- Category: World
25 Jun 2013
- Written by Bloomberg News
THAI Prime Minister Yingluck Shinawatra risks a backlash from farmers who helped put her in power after cutting guaranteed rice prices following criticism that the program put the country’s finances at risk.
The Cabinet on June 19 approved a 20-percent reduction in rice-purchase prices to help stem losses from the program that the government estimates at about 137 billion baht ($4.4 billion) last year.
Moody’s Investors Service said on June 3 the subsidies hamper Thailand’s goal of achieving a balanced budget by 2017 and are negative for the nation’s sovereign ratings.
“If the government doesn’t listen to farmers’ voices, the Pheu Thai party won’t have farmers as a shield to protect them,” said Charin Sing-dee, head of the farmer council from Singburi province, referring to Yingluck’s ruling party that won a parliamentary majority in 2011 elections. “If the price is cut, it is like farmers are being bullied.”
Yingluck raised minimum wages, handed incentives to first-time car buyers and paid rice farmers as much as 50 percent more than domestic market rates since taking power two years ago with support from poorer areas in northern Thailand.
The Moody’s report and opposition attacks prompted her to establish a committee to verify losses and lower prices.
“The fiscal burden arising from this program is one of the key concerns of foreign investors,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse AG. “But beyond the fiscal cost, the program also distorts incentives for people. Thailand already has labor shortages in many productive sectors and this program encourages more rice growing by many people who perhaps should not be doing so.”
Agricultural exports slipped 4.4 percent in April, led by an 8.4-percent decline in rice shipments. That has weighed on the baht, which is the biggest loser after the Indian rupee and Philippine peso this quarter in Asia, Bloomberg data show.
The Bank of Thailand cut its policy interest rate on May 29 for the first time this year to boost growth after the Southeast Asian nation’s expansion slowed more than estimated to 5.3 percent last quarter. The government last month lowered its 2013 GDP forecast to as little as 4.2 percent and cut its target for export growth to 7.6 percent from 11 percent.
Thailand has spent 588.7 billion baht since October 2011 to buy 40.47 million tons of unmilled rice from farmers. The program has increased domestic demand and purchasing power by 2 percentage points and helped improve farmer income by about 115 billion baht a year, according to the government.
The government is carrying debt of almost 160 billion baht for 2012-2013 from implementing the rice price-support program, according to official estimates.
By setting purchase limits, it will lose about 80 billion baht a year, calculated from the difference between the support price and market price, including interest and storage costs.
In Photo: Thai Prime Minister Yingluck Shinawatra, delivers a keynote speech during the Future of Asia conference in Tokyo, Japan. (Bloomberg)