The Macro-Economic Consequences Of The Tsunami In South-Eastern Asia
The Macro-Economic Consequences Of The Tsunami In South-Eastern Asia
The Macro-Economic Consequences Of The Tsunami In South-Eastern Asia
During the course of this essay I will illustrating the macro-economic consequences of the catastrophic tsunami that hit South-Eastern Asian coastlines in December 2004.
Figure 1:
The Indian Ocean earthquake was an undersea earthquake that occurred on December 26, 2004. The earthquake generated a tsunami that was among the deadliest disasters in modern history. At a magnitude of 9.0, it was the largest earthquake since 1964.
The earthquake originated in the Indian Ocean, off the western coast of northern Sumatra, Indonesia.
The resulting tsunami devastated the shores of 11 countries in South-Eastern Asia (refer to figure.1) with waves reaching 50 feet high. At least 160,000 people are known to have died as a result of the tsunami, and the count not yet complete. The true final toll may never be known due to bodies being swept out to sea. Relief agencies warn of the possibility of more deaths to come as a result of epidemics caused by poor sanitation.
Natural disasters on this scale have less visible, but critically important, economy-wide (macro-economic) effects. This is the consequence of the impact of damage to productive sectors (fishing and tourism for example) which produce local employment that locals rely on, tax revenue and foreign exchange, but, more importantly, because government expenditure has to be diverted from other uses.
One of the biggest economic factors affected by the tsunami is that of unemployment. In all of the countries affected, the biggest source of income was that from tourism. Because of the tsunami, not only have all of the facilities, e.g.: Hotels, bars, Restaurants, Airport buildings etc... been completely destroyed, faith in the countries' ability to care for it's tourists has gone from all potential tourists. In consequence, not only are all of the jobs that are linked to the tourism industry gone, but all future opportunities for jobs to be available, may be suspended, even after the countries' have gotten back to the economic state that they were in, prior to the tsunami, which has been estimated to take at least 5 years.
Figure 2:
Figure 2. Illustrates the course that is followed when a natural disaster happens.
Within this, the flat part is the time period before the tsunami strikes, the sharp fall is when the tsunami strikes, when all is lost, and economic growths stops, and goes into decline. The second plummet is when the disease will strike. With all of the dead, decomposing bodies around, and lack of sanitation or food and shelter, diseases such as Cholera, and Typhoid will be raging through ought the affected countries. The shallow incline that follows is the slow recovery ...
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Figure 2:
Figure 2. Illustrates the course that is followed when a natural disaster happens.
Within this, the flat part is the time period before the tsunami strikes, the sharp fall is when the tsunami strikes, when all is lost, and economic growths stops, and goes into decline. The second plummet is when the disease will strike. With all of the dead, decomposing bodies around, and lack of sanitation or food and shelter, diseases such as Cholera, and Typhoid will be raging through ought the affected countries. The shallow incline that follows is the slow recovery that the nation experiences. This happens once the threat of disease and famine has been addressed and there is any sense of stability in the country. The recovery will include the clean up of debris left over from the destroyed buildings, and the complete reconstruction of the nations infrastructure.
"There have been earthquakes with more deaths and more costly property damage, but this is the first truly global tragedy, with TV sets everywhere showing the same images, with people from so many countries among the casualties" and with the widespread availability of e-mail to update the news, nothing goes unknown.
The countries affected cover a wide spectrum. The most vulnerable is probably Somalia, a very poor country, with few resources no effective government and many people dependent on the affected sectors. The Maldives will also be very badly affected, because of the dependence on tourism. Aceh is suffering all the effects of a major earthquake, with rescue and rehabilitation laden by isolation and a non productive government.
Some countries like Thailand, and Sri Lanka, are a more middle income countries, most have decent enough economies; most also have reasonably well-performing governments, with at least some response capacity, and also active civil societies.
The effects will be most severe where a large number of people, infrastructure and economic activity are concentrated along the coast. The effects are to be most severe for small island economies and regions dependent on the sea, near the epicentre of the earthquake.
The greatest challenge will be in ensuring that the poor, especially those in fishing, on the margins of the tourist economy and in remoter areas are helped to recover. The tsunami is what insurers fear most: a low-frequency, high-consequence incident that causes extensive, costly damage with very little way to predict where and when it will occur.
The insurance industry was not having a good year to begin with, following four hurricanes in Florida. However, since the insurance market is not as well developed in the areas affected by the tsunami, and because property values are lower, the industry will not suffer as it has for other major disasters. For example, Hurricane Andrew cost insurers $18 billion to $19 billion; the terrorist attacks on the World Trade Centre could cost more than $40 billion. Early estimates indicate insurers may be liable for about $10 billion as a result of the tsunami. (See Appendix.)
