Thai Flood Crisis Puts Swamped PM on the Firing Line

In the early days of Thailand's devastating floods, Prime Minister Yingluck Shinawatra was seen knee-deep in muddy waters in wading boots, greeting evacuated villagers, surrounded by clicking cameras, and appearing to take charge.

Fast-forward a month, as the worst floods in half a century close in on inner-city Bangkok, Yingluck's three-month-old government is under fire for badly managing the crisis -- from shoddy policy coordination to poor communication and conflicts with the Bangkok Metropolitan Administration.

With rising river waters this weekend threatening to breach dikes protecting the city of 12 million, her decisions and her mis-steps are fodder for critics and political pundits.

They could ruin her political prospects and those of her young government. Or they could embolden her by giving much-sought autonomy from her powerful brother -- the twice-elected and now-fugitive former prime minister, Thaksin Shinawatra.

Diplomats, independent analysts and those close to the 44-year-old businesswoman-turned-premier say she is likely to emerge from the crisis with her government intact, particularly if she spends heavily on reviving businesses and water-management infrastructure.

It's true the public has misgivings. She could have taken a tougher approach. But she knows what to do to get us out of this situation, said a senior official in Yingluck's Puea Thai Party who requested anonymity.

The recovery will give her a chance to prove herself as a leader.

The toll on life and business is rising in the country of 67 million, whose official slogan - The Land of Smiles - has been strained by one crisis after another in recent years, from bloody political unrest last year to the occupation of Bangkok's international airport by protesters in 2008 to a military coup in 2006 and the deadly Indian Ocean tsunami in 2004.

The floods have killed at least 377 people since July with 2.2 million affected, including hundreds of thousands in Bangkok's submerged northern districts and in industrialized provinces.

Rice output in the world's biggest exporter for 2011/12 has fallen six million tonnes, or 24 percent, to 19 million tonnes. Annual GDP growth in the $319 billion economy has been pared to 2.6 percent this year from 4.1 percent.

People are stranded in flooded homes, without food, water, electricity and, in many cases, insurance. Cases of water-borne sickness, drowning and electrocution have been rising.

Crocodiles and snakes have been seen in streets usually thronged by noodle vendors and shoppers. Boats and cars share the once-congested highways. Housing estates have been transformed into urban reservoirs.

The vast Chao Phraya river that winds past glittering temples, palaces, embassies and high-end hotels near the central business district is bulging from record water levels. Bangkok is on edge with high tide approaching, many of its sleek office towers and shopping plazas fortified by makeshift sandbag barriers.

EYE OF STORM

At the center of the crisis is Yingluck, a political neophyte whose critics deride her as incompetent and indecisive.

She has been mocked for wearing designer boots in muddy flood waters and her government has been accused of failing to warn people and businesses of the gravity of the disaster and trying to suppress bad news -- charges she vehemently denies.

The government's Flood Relief Operations Center (FROC) hasn't helped. One minister at the center, for instance, told residents in Bangkok's fringe provinces to evacuate. Within hours, another insisted the situation was under control.

Thais have been told Bangkok would escape the floods. Now, they are told the capital could be swamped for a month. Many have given up listening.

People now don't trust the leadership of Yingluck and the government. They are hoarding food and water and now they are relying on social media for their information, said Kan Yuanyong, director of Siam Intelligence Unit, a think-tank.

In recent appearances before reporters, Yingluck has looked exhausted, at times on the verge of tears with a tremor in her voice -- in stark contrast to her seemingly boundless energy and confidence on the campaign trail.

But it's not just Yingluck's image at stake, it's Thailand's. The rise of industrial zones over the past 30 years has transformed a country once built around rice paddies and beach resorts into regional hub of low-cost manufacturing, a critical cog in the global supply chain.

Seven industrial estates in Bangkok's fringe provinces of Nonthaburi, Pathum Thani and Ayutthaya have been forced to shut because of the floods, putting 650,000 people temporarily out of work and causing rippling disruptions to global manufacturers - from automobiles to disk drives.

Toyota Corp has been forced to cut North American auto production. About 1,800 Japanese manufacturers operate in Thailand and several of them, including Canon Inc, Pioneer and Sony Corp, have suffered interruptions to production or distribution.

Lenovo Group Ltd, the world's No.2 PC maker, said the floods would lead to constraints on hard-disk drive supplies in the period to March, one of dozens of major companies affected by the crisis.

The confidence of those multinational companies is as crucial to Yingluck's political fortunes as settling growing unease among voters.

The challenge, say political analysts, is whether she can engineer a speedy recovery that compensates industry, businesses and affected communities, restores public confidence and builds the infrastructure needed to prevent a repeat of the disaster.

What is important is how we handle this long term, because we have to give full assurances to foreign investors that this can be handled better, Finance Minister Thirachai Phuvanatnaranubala told Reuters.

OLD DIVIDES

A 400 billion baht ($13 billion) budget deficit has been targeted for this fiscal year from October 1, up from 350 billion baht previously, to help with the recovery.

Our irrigation system was designed for providing water for agriculture and water for (home) use, as well as for generating electricity. But we have to now aim more for storm drainage, managing the flood deluge. This will be a more important priority, Thirachai said.

Flood-recovery spending plans are likely to sail through parliament with Puea Thai and its coalition partners holding two thirds of the lower house, but there could be plenty of stumbling blocks.

Yingluck's political opponents and parts of the military and establishment that largely back the opposition Democrat Party are likely to use the crisis to try to undermine the government by generating public opposition.

Already, those divisions have resurfaced as authorities and politicians square off along the fault lines that have polarized Thailand -- Bangkok's urban elite who broadly back the Democrats against the supporters of Thaksin, including the red-shirt protesters who occupied swathes of Bangkok last year and fought troops in battles that killed 91 people.

Bangkok Governor Sukhumbhand Paribatra, a strident Democrat up for re-election next year, has pledged cooperation with Yingluck but his public comments often undermine her. At news conferences, he has stated the capital is his priority and that he -- and no one else -- can direct its people to safety.

Please believe me and only me, he said.

Yingluck's reluctance to declare emergency rule has also stoked speculation she is resisting delegating power to the military, including the top generals who had been openly hostile to her party before the July election -- and who had helped engineer the coup that toppled her brother in 2006.

It is haphazard, Korn Chatikavanij, deputy leader of the Democrats, said of the government's ability to manage the crisis. Confidence is a major issue. For confidence, there needs to be transparency and there needs to be clarity of information.

SILVER LINING

The costs of financing the recovery are unlikely to be of such a scale to directly trigger a credit-rating downgrade of Thailand, said Philip McNicholas and Andrew Colquhoun, Hong Kong-based credit analysts at ratings-agency Fitch Ratings.

But they will highlight other potential problems with Yingluck's populist-brand of policymaking, including the strain on state finances from big-spending policies that were crucial in winning rural and urban-poor votes in July's election.

Big spending could, however, help her win back the confidence of voters next year, stimulating the economy at a crucial time just as Europe and the United States teeter near recession.

When the waters recede, there may be a silver lining for the Yingluck government, said Thitinan Pongsudhirak, a political analyst at Bangkok's Chulalongkorn University. It will have an opportunity to come up with legitimate recovery efforts and fiscal stimuli across the board.

But if she fumbles and stumbles, she will still be around after the floods but it will all be downhill.

($1 = 30.795 Thai baht)

(Editing by Raju Gopalakrishnan)