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Rice subsidy weighs on Thai govt's economic record
Publication Date : 25-07-2012
Although Thai government's overall performance in implementing its economic policies has received pass marks from leading economists, they warn as much as 100 billion baht (US$3.14 billion) in taxpayers' money could be lost as a result of the rice-subsidy scheme this year.
The economists each gave a score of between six and seven out of 10 for the government's performance.
Nipon Poapongsakorn, president of the Thailand Development Research Institute, said yesterday that the rice-pledging scheme would turn into a substantial public-fund-losing game.
Although the FOB (free on board) export price quoted by the Commerce Ministry is about $600 (19,075 baht) per tonne of white rice, the government has bought rice from farmers at about $800.
Moreover, the actual export price is lower than $600, he told a seminar on evaluating the government's economic performance, hosted by the Kukrit 80 Foundation
Nipon said the overall cost to the public purse would be extremely high if the government bought about 15 million to 16 million tonnes of rice from farmers.
"The government should consider a gradual exit from its rice price-pledging policy," he added.
If the government continued to purchase rice from farmers next year, it would not be able to find warehouses to store the produce, since the warehouses would be full from this year's output, he warned.
The economist also urged the government to end the tax and interest-rate incentives for those buying their first home or car.
He suggested that the government should cut its subsidy schemes in order to save money for investment in infrastructure.
"I think the government has failed the test of the economic policies," said Nipon.
Pridiyathorn Devakula, former governor of the Bank of Thailand, estimated that the government would lose about 100 billion baht of taxpayers' money this year on the rice-subsidy scheme.
"And if the government implemented the scheme further and accepted losses of up to 200 billion to 300 billion baht ($6.2 billion to $9.4 billion), it would lead to fiscal problems over the next 10 to 15 years," he warned.
Veerathai Santiprabhob, executive vice president of the Stock Exchange of Thailand, expressed concern over a lack of fiscal discipline.
"The government may face trouble in the next three to five years when Europe no longer implements a monetary-easing policy," he said.
He blamed the government for pushing the country into the trap of populist policies, which place too much emphasis on short-term goals.
If the government only implements short-term measures, there is no economic reform, nor is there reform in the public sector or education, said Veerathai, who gave the government a score of six out of 10 for economic performance.
Supavud Saicheua, managing director of Phatra Securities, told the seminar that the government had no clear energy policy, which could lead to economic problems in the future. He was referring to the reluctance to end oil and gas subsidies.
While agreeing with the government's 2-trillion baht ($62 billion) infrastructure investment plan and flood-prevention spending worth 350 billion baht ($11 billion), he said infrastructure investment must be transparent, which could be judged by whether large foreign firms are able to participate in the bidding process.
The projects must also be judged on the basis of their investment return to the economy, he added.
Moreover, Supavud expressed concern over the role of state-run banks, pointing out that prior to the 1997 financial crisis, their deposits were only 6 per cent of overall deposits in the banking sector, whereas they now represent 30 per cent of the total.
High deposits on the balance sheets of these banks mean a high contingency burden for the government's financial position, he said.
Supavud also gave the government a score of six out of 10.
Bhanupong Nidhiprabha, dean of Thammasat University's Faculty of Economics, was more supportive of the government.
He gave a score of seven out of 10, saying that he was satisfied as there were currently no inflation or unemployment issues.
He agreed with the government's raising of the minimum wage to 300 baht ($9) per day. Large firms were already paying more than 300 baht to unskilled labour, he said, adding that only labour-intensive industries would be adversely affected by the policy.
Bhanupong dismissed criticism that higher wages would make a significant contribution to a possible hike in inflation, saying there were many factors involved behind a rise in prices.
However, he said he supported the central bank's proposal to base its inflation target range on headline inflation instead of core inflation.