Additional Bt70-billion borrowing needed for rice-pledging scheme: TDRI

Nipon Poapongsakorn, a distinguished TDRI scholar, said yesterday that the ministry sent a letter to the government explaining that it needs another Bt70 billion for the rice-pledging scheme. He urged the government to reveal full details of the scheme. 

“This letter’s main objective is to dispose of rice from the inventory. If there’s a mistake, there must be someone responsible. The Finance Ministry points out that now there is not enough money for the scheme due to the cap on the credit guarantee ratio. The [rice-pledging] scheme’s credit guarantees alone account for 60 per cent of total credit guarantees,” he said.

The Cabinet has already approved credit guarantees of Bt150 billion for the rice-pledging scheme in the 2012/13 production year. Of this amount, about Bt50 billion has been used for the unfinished second rice-pledging scheme for the 2011/12 production year. The remaining guarantees will be used for the main crops’ rice-pledging scheme and may not be sufficient if the harvest is bigger than expected. 

Nipon said the Ministry of Finance (MOF) apparently was seeking a way to give Bt70 billion more in credit guarantees to the Bank for Agriculture and Agricultural Cooperatives (BAAC). The Public Debt Management Office has to find funds for this purpose.

The amount may be allocated from credit guarantees earmarked for other state enterprises that do not need to borrow. This additional amount together with the BAAC’s budget is believed to be for the pledging of the main crop. However, there remain some difficulties for the second crop. 

If the BAAC takes on debt, which can be up to 20 times its registered capital, the government has to pay the interest or compensate the BAAC for the cost of servicing the debt.

“The BAAC is smart enough to separate its accounts even if borrowing without an MOF guarantee will be made. But if the rice-pledging scheme goes on while rice cannot be sold or can be sold only at unreasonable prices, the government will see more accrued losses, which will become public debt,” Nipon said. Although the government would be able to sell rice, no one knows which stock would be sold and at what price, he said.

The government has not disclosed details of the rice-pledging scheme to others, including the BAAC, he said. 

Ammar Siamwalla, another distinguished TDRI scholar, said normally the poor would be badly affected by such a scheme. 

If everyone follows the real market mechanism, then the scheme reflects the first time that the rice market mechanism has been totally destroyed, as this government is monopolising the whole system from purchase to sales, he said.

Price forecasts for rice or other crops would be practical for no more than one and a half years, while this scheme projects prices for the next three to four years, he said. 

The memorandum of understanding for government-to-government rice sales is only a preliminary agreement and not a firm commitment, he added.