Alarm over unsubstainable public debt if policy continues

He urged the government to reconsider its plan to press ahead with an extension of its “unreasonably high” price-subsidy programme, saying that such a move would directly affect confidence in Thailand.
He also suggested that agencies should keep a close watch on new rice exporters with an unusually high export volume.
Pridiyadhorn was speaking at the “Rice, Farmer, Politician and Thailand: Whose Loss, Whose Gain?” seminar, hosted by Thai Publica, a private watchdog agency.
He expressed concern over the estimated huge impact the pledging policy would have on the Kingdom’s public debt, causing it to rise beyond a sustainable level. In particular, he said, it would directly hit confidence in the exchange rate.
“We want the government to contemplate very carefully on furthering the pledging scheme,” he said.
The government has assessed the loss from the rice-subsidy programme for the main crop of 6.95 million tonnes in the 2011-12 harvest season at Bt32 billion. However, if it has to wait to release the entire stock over the next two years, the loss could reach Bt45 billion, deriving from interest costs together with degraded rice quality, weight reduction and maintenance costs.
The overall subsidy programme in the 2011-12 harvest season, with a projected production of 21 million tonnes of paddy rice, is expected to reach Bt140 billion.
In addition, for the 2012-13 harvest season, the government targets pledging 33 million tonnes of paddy rice, which would result in a loss of Bt210 billion.
“I’m worried about the high losses hitting the Kingdom’s public debt and, if combined with off-budget borrowing, the country’s public debt per GDP will reach 61 per cent in 2019,” Pridiyadhorn said, adding that the public debt/GDP ratio had reached 44.2 per cent in July.
“I have to speak out. If the government insists on stepping ahead further with this management, it will be ignoring the loss-burden effect on public debt, which is a hard disease to treat,” he insisted.
Pridiyadhorn said the government had no shame, claiming that it had not yet sold the rice, therefore there had been no losses from the scheme to date.
He also asked the public to monitor closely the establishment of a new rice company, which has won a big lot in the government’s rice bidding.
Over several years, the company had been one of the leading rice exporters, but it then had to shut down its operations, prior to its recent re-establishment, he said, adding that if the pledging policy was intended to monopolise rice prices, it would cause serious damage to the country’s interests.
Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, told the seminar that exporters are worried about the government's “secret way” of releasing rice, which he said was unacceptable practice.
The release method was also implemented under the previous Abhisit Vejjajiva administration, which is why the current parliamentary opposition has not been over-critical of the practice, he said.
“It is unfair trade practice if the some companies have an advantage over others by relying on political connections to purchase rice cheaper than the market price,” he said, adding that with these good connections, they can purchase jasmine rice at just Bt8 per kilogram compared with the market price of Bt30.
“We don’t want the government to continue with the secret way of selling its rice stockpile, as we believe it will also benefit politicians,” said Chookiat, lamenting the fact that most exporters now had to work exceedingly hard to export their rice.
He also warned that the government would find it difficult to achieve high export prices, as it has to release a huge stock, which will directly increase global supply.
The association chief stressed that the government’s unreasonably high subsidy price had distorted the market mechanism by 50 per cent, which had in turn created difficulties for exporters. As a result, small companies have been forced to close down, while some bigger businesses have had to move out of Thailand to establish operations in countries such as Vietnam and Cambodia.

COST INCREASE
Decha Siripat, director of the Kao Kwan Foundation, said the price-|subsidy policy had increased farmers’ production costs Bt5,000-6,000 to Bt7,000 per tonne of rice.
The increased cost derives from farmers having to rent more plantation areas to cash in high pledging prices. At present, 60 per cent of rice plantation is undertaken on a rental basis, rather than on a farmer’s own land.
In addition, fertiliser and insecticide costs are increasing despite the absence of import duties. “Fertiliser and insecticide costs have risen since the government launched the subsidy programme, increasing farmers’ production costs,” he said.
Leading economist Nipon Poapongsakorn said the government should publicly unveil the facts about the release of rice stocks under the programme and explain why the price of domestic rice had not increased, since this policy targets the purchase of every rice seed.
The government’s loss in running the scheme reached Bt170 billion for the last cultivation period, he said. However, while 64 per cent of Thai farmers had enjoyed high prices, only 18 per cent of poor farmers had gained from subsidised prices.
In a related matter, the Cabinet yesterday approved the establishment of a mechanism to promote collaboration in the Asean rice market among Thailand, Cambodia, Laos, Myanmar and Vietnam. Under the new mechanism, there will be meetings on three levels: Asean rice cooperation ministerial gatherings; Asean Rice Co-operation Committee meetings; and Asean Rice Miller and Trader Federa-tion meetings.
The Cabinet also approved the Commerce Ministry’s proposal to establish a rice trade zone. The ministry was assigned to study ways to set up such a zone.