HDFF Weekly Thailand Review 24/10 – 30/10HDFF Weekly Thailand Review 24/10 – 30/10

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Summary

Flooding in Bangkok and the internal strife between the national Pheu Thai led government and the semi-autonomous Democrat Bangkok Metropolitan Administration (BMA) continued to dominate news coverage this week. Although flooding has spread to outer Bangkok, how much the water will affect inner Bangkok remains in question; unfortunately misinformation and lack of unity are spreading. The government and armed forces are working to implement mediation and prevention measures despite disagreements and obstacles. Flooding continues to rampantly impact the economy with juxtaposing pockets of growth. Stress has been laid on what needs to be done for economic short term and long term goals, but most importantly, how international investments will be handled remains vital. The third quarter closed September 30^th with both positive and negative results but economic experts do not expect the fourth quarter to reflect the same growth.  Several detrimental bombings and killings occurred in the South with no improvement of the insurgency. Energy building and environmentally friendly solutions for the Mekong River are analyzed in addition to Japan’s request to enter ASEAN’s maritime forum.

Politics

Floods have spread to several districts in Bangkok, for example Don Mueng where 90% of the district has been inundated. Don Mueng Airport, host to the Flood Relief Operations Centre (FROC), had to be closed as water levels reaching up to 50cm while water at the Vibhavadi Rangsit – Phahon Yothin junction was reported to be 1m deep.  PM Yingluck Shinawatra is resisting requests to relocate FROC despite blackouts hitting the airport as Yingluck claims moving evacuated citizens should be the priority. FROC, one of the most criticized organizations during previous weeks, released a statement advising people in Bangkok to leave the city over the upcoming long weekend (Thursday, Friday and Monday have been declared special holidays in 21 provinces including Bangkok).  FROC Director General Pracha Promnok stated that everyone should accept that all of Bangkok will be inundated due to the huge amount of floodwater in the north of Bangkok which cannot all be drained in time. According to FROC sources, the worst case scenario predicts flooding in Bangkok to last between 15 days and one month. Science Minister Plodprasop Suraswadi predicted all of Bangkok to be submerged for one to one and a half months. Plodprasop urged the government to tell citizens the truth, criticizing the BMA for not utilizing the sluice gates’ capacity, while arguing for the use of traffic cameras to monitor the flood situation. However, PM Yingluck rated the chances of inner Bangkok being flooded 50-50, with development at three crucial spots on the city’s floodwalls determining the outcome. (Bangkok Post) (The Nation)

With the Chao Praya River expected to rise to a record 2.6m above mean sea level, Bangkok Governor Sukhumbhand Paribatra as well as PM Yingluck warned all nearby residents to prepare for water overflow as the flood prevention dyke is only 2.50m above mean sea level. In Nonthaburi province, the Chao Phraya River overflowed in four locations as local authority’s attempted to block water from advancing towards Bangkok. 50,000 additional soldiers will be mobilized by the Defense Ministry to both protect critical infrastructure and to mitigate more flooding in Bangkok. Army chief Prayuth Chan-ocha commented that His Majesty the King does not want special protection for the Chitralada Palace. “His Majesty is very worried about the Thai people. He always has been and always will be. That’s him. He doesn’t want anything special, and he said the water must be allowed to flow naturally.” (The Nation) Furthermore, General Prayuth Chan-ocha stated that he did not believe it was necessary to invoke an emergence decree at this time, contradicting democrat leader Abhisit Vejjajiva and private sector members. To combat drinking water and food shortages, the armed forces will help distribute goods of manufacturers who are unable to move their product to Bangkok due to flooding, while Supermarket chains like Big C announced they would import rice, drinking water and instant noodles from Malaysia starting next week to accommodate the current high demand.  (Bangkok Post)

Given that 370 people have lost their lives in this year’s floods, Prime Minister Yingluck continued to urge all people to unite during this time of crisis and put political differences aside during her weekly radio address. With inundation spreading to Bangkok, she warned that it could take up to six weeks for the waters to recede in the country and that Bangkok will open all floodgates to allow the water through, all the while assuring Bangkokians that there was no reason to panic. “The government will oversee the distribution of all consumer goods and ensure that they are sufficient and available for everyone. Bangkok residents must be prepared to cope with the situation because there is a lot of water but don’t panic and don’t stockpile goods.” (The Nation)

