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How much more can Thailand take?

How much more can Thailand take?

As the process of picking up the pieces has begun after the worst of the flood has subsided, many questions and challenges have surged to the fore. Chief among them will be how the authorities intend to shore up the Thai economy in the aftermath of such devastation. Political volatility and violent outcomes one year after another since the military coup in September 2006 have now been compounded by a debilitating natural disaster.


This picture taken Nov 23 shows hundreds of brand-new vehicles sitting caked with mud as the floodwaters recede at Honda auto factory in Ayutthaya province.

How much more can Thailand take?

The flood-related damages, estimated to be upwards of one trillion baht, have already shaved GDP growth projections significantly. Owing to the contraction in the fourth quarter this year, GDP expansion for 2011 is likely to come in under 2%. Growth next year will be dampened by the lingering post-flood effects in the first quarter. However, the recovery and rebuilding efforts next year will provide limited uplift on consumption and investment.

While the eurozone and US sovereign debt crises offer little reprieve from key external markets, the Thai economy can still maintain a growth trajectory in the 3-4% range for 2012, aided by a low base effect. But growth trajectory for the next 2-3 years will now have to rely more on domestic consumption and investment as well as intra-regional trade and investment and new markets in places like Latin America, the Middle East and Africa.

All things being equal, even with an unwieldy political environment, the Thai economy has proved resilient. It is extraordinarily well-endowed. It should be doing much worse but is not. A flexible labour market, negligible unemployment and the influx of foreign migrant workers will keep production costs manageable in spite of the government's increases in minimum wage and civil service salaries.

These increases may actually boost productivity in the longer-term if accompanied by a more coherent reform programme on skills-training and education.

Post-flood agricultural growth next year is likely to be buoyant. The danger for next year may well stem from a drought than a flood. The machinery of the Thai bureaucracy will now tilt in favour of flood prevention, and the reservoirs are likely to be kept low prior to the next monsoon season. If the rains are not as abundant on an annualised basis, the problem will be water scarcity.

The water management agencies and authorities should strike a balance by coming up with more accurate data and forecasting.

While modest near-term growth is achievable, the long-term concerns on foreign investment and Thailand's economic competitiveness merit attention.

The newly-minted but submerged automobiles at the Honda plant in Ayutthaya are an iconic image of what could happen to direct investment in Thailand.

A flood of this magnitude cannot be ruled out for the next 20-30 years. Those whose investments are embedded and too costly to relocate are forced to stay for the long haul.

But others who are considering Thailand as a base must naturally be thinking of alternatives. This is the long-term risk to Thai economic competitiveness.

It so happens that alternative investment sites, such as Vietnam and Indonesia, are not all smooth and easy. Vietnam's macroeconomy is problematic, whereas corruption in Indonesia may be as endemic as Thailand's.

Thailand still has some luck. In addition, Thailand's gravitation pull emanates from other attributes like lifestyle and hospitality up to a point.

But if conditions worsen without remedy, even good food and appealing livelihoods may not deter foreign businesspeople from leaving.

The two high-profile committees recently appointed by the government must work in tandem to allay investor concerns and come up with a comprehensive and concrete flood management plan.

After the flood, the sense of urgency may dissipate, as it often does with Thailand's many crises large and small. A timetable, operational autonomy and substantial resources must be granted to these two bodies for both water management and economic viability going forward.

No doubt these are some of the more immediate concerns of foreign investors. But what is more disconcerting may be Thailand's endless political endgame. It is a saga stretching back over a decade, and leaves the country in a virtual holding pattern. There are small movements within but there is no big forward move. Being at a standstill means going in reverse as others progress. This is Thailand's story for the past five years. It has no peace at home and no prestige abroad.

The over-arching risk for those coming in from outside is Thailand's inability to get its act together and its house in order. After a coup in 2006, it had a new constitution and election in 2007, only to be met with street demonstrations in 2008 by the yellow shirts and then in 2009-10 by the red shirts.

This year produced a new elected government without overt violence and protests on a large scale _ but then the floods hit. Many foreigners here and abroad have the right to ask what unpleasant incident lies ahead next year and beyond?

Getting the Thai house in order ultimately requires an understanding, a compromise of sorts. There have been some positive signs but they are patchy and incomplete for a way forward.

The election transpired last July, and the elected government got to take office. Some of the red shirts were released, while the army was left untouched. The make-up of the water management committee includes key palace-associated members. Thaksin Shinawatra, the ousted leader who has been convicted for corruption and faces four additional charges, wants to return but the government halted a pardon scheme to bring him home.

His sister, Prime Minister Yingluck Shinawatra, barely scraped through the flood crisis and may yet be allowed to muddle along for the foreseeable period.

Cataclysm has not arrived but neither has a real compromise.

We need to know the explicit terms of a truce between Thaksin and the uppermost echelons among his opponents. What is Thaksin willing to give up and put up with, in exchange for his return, and what does it take for his top opponents to make the concessions necessary for Thailand to move on?

These terms are just a first step. Without them, Thailand will remain stuck long after the flood.

The writer is Director of the Institute of Security and International Studies, Faculty of Political Science, Chulalongkorn University.

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