Rehabilitation, Reconstruction, and Recovery

In the immediate aftermath of the tsunami, relief and reconstruction became the focus of a massive national effort. As shown in Table 7 [ PDF 71.1KB | 1 pages ], the overall government budget allocation for tsunami relief and reconstruction was nearly $1.7 billion. The government set aside $112 million for immediate tsunami relief, 76 per cent of which was allocated to emergency relief and mitigation measures in the six provinces. Around 14 per cent of the relief budget went to projects for reviving the tourism industry in the Andaman areas, 10 per cent for rehabilitation of natural resources, and a relatively small proportion (less than one per cent) for installing an early warning system. Subsequent rehabilitation measures were allocated an additional $72 million.

The Thai government initially allocated only $8.3 million to public infrastructure reconstruction. This relatively small budget reflected the low level of assessed damage to infrastructure.

The largest budget allocation was to provide assistance to large entrepreneurs by way of soft loans.⁸ Relief measures for large entrepreneurs included the Bank of Thailand’s soft loans, which were extended to commercial banks for lending to large companies in the three provinces. These loans amounted to around 90 per cent of the total budget.

A $75 million ten-year tsunami recovery fund was set up in February 2005. The fund was managed by Mutual Fund Corporation Asset Management and funded by the Government Savings Bank, the Stock Exchange of Thailand, and the Thai Bankers’ Association. Tsunami-affected firms could get assistance either in the form of loans or by sharing equity with the fund. As a precautionary measure, a ceiling of 350 million baht or less than 25 per cent of total assets of the fund was imposed for each project. The loans were made available at a 1 per cent interest rate for the first five years before reverting to market interest rates. The expectation was that reconstruction of hotels would be completed before the tourist high season at the end of 2006. In total, this fund amounted to around 6 per cent of total relief measures for large entrepreneurs.

5.1 Public Infrastructure

Figure 4 [ PDF 89.8KB | 1 pages ] shows the actual expenditures on various categories of public infrastructure reconstruction compared with estimated values of damages in November 2006. In every category, the allocated funds exceed actual expenditures, suggesting that, at least until this time, the availability of finances has not been the critical constraint on reconstruction. Reconstruction activities are continuing, and, as will be discussed later, given that there are no major increases in construction costs, there is reason to be optimistic that infrastructure reconstruction will be completed without any major funding problems.

5.2 Housing

Various government and private agencies were allocated responsibility for repairing or rebuilding houses in each province. Households could also opt to get $750 in aid to rebuild their own houses. As shown in Table 8 [ PDF 71.6KB | 1 pages ], residential house construction is largely completed.

In Satul, where housing damage was small, the local government took on the house building responsibility, while in Trang, where there were only 39 requests for new houses, the National Housing Authority undertook the task. Private companies were allocated the rebuilding of 127 new houses in Phuket. In Ranong, the Air Force took care of building 167 houses while the Defence Ministry took charge of building 375 houses in Krabi. The Army and the Navy were responsible for completing the construction of 2,850 houses in the worst damaged area, Phang Nga.

However, as we shall discuss later, although the physical demand for new houses has been met, villagers who moved into these new houses are not always entirely happy with their new living quarters.

5.3 Cost Escalation

An interesting feature of Thailand’s reconstruction experience is the fact that the physical reconstruction effort had little discernible effect on increasing construction costs. In fact, construction costs declined during 2005. This contrasts sharply with the experiences of Indonesia and Sri Lanka.⁹

The reconstruction activities certainly increased demand in the affected regions for construction materials and labour. This was seen in the opening of a large number of construction material shops in the affected areas. However, higher demand did not lead to price increases. Here it is important to note that the tsunami-affected areas were not very far from the metropolitan Bangkok region, and the overall reconstruction activity was small relative to the size of the Thai economy. What was particularly important was that the higher demand came in the context of a depressed construction sector at the national level, reflecting the overall slowdown in economic activity, which was tending to push prices down. There was considerable excess capacity in the main input markets for construction. Substantial excess capacity in the steel industry led to declining prices of steel products used in construction, while prices of wood and wood products rose less than five per cent over prices in December 2004. Even though higher oil prices exerted some upward pressure on most materials, prices of essential raw materials such as cement and steel remained subdued during the reconstruction period. Overall, the magnitude of the demand effect was not sufficient to increase prices because there was an elastic supply of construction inputs.

