2011 Thailand flood could be more destructive than Asian financial crisis (video) *updated

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For the second consecutive weekend residents of Bangkok have been told to prepare for widespread 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.

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

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, has 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 financial crisis.

When the Asian financial crisis hit Thailand in 1997 the country was still heavily reliant on its agriculture industry.

While agriculture remains the country’s largest employer 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 per cent to the country’s GDP.

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Industrial output now 44% of GDP

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.

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

About 34 per cent of Thailand GDP now comes from the manufacturing sector, with industrial output as a whole contributing about 44 per cent, while only employing about 14 per cent of the workforce.

When the Asian financial 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. Misguided IMF policies of the time resulted in a record number of bankruptcies.

There is clear evidence that the 2011 Thailand flood is having a similar affect on the country’s workforce again. Border crossings to Burma and Cambodia are reporting large numbers of people returning home.

Thailand’s Ministry of Labour (MOL) says more than 700,000 workers are now without employment, while more than 14,800 businesses, including those located in the Bang Kadi, Lad Krabang, Bangchan, Nava Nakorn, Rojana, Ban Wa Hi-Tech, and Bangpa-in industrial estates, affected by the 2011 Thailand flood.

It is estimated that more than eight million people are displaced or affected.

Manufacturing giants submerged

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 industrialised 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.

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Ayutthaya October 2011
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Last week Thailand’s Central Bank estimated losses from the 2011 Thailand flood could top Bt100 billion (US$3.232 bln).

Companies operating in five of the submerged industrial estates owed about Bt60 billion ($1.9 bln) to Thai banks, or about 0.75 per cent of all borrowings, it said.

Separately the Federation of Thai Industries (FTI) said the losses and damage in the Central Plains alone could be in the vicinity of Bt190 billion ($6.2 bln).

Insurance claims rolling in

Thailand’s Insurance Commission (TIC) said claims totalling Bt100 billion ($3.232 bln) have already been submitted, and said that losses from the 2011 Thailand flood could top Bt20 billion ($650 mln) 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 ($12.154 bln) in insurance cover, with a further 48,000 smaller businesses in flood affected areas holding policies worth more than Bt56 billion ($1.8 bln).

Chantra Purnariksha, secretary general of the Thailand Insurance Commission said there was about Bt500 billion ($US16.162 bln) in policy coverage for areas so far affected by the 2011 Thailand flood and said Thai insurers carried a combined reserve of Bt1.14 trillion ($36.85 bln).

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With figures such as this being cited before factory owners have a chance to inspect the damage and ahead of  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 per cent drop experienced in 1997.

Barclays Capital has cut its forecast for Thailand’s annual GDP growth by 21.6 percent, from 3.7 percent to 2.9 per cent, while Thailand economic analysts are predicting a 43 per cent drop for the 2011 year from 4.4 percent to 2.5 percent.

Bangkok surrounded by water

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

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 he had refused to open more than 200 sluice gates that regulate Bangkok’s 1,682 canals to allow the water to 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, resulting in an ever increasing mass of water building up.

40 days and 40 nights to drain the city of angels

After ordering the sluice gates be opened, Prime Minister Yingluck warned Bangkokians Saturday morning (October 22) that the 2011 Thailand flood could see the capital underwater for several weeks. Some parts of the country are expected to remain flood affected until the end of the year.

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Bangkok is hoping millions of sandbags will keep the 2011 Thailand flood out of the city.
Bangkok is hoping millions of sandbags will keep the 2011 Thailand flood out of the city. Photo: Bangkok governor FB page

According to Royal Irrigation Department (RID) spokesman Boonsanong Suchatpong, it will take about 40 days for the 2011 Thailand flood waters to drain into the Gulf of Thailand.

With the country’s major water catchment reservoirs either at or exceeding capacity — Bhumibhol, Sirikit, and Khaew Noi dams are reported to be at 99 per cent capacity, while Pasak dam is said to be at 138 per cent — and more rainfall expected later in the year, a lot of water remains to be drained.

Somkiat Prajamwong from the RID says at least 23 million cubic meters (23 bln liters / 6 bln gallons) of water needs to drain through Bangkok each day.

The 2011 Thailand flood has been described as the worst flood in Thailand in more than 50 years and the country’s food supply chain is already starting to buckle under the weight of heavy rain that began last July. Supermarket and convenience store well away from the 2011 Thailand flood affected areas are already showing signs of shortages across many product lines.

10% of rice paddy destroyed, supply chains buckle

When Thailand’s economy shank by 1.7 per cent  — before dropping a whopping 10.5 percent in 1998 — its agriculture base was largely unharmed. The fields were intact and crops still grew. People may have lost their jobs and returned to the provinces, but there was still ample supplies of food.

With a third of Thailand’s 76 provinces, about 1.6 million hectares (4 million acres) in the center, north, and northeast of the country affected by the 2011 Thailand flood, the agriculture industry is this time taking a battering, along with peoples ability to buy anything due to lack of employment.

