Floods could reduce Thailand's economic growth by 1 percentage point: World Bank

People row a boat in the floodwaters in Bang Ramintra district in Bangkok, Thailand, Nov. 22, 2011. The situation has improved dramatically in recent days and cleanup has begun in many areas.

The devastating floods in Thailand could reduce the country's 2011 economic growth by around 1 percentage point, the World Bank said in a report released on Tuesday.

The Thai economy is projected to grow by 2.4 percent this year, the bank said in its latest East Asia and Pacific Economic Update.

This represents a downward revision from the bank's previous forecast of 3.7 percent released six months ago, mainly due to the impact of the floods and the weakening external demand from the developed markets.

"The impact of the floods will be most severely felt in the last quarter of 2011, coming mainly from production losses of the industrial estates in the vicinity of Bangkok," said the report.

The World Bank said the estimates of the losses from the floods in southeast Asian countries were not yet complete.

Thailand experienced rarely-seen floods over the past weeks, forcing the closing-down of many factories and quite a part of the capital Bangkok.

The World Bank also revised the growth forecast for Thailand in 2012 by 0.2 percentage point to 4 percent. Factors supporting growth include the reconstruction and rehabilitation by both the public and private sectors after the floods,

dissipation of supply chain disruptions, a momentum in household consumption and likely solid performance of private investment following the improved political stability.

The bank revised its growth forecast for developing East Asia excluding China downward from 5.3 percent to 4.7 percent. China is expected to grow by 9.1 percent this year and 8.4 percent next year, respectively.

Cost of rehab to be tallied this month

Financial authorities expect soon to finalise the sum needed for the Kingdom's reconstruction after the flood disaster with assistance from the World Bank, amid expectation that it will require hundreds of billions of baht to restore investor confidence.

Finance Minister Thirachai Phuvanatnaranubala reiterated the country's readiness to finance the rehabilitation efforts. Re-ferring to a meeting with World Bank executives yesterday, he said a team of 30 experts was now in Thailand and should complete their damage assessment and report on rehabilitation requirements by the end of the month.

"I was told about the availability of a damage-calculation formula and rehabilitation approaches. This will be reported to the Recovery Strategy Committee chaired by Vira-bongsa [Ramangkura]," he said.

Thirachai yesterday endorsed a proposal by the Federation of Thai Industries, the Thai Bankers Association and the Thai Chamber of Commerce to distribute some revenue from corporate income taxes to a rehabilitation fund. 

The donation is based on the differential of tax rates between 2011 and 2012. Next year, the corporate tax rate is to be cut from the current 30 per cent to 23 per cent.

He said his ministry was ready to relax the rules to accommodate the initiative. It estimated that if all companies join the effort, the fund could be valued at Bt52 billion and should be a particular help to small and medium-sized enterprises.

A government committee chaired by Transport Minister Sukampol Suwannathat, tasked with resuscitating flood-affected infrastructure, will today ask the Cabinet for a budget of Bt18.44 billion to rehabilitate Don Mueang Airport, 799 schools, and roads. 

Billions of baht is expected to be required to build flood barriers around industrial estates, after the inundation of nearly 1,000 factories.

Finance permanent secretary Areepong Bhoocha-oom said the ministry expected to achieve its tax-revenue target of Bt1.98 trillion for fiscal 2012, a 4.7-per-cent increase from a year earlier.

The ministry expects the economy to grow about 5 per cent next year, boosted by rising local consumption and reconstruction investment following the flood crisis. 

The disaster may shave 1.8 percentage points from growth in gross domestic product this year, he said, without giving a forecast for 2011 economic growth.

It is now widely expected that the Bank of Thailand's Monetary Policy Committee at its November 30 meeting will cut the policy rate to boost the ailing economy.

Praipol Koomsup, a former member of the MPC, said the rate might be cut by half a percentage point. Amid calls from some companies for a cut of as much as 1.5 percentage points, he said such a reduction would be too steep and could make it hard for a U-turn.

"A 50-basis-points cut is large, but not too big. It could be cut that much while the Bank of Thailand monitors the situation. If the economy does not pick up, another cut is possible in the next round," he said.

In 2008 the central bank slashed the policy rate by as much as 1 percentage point. Praipol reasoned that the decision at that time was supported by the severe economic plunge sparked by the financial crisis that began in the US. 

Though the impacts of the current flood crisis are huge, they vary in severity across the provinces.

The government is scrambling for plans to rehabilitate infrastructure as well as build new facilities to prevent a recurrence of the disaster in coming years.

Thirachai said a US trade representative who paid him a visit yesterday also urged both short- and long-term plans.

Attending the Asia-Pacific Economic Cooperation Leaders' Summit in Hawaii this weekend, Deputy Prime Minister Kittiratt Na-Ranong relayed the government's commitment to prevent another disaster.

Thailand tries to help companies, as floods spread

BANGKOK

Thailand on Wednesday offered more help to businesses affected by a national flood crisis as the waters spread deeper into Bangkok and risked cutting off a major highway.

The flooding since late July has killed 533 people and caused billions of dollars in damage, closing hundreds of inundated factories north of the capital. 

The water has nearly surrounded Bangkok, flooding a dozen of its outer districts and threatening chaos in the crowded city of more than 9 million people.

The floodwaters are trickling onto the main route south from the city, Rama II Road. If the water gets deeper, it will cut off the last dry highway to Thailand's south and likely swamp so-far unflooded areas of southwestern Bangkok.

The industrial closures have had an effect well beyond Thailand, since the factories supply key components for several industries, particularly the automotive and computer sectors.

Thailand's Board of Investment, which grants tax holidays and other privileges to investment projects, already has taken steps to mitigate flood damage, such as giving tax write-offs for damaged raw materials and easing rules on bringing in foreign nationals to help with recovery.

New measures announced Thursday include allowing companies to temporarily outsource all manufacturing in order to maintain customer deliveries and extending by six months import tax exemptions on replacements for damaged machinery.

Especially hard hit by the flooding have been Japanese companies, led by Honda and Toyota, that were forced to close assembly plants in flooded areas. Some have complained they were not given timely and accurate information that would have allowed them to prepare for flooding.

On top of Thailand's political instability in recent years, the floods have raised the possibility foreign investment projects may relocate elsewhere in Southeast Asia.

Prime Minister Yingluck Shinawatra has tried reaching out to Japanese businesses. Japan's ambassador accompanied Yingluck on an inspection this week in Ayutthaya, just north of Bangkok, where several flooded industrial estates have begun cleanups.

Virabongse Ramangkura, a former finance minister heading a reconstruction and development committee established this week, said he would consult in Tokyo with officials from Japan's Ministry of Economy, Trade and Industry on how best to aid the stricken businesses.