Village Funds increase consumption : Academics

A recent study has found the government's Million-Baht Village Fund only increased consumption among villagers.

And academics say policy makers would be better teaching people how to save and invest instead of wasting money on extravagance.

Asst Professor Sauwanee Thairungroj, from the University of the Thai Chamber of Commerce (UTCC), said the study, entitled "Impact of Credit on Village Economies", showed policy makers should also address the problem of people defaulting on credit.

The study, conducted by Joseph P Kaboski and Robert M Townsend between 1997 and 2003, was based on data collected from 960 households in 64 villages spread over four provinces - Chachoengsao, Lop Buri, Si Sa Ket and Buri Ram.

Apart from raising consumption, the study showed that villagers borrowed more money to invest in agriculture.

Other effects were increasing future incomes, raising interest rates and credit from alternative sources and boosting work income and decreasing future assets.

"All the findings were from continuous data over seven years. So, researchers saw real development of village economies. This is very useful for policy makers to consider when they decide to issue new policies or change old ones," Sauwanee said.

"The government should use the findings to evaluate the fund project so that it will be able to improve the right way," she said.

UTCC is holding a seminar on "Innovations in Develop-ment Theory and Survey Data: Implications for Policy".

Other interesting research work to be presented today and tomorrow at the seminar includes financial statements from integrated household surveys and micro enterprises. This has been done by leading economists from the Universities of Chicago, California, Yale and Massachusetts' Institute of Technology.

"We have also invited personnel from government sectors to attend the seminar to learn useful real data from the economists and to exchange ideas on finding proper ways to issue policies," she said.

"We are talking about a new trend in the study of economics - micro economics, which economists use to conclude a country's growth, by using household surveys instead of predicting GDP (Gross Domestic Product)," Sauwanee said.

Village spending

The Impacts of Credit on Village Economies found:

The Village Fund increased borrowing from the Bank for Agriculture and Agricultural Cooperatives (Bt0.45 per baht of Village Fund credit) and commercial banks (Bt0.25 per baht of Village Fund credit).

Households were 33 per cent more likely to borrow for consumption, and 42 per cent more likely to borrow more than they previously borrowed for consumption.

The components with the largest usage of credit were house repairs and vehicle repairs - a baht of village fund credit led to Bt0.61 of expenditure on house repairs and Bt0.15 on vehicle repairs.

The ratio of credit in default to new credit was roughly one half (an average of Bt9,100 in default and Bt18,900 of new credit).

Village Fund borrowers were 11 per cent more likely to say they borrowed to invest in agriculture, and over 10 per cent more likely to borrow for this purpose than previously.

For every baht borrowed from the Village Fund, Bt0.35 to Bt0.81 went on consumption.

The increase in borrowing for fertiliser was Bt0.27 to Bt0.87 for each baht of Village Fund credit.