Moratorium could break the bank

IN his campaign to become Thailand’s next prime minister, Thaksin Shinawatra, the telecom tycoon who leads the Thai Rak Thai Party, is resorting to a “goforbroke” strategy to win popular support by promising farmers a threeyear debt moratorium, political and economic analysts say.

At his party’s Americanstyle national convention held on Sunday at Thammasat University’s Rangsit campus, Thaksin pledged a threeyear debt moratorium for farmers so that they could deal with the problems caused by the economic crisis.

“Those who survived will be charged lower interest rates on their loans,” he said.

Moreover, he promised to forgive the debts of farmers who got into trouble because they followed policies developed by the government.

But political and economic analysts warned that the pledge could further damage the beleaguered financial sector because it might promote the nonpayment culture.

“Apparently, he is not aware of the severity of the scale of the problem that might arise from his debtmoratorium pledge,” said one political commentator.

“Thai farmers account for 40 to 50 per cent of the Thai population. I don’t know whether he has studied the issue carefully enough. Does he know what kind of debts the farmers are shouldering, or how does he categorise Thai farmers? A kamnan or village head, who has hundreds of rai in land, might also owe money. Will he also get debt forgiveness?”

By promising farmers debt forgiveness, Thaksin is trying to extend his party’s support, currently centred in urban constituencies, to rural areas.

“If the debt forgiveness is announced, the Bank for Agriculture and Agricultural Cooperatives will collapse because the remaining good customers will also stop paying,” the political analyst said.

Dr Somjai Phakapasvivat, a political scientist at Thammasat University, said the economic platform of the Thai Rak Thai Party lacks direction. “Singapore is pushing information technology and education. In Malaysia it is a supermedia corridor. But the national agenda of the Thai Rak Thai Party does not try to answer this kind of fundamental question of where we are going,” he said.

Overall, the Thai Rak Thai Party’s policies are distinct in three ways – they emphasise the role of entrepreneurs, economic restructuring and developing financial markets to spur economic growth, he said. The party’s political and economic platform, as established in its “national agenda”, lacks a coherent conceptual framework and clearcut measures for implementation, said Dr Somkiat Osathanond, an economist at Chulalongkorn University. “The platform is not assembled in a coherent manner. He does not take into account external factors at all … as to how they might have an impact on the Thai economy.”

External factors such as oil prices, currency movements, interest rates and hedge funds have not been factored into Thaksin’s economic platform, Somkiat said. “Debt moratorium, in practice, cannot be done because you cannot get all the money to support the Bank for Agriculture and Agricultural Cooperatives. The farmers don’t owe money to the agricultural bank alone. More important, how do you define ‘farmers’?”

Political parties need to consider external factors when setting the framework of their economic policies, which have to address the debt of the corporate sector, the government and state enterprises, Somkiat said.

Thaksin “has no plan to offer as to how the country can generate a surplus income of at least US$20 billion (Bt750 billion) over the coming years to repay the debt of $12 billion$15 billion and to stimulate the economy by $6 billion$8 billion,” he said. “Banks must operate with growing performing loans to reduce the problem of the nonperforming loans.”

Thaksin devoted three of the 11 planks of his national agenda to economic salvation. They combine tax cuts, economic restructuring and the eradication of unemployment. The money, equity and debt markets would be developed so that they grow proportionately, he said. Historically, Thai companies have depended too heavily on banks to raise money. Consequently, when banks have problems, Thai companies lack alternative sources for raising money.

Thaksin did not spell out how he would reduce the banking sector’s nonperforming loans, which account for 38 per cent of all outstanding loans, pay off the Financial Institution Development Fund’s Bt1.3 trillion debt, or finance the budget, which has been in deficit for three consecutive years. Nor did he say how he would return the banks to health so that they could aid economic recovery.

But Thaksin said he would embark on restructuring the Thai economy in parallel with the corporatedebt restructuring process. Companies or industries would be divided into “sunrise” or “sunset” categories in order to determine which would receive assistance.

BY THANONG KHANTHONG and

SOMLUCK SRIMALEE