By Paul Eckert, Reuters
HONOLULU — Catastrophic floods may cut Thailand’s 2011 growth prospects by more than half and require a cut in interest rates to help restore growth, the country’s deputy prime minister said on Saturday. Kittirat Na Ranong, who is also commerce minister, said Bangkok has yet to make a full tally of the damage from Thailand’s worst floods in half a century. “It’s still not over, but we had expected that GDP growth this year could reach as high as 4.5 percent. In my opinion we perhaps will have to shave off some 2.5 to 3 percent for economic activities forgone,” he told Reuters.
The deluge has killed more than 500 people and affected about 2 million since late July, with tens of thousands relocated or sheltering in evacuation centers after their homes and businesses were engulfed by water.
“It’s a very painful process, and we have seen the water creeping down, hitting city after city, factory after factory, and flooding farmlands,” Kittirat said in an interview on the sidelines of the Asia-Pacific Economic Cooperation (APEC) forum in Hawaii. The deputy premier is filling in at the annual APEC leaders summit for Thai Prime Minister Yingluck Shinawatra, who stayed home to deal with the flooding. The economic damage from the flooding will not be confined to Thailand because “some (Thai) factories produce parts or materials for the global supply chain,” he said. Thailand, Southeast Asia’s second biggest economy, is a major center for multinational firms manufacturing cars, auto parts and electronics.
Kittirat said conditions were ripe for an interest rate cut to help the economy recover from the flooding.
“Even before the flood, I kept saying the interest rate of Thailand was unnecessarily high,” he said, adding that authority over monetary policy was in the hands of the Thai central bank. “Now with the flood, I have all the more reason to believe that the interest rate in Thailand has got to come down,” said Kittirat.
Flood recovery needs, as well as a recent 50-basis-point rate hike in Indonesia, made it “likely that the central bank will act in the direction that I would like to see,” he said. Kittirat’s comments came a day after Bank of Thailand Governor Prasarn Trairatvorakul told Reuters in an interview that he saw temporary room to be flexible with interest rates because slowing growth was a bigger risk than inflation.
The flood disaster hit as Thailand was emerging from on-off political conflict that intensified following a military coup in 2006.
“We are about to be ready to tell the world we are back to business,” said Kittirat, adding that he used the word “about” to reflect delays caused by the flooding.