5.4 Livelihoods

The second-round effect of the tsunami hit when victims lost their livelihoods. This occurred either because capital equipment used in their jobs was destroyed (as in fisheries) or because they lost jobs in the tourist sector due to hotels being damaged or cutting employment following falls in tourist numbers (even though some workers were willing to accept pay cuts to keep their jobs).

The government addressed the plight of unemployed workers through various employment programs (Table 9 [ PDF 71.5KB | 1 pages ]). The employment project, averaging an expenditure of $130 per person, was the most active program set up to generate short-term livelihood support; as of November 2006, it had cost around $3 million and benefited almost 24,000 workers. In terms of total expenditure, the second most important project for the unemployed was the job training project, which cost $43 per head. However, unemployment was expected to be essentially short-term, and it is not clear whether workers temporarily displaced from their normal occupations (tourism industry, fisheries, etc.) were likely to gain much benefit from training for alternative occupations. The job creation project had the highest cost per head ($254) but could accommodate fewer than 1,000 workers, while the project supervised by the Department of Labor and Welfare Protection spent only $30 per head.

5.5 Impact on the Tourism Industry

The key industry in terms of employment and livelihoods was the tourism industry. It had been on a steady growth path prior to the tsunami, except in 2003 when the industry suffered from an Avian-influenza scare. Revenue from tourism in Phuket, Krabi, and Phang Nga had been increasing steadily. But the December 2004 tsunami sharply interrupted this growth trend. Following the tsunami, revenues fell dramatically in 2005 (Figure 5 [ PDF 106.8KB | 1 pages ]).

The primary reason for the drop in tourism was not actual physical damage to tourism infrastructure but the reluctance of tourists to visit. Phuket suffered the steepest fall despite the fact that its hotels were less damaged than in the other two provinces. The number of tourists in Phuket dropped sharply in January—when there was almost no tourists—and continued to be low throughout 2005 (Figure 6 [ PDF 106.8KB | 1 pages ]). The drop in tourism led to considerable unemployment in these areas.

It is important to note here that the falls in tourism in the affected regions were to some extent compensated for by increases in tourist arrivals in other parts of the country. Fortunately, only a small portion of Thailand’s hotel industry was seriously affected by the tsunami as there are other beaches in different parts of Thailand, particularly along the Gulf of Thailand, which are reasonable substitutes for those of the Andaman areas. Tourists could also switch to the northern part of Thailand.

The consequence was that while there may have been a significant decline in the hotel occupancy rate in the south, there were increases in occupancy rates in other parts of the country—particularly in Bangkok (Figure 7 [ PDF 106.2KB | 1 pages ]). The result of the substitution of the Gulf of Thailand for the Andaman coast as a tourist destination can be seen by the tourism boom in Koh Samui and some other resort areas on the east coast of Thailand. In 2005 the hotel occupancy rate in Pataya grew by 28 per cent. The result was a boom in demand for land in these alternative tourist destinations. By March 2006, the land price in Koh Samui had gone up nearly sevenfold from 37,500 to 250,000 baht per rai (0.625 hectare). Hotel chain operators and investors drove up property values as the demand for hotel accommodation in these areas exceeded available supply.

