Endless handouts lead to weakness and dependency

The government has again proceeded with another populist policy by providing a debt moratorium for borrowers even though it is unclear how this moratorium, financed by the taxpayers’ money, will contribute to the country’s economic development.

The government has instructed state-run banks to suspend principal repayments for three years. Customers will also benefit from an interest-rate cut of 3 percentage points. The project will cost the taxpayer Bt22.85 billion. The government expects the new scheme to cover 3.76 million borrowers, with combined outstanding loans of Bt459.11 billion.

Interestingly, the government initiated the moratorium even though creditors had not asked for it. Finance Minister Kittiratt Na-Ranong has apparently implemented the project to make voters feel good about the Pheu Thai-led government. It seems this is another ploy – at the expense of the taxpayer – to boost the chances of the party being re-elected at the next election.

Kittiratt has defended the scheme, saying that it will not cost taxpayers’ too much money. But the real issue here is that there are so many other populist schemes haemhorraging taxpayers’ money, and these are taking precedence over real problems that require high priority from the government such as improving the productivity of farmers, educational reform and preservation of the environment. The latter problem has been evident in the recent serious smog situation in northern provinces. But the government has chosen, yet again, to give easy money to its potential supporters.

The government says it is providing the debt moratorium as a reward for good creditors and low-income people. It says one of the reasons for the debt suspension is that it now wants to reward high-credit-rating borrowers, having already implemented a debt moratorium for poor-credit-rating borrowers. 

This does not make any sense at all, as borrowers – anywhere in the world, regardless of their status – are obliged to repay their debts. After the government has “rewarded” these two groups of borrowers, what other groups of borrowers will start asking for similar debt forgiveness because they feel that they should be entitled to this kind of easy money too? 

The government cannot clearly explain how this policy will primarily help low-income people, because they are not the majority of this group of borrowers. This programme is unlikely to create any multiple effects to strengthen borrowers’ capacity or improve economic development in the longer term. 

Worse, this project will create a moral hazard among borrowers. As has been seen many times before, these populist policies can become addictive. This will negatively instil an undesirable spending habit among borrowers. Easy money will simply encourage some borrowers to spend even further beyond their means. What will happen if the majority of Thai people feel the government will always be their ultimate provider. 

Any developed country would sensibly desire to have its people more independent from the government’s financial assistance and control. Instead, these populist policies have the opposite effect. But Pheu Thai politicians are using this ruse because it is effective in creating the feeling that they are indispensable to their voters’ livelihoods.

A negative credit culture where borrowers feel that they don’t have to service their debts can lead to another financial crisis as witnessed in 1997. The American mortgage crisis in 2008 and the ongoing economic crisis in Greece all come from undisciplined spending habits. 

Thais should have learned from all these expensive and painful lessons. Instead, the government is trying to promote an undesirable spending habit among borrowers.

The debt moratorium is likely to drain the participating state-run banks. The Bank for Agriculture and Agricultural Cooperatives (BAAC) recently asked the government to increase its capital by Bt10 billion because it is affected by the populist policies. This moratorium alone will cost the BAAC Bt200 billion in lost income.

Sadly, Thai politicians prefer short-term policies to get elected, regardless of the negative long-term results for the country. The best way to help low-income earners is to enhance their capacity, to enable them to climb the social ladder. Populist policies such as endless farm and fuel subsidies, and this debt moratorium, do nothing to improve the competitiveness or capacity of low-income earners in the long term.

The lasting impact of these populist policies is to instil in consumers and borrowers undisciplined spending habits and the perception that the government will always take care of them. They serve to discourage the spirit of self-reliance. The government’s squandering of the national budget is simply the tip of the iceberg. Our politicians never consider the country’s long-term future because they are concerned only with their immediate short-term personal gain.