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The 2011 Thailand flood is already seeing shortages of many goods
The 2011 Thailand flood is already seeing shortages of many goods. Photo: John Le Fevre

In addition, Thailand’s food processing and distribution systems are largely Bangkok centric, with the country’s extensive road network being the primary method by which goods are transported to Bangkok and/or industrial estates for processing before being distributed across the nation or exported.

According to government sources more than 10 per cent of the country’s rice paddy has been damaged by the 2011 Thailand flood, but no figures have been released yet on other affected agriculture industries.

Deputy prime minister and commerce minister, Kittirat Na-Ranong, has already expressed concern that the 2011 Thailand flood will see foreign investors withdraw. His prior confidence that more than 50 per cent of the industrial estates will resume operation within 45 days of the 2011 Thailand flood starting to recede now being viewed by more than some as being beyond optimistic.

Foreign investment in Thailand to take a beating

Meanwhile many of the foreign investors whose factories now lay under three or more meters of water are ramping up production in other plants around the world.

With financial events in Europe and North America seeing some people predicting another global financial contraction on the horizon, it is possible that by the time the 2011 Thailand flood drains out of Thailand some may conclude their capacity in other locations is sufficient for the present time.

Thailand economist Ammar Siamwalla feels yet another crisis in Thailand might be the straw that finally breaks the camel’s back for some foreign investors.

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In an interview published in the New York Times Mr Ammar said: “This is a disaster in slow motion. It has been accumulating, little by little, until it reaches Bangkok. It demonstrates a complete lack of infrastructure to handle the floods. Low-lying flood plains that have historically absorbed Thailand’s annual flooding have become an industrial region, with giant complexes and other construction blocking natural flows of water.

“With each new investment, the makings of a disaster took shape, and when this year’s historically heavy rains came, there was nowhere for the water to go. Foreign investment in Thailand will take a beating, I believe”, he added.

With a large portion of its manufacturing base and agriculture sector effectively destroyed, in addition to a novice government that to date has failed to take control of the situation, and the 2011 Thailand flood has all the makings of a perfect economic storm for the Thai people, far worse than 1997 Asian financial crisis.

 

Updated November 3, 2011: On November 3, 2011 Thailand’s Central Bank revised its estimate for 2011 GDP down as a result of the 2011 Thailand flood by 1.7 percentage points to 2.4 percent, 5 percent below the country’s GDP at the end of the first year of the 97-98 Asianfinancial crisis.

Bank of Thailand northern region office senior director Suphawadee Punasri, said the 2011 Thailand flood has so far cost the agriculture sector Bt10 billion ($325 million),

Phichit Phattarawimonporn, Bank of Thailand Northeastern Region Office senior director, said the 2011 Thailand flood has damaged 4.5 million rai (about 17,900 acre / 7,250 ha) of farmland, representing about 8.1 percent of the regions total plantation area, with 3.9 million rai (about 15,400 acre / 6,230 ha) of rice plantation flooded. It had the potential to reduce the rice harvest by up to 320,000 tons, or Bt4.1 billion ($133.18 million).

Mr Phattarawimonporn said foreign investors could relocate from the central region to the northeastern or other non flood-prone regions of Thailand, but noted that years of neglect of the Thai railway network, including the absence of a high-speed and / or double-track rail system, were major drawbacks.

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Feature video Anirut Srisawad

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John Le Fevre is an Australian national with more than 40 years experience as a journalist, photographer, videographer and editor.

He has spent extensive periods of time working in Africa and throughout Southeast Asia, with stints in the Middle East, the USA, and England.

He has covered major world events including Operation Desert Shield/ Storm, the 1991 pillage in Zaire, the 1994 Rwanda genocide, the 1999 East Timor independence unrest, the 2004 Asian tsunami, and the 2009, 2010, and 2014 Bangkok political protests.

In 1995 he was a Walkley Award finalist, the highest awards in Australian journalism, for his coverage of the 1995 Zaire (now Democratic Republic of Congo) Ebola outbreak.

Most recently he was the Thailand editor/ managing editor of AEC News Today . Prior to that he was the deputy editor and Thailand and Greater Mekong Sub-region editor for The Establishment Post, predecessor of Asean Today.

In the mid-80s and early 90s he owned JLF Promotions, the largest above and below the line marketing and PR firm servicing the high-technology industry in Australia. It was sold in 1995.

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

If you enjoyed reading, please share using these options below.
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10 Responses to "2011 Thailand flood could be more destructive than Asian financial crisis (video) *updated"

  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.

    Reply
  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.

    Reply
  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.

    Reply
    • 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.

      Reply
      • Dan   October 24, 2011 at 6:28 pm

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

      • 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

  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.

    Reply
    • 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.

      Reply
      • 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.

      • 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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