Opposition warns about dangers of printing money to fund spending plans; slams neglect of flood victims
The government move to force the central bank to print money for paying off public debt would reduce banknotes to worthless paper, the opposition warned yesterday.
The government has cut Bt43.43 billion from some projects and used the funds to finance other projects, including water-resource management, transport projects and supporting villages and local governments, Deputy Prime Minister Kittiratt Na-Ranong said yesterday. He was speaking during the second reading in Parliament of the 2012 Budget Bill, with proposed government spending of Bt2.38 trillion, and a deficit of Bt400 billion.
Opposition leader Abhisit Vejjajiva criticised the government expenditure plan for fiscal 2012 for not responding to the needs of flood victims. He said the government had not cut unnecessary spending and was not focusing on the much-needed areas. He also vowed to petition the Constitution Court if the government issues an emergency decree to borrow funds without proper reasons.
During the debate, Democrat MP Sansern Samalapa charged: “The government’s plan to force the central bank to repay the debts of the Financial Institution Development Fund would result in the printing of more money for the government.”
He was referring to the government’s efforts to shift public debt of Bt1.14 trillion to the Bank of Thailand’s account, as it wants to borrow more money to finance the large budget deficit.
The government plans to borrow Bt400 billion to finance the budget deficit in fiscal 2012 and plans to borrow another Bt400 billion to finance post-flood restoration projects.
“Suppose the government takes an extreme position by asking the central bank to print money to finance government expenditure of Bt2.38 trillion? People would be happy for a while, for there would be no need to pay taxes, but then the banknotes would become worthless paper,” he warned.
Such measures were implemented by some governments in Latin America and they experienced hyperinflation and the collapse of their economies, he said.
Sansern also did not agree with the government’s plan to force the BOT to provide soft loans amounting to Bt300 billion for flood victims’ recovery from the disaster, particularly small and medium-sized enterprises and households.
The loans would fuel inflation, and that would adversely affect people. He said the government’s move requiring commercial banks to pay more fees to the Deposit Protection Agency would push up the lending rate, adversely affecting borrowers. He opposed plans to use funds accumulated by the DPA to repay public debts.
Former finance minister Korn Chatikavanij expressed concern over the ballooning public debt. “The government must tell the public when it will stop borrowing and have a balanced budget,” he said. The current government plans to repay only Bt1.4 billion of the public debt for fiscal 2012, which is too small compared with the previous Democrat-led government’s debt payment of Bt45 billion annually, he argued.
He also accused the government of lack of transparency in the Bt120 billion in spending earmarked for post-flood recovery in fiscal 2012.
“Of the total amount, details of projects are available only for Bt48 billion,” he said. The conflict between the government and the central bank on public-debt payment has also eroded public and investor confidence in the economic management of the country, Korn said.
He also charged the government with being unprepared for the possibility of higher interest costs on public debt. The current cost is 4.8 per cent of the public debt of Bt4 trillion, with debt equivalent to 41 per cent of gross domestic product. A rise of 1-2 percentage points in the interest rate would cost dearly, Korn warned.
He said government revenue was likely to decline because of the corporate-tax cut and tax break for diesel users. The opposition has called for some budget cuts, arguing that there are only eight months left in the current budget period and the government will likely not meet the spending target.
Parliament is expected to vote on the third reading of the bill tomorrow.
Meanwhile, the government is going to issue four new legislations to manage public debt of close to Bt2 trillion, or about 20 per cent of gross domestic product, as part of efforts to restore the economy affected by severe floods last year.
The Cabinet yesterday approved in principle the issuing of four new laws, but it was not yet sure whether the government would issue an emergency decree or normal laws through parliamentary procedure, Deputy Government Spokesman Chalitrat Chandrubeksa said yesterday after the Cabinet meeting.
The government will consult with related parties, he said.
Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong proposed to the Cabinet to issue emergency degrees for the transfer of the Bt1.14-trillion debt owed by the Financial Institutions Development Fund (FIDF) to the Bank of Thailand as the government wanted to reduce its annual budget burden for debt repayment.
Kittiratt also wanted the government to issue an emergency decree to order the central bank to provide soft loans of Bt300 billion to support small businesses and households affected by floods. Next is an emergency decree to borrow Bt350 billion for restoring the economy. The fourth decree is to create an insurance fund pool of Bt50 billion, aimed at assuring foreign insurers to accept reinsurance from Thailand.
Finance Minister Thirachai Phuvanatnaranubala yesterday told the opposition during the 2012 Budget Bill debate that the government is urgently in need of funds for investment in the post-flood recovery.
He said the FIDF debt previously created an annual budget burden of Bt65 billion for interest rate payment, which has now dropped to Bt45 billion.
The burden limits the government’s ability to borrow for financing new investment projects needed after the floods, he said.
He assured them that the government will not force the central bank to print money to repay public debts.
“We’ll not damage monetary and fiscal discipline,” he said.
Thirachai said the current public debt, currently equivalent to about 40 per cent of GDP, is not high and it is manageable.