Ten per cent of the unpaid debts were attributed to southern borrowers who had decided to end repayments out of hostility to the Thaksin government, regardless of their ability to pay.

Santi claimed that there was an ongoing political campaign to stir up southern anti-Thaksin sentiment to ensure repayments cease.

The fund was initiated by caretaker Prime Minister Thaksin Shinawatra during his second term and was condemned as a populist attempt to win the votes of the poor.

Responding to a report from the Office of Auditor-General suggesting that debts could reach 17 per cent, Santi admitted that the non-payment rate was on the rise. "But the unpaid debt will not become non-performing loans immediately, as fund managers can still collect the debts regularly," he said.

Santi admitted that the overall non-performing loan rate would probably reach 2-3 per cent because debt collection was impossible in many cases.

A working committee would be set up to draft regulations to enable the cancellation of some funds with high debts or merge them with other funds with high non-payment rates.

The regulations should be completed next month.