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rice loan

Crisis of confidence

BAAC halts "rice loan" after run on GSB; customers of GSB "upset at move" and "fear it could lose liquidity"; government vows to get money for farmers in 6-8 weeks

The state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) yesterday put the brakes on borrowing from the Government Savings Bank (GSB) to pay for the rice-pledging scheme until the Finance Ministry clarifies the legality of such loans.

The move came after savers flocked to withdraw deposits from GSB across the country, especially in the South, which is a stronghold of the opposition Democrat Party.

In a separate incident, the embattled government was put under more pressure when thousands of farmers marched from the Commerce Ministry and other sites to the Office of the Permanent Secretary for Defence in Muang Thong Thani, demanding a meeting with caretaker Prime Minister Yingluck Shinawatra.

Finance Minister Kittiratt Na-Ranong met the farmers several hours later instead of Yingluck, who failed to show up. However, he was greeted by nothing but boos and angry farmers threw objects and yelled at him as the minister, guarded by military police, retreated quickly.

Earlier, Kittiratt said the government would continue to seek loans for the BAAC so it could have money to pay for farmers within two months from yesterday. "The BAAC should be able to pay about Bt4 billion a day to farmers for an overdue payment of Bt110 billion," he said.

GSB customers reportedly wanted to show they were not happy with the bank lending to the BAAC, believing that the loan would be used for the rice-subsidy scheme. Others were said to lack confidence in the GSB's liquidity, fearing that it may dry up if it provides loans to the flagship project, which still owes a huge sum to farmers.

The GSB was believed to have lent Bt5 billion to the BAAC recently, as part of a total credit line of up to Bt20 billion.

BAAC president Lak Vajananavat said yesterday that the bank would not withdraw any money from the Bt5-billion loan, borrowed as the first batch from a lender to pay farmers under the rice scheme. And it would not borrow an additional Bt15 billion in remaining credit. No action would be until the bank gets an "all clear" from the Finance Ministry on whether it should go ahead on this matter.

"The outcome of discussion between the ministry and the bank should be delivered in two days," said Lak said.

However, the BAAC president acknowledged that the bank's borrowing was guaranteed by the Finance Ministry and considered a bridge-financing loan in line with minutes of the Cabinet meeting on January 21, which allowed the ministry to borrow Bt130 billion for a period of 30 days or 45 days.

After that, the Finance Ministry would secure another loan to repay the bridge-financing loan.

"If there are any technical problems on such borrowing, this is a duty of the Finance Ministry to clarify. The BAAC's duty is to pay those who are under the rice project," Lak said.

The BAAC chief said the bank had received more money than expected from the Commerce Ministry after it sped up sales of rice from the state stockpile. The bank received about Bt10 billion in January and Bt6.3 billion this month.

"In September, the bank expects to receive Bt95 billion sent from the Commerce Ministry," Lak said.

Meanwhile, the caretaker government insisted yesterday that it would be able to pay overdue debts worth Bt110 billion to every farmer within six to eight weeks, after the Finance Ministry seeks funds for the BAAC.

The farmers tussled with soldiers guarding the Office of the Permanent Secretary for Defence and a few people on both sides sustained minor injuries from the barbed wire. Eventually, both sides gave up and agreed to have a lunch break.

Protest leader Rawee Rungrueng then asked farmers through loud speakers to return to their main protest site outside the Commerce Ministry and return tomorrow, despite an initial agreement that they would all camp out at the office.

With Yingluck not showing up, the farmers eventually ended up meeting with senior government officials behind closed doors in the afternoon.

Rawee, who went to the meeting, did not speak publicly about what they discussed. Later, Kittiratt said in an interview that the government had no reason not to pay farmers the subsidy and that all those holding a pledging receipt would be paid.



Interbank lending

_ This is usually a loan one bank gives another, typically for about 30 days but occasionally up to 1 year;

_ The interest rate for this type of loan is typically higher than the

general lending rates;

_ This kind of loan is usually aimed at stabilising the borrowing bank's liquidity.


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