However, tourist numbers to the tsunami-affected areas began to increase in 2006 and two years after the tsunami the tourism industry is close to completely regaining its earlier level of activity. Airlines that cancelled flights to Phuket after the tsunami have returned, including those from Australia, the Republic of Korea, Singapore, and Europe. In addition, new airlines have started direct flights to Andaman areas. In the second half of 2006, Hong Kong Express started to operate two flights a week from Hong Kong, China to Phuket. China Rich Airways began two flights a week from Hong Kong, China direct to Krabi in August. Thai Airways International resumed twice-weekly flights from the Republic of Korea to Phuket in an attempt to encourage high-end Korean tourists to return to Phuket and nearby spots like Krabi, and Koh Samui. Targeted tourists included golfers, spa visitors, honeymooners, and families. Phuket’s private sector went on a road show to attract tourists from new markets in India, the Middle East, and Russia. These private sector initiatives have helped the industry to recover within a year of the disaster.

The return of many airlines and the arrival of new airlines indicate a solid recovery of the tourism industry. Another indicator of the rapid recovery of the tourism industry is the low level of non-performing SME loans. The SME Bank reported in March 2006 that 523 business operators had borrowed special loans totalling 19 million baht from the SME banks. These were special loans of less than 500,000 baht with a repayment period of three years at a concessionary interest rate of 2 per cent per year. Thirty-one operators had repaid all their debt, a total of 10 million baht, within one year. All borrowing enterprises paid interest on schedule.¹⁰

5.6 Damage to Coral Reef

There were initial fears about the impact of the tsunami on the coral reefs, a precious natural resource important for the tourism and fisheries industries and for the wider eco-system. However, according to the Phuket Marine Biological Center, the giant tsunami waves damaged only those coral reefs in shallow waters, meaning that only 5 per cent of the coral reef in Phuket was destroyed. Moreover, some corals, “branchy” corals, are expected to recover within three years, while “bunchy” corals should recover within ten years. Hence there seems to be no serious long-term damage to the quality of coral reefs. However, the Food and Agriculture Organization (FAO) has warned that there could be other long-term negative impacts on the coastal ecosystem. The dense mangrove forests hit by the tsunami have been damaged, and the freshwater swamp forests were also destroyed by saline water intrusion. These need rehabilitation to ensure the long-term sustainability of the eco-system and protection from future disasters (FAO 2005).

5.7 Tsunami Warning System

On 26 December 2004 the Pacific Tsunami Warning Center detected the massive earthquake that triggered the tsunami and warned of the approaching giant waves but there was no official alert system in the region. There is now widespread recognition that an early warning system is an essential part of preparations for coping with future disasters. The National Disaster Warning Center (NDWC) has an agreement with the Asian Disaster Preparedness Center (ADPC) to exchange real-time data from sea-level observations and seismic monitoring systems. Cooperation among countries in the Andaman region to share information and maintain the system can provide a valuable public good that can save lives and mitigate unwarranted fears of future tsunamis. In early December 2006, a “Deep Ocean Assessment and Report of Tsunami” (Doart) buoy costing $5 million was installed in the centre of the Andaman Sea, 1,100 kilometres west of Phuket and 925 kilometres east of India.¹¹ The deep-sea buoy can detect tsunami waves and send signals from the buoy to warning centres in eight countries in the region. The NDWC is responsible for alerting the public in Thailand after receiving a signal from the buoy.

The high-tech network of sensors and buoys will not be effective, however, if there is no effective communications link to the coastal communities that might be hit by a future tsunami. In an effort to build up an “alert system” in local communities, the Public Works Department completed the construction of 55 tsunami warning towers by June 2006 in the six provinces: 16 in Phang Nga, 12 in Krabi, 9 in Trang, 13 in Satul, and 5 in Ranong. The construction of ten warning towers along the Andaman coast is planned by local administrations. The total budget for the construction of the towers is less than 1 per cent of the total budget for the warning system, reflecting the capital intensive approach of the installed system.

The extent to which this warning system will build confidence among village communities and tourists is unclear. Observation towers and signs pointing out escape routes may generate a confidence among villagers and tourists that they will be warned in advance of tsunamis. It remains to be seen whether tourists, encouraged by this warning system, will feel safer and will return to these locations.

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