Many commentators and critics have placed blame on the Yingluck government, continuing to focus on the PM’s wardrobe or her mental state with continual speculations about if she had been crying. However, Pavin Chachavalpongpun argued in his Wall Street Journal opinion piece that blaming Yingluck alone is hardly fair. The Royal Irrigation Department has to be partly blamed for keeping large amounts of water in key dams at the beginning of monsoon season which happened under the authority of the Abhisit government. Furthermore, Mr. Pavin argued that all previous administrations have to be blamed as well, as none of them have “put an effective system in place to prevent future disasters.” Regarding Bangkok Governor Sukhumbhand Paribatra, Mr. Pavin left no room for speculation that he believed Sukhumbhand was actively working against Yingluck and trying to use this crisis to discredit the government.  Democrat leader Abhisit Vejjajiva argued for the invocation of an emergence decree but “did not elaborate why the military could coordinate the response any better than the civilian authorities operating under the natural disaster law.” Yingluck supporters have voiced these actions as part of a “water coup” and even led Pavin Chachavalpongpun to conclude that “the government’s rivals are playing politics with the crisis and preventing a coordinated response.”  (The Wall Street Journal) (The Economic Times)

Economics

The flood damage is now estimated to cost at least 100 billion baht with potential to reach 200 billion baht and to reduce the country’s gross domestic product (GDP) by 2%. Overall growth this year will likely fall to 2.5%, compared to its previous forecast of 3.6%. Fourth quarter economic growth is predicted to be in the negative and Thailand is waiting on the World Bank to assess the situation after the worst of the crisis has settled.  The Thai government will be seeking a 400 billion baht loan from the World Bank for the necessary rehabilitation work, which is expected to be unproblematic as public debt is still low. Experts have warned that Thai national debt could exceed 60% of GDP if spending isn’t put under strict control.

In the short term, there is still hope for a quick recovery with post-flood rehabilitation projects now being considered and Thailand’s strong infrastructure and regulations for foreign investors. Food prices are also expected to increase as transport networks are disrupted and 7% of agricultural land is damaged. Estimates show that up to a forth of the first rice harvest have been lost. However, Bangkok Bank, a benchmark for local industry, claimed a net profit of 7.55 billion baht ($243 million) from July-September, or 3.96 baht per share, up from 6.17 billion a year earlier.  In the long term, investors are waiting to see how post-flood measures are implemented and what new standards will be put in place to protect industrial estates from flooding in the future. Thailand is dependent on these investors, third quarter results showed a net investment income of U.S. $321,000 (equivalent to income of U.S. $0.10 per share) totaling net investment income for the last nine months of approximately U.S. $744,000 (equivalent to income of U.S. $0.22 per share).  It is still assumed that the Thai market along with other Asian markets should continue to outperform the markets of developed economies. Analysts expect to see improvement by the first quarter or at the latest in the second quarter next year. However, due to the global reduction, there are generally weak foreign investment flows leading the central bank to question its next policy response. The third quarter SET Index closed at 916.21, a decline of 125.27 points or 12.03% assumed to be due to global outlook. (MCOT) (Market Watch) (Reuters) (Business Week)

It is interesting to note the third quarter equity classifications:

(Market Watch)

How to revive the economy is the big question at hand. Debate is still occurring regarding the future of the previously proposed populist policies. Niphon Poapongsakorn, president of the Thailand Development Research Institute (TDRI), has urgently asked the government to prioritize reconstruction measures. “Go and tell the public now that the government won’t break its campaign promises, but it’s necessary for it to divert money (from populist schemes) to help people hit by the flooding and to implement flood prevention measures that require a huge budget and long-term investment plans.” Policies to be reviewed are the 300-baht daily minimum wage, tax refunds for first-time car and home buyers and the rice mortgage program. Suggestions include gradually raising the daily minimum wage to 300 baht, dealing with labor shortage and developing a logistics system to reduce transportation costs. Other ideas have included decentralizing and relaxing regulations to reduce obstacles for industries such as parts, raw materials, machinery and foods. (Bangkok Post)

