Tsunami's economic cost lesser than human toll

Tsunami's economic cost lesser than human toll

Reuters, Singapore

Fishing villages have been wiped out and money-spinning tourist resorts wrecked, but the economic cost of the giant seismic waves that swamped coasts across south Asia will be much smaller than the human toll.

Sri Lanka's economy will be hardest hit and Thailand's important tourism industry will have to pick itself up again after suffering setbacks from SARS and political unrest.

But overall, Asia's economies and markets are likely to suffer at most a glancing blow from Sunday's disaster, in which more than 15,500 people died after the strongest earthquake in 40 years sent a wall of water surging across the Indian Ocean.

"I do see some near-term impact from the unfortunate event but we're not about to cut growth rates in response to it," said Lian Chia Liang, an economist at JP Morgan Chase in Singapore.

Spending to rebuild smashed hotels and infrastructure could offset lower tourism receipts in the next few months, he said.

"Thailand is the most affected in terms of tourism, but the economic ramifications from the disaster will be pretty much contained," said Lian, who specialises in Thailand's economy.

As Sri Lanka appealed for aid and global relief agencies swung into action, the International Monetary Fund said it stood ready to help in any way it could.

Financial markets, though, only flinched. Some travel shares tumbled and the Thai stock exchange was down 1.6 percent, but the Thai baht and Indonesian rupiah lost only a quarter of a percent while the Bombay stock exchange actually rose 0.6 percent.

Arjuna Mahendran, chief economist and strategist at Credit Suisse in Singapore, noted that Southeast Asia's bourses are dominated by property firms, banks and export-orientated manufacturers, which will be little affected by the catastrophe.

"I don't think you're going to have a major fall-out," he said.

But Mahendran, who used to head Sri Lanka's investment board, said the disaster would set back the island's economy by a year and might even result in negative growth next quarter.

Sri Lanka logged a record 500,642 tourist arrivals in 2003, boosted after a ceasefire the year before in a two-decade-old civil war pitting Tamil Tiger rebels and the government.

The government had been hoping to double those numbers by 2010. But the tsunami, which killed 4,900 people in Sri Lanka and left hundreds of thousands homeless, destroyed transport links from Colombo to the main tourist destinations in the south of the island, where a string of luxury hotels was badly damaged.

"That is a major blow because tourism was the fastest-growing component of the economy," Mahendran said. "You'll have to rebuild the roads and the railways lines and it'll take about a year."

The timing could not be worse for Sri Lanka because its biggest industry, textiles, is bracing for big job losses when the end of international quotas on Jan. 1 exposes it to the full blast of competition from cheap rival producers China and India.

In Thailand, where 12 million tourists a year generate about 6 percent of the country's gross domestic product of about $160 billion, Nuchjarin Kasemsukworarat with SCB Securities said the disaster would do more damage to confidence than to output.

"I would say sentiment is hurt very badly," Nuchjarin said.

But Anusorn Tammajai, an economist with BankThai, said tourism was unlikely to suffer as much from the tsunami as it did from last year's outbreak of Severe Acute Respiratory Syndrome, when the number of arrivals dropped 7.4 percent, or from this year's burst of political violence in the south of the country.

"It will have a severe impact on tourism, but it will be a one-off impact," Anusorn said.

Sani Hamid, a currency analyst at 4CAST in Singapore, agreed. "It may affect tourists psychologically for a month or two, and then things are going to return to normal," he said.

India's main beach attractions, Kerala and Goa, are on its west coast and escaped the tsunami. Madras and Andhra Pradesh on the east coast were hit hard but are not big beach destinations.

"I don't see any significant impact on tourist inflows," Subhash Goyal, president of the Indian tour operators' association, told Reuters.

At least 5,700 perished in India, but Finance Minister Palaniappan Chidambaram said he did not foresee any major fiscal impact from the disaster. "We can manage the crisis and money needed to manage it will be found," Chidambaram told reporters.

Indonesia, where about 4,500 are known to have died, also put a brave face on the financial cost of the calamity.

The government would be able to finance any increase in its budget deficit made necessary by the tsunami, which devastated parts of Aceh province, said Mulia Nasution, a senior Finance Ministry official.

A saving grace for Indonesia -- and for global energy markets -- is that the disaster spared output at the big Arun liquefied natural gas plant on Sumatra, the northern island off which the quake that triggered the deadly tsunami had its epicentre.