Thailand ups minimum wage as firms struggle with floods

BANGKOK Mon Oct 17, 2011 6:47pm EDT

1 of 11. Workers move goods from their warehouse at a flooded area in Nonthaburi province, on the outskirts of Bangkok October 16, 2011.

Credit: Reuters/Chaiwat Subprasom

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BANGKOK (Reuters) - The Thai government is pushing ahead with a big rise in the minimum wage despite appeals from industry to shelve the plan to help companies cope with financial losses after the worst floods in half a century devastated parts of the country.

Flooding has killed at least 307 people since late July, damaged large areas of farmland and closed half a dozen huge industrial estates this month at a potential cost of 1.7 percent of gross domestic product.

At a meeting of a tripartite wage committee on Monday, employers were outvoted by government and worker representatives and a minimum daily wage of 300 baht ($9.70) was set for Bangkok and six other relatively well-off provinces, an increase of about 40 percent.

However, the start date has been pushed back from Jan 1.

"This will be effective on April 1, 2012 because of the flooding," Labour Ministry permanent secretary Somkiat Chayasriwong told reporters.

The rest of Thailand's 77 provinces will also get a rise of 40 percent, but that will leave the minimum below 300 baht.

A rise in the minimum wage to a uniform 300 baht around the country was one of the main policies of the party of Prime Minister Yingluck Shinawatra in July's election. It would have meant an increase of 90 percent in some poorer areas.

A 300 baht daily wage is five times higher than the minimum in Vietnam and 2.5-4.6 times that in Indonesia, according to Kasikorn Research Center. A rice-based meal for one person costs about 37 baht from a Bangkok street-vendor.

Former Prime Minister Thaksin Shinawatra, brother of Yingluck and seen by many as the person really running the government from self-imposed exile in Dubai, had argued for the full increase to go ahead.

"If you think it will cost businesses more, slashing their profitability, that is the one-dimensional view," he told the Bangkok Post in an interview published on Monday. "But for me, the policy will reallocate resources in society and is also a good way to boost productivity."

He saw a rise as part of the government's aim of "rebalancing society," after a destabilizing political crisis that has pitted the rural and urban poor, who largely back Thaksin, against Thailand's traditional elites over the past six years.

Yingluck's Puea Thai Party broadly represents the rural and urban working classes.

Thailand's minimum wage has risen by an average of 2.3 percent a year over the past 10 years but annual inflation has averaged 2.8 percent over the same period, according to the National Economic and Social Development Board.

FLEXIBLE CENTRAL BANK

The wage rise will add to the central bank's dilemma at its rate review on Wednesday. Core inflation is near 3 percent, the top of its target range, but the economy is under threat from both the floods and a slowdown in Western export markets.

"We reckon the central bank will err on the side of caution and keep rates unchanged this week. The odds of a cut remain low given upside risks to inflationary expectations from pro-growth subsidies and the wage hike," said economist Radhika Rao at Forecast PTE in Singapore.

That is the consensus view. The policy rate has almost tripled to 3.50 percent in the past 15 months.

After a meeting between officials and business leaders to discuss the floods on Monday, the central bank said it was ready to be flexible on monetary policy.

"Before the floods, our economy was growing close to its potential. We have to look at how far monetary policy can be flexible," Governor Prasarn Trairatvorakul said.

To help pay for the recovery effort, the government could raise the planned budget deficit by 14 percent to 400 billion baht ($13 billion) for the year from October 1.

The Finance Ministry has cut its gross domestic product (GDP) growth forecast for this year to 3.7 percent from 4.0 percent.

It would be even lower if Bangkok, which accounts for 41 percent of GDP, is hit by floods.

Monsoon rain, high tides and water flowing down from reservoirs in the north had threatened the capital at the weekend but its defensive system of dikes and canals held.

However, provinces north of Bangkok have been devastated and a series of industrial parks have had to close.

On Monday, the government asked firms at the Nava Nakorn estate north of Bangkok to halt operations. It has 270 plants with about 270,000 workers. ($1 = 30.780 baht)

(Additional reporting by Kitiphong Thaichareon and Panarat Thepgumpanat; Writing by Alan Raybould; Editing by Raju Gopalakrishnan)

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