, and more than eight million people are displaced or affected.

An inspection of the companies included in the seven industrial estates now under as much as three meters (about 10 feet) of water reads like a who’s who of the industrialized world, with brands such Toyota, Honda, Toshiba, Sanyo, Canon, Nikon, Panasonic, Western Digital, Seiko, Hoya, Nestle and ON Semiconductor just a few of those affected.

Foreign investors hold more than $16 billion insurance

[tube]http://www.youtube.com/watch?v=EFTsSq-z6Ko&feature=share[/tube]

Last week Thailand’s Central Bank estimated losses from the 2011 Thailand flood could top Bt100 billion (about $US3.232 billion) and said companies operating in five of the submerged industrial estates owed about Bt60 billion ($US1.9 billion) to Thai banks, about 0.75 percent of all borrowings, while the Federation of Thai Industries (FTI) said the cost in the Central Plains alone could be in the vicinity of Bt190 billion ($US6.2 billion).

Thailand’s Insurance Commission (TIC) said claims totaling Bt100 billion ($US3.232 billion) have already been submitted and said losses from the 2011 Thailand flood could well top Bt20 billion (US$650 million) for the Ayutthaya industrial estates alone.

According to the TIC the 820 businesses from six of the seven flooded industrial estates alone hold more than Bt376 billion ($US12.154 billion) in cover, with a further 48,000 smaller businesses in 2011 Thailand flood affected areas holding policies worth more than Bt56 billion ($1.8 billion).

Chantra Purnariksha, secretary general of the Thailand Insurance Commission said there was about Bt500 billion ($US16.162 billion) in policy coverage for areas so far affected by the 2001 Thailand flood and said Thai insurers carried a combined reserve of Bt1.14 trillion ($US36.85 billion).

With figures like this already being cited before factory owners have a chance to inspect the damage and prior to any inundation of Bangkok and it’s clear to see the cost to the Thai economy from the 2011 Thailand flood will be more devastating than the 1.4 percent drop experienced in 1997.

43% drop in GDP forecast due to 2011 Thailand Flood

Bangkok governor Sukhumbhand Paribatra inspects 2011 Thailand flood preparations.
Bangkok governor Sukhumbhand Paribatra inspects 2011 Thailand flood preparations. Photo: Bangkok Governor FB page

Barclays Capital has cut its forecast for Thailand’s annual GDP growth by 21.6 percent ‚Äì from 3.7 percent to 2.9 percent ‚Äì while Thailand economic analysts are predicting a 43 percent drop for the 2011 year from 4.4 percent to 2.5 percent. (Ed: See updated details on page 2)

For the past 10 days or so Bangkok governor Sukhumbhand Paribatra has fought a relentless battle attempting to divert the 2011 Thailand flood water around the Thai capital, up until October 20 refusing to open more than 200 sluice gates that regulate Bangkok’s 1,682 canals to allow the water flow into the Gulf of Thailand, for fear of turning Bangkok into a modern day equivalent of Atlantis.

Although the capital has to date been spared, the actions have created a bottleneck slowing the draining of the central and northern provinces and resulting in an ever increasing mass of water building up. ( Continues … )

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John Le Fevre

Deputy editor, Thailand & GMS editor at The Establishment Post

John Le Fevre is an Australian national with more than 35 years experience as a journalist, photographer, videographer and copy editor.

He is currently deputy editor and Thailand / GMS region editor for The Establishment Post

Opinions and views expressed on this site are those of the author’s only. Read more at About me

10 Responses to "2011 Thailand flood could be more destructive than Asian Economic Crisis"

  1. emerald   November 3, 2011 at 1:17 am

    Many countries also suffer from such calamities and also suffering with their economy. What concerns me most is for the awareness of people. Prayers are the best key.

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  2. Maverick   October 25, 2011 at 3:20 pm

    Yes, its sad to hear… Many countries also that suffering from such calamities are also suffering with their economy… What concerns me most is for the awareness of people… We need to always be ready and conserve our mother Earth… Prayers is the best key.

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  3. Dan   October 24, 2011 at 4:45 pm

    “43% drop in GDP forecast due to 2011 Thailand Flood”

    That’s a wildly misleading claim – it sounds like GDP is going to be cut in half, which would probably require a nuclear war. What you’re actually saying is that the rate of growth will slow but not turn negative, which is something quite different, and rather less dramatic.

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    • John Le Fevre   October 24, 2011 at 4:51 pm

      Thanks for reading.

      Please read the earlier reply.

      Don’t be confused by a percentage drop and rate of GDP, or between a percentage and a percentage point. A drop from 9% to 7% GDP is a two percentage point drop, but a 28.5% drop!

      It is not possible to have negative GDP. The growth of GDP in a given year or quarter can be negative (as happens during a recession) but the GDP as a whole cannot be negative as it is impossible that all the goods and services created in a country are sold for a negative value.

      Thanks for reading.

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      • Dan   October 24, 2011 at 6:28 pm

        Never mind. A breathtakingly simple distinction is obviously beyond you.

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        • John Le Fevre   October 24, 2011 at 8:05 pm

          Thanks for reading,

          Obviously High School math was not your strong point. If GDP falls from 4.4% to 2.5 that’s close to half by most people mental calculation.

          Lets make it simple. If you had $44 and gave away half of it you would have $22 – 43% is not far from 50% which is another way of saying half

          Thanks for reading

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  4. Chris L   October 24, 2011 at 11:03 am

    In 1997 the GDP growth -10 percent. This year it is expected to be +2.5 percent.

