Thai Rak Thai Party leader Thaksin Shinawatra's break from the prime ministership could lead to more bad debts in the government's village fund programme, an official of the scheme said yesterday.

The village fund official in Chiang Mai, who declined to be named, said a number of borrowers from several village funds in the northern province had already refused to repay their debts. They reason that since the loans were given to them under a Thai Rak Thai policy, they did not have to repay them if the party's leader was no longer the prime minister, the official said.

The official said the problem of bad debts had occurred before in Chiang Mai because of poor management of the scheme, which entitles every village to a Bt1-million fund that can be loaned out to residents who register, was first introduced five years ago.

Officials in charge of the funds were even caught swindling and one of the most scandalous incidents of this kind, now pending trial, is the case of suspected fraud at Wat Kate community in Chiang Mai's Muang district, the official said.

The official blamed the previous administration for thrusting the scheme onto local people without proper preparation. "At some villages, members have been given an amount of credit much beyond their ability to repay," the official said.

However, the chairman of the village fund and community network of Chiang Mai's Muang

district, Montree Sunthornsawat, played down the problem, saying that bad debts constituted only about 5 per cent of all loans.

Most cases were in city areas, he said.

The chairman of Krabi's village fund committee, Somkiat Kittitornkul, meanwhile, gave the figure of bad debts in the southern province at about 4 per cent and said he expected no substantial increase as a result of Thaksin's break from the premiership.

"We have given the loans under strict legal procedures and we can always take cheaters promptly to court," he said.

Similarly, Kasem Sangthong, an assistant to the head of Phang Kham Pattana Village in Rangot district of Songkhla province, said his village's fund did not have any serious repayment problems because of strict screening of loan recipients.

"But I don't think this is a very useful project because it encourages local people to have more debts," he said.

A source at the village fund office in Songkhla's Ranod district confirmed that some borrowers had refused to repay during the current political uncertainty. There is a widely held belief that the village fund programme would stop soon after Thaksin stepped down, the source said.