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Published on April 14, 2008

1) A debt moratorium for farmers who are clients of the Bank of Agriculture and Agricultural Cooperatives (BAAC);

2) The allotment of additional budgets to small, medium and large villages (SML Project) totalling Bt40 billion;

3) The additional allocation of Bt1.6 billion to 1,600 villages via village funds;

4) Bt5 billion will be set aside for lending through the People's Bank;

5) Housing loans of Bt10 billion for low-income clients of the Government Housing Bank (GHB);

6) BAAC to expand credit to farmers totalling Bt325 billion.

The total package totalled over Bt400 billion, and raised concern among columnists and economists over its possible impact on the economy and the burden that it would place on public debt. However, after learning more about the measures from bureaucrats, I now understand these measures better and feel relieved of my prior concerns of the negative impact they would have on the economy.

The farmers' debt-moratorium programme was named after the incomplete programme initiated by the Thai Rak Thai government. At that time, it was not successfully implemented because an attempt was made to use it to cover all kinds of debt including funds owed to private financial institutions and the size of the debt that would have been covered exceeded Bt1 million per debtor. This overly wide scope and an unclear definition of the kind of debt covered by the programme allowed many improper debtors to apply for assistance, which could not proceed further.

However, the newly announced programme is limited to BAAC debtors with non-performing loans (NPL) of less than Bt100,000 prior to March 31 of this year. Also debtors must be willing to undergo training and capacity-building to improve their output and earn more income, which might include training for supplementary occupations. The definition is quite clear and does not allow debtors to take advantage of the programme.

Actually, a moratorium on payments without interest accruing is not an abnormal process when it comes to debt restructuring. This programme simply enables the BAAC to do it promptly for all NPL. A fund of Bt4 billion has been set aside to compensate for the interest lost as a result of the moratorium, so the BAAC can do this without incurring any loss.

The SML Project, the intention of which is to develop infrastructure that villagers need to earn a living, provides funds of Bt200,000, Bt300,000 and Bt500,000 for small, medium, and large villages respectively.

The plan is quite similar to the Yu Dee Me Sook (well being and happiness) project of the Surayud government. Village working committees work out what needs to be developed in a given area and requests funding through the district committee, which then passes on the request to the national committee for approval. Funds would then be transferred directly to the village.

The current government transferred all that remained from the Yu Dee Me Sook project's budget and related expenditures to the new SML Project, and has rounded the figure up to Bt10 billion for the current fiscal year, while planning to continue the project with Bt20 billion and Bt10 billion over the next two fiscal years. This is a very good project since it involves the participation of villagers in determining exactly what they want for the improvement of their working and living conditions.

The additional allocation of Bt1.6 billion for village funds for 1,600 villages is not a new project, but rather an extension of the Thai Rak Thai's Bt78 billion scheme for 78,000 villages introduced six years ago. Actually, there are over 80,000 villages and urban communities (the equivalent of rural villages). The additional Bt1.6 billion is for the villages and urban communities that have yet to receive the Bt1 million under the old scheme.

I am not saying that this is a good or bad project, since a more in-depth study is needed to determine that, but simply pointing out that the Bt1.6 billion is not for villages that already have village funds set up, but rather for those that have yet to receive it. The allocation this time is meant to complete allocations to the remaining villages or urban communities simply to make the scheme fair to all. It is not a special deal.

The People's Bank project was initiated by the Thai Rak Thai government, but isn't mentioned much nowadays, which leads many to believe that the project is running smoothly. Actually, out of the total loans issued by the bank to the present, 21 per cent are NPL, which is quite high. To lend to low-income people who cannot provide assets as collateral, but need starting funds to make a living and who have the willpower to work harder in order to earn enough revenue to service their debt is noble. But the administrator of the programme must find ways to ensure that loans are fully repaid. The lender must see to it that the loan is really used by the recipient to make a living, and that the borrower is a hardworking and honest person. Also the lender should have a strict and effective procedure for collecting repayment. The success of this programme should not be measured alone by its ability to lend to the greatest number of people in need, but also by its ability to collect repayment within an appropriate time frame.

The issuance of a Bt10 billion bond to the GHB for it to provide housing loans to low-income borrowers is simply an arrangement of funding at inexpensive fixed costs for up to seven or 10 years. It is not much of a stimulus measure as has been claimed since the GHB usually provides housing loans to this group. It simply helps source cheaper funding for the GHB's operations.

The inclusion of the sixth measure in the stimulus package is quite a surprise since it is part of the BAAC's normal plan of extending credit this year. The source of funding for this purpose is not the government budget, but rather the BAAC will lend from its deposit base and other funding sources from the banking system. Politicians may have thought that its inclusion would make the package seem voluminous and appear to be an effective stimulus package. I am glad that it is not a real stimulus measure and am quite relieved that the Bt325 billion it requires will not be sourced from the government budget.

Until next Monday.

MR Pridiyathorn Devakula