Thailand after the flood

By Roberto Herrera-Lim

With the threat of flooding still the main day-to-day concern in Bangkok, the political effects of the crisis remain muted. But the government of Prime Minister Yingluck Shinawatra will come under intense pressure as the waters recede over the next few weeks to implement programs that compensate farmers and worst-hit residents for their losses, help small businesses get back on their feet and improve flood defenses around Bangkok and the main industrial zones. The shape and details of the recovery plan will be discussed and deliberated over the next few weeks, but the cost will be significant.

Crisis management will remain focused for the next week on managing the flow of water from the north to the Gulf of Thailand and controlling flooding in the capital and the threatened industrial estates. About a fifth of Bangkok is already under water. Water levels may still rise with the tide and industrial zones are still under threat at Bangchun and Lat Krabang, but the flood waters have started to flow into the Gulf of Thailand. Estimates as to when firms in the industrial estates hardest hit by the crisis can restart production (even partially) vary from four weeks to a couple of months.

Attention will quickly turn to the government's plans to help individuals and businesses hurt by the flooding, as well as efforts to prevent a repetition next year. The government received substantial criticism for its handling of the flooding, particularly the lack of information, a sense that local politics determined which areas would be protected or sacrificed, and weak coordination between local and central government agencies. The government's efforts have improved, but the real test will be the recovery effort. The opposition will try to capitalize on the situation, but it is not exactly blameless. There is some evidence that the Irrigation Department's reluctance to release water from two major dams when heavy rains started in March (the opposition Democrats were still control) may have increased the amount of water that needed to be released in August, when the flooding threat rose substantially

Still, the government needs to show that it is responding and failure will boost dissatisfaction with the prime minister and result in a more distracted government, which could further hurt the government's response to the economic fallout from the crisis. That may ultimately increase the domestic clamor for an early (and potentially destabilizing) return by the former prime minister, Yingluck's brother Thaksin Shinawatra. Yingluck's government likely recognizes this risk, which will probably prompt a strong rehabilitation effort and substantially higher spending in the first half of next year.

There has been much talk of an 800-billion baht ($27 billion) "New Thailand" project to help the economy and build new infrastructure to manage future flooding threats. But given the budget process, the government is unlikely to any program in place within the next six months, which is the critical window for the government to show that it has dealt with the crisis.

The near-term focus is instead likely to be a patchwork of programs. Predicting the actual size of these programs as well as how much they could add to the deficit is difficult. The cabinet has agreed to raise the 2012 budget deficit to 400 billion baht ($12.3 billion) from 350 billion baht ($10.7 billion) to assure some funding for relief programs). Most numbers regarding the damage and the needed measures to reduce future threats are early, impromptu estimates; businesses, individuals and farmers will register for benefits only once the crisis ends. So far, the near-term measures in place remain unchanged from a few weeks ago and include about $1,000 in aid for each flood-affected household (estimated to number around 3 million), and government guarantees for 325 billion baht ($10 billion) in low-interest loans for small and medium sizes businesses, industrial estate operators, individuals, and corporations.

Roberto Herrera-Lim is a director with Eurasia Group's Asia practice.

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