The government's attempt to hide public debt could lead to a sovereign debt crisis similar to the one Greece faces now, noted economist Ammar Siamwalla has warned.
Nonetheless, he supports the government’s plan to use part of the country’s international reserves to pay off the debt of the Financial Institutions Development Fund (FIDF).
To make the government’s balance sheet look good, Yingluck Shinawatra’s government is trying to hide the extent of the public debt by concealing it in state-owned banks’ balance sheets – the same tactic used by the Thaksin government, Ammar said during an interview with Nation Multimedia Group.
As an example he cited the government’s requiring the Bank for Agriculture and Agricultural Cooperatives (BAAC) to support the rice-pledging scheme. The bank has so far spent about Bt300 billion on buying rice from farmers.
The government has bought unmilled rice for Bt15,000 per tonne, significantly higher than market prices.
“There’s a 99.999-per-cent chance that the government will lose taxpayer money when it sells rice later, with the loss estimated to be about Bt70 billion,” he said.
The Government Savings Bank, Government Housing Bank, Small and Medium Enterprise Development Bank of Thailand, Islamic Bank, Export-Import Bank of Thailand and Krung Thai Bank have been asked by the government to provide loans for populist schemes initiated by the government.
Ammar said this use of state-owned banks to support populist policies creates contingent liability, because if the banks have trouble, the government has to inject capital to keep them afloat.
In the past, the Greek government hid public debts. Two years ago it had to tell the world about the actual amount of debt, leading to the sovereign debt crisis, Ammar said.
He blamed politicians in both the government and opposition camps, saying they are short-sighted in their attempts to lure voters by campaigning on populist policies. “The Pheu Thai Party has gone to extremes in terms of populist policies, such as the rice subsidy, free computer tablets for kids and the Bt300-a-day minimum wage.”
Increasing the minimum wage is the right thing to do, but the government should have allowed the private sector to adjust first, he said.
Even worse, the Yingluck government did not think through its policies before presenting them to voters in the last election campaign, Ammar said.
Voters had confidence in the Pheu Thai Party – a descendant of the banned, Thaksin-led Thai Rak Thai Party – because TRT implemented its election promises, Ammar said.
“Short-sighted Thai politicians just want to win elections and push fiscal liabilities into the future, similar to the Wall Street bankers who want big bonuses in the next few quarters, even though the banks may explode after that,” he said.
He compared the behaviour of Thai politicians to that of US bankers, whose push for high profits in the short term without thinking about risk management contributed to the 2008 global financial crisis.
Thai politicians’ preoccupation with short-term goals does not help private firms increase their competitiveness or labourers to increase their productivity, which is crucial for sustained growth, the economist said.
Ammar, however, said he agreed with the government’s plan to use part of the US$173 billion (Bt5.5 trillion) international reserves held by the Bank of Thailand to partially repay the FIDF’s Bt1.14-trillion debt. The government plans to use two sources of funding to pay off the FIDF’s debt: fees collected from commercial banks and the central bank’s annual profits.
Paying off the debt of the FIDF, which resulted from the bank bail-out during the 1997 financial crisis, would leave the government with more funding for needed infrastructure investment, he said. The government may then not worry that the public debt will approach the alarming level of 60 per cent of gross domestic product (GDP), up from 40 per cent of GDP currently.
The government plans to invest in road, rail, airports, seaports and other projects worth about Bt2.27 trillion over the next seven years.
There is room for the central bank to cut its policy rate further, from the current rate of 3 per cent, if the economic situation in Europe deteriorates, Ammar said.