The ASEAN economic community, suppose to be solidified by 2015, is being discussed by multiple actors. Kan Trakulhoon, the president and CEO of Siam Cement Group, has claimed that there are many conditions to be met before Thailand can flourish in the ASEAN community, including raising the current 0.2% of GDP on research and development. Kan advised that local executives should change their outlook and utilize ASEAN as opportunity for business expansion. Long-term economic plans and success of “farsightedness” is imperative. China has created a $10 billion (USD) China-ASEAN Fund on Investment Cooperation in addition to promising $15 billion (USD) of loans to ASEAN countries to sustain infrastructure projects while enhancing economic ties. Lowering non-tariff trade barriers from less developed nations to support farm produce is being reviewed as well. Stakeholders are asking for equality, mutual trust and putting aside differences in order to support cooperation and common prosperity.  There are also ideas surrounding developing an organization similar to Jetro (Japan External Trade Organisation) to ease the process outflows. The purpose of creating an ASEAN version of Jetro would be to help small and medium-sized enterprises (SMEs) and to solidify the process of focusing on compliance in addition to adhering to global standards. (Xinhuanet) (Bangkok Post)

Security

Significant amount of violence occurred in the South, most probably marking the 7^th anniversary of the Tak Bai tragedy on October 25, 2004. The Tak Bai tragedy resulted in 85 deaths when 7 Muslim men were killed while attempting to break up a protest in Tak Bai. 78 more men died of asphyxiation after being forced to lie face down on top of each other in military trucks when being moved from the protest site to a military detention unit in Pattani. This week, in Narathiwat, insurgents have killed 7 people and injured 10 more when opening fire at a security checkpoint then setting off homemade bombs near two convenience stores killing two civilian defense volunteers and five others. Four suspects were arrested following the attack. In Yala, bombs were set off across 16 locations, including homes, school, shops, vehicles and hotels. 5 bombs were diffused, but 3 people were still killed, 14 severely injured and 31 slightly injured. The explosions also caused power outages. Additionally, a rubber wood trader was killed in a drive-by shooting in Narathiwat, a timber factory owner and his son were wounded in a gun attack in Yala and a military policeman was gravely wounded in a drive-by shooting in Pattani. (Bangkok Post) (USA Today) (Washington Post)

Corporations are starting to search for a stake hold in Thailand’s efforts to become a regional energy leader. Chevron Corporation announced starting natural gas production. Costing $3.1 billion USD, the project is expected to raise natural gas reserves 330 million cubic feet per day and increase increasing Thailand’s production by more than 10%. The project is expected to produce 18,000 barrels a day of natural gas liquids. George Kirkland, vice chairman, Chevron Corporation “Asia is becoming the center of global energy demand growth”. Tap Oil has also proved that 6.1 million barrels of oil reserves are available after partnering with Pearl Energy who plans to develop the energy fields with a Wellhead Processing Platform; this includes water injection facilities, a floating storage and off take vessel. There is an expected 2P reserves after conversion of the energy. (Market Watch) (Proactive Investors)

Due to the numerous conversations in regards to solutions for future flooding, environmental protection groups are speaking out against the number of dams expected to be built. By 2025, it is predicted that around 90 million people will be living along the Mekong, creating a 50% increase within 15 years. It is anticipated that the need for energy will be increased followed by building dams more dams in the area. There are current plans to build 11 hydroelectric plants including seven in Laos. Four already exist in Chinese territory. Dams are detrimental to fish populations and biodiversity. There is also significant concern that with an increase in dams, the nutrient filled sediment that flows downriver into the “rice bowl of Vietnam” would affect the 16 tons of rice Vietnam produces a year. Laos is pushing to build all of these dams so that it may become “the battery” of Southeast Asia. Contracts have already been signed with Thailand for up to 95% of the energy expected to be generated.  The Mekong River Commission (MRC) is working to determine what will be the best balance of the varying countries interests in addition to protecting the various ecosystems.  (DW World)

Tokyo has reached out to the ASEAN community, asking to be a part of the ASEAN maritime security forum. The expansion will be discussed at next month’s East Asian Summit in Bali, Indonesia where Japan will propose the idea. Japan has claimed to be open to any sort of inclusion, noting that ASEAN countries (Philippines, Indonesia, Malaysia, Singapore, Thailand, Brunei, Cambodia, Vietnam, Laos and Myanmar) should remain at the center of the forum’s operations. The motivation behind the proposal is a result of Japan depending on the sea for fishing and trade routes equally as much as ASEAN nations. Support for Japan’s inclusion will determine the initiative, as many members have voiced reservations in accepting new members as the forum practices has not been entirely consolidated.  The Philippines have voiced some support and potentially Singapore which stated it “will not block” the idea.  However, experts agree that Maritime security needs to be brought to forefront in order to reduce piracy, trafficking and other transnational crimes. (Japan Times)