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Thai govt searches for ways to pay rice farmers

Publication Date : 17-02-2014

 

Yingluck Shinawatra-led caretaker government struggles to fulfill promise to pay farmers money they are owed under the rice-pledging scheme

 

Over the past week, some of the methods Thailand's caretaker government is using to seek funds to pay the farmers what they are owed under the rice-pledging scheme have surfaced.

These ways are separate from the commerce ministry's accelerating sales of rice from the state's stocks, expected to reach almost 20 million tonnes.

First, a group of rice millers in Nakhon Ratchasima showed up with the intention to help farmers by taking out loans from banks for them. The banks would lend to the millers so that the millers could lend to the farmers. The millers would use their credit standing to back the loans from the banks while keeping the farmers' pledging receipts as collateral.

The farmers would receive some money, though this would be part of the total value of their pledging receipts; for example, 50,000 baht (US$1,546) out of 100,000 baht if they are extended loans at 50 per cent of the pledging receipt.

Second, millers are being offered loans to buy rice from the government. State-owned Krungthai Bank circulated a letter dated Wednesday saying it would extend credit to millers and packers interested in joining the commerce ministry's rice auction. The bank said this is a normal lending service.

Deputy Finance Minister Benja Louicharoen on Thursday said the ministry had come up with a conclusion on loans in an effort to pay the farmers. Part of the loans would come from the Bank for Agriculture and Agricultural Cooperatives (BAAC).

The finance ministry was also reportedly securing funds to pay unpaid farmers via the interbank market, in which the state-owned Government Savings Bank extends loans to the state-run BAAC. But the loan would be for 20 billion baht, much more than the usual 5 billion baht deal. The ministry then would issue a "letter of comfort" in confirmation that it would support the loan deal, a ministry source was cited as saying by Isranes Agency.

"The ministry expects to seek approval on this matter from the Cabinet meeting this week," the source said.

However, GSB president Worawit Chalimpamontri said on his Facebook page on Friday that he refused to lend to the BAAC for the rice-pledging scheme. He admitted that the bank had extended the loan to BAAC via the interbank market, but not for that purpose. The bank also hasn't received any letters of loan guarantees.

Former finance minister Thirachai Phuvanatnaranubala posted on his Facebook page on Friday that if the "comfort letter" was true, this meant the government is trying to avoid violating Article 181(3) of the Constitution. Under the law, a caretaker government is banned from creating any activities or transactions that could burden the next government unless the Election Commission (EC) gives it permission. But, the EC has declined to consider whether the government could obtain such loans as requested.

Normally, the finance ministry issues letters of guarantee to back loans made by state-run banks for the government's specific purposes.

"The letter of comfort is likely a letter for the government to show its intention to guarantee such a loan, which it cannot do now. When the government is out of being the caretaker, it will issue the letter of guarantee to back that loan," Thirachai cited in his page.

However, if the "comfort letter" is legally binding, the Cabinet might be accused of violating the law, Thirachai said. If it's not, claims for loan guarantee payments cannot be made. The blame might then be placed on the banks' boards of directors or those involved with the loan deals, instead of ministers.

Even though some of more than 1 million rice growers seem to enjoy a partial inflow of cash to ease their plight, that could happen in the short term. Considering the sales of rice from inventory, it would take some two years to earn as much as 130 billion baht. For those who cannot wait, they are likely to have a chance to face a "legal risk", however.

*US$1 = 32.33 baht

 

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