The previous administration's off-budget populist schemes such as one-million cows, village fund, farm product price support and SML will be listed as public debts in order to manage the risks of them spinning into huge financial losses for the government.

Pongpanu Svetarundra, director-general of the Public Debt Management Office, said yesterday his office had completed a study, as assigned by the interim government, to oversee all government projects including those not subject to normal budget processes.

"We just started to look into these SPV [special purpose vehicle] projects because the new government wants to show them on the balance sheet. Our office did not incorporate them under the previous government, as they did not rely on public financing. However, if they were unable to repay debts and would then be related to the budget, we would need to take care of them," he said.

The Special Purpose Vehicles could not take responsibility for their debts on their own, he said, which left open the possibility taxpayers' money might be needed to rescue them.

SPVs are limited-purpose companies set up to fund projects and designed to be self-supporting financially with their own source of revenue.

"We oversee the public debt," Pongpanu said. "So, we help give guidelines on what should be included in the public debt. If they create anything that would be counted as public debt in the future, we will have to take responsibility for that."

The interim government has been determined to clear debts incurred from the previous regime's populist policies. In fiscal 2007 alone, Bt85.5 billion of bad debts will be settled, while the remaining unpaid bills - "not a large number" - will be carried over to later fiscal years.

Of the Bt85.5 billion, the biggest chunk, Bt23.08 billion, is from the government's liability for principal and interest on loans taken out by the Farmers Rehabilitation and Development Fund for the rice-pledging programme by the Bank for Agriculture and Agricultural Cooperatives (BAAC).

The debt from Village Funds is Bt13.16 billion, while the deficit from the universal health scheme was Bt7.76 billion.

The Bt85.5 billion of unpaid debts will be booked as part of government's expenses in the current fiscal budget, which is Bt177.58 billion in total. To make room, other current expenses will be cut down and the deficit for the 2007 fiscal year increased from Bt100 billion to Bt146 billion.

Deputy Premier and Finance Minister Pridiyathorn Devakula said the Thaksin Shinawatra government committed fiscal mismanagement by not settling its debts on an annual basis.

The interim government would eliminate all outstanding liabilities in order to preserve fiscal discipline, he said. If damages occurred and the government declined to compensate agencies, they would suffer from a lack of budget and wouldn't be able to manage their activities.

"In the past, the government would settle all losses from the rice-pledging programme via the BAAC every year. But over the past three to four years, the government has left them unpaid. Then, we need to clean up and get things back on track," he said.

The unpaid bills left by the last government will be mostly paid off in this fiscal year (2007). There are still other leftover liabilities, such as the remaining village funds - Bt16.21 billion. They will be paid off every year until fiscal 2009, along with unknown costs from the rice and longan price-support schemes in fiscal 2006, and a few billion baht from the Ua Athorn low-cost housing project.

The remaining burden was not large and the interim government would continue to help farmers, he said. Supporting agricultural commodity prices would leave the government short, but it could manage, he said.

However, further assistance to farmers must be efficient, particularly to limit government stocks of farm goods. If the government guaranteed too high a price compared to the market, it would be difficult to unload its inventory.

Pridiyathorn said earlier the rice price guaranteed by the Thaksin government was too high, which created problems and forced this government to lower it.

Chaturon Chaisang, acting Thai Rak Thai Party leader, on Wednesday defended the Thaksin government, claiming Pridiyathorn's comments on the previous government's fiscal discipline were groundless.

Chaturon said the Thaksin government ran a balanced budget over its last two years, and that it was impossible to claim it was a free spender as accused by this government.

He said the subsidies the previous government gave to farmers were very small compared to debts derived from bailing out large corporations and financial institutions.

Pridiyathorn said the government would issue bonds to finance this year's budget deficit, which would boost public debt by 2-3 per cent, which was still acceptable. The debt-servicing ratio is 13 per cent of the total budget, which is still lower than the 16-per-cent ceiling.

The Surayud government also plans to upgrade operating standards of the specialised state banks, which were used by the Thaksin government to fund its populist policies. 

Anoma Srisukkasem

The Nation