Options offered, but none considered easy
The Constitution Court should rule the caretaker government’s borrowing to pay farmers who pledged their paddy ahead of parliament dissolution on Dec 9 is legitimate to end the payment deadlock, says an honorary economist at the Thailand Development Research Institute.
Paying the farmers is an “inevitable liability” for a new government, and it should not oppose the debt burden incurred, Ammar Siamwalla said yesterday during a panel discussion entitled “How to Help Rice Farmers without Violating the Constitution and Keeping the Fiscal and Monetary Discipline”.
The caretaker government is months behind in its payments to more than 1 million farmers, as its caretaker status has limited its ability to secure new loans that may burden a new government.
Taking on debt could breach election law, and it will take time to install a new government since the Feb 2 general election failed to fill up at least 95% of parliament with members to convene its first meeting and nominate a new prime minister.
Since the 2013-14 main crop started on Oct 1, the government has paid 55 billion baht to rice farmers, leaving another 120 billion unpaid as its budget dried up and the Commerce Ministry failed to generate sufficient income from state stocks to make payments.
Delays in pledging payments now dominate the national agenda as the problem could exacerbate already-weak domestic consumption and ruin the sluggish economy. The unpaid amount represents around 1% of the GDP.
The caretaker government has failed to secure bridging loans from banks due to worries about whether the borrowing is constitutional.
The second crop begins next month, but the Yingluck Shinawatra government did not approve the subsidy’s extension before the House dissolution.
Atchana Waiquamdee, a former Bank of Thailand deputy governor, floated the idea that the state-owned Bank for Agriculture and Agricultural Cooperatives raise funds by issuing securities backed by rice stocks to pay farmers.
But former finance minister Thirachai Phuvanatnaranubala said the quality and volume of rice stored in the warehouses may be a concern in such a scenario.
The Commerce Ministry has been coy about the stockpile volume, and rice can rot in a few years if conditions are poor.
A source at the Finance Ministry recently said last year’s sweeping inspection found some 4.5 million tonnes of rice could have disappeared from government stocks, but the Public Warehouse Organization (PWO) called that allegation groundless.
Mr Thirachai also reiterated that any financial institutions, particularly foreign banks, that lend to the caretaker government to fund the scheme risk not getting paid by a new government, as it may take legal action against lenders for supporting an illegitimate policy.
The safest options are either selling the rice in big lots to unlock liquidity quickly to pay farmers or having the caretaker government resign to allow a new government to start borrowing, he said.
Former PWO head Niphon Wongtangarn warned that bulk sales under unfavourable market conditions such as more than 100 million tonnes of rice sitting in global stocks could drop the selling price significantly.
First published: Bangkok Post, February 12, 2014