However all is not bad news as many of the large global companies were paid premiums in dollars at a time when the currency was valued higher than it is now.
Appendix
. The Bank of Thailand (Central Bank) has released some preliminary estimates on the economic impact of tsunami:
- Tourism business of the six affected provinces normally worth about 78 billion Baht (USD 2,000 millions) per year, or 1.3 % of GDP. The impact of the disaster on the GDP could stand at around 0.1 % per month.
- The disaster could affect consumption in the region, but the overall impact on the economy will depend on a number of factors such as, the full extent of the damage and the pace and state of reconstruction aid to the affected areas. The economic growth this year is likely to be affected by the disaster. The current of growth forecast for 2004 and 2005 is 5.5-6.5 %. However, forecast for 2005 is to be revised at the end of January.
- The current account is unlikely to be affected, even if tourism receipts of the six provinces are not accounted for. It is estimated that the current account will post a surplus of $ 2-4 billion in 2005.
2. Prime Minister Thaksin Shinawatra confirmed that the government will not revise down its 2005 economic growth projection of 6 percent and will try its best to achieve the target. The government will join hands with private sector in the affected areas to rehabilitate major tourist.
3. On 27 December 2005, the Cabinet approved four measures for disaster relief of the six provinces, allowing the Ministry of Finance's flexibility to amend some financial regulations without further Cabinet endorsement. The four urgent measures mainly cover exception or reduction of taxes and fees. The Revenue Department will grant tax exemption on 2004 personal income tax and corporate tax for donations for disaster relief's in the six affected provinces.
Extension of the time to submit tax returns and expedited VAT refunds. The Excise Department will also allow more time to submit excise tax forms. The Minister of Finance is given the power to increase the ceiling on government spending as necessary without futher cabinet endorsement.
The Stock Exchange of Thailand has given a financial assistance in the amount of 10 million baht (USD 256,000). The Bank of Thailand ,the Bank of Agriculture and Cooperatives, the Government Savings Bank, the SME Bank, the Islamic Bank of Thailand, the Exim Bank and the Krung Thai Bank have introduced other relief measures such as arrangement of loans with softer repayment obligations; loans with low interest; debt moratorium; debt restructuring; and interest reduction on loans from government financial institutions.
4. Other measures contemplated are the relaxing of debt-repayment criteria and extending new loans for business rehabilitation and debt-restructuring process. A bankers mission will make a survey trip to the affected areas to meet affected of field entrepreneurs.
5. The Director of the Office of SMEs Promotion planned the establishment of
a 5 billion baht the Tsunami SME's Fund with the participation of other private sectors. The fund is to be used for investments in smaller-scaled SME businesses which had been adversely affected by the tsunamis, such as tourism industry, fisheries and construction companies.
6. The Government Housing Bank has set up a budget of around 2 to 3 billion baht to help serve its customers in the tsunami affected areas at a one percent interest rate for one year.
7. The Royal Thai Government will donate 250,000 US dollars to Indonesia and Sri Lanka and 100,000 US dollars to Maldive.
ACTIVITIES IN THE UNITED STATES
. Bangkok Joe's Dumpling Bar and Café owners Mel Oursinsiri and Aulie Bunyarataphan, both from Thailand, are offering customers a tasty way to aid the millions affected by the recent tsunami in Asia. For a three week period, for every three-course lunch and dinner menu ordered, the restaurant will donate five dollars to the Royal Thai Embassy, Washington, DC's tsunami relief fund. T.H.A.I. in Shirlington, Bangkok Joe's sister restaurant, will donate five dollars to the relief fund every time a guest orders the restaurant's monthly special during January.
2. On 9 January 2005 at 4 p.m., the American Jewish Committee is joining with local civic religious and ethnic leaders, as well as diplomatic representatives, for a special prayer service. "A Jewish Memorial Service for Tsunami Victims" at Adas Israel Congregation, 2850 Quebec Street, NW. Attendees include Deputy Defense Secretary Paul Wolfowitz, a former ambassador to Indonesia; Ambassador Soemadi Djoko M. Brotodiningrat of Indonesia; Ambassador Ronen Sen of India; Ambassador Devinda Rohan Subasinghe of Sri Lanka; Ambassador Kasit Piromya of Thailand; and Ambassador Danny Ayalon of Israel. Prayers will be led by religious leaders from the Jewish, Muslim and Buddhist faiths. 3
3. On 9 January 2005 at 16.00 hrs., the Royal Thai Embassy and Thai Christian Community, Washington D.C. will hold a memorial service for the tsunami victims.
4. On 8 January 2005, the Thai Community in Dallas, Texas will organized a fundraising event to help the tsunami victims at Sterling Hotel, Dallas, Texas.
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