Tsunami may stunt Sri Lankan growth; Thailand, India less hurt

Cherian Thomas

Tuesday, Dec. 28, 2004 | 11:06 a.m.

Sri Lanka's economic growth will slow as tourists cancel trips because of devastation caused by the world's worst earthquake in 40 years, economists said. India and Thailand suffered less damage and will recover quickly, they said.

Giant waves from the quake hit Sri Lanka on Dec. 26, and killed an estimated 10,000 people, including 22 tourists. The island nation of 19.7 million counts on tourism to support the retailing industry, which has grown to an estimated 20 percent of its $18 billion gross domestic product since a ceasefire ended a civil war in 2002.

"It's probably the worst blow the Sri Lankan economy has suffered," said Arjuna Mahendran, chief economist and strategist at Credit Suisse Private Banking in Singapore. "Large reconstruction efforts might only start in 2006. The government does not have the resources."

The quake will cut economic growth next year to 4 percent from 5 percent, he estimated, mostly because of a decline in overseas visitors. Tourism earnings rose 11 percent to $266 million in the first 10 months of the year, boosting sales at hotel operators including John Keells Holdings Ltd.

The Sunday earthquake off the Indonesian island of Sumatra triggered tsunamis as high as 33 feet that devastated thousands of miles of coastline along the Indian Ocean, killing an estimated 44,000 people in six nations and leaving at least 500,000 homeless.

Damage from the earthquake, "will probably be many billions of dollars," said Jan Egeland, the UN's head of humanitarian affairs. Insurers' losses may be less than $5 billion because so little property in the region is insured, according to Robert Hartwig, an Insurance Information Institute economist in New York.

Japan will grant Sri Lanka 15.5 billion yen ($149 million) in aid, the Nikkei English News reported. Japan dispatched a 20-member relief team to Sri Lanka, the Japanese embassy in Colombo said.

Tourists canceled trips to destinations including Thailand's Phuket and Penang in Malaysia, curbing sales at companies such as Star Cruises Ltd. and Laguna Resorts & Hotels Pcl. Tourism is likely to rebound soon in most of the region, said economist Rajeev Malik.

"The calamity won't have a long-lasting impact -- tourists will be back in three to four months," said Malik, senior economist at JPMorgan Chase Bank in Singapore.

Tourism accounts for about 6 percent of Thailand's economy and 7 percent of Malaysia's. Indonesia's economy counts on tourists to generate 2 percent of gross domestic product. Resort areas such as Bali were unaffected by the earthquake.

"We are not going to see many people making bookings for Sri Lanka," said Ong Nai Pew, co-chairman of Asiatravel.com Holdings Ltd., a Singapore online hotel reservations company. "But overall, I don't think there will be an impact."

Thailand said 839 people died in Phuket and five other coastal provinces at the height of the tourist season. Phuket, about 560 miles south of Bangkok, attracted as many as 4 million tourists last year, almost two-fifths of all visitors to Thailand, according to local tourist officials.

The destruction to property in an area where many foreigners have luxury beachfront homes may run as high as $256 million at Phuket's Patong beach alone, Business Day newspaper reported, without saying where it obtained the information.

Foreign tourists canceled about 60 percent of their New Year bookings at hotels and resorts in Phuket and other southern Thai beach provinces, Sithi Tandavanitj, the Thai Hotels Association's southern region president, said in an interview with Business Radio.

Thai Reinsurance Pcl expects losses of as much as 100 million baht ($2.6 million), it said in a statement to the stock exchange. It didn't give an estimate for the cost of total damage.

"The fear of aftershocks from the earthquake in the coming weeks will keep tourists away," said Chartsiri Sophonpanich, president of Thai Bankers' Association, who estimated that GDP growth next year, forecast by the government at as much as 6.5 percent, would be cut be less than half a percentage point.

Tourists have shunned Indonesia's North Sumatra province, hardest hit by the quake, because of a conflict between government forces and Muslim separatists in Aceh.

In India, tourism accounts for less than 1 percent of the $575 billion economy, Asia's fourth largest.

Finance Minister P. Chidambaram told reporters "There will be no great fiscal impact."

Hyundai Motor Co., South Korea's largest automaker, said 1,173 of its vehicles waiting to be shipped from the eastern Indian port of Chennai sank after a tsunami hit the area. Hyundai Motors said the cars were valued at 6 billion won ($5.7 million) and were fully insured.

"The consequential effect of the tsunamis would be minimal," said K. Sridharan, the finance director of Ashok Leyland Ltd., India's second-biggest maker of trucks and buses. "It has not damaged properties other than fishermen- related things like boats."