In the Tsunami's Wake

March 1, 2005 Topic: Economics Regions: Asia Tags: Baltic SeaDebtFinancial CrisisAsian TigersEuro

In the Tsunami's Wake

Mini Teaser: It was a human tragedy, but not an economic disaster.

by Author(s): Anjalika Bardalai

The one exception to this is Thailand, where tourism accounts for about 7 percent of GDP and 10 percent of employment, and is a major foreign-exchange earner. The damage to the tourism industry means, ironically, that the economic impact of the tsunami is likely to be greater in Thailand, which suffered relatively few deaths, than in Indonesia or Sri Lanka. Six of Thailand's provinces were directly affected by the tidal waves, and they were, unfortunately, among the country's most popular tourist destinations, accounting for 25-30 percent of Thailand's total tourism receipts. Indeed, half of the casualties suffered in Thailand are thought to have been foreigners who were on winter holidays in popular resorts like Khao Lak (in Phang Nga province), Patong Beach and Kamala Beach (in Phuket province), and Phi Phi island (part of Krabi province).

Nevertheless, even the disruption to Thailand's economy caused by the loss of tourism revenue can be expected to be short term. The tsunami hit during Thailand's peak tourist season, the rest of which will now have to be spent rebuilding the hotels and beach resorts that were destroyed. However, the scope of the damage varied by province, and while some resorts are not expected to be operational for another year or two, others did not suffer major damage and anticipate resuming business as normal within the year. Thailand also has an advantage in that the majority of its tourists come from western Europe and North America, and they are more likely to return for holidays as the infrastructure is rebuilt than the regional tourists that frequent Sri Lanka, for whom superstition and, indeed, the mere psychological impact of being so close to the disaster may act as deterrents to vacationing in the region for a longer period of time.

A second possible area of concern is job creation. The International Labor Organization (ILO) estimated that the tsunami destroyed some one million jobs in Indonesia and Sri Lanka alone. In Thailand, the government fears some 200,000 jobs in the tourism sector may have been lost. The ILO expects that the unemployment rate in the Indonesian provinces directly affected by the disaster could rise to as high as 30 percent, up from about 7 percent, and in the affected parts of Sri Lanka to more than 20 percent, up from about 9 percent. The Asian Development Bank estimates that as many as two million fishermen and subsistence farmers may have lost their entire livelihoods--possibly increasing the level of poverty in absolute terms. However, the ILO was also optimistic that these problems could be mitigated in a relatively short period of time provided that the governments of the countries concerned act speedily and effectively. In a strategy paper, the organization claimed that

If adequate aid and support could be rapidly mobilized for the reconstruction, repair and replacement of physical infrastructure, including workplaces and equipment, and for livelihood and job recovery and (re)establishment of social protection systems, the ILO estimates that between 50 and 60 percent of the affected individuals could be able to earn a living for themselves and their families by the end of 2005 and that around 85 percent of the jobs could be restored within 24 months.

Beyond the question of jobs, there are other factors to consider. The tsunami's destruction of coral reef systems, mangroves and wetlands increases the likelihood of coastal erosion, which could leave countries more vulnerable in the future to other natural disasters, and it threatens the rehabilitation of agricultural and fisheries-based industries.

The greatest medium- to long-term economic impact is likely to come from another indirect factor: the effect on politics. In all the affected countries, the response to the tsunami will be seen as a test for the government, and leaders will be assessed by their effectiveness in dealing with the disaster. Bureaucracy and corruption, for example, will be important issues throughout the region. People are unlikely to look favorably upon their governments if they perceive that foreign aid money is not being distributed where it is needed. This is of particular importance in Thailand, where Prime Minister Shinawatra has been claiming to implement an anti-corruption drive, and in Indonesia, where President Susilo Bambang Yudhoyono won elections in October and ousted his predecessor, Megawati Sukarnoputri, largely on an anti-corruption platform.

In Indonesia and Sri Lanka, there are unique longer-term implications, because both countries are home to long-running separatist insurgencies. In Indonesia, relations between the government and the rebel Free Aceh Movement (gam) could improve, if aid is distributed fairly and efficiently, or deteriorate further, if either side takes advantage of the devastation to resume military activity. (gam declared a truce immediately after the tsunami.) Similar concerns dominate reconstruction in Sri Lanka. Although the disaster presents an opportunity for the government and the separatist Liberation Tigers of Tamil Eelam to cooperate, relations could well take a turn for the worse if the government is accused of denying aid to the Tamil/Muslim-dominated eastern part of the country in favor of the Sinhalese-majority south, or if disagreements persist over which group will control foreign aid money.

The direction these conflicts now take could have far-reaching consequences. Political instability might recur if the governments are seen to be unfair or ineffectual, hampering not only longer-term policymaking, but also foreign investment. Renewed hostilities between the rebel groups and the governments would increase military expenditures and, in Sri Lanka, destroy the fragile tourism industry that had just started to develop in recent years due to the maintenance of several ceasefires and generally improved security. (The Indonesian province of Aceh was already off-limits for both tourists and businesses because of the poor security situation.) Moves towards peace would, of course, be a boon for tourism, business and investment in both countries.

It is clear that the terrible destruction wrought by the tsunami has introduced some long-term economic risks to the region. Irresponsible governments making reckless use of foreign aid money, ineffective governments failing to contain and cooperate with hostile separatist groups, environmental damage: All these are indirect threats to the rapid rehabilitation of the shattered area and the containment of economic trauma. Eventualities--if the inevitable drop in domestic consumption and business activity is prolonged, or if the tourism industry takes an unexpectedly long time to rebound--can also not be discounted. Still, the silver lining of this very dark cloud is that the humanitarian crisis that has befallen an already vulnerable region will not be compounded by an economic one. The generosity and so-called moral obligations of rich nations will help ensure this. But so too did the same mysterious force that unleashed the devastation in the first place, by sparing the urban and natural resources so crucial to those who remain.

Essay Types: Essay