Thailand’s besieged government faces a major confidence vote in financial markets next week when a state bank will try to raise about US$600 million in a domestic bond to fund a rice-subsidy scheme that has helped fuel the country’s political crisis.
The generous intervention scheme helped Prime Minister Yingluck Shinawatra win power in a 2011 election thanks to rural votes but hundreds of farmers, some unpaid since October, have joined demonstrations since November.
More are considering joining protests next week aimed at ousting her, disillusioned by the government’s inability to reliably fund the controversial program.
“The 20 billion baht (US$605.79 million) is not enough to pay the thousands of farmers who are still waiting for their money and they are getting angry and thinking about protesting,” said Prasit Boonchoey, head of the Thai Farmers Association. He told Reuters he attended anti-government rallies in November.
An attempt to raise money to meet late payments fell short in November after the Bank of Agriculture and Agricultural Co-operatives (BAAC), which runs the scheme, managed to raise just half the amount it needed as investors stayed away despite attractive terms.
The bond could face a tough reception next week, when the protesters plan to shut down Bangkok and force Yingluck out, seeking to install an appointed “people’s council” after rejecting the Feb. 2 election she called in an attempt to defuse the crisis.
Any caretaker government would not be able to renew the rice scheme which runs until February, leaving big policy decisions to the next elected government.
Millions of farmers in the northeast remain loyal to Yingluck and her brother, Thaksin Shinawatra, who brought in cheap health care and other measures to help them when he was in power until 2006, but farmers elsewhere may not be so solid.
Thaksin was ousted by the military and now lives in exile but he is widely seen as the power behind his sister’s government.
Churarat Sutheethorn, head of the Public Debt Management Office (PDMO), told Reuters the new tranche of the reopened three-year bond would be auctioned on Jan. 16.
“It is part of the total 75 billion baht in bonds we aimed to issue to fund the 2013-14 rice scheme,” she said, adding the bank could return to the debt market again in March to raise more funds.
A source at one of the arranging banks said the environment was even more difficult now than in November. “Last time there was no violence, the situation was not so bad, there was no deadline then for the upcoming elections.”
The source, who asked not to be identified, said the BAAC might have to cut the price and offer a higher yield than November’s 3.53 per cent to attract investors.
Another local analyst agreed the yield would be higher but said the government could put pressure on other state-owned banks to subscribe to the issue, which will be guaranteed by the state.
The Yingluck government won a landslide election in July 2011, helped by its promise to pay farmers 15,000 baht (about US$454) per tonne of paddy, way above the market price.
The scheme made Thai rice uncompetitive in the export market and in 2012 Thailand lost its crown as the world’s top exporter, with India taking over. The state amassed huge stockpiles which it is still struggling to sell.
Anti-Thaksin protesters say the scheme is corrupt and has helped wealthy farmers and regional politicians more than the poor. It helped fuel opposition to Yingluck before the outbreak of street protests in November.
The BAAC, acting for the state, has spent up to 680 billion baht buying rice and the scheme is expected to run up huge losses if grain is eventually offloaded at market prices.
The government has not put an official estimate on the losses but industry insiders and some academics say they could be as high as 425 billion baht.
As a comparison, the projected government budget deficit for fiscal 2013-14 is 250 billion baht, about 1.9 per cent of gross domestic product.
— Apornrath Phoonphongphiphat reports for Reuters from Bangkok.