By Chayut Setboonsarng

Bangkok Pakkret's area flooded. The Thai government faces steep challenges to maintain its economic strengths. Source: Flickr user Philip Roeland's photostream, used under a creative commons license.

The heaviest flooding in 50 years will have devastating effects on Thailand.  Automotive, electronics, and agriculture sectors will bear the brunt of the economic costs. The disaster is expected to shrink the economy by 1.1 percent in the last quarter, much more if Bangkok is inundated. Overall growth for 2011 will likely be 2 percent, down from the predicted 3.7 percent.  Industrial zones such as Nava Nakorn, Bangkadi, and Bang Pa-in have been submerged, causing over 10,000 factories to suspend production and lay off over 350,000 workers.

The Federation of Thai Industries estimated that the damage of the record flooding to industry will total $6.2 billion. Disruptions were felt in Japan and, to a lesser extent, the United States because the closed industrial estates host high-tech and automotive manufacturers like Western Digital, Seagate, Nissan, Toyota, Isuzu, ON Semiconductor, and TDK Magnecomp. The far reaching effects of overwhelming flooding emphasize Thailand’s role in the global economy and its export-oriented engine of growth. Moving forward, Prime Minister Yingluck must make prudent policy decisions to restore these industries.

As a result of the deluge, semiconductor and automobile makers, such as TDK and Honda, have halted production. Four automotive factories, accounting for 630,000 Toyotas and 240,000 Hondas annually, have closed. Over 300 Japanese companies were directly affected by the disaster and estimates suggest they will take months to recover.

In consumer electronics, the hard disk drive (HDD) industry also felt the flood’s effects. California-based Western Digital is expected to see a 40 percent decline in its exports from Thailand, which are worth $6.5 billion a year, as two of its plants in Bang pa-in have been forced to close. Western Digital produces 33 percent of the world’s HDDs and sells to major computer manufacturers like Acer, Dell, and Hewlett-Packard. Apple CEO Tim Cook said that Apple has suffered supply chain snags due to factory closures as well. Experts expect industry wide hard disk shortages next year.

Flooding has inundated nearly 14 million acres of land, over 740,000 acres of which is farmland. The government has dropped its estimate for this year’s rice production from 27.5 million to 23 million tons. The U.S. Department of Agriculture estimates that annual Thai rice exports will reach 8 million tons next year, down from 10.5 million tons this year.

If Thailand is to cling to its export manufacturing leadership position, it needs to ensure that it  retains the investors on its eastern seaboard. Currently, the government has plans to spend $4.2 billion in flood relief. In addition, it has spelled out a new water management system, developed plans for infrastructure improvements, and the central bank has relaxed monetary policies. However, in the wake of this crisis, Prime Minister Yingluck Shinawatra may have to reexamine some of her campaign promises, such as the rice price support scheme, which has negatively affected exports, and the nationwide minimum wage hike, which could hamper economic growth.

At a time when public debt is at 43 percent of GDP and the global economy is struggling due to the economic weakness in the United States and Europe, the Thai government’s priorities should focus on regaining international competitiveness.  Thailand’s reliance on contract manufacturing and exports requires prioritizing agriculture R&D, rehabilitating industrial zones, and investing in urban and rural planning. This will help improve the livelihoods of workers and farmers in the long run and also bolster investor confidence. In the short term, the humanitarian costs of the flood must be addressed, but the government cannot forget that the country’s economic fundamentals need attention as well.

Chayut ‘Peko’ Setboonsarng is a recent graduate of George Washington University.