    In 1997 the foreign reserve went down to zero. Now it stands at USD 200 billion.

    Insurance claims may be large. But Thai insurance companies must have bought insurances from international firms to cover these claims.

    After this crisis is over the economy will go back to normalcy quickly. In 1997 it took years. The economy in the US is still not to back normalcy 3 years after the Wall Street crash.

    This crisis is local. It will never spread across the region.

    There are very few similarities between this crisis and the one in 1997.

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    • John Le Fevre   October 24, 2011 at 3:49 pm

      Thanks for reading, however there is nothing in this article that says the 2011 Thailand flood will affect the region or any except the Thai economy and the Thai people, though it will certainly have some onaffect the Japanese economy given the large number of Japanese FDI companies represented.

      Thailand’s GDP contracted 1.4 % in 1997 not -10%. In 1998 as a result of the misguided policies of the IMF Thailand’s GDP fell 10.5%. Don’t be confused by a percentage drop and rate of GDP, or between a percentage and a percentage point. A drop from 9% to 7% GDP is a two percentage point drop, but a 28.5% drop!

      It is not possible to have negative GDP. The growth of GDP in a given year or quarter can be negative (as happens during a recession) but the GDP as a whole cannot be negative as it is impossible that all the goods and services created in a country are sold for a negative value.

      The Asian Economic Crisis of the late 90s ended quickly and is represented by a V shape, not a U shape chart. After 10.5% drop in GDP in 1998 the Thai economy returned to positive figures in 1999 (4.4%) – about half of the pre-1997 figure – 4.6% in 200 before plummeting to 1.8% in 2001 with the global economic slump which saw about a 50% reduction in FDI globally.

      Economists are already forecasting a GDP slump of between 21.6% and 43% for Thailand for 2011 and that is before the full effects of the 2011 Thailand flood are known.

      The number of people affected by the 2011 Thailand flood is already exceeding those affected in 1997 ‚Äì an estimated 700,000 people have lost their employment due to the 2011 Thailand flood — in 1997 Thailand sent 600,000 foreign workers home. An estimated 9.5 million (latest figure) people are displaced or flood affected, 1/3 of the country, primarily agriculture land, is underwater. The agriculture industry was not obliterated by the 90s AEC. The agricultural areas affected by the 2011 Thailand flood will have lost their topsoil and nutrients. It will take a long time for this land to start producing again.

      Insurance claims have already exceeded $US3 billion. Foreign investors in the Ayutthaya industrial estates alone hold $US16 billion in cover, while others in the region hold about $US2 billion more. That is about half of the liquidity held by all Thai insurance companies. More importantly, claims will need to be inspected before payouts are issued. In that time a large number of people will be without income. The water doesn’t just flow away and a nice man from the insurance company writes you a check and you start production again. There may also be challenges to payouts depending on the wording of individual insurance policies. Not all insurance policies cover flood.

      In addition, many of the skilled workers from these factories have already returned home to Burma and Cambodia.

      At the same time the US and European economies are balanced on a knife-edge – the US economy in particular is particularly vulnerable to collapse and if the economies of either of these regions collapse it will lead to a slump in consumer demand.

      In many ways the 2011 Thailand flood is already a greater disaster for Thailand than the start of the 1997 AEC and until the flood waters have drained (which could last up until the next wet season) and a clearer picture of the European and US economies emerge, the true affect on the country’s manufacturing base and economy will not be known.

      Thanks for reading.

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      • Chris L   October 24, 2011 at 5:36 pm

        Thanks for your reply. I think using percentages of percentages is confusing and is better to be avoided. A change of 0,2 percent growth to 0,1 percent is tiny. Calling it a 50 percent drop make it sound huge.

        So the Thai economy had a negative growth of 1,4 percent in 1997 and 10.5 percent in 1998. In 2011 it is predicted to have a positive growth of 2.5 percent. Will this flood disaster cause a large negative growth (or contraction) in 2012? I think that is very unlikely, but we will know in a few months time.

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        • John Le Fevre   October 24, 2011 at 7:35 pm

          Thanks for reading,

          No, you’re still confused. The Thai economy did not have a negative growth of 1.4% in 1997. The term “negative growth” is an oxymoron.

          In 1997 Thailand’s GDP shrank by 1.4% over 1996 ( GDP in 1995 was 15%) and its GDP was actually 2.58%.

          In 1998 it shrank a further 10.5%. With the 2011 Thailand flood we are talking about much bigger drops. A drop from 3.7% GDP to 2.9% GDP is a 0.8 percentage point drop or a 21.69% fall. A drop from 4.4% GDP to 2.5% GDP is a 1.9 percentage point fall or 43% drop.

          More importantly the issues responsible for the AEC are totally different – non performing loans, corruption, poor monetary policy, and assorted other reasons. It did not see the manufacturing base or agricultural heartland destroyed.

          As to what the carry over affect of that will be on the 2012 GDP will be dependent on how long it takes to drain the water, how badly Bangkok gets flooded, how soon the insurance checks are written, how long the flooded agriculture land is rehabilitated and how long it takes for the skilled workers to return. Returning hi-tech production facilities (ie, clean rooms) to production is not a five minute task. The facilities will need to be TOTALLY dried out, floors removed, filtration systems replaced and much more.

          A return to normalcy, ie, all of the manufacturers that are currently closed return and resume business at the same level as this year for the entire 12 months of 2012 will see GDP in 2012 increase, but it will be an artificial increase due to the drop this year.

          In the meantime the effects on Thailand are going to be quite severe.

          Thanks for reading

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