Rice-pledging scheme could 'doom Yingluck'

business October 03, 2012 00:00

By Achara Deboonme,
Piyanart Sri

10,148 Viewed

Central bank chairman Virabongsa Ramangkura advises Pheu Thai govt to quickly scrap massive project, which he says is wide open to corruption

The Pheu Thai government should swiftly scrap its rice-pledging scheme, as it requires huge debt-financed budgets and opens the door wide to corruption, economic guru Virabongsa Ramangkura said yesterday.

“The country will be doomed if the government proceeds with the rice-pledging scheme,” Virabongsa said in an interview with Nation Multimedia Group.
“This government demonstrates stability. But if there’s anything to rock the stability, it’s this scheme.”
Serving on the Strategic Formula-tion Committee for Reconstruction and Future Development and widely viewed as the government’s chief adviser, Virabongsa said the programme, no matter which government introduced it, was riddled with graft. 
Stunning verdict
Virabongsa’s stunning verdict on the controversial policy came only a few days after former prime minister Thaksin Shinawatra staunchly defended the scheme in an interview in Singapore. It also came on the same day that Prime Minister Yingluck Shinawatra vowed vehemently to carry on with the project.
The veteran economist is a top adviser in the government. Analysts believe that the government backed his presence in the Bank of Thailand, of which he is now chairman, because it wants to counterbalance the central bank’s governor, Prasarn Trairatvorakul, with whom it disagrees over some key monetary policies.
The government is extending the pledging project by another year, which could involve funding of Bt400 billion for the new harvests. The Commerce Ministry is now seeking help from rice millers with spare warehousing capacity to join the scheme, in preparation for the new crops.
The Cabinet yesterday also approved the rice-pledging scheme for the 2012-13 harvest year, which would require a budget of Bt405 billion. However, according to Commerce Minister Boonsong Teriyaphirom, the Cabinet allowed the ministry first to accommodate 15 million tonnes from the main crop, which will require a budget of Bt240 billion.
The pledging for the second crop, 11 million tonnes, will be decided later. The funding will also come from the proceeds from releasing stocks of government rice.
The Commerce Ministry, which in charge of the release, estimates that it would reap a total of Bt260 billion from selling the rice from the 2011-12 main crop, which means a net loss of Bt10 billion. 
Losses are incurred from the falling prices of rice in inventory against market prices at the time of the releases. It was first estimated that total losses would be about Bt60 billion.
The rice-pledging scheme was one of the key election-campaign promises of the Pheu Thai Party. In its first year, the project drew heavy criticism. Farmers complained that they did not gain as much as Bt15,000 per tonne as promised, because of heavy deductions by rice millers.
Exporters complained that setting the price at a high level gave them big headaches, as global prices are falling on new supplies from Vietnam and India that are cheaper. 
Last week, in the headlines was news from Vietnam claiming that it could surpass Thailand as the world’s biggest rice exporter. 
Vietnam ‘in the lead’
Nguyen Van Don, general director of rice exporter Viet Hung, said that thanks to Thailand’s high price guarantee for farmers, Vietnam was in the lead so far.
“The reason is … the programme of storing and buying up rice to support the farmers of Thailand. Now it is very difficult to compete for selling price. Now Vietnam is competing very [strongly] with India and Pakistan and Burma, mostly with India.”
The huge losses prompted 127 academics to file a petition to the Constitution Court last week for the court to have the rice-pledging scheme terminated. The court has yet to decide whether it will take this case into consideration. 
Yingluck yesterday insisted that the government was ready to explain to the court why the government will proceed with the scheme. She insisted that this scheme was aimed at raising the standard of living of farmers. Referring to her field trips, she said farmers had benefited tremendously. 
“I plead for sympathy. Please put mutual benefits before anything. This project is to give an answer to the majority. Without this, the market mechanism might not work.
“But since this is executed nationwide, there could be bottlenecks at the low level and we need time to improve this. Something can’t be 100 per cent perfect. But this is not because it is a bad policy or a bad process,” she said. 
She also promised to heed advice from everyone. Deputy Prime Minister Chalerm Yoobamrung has been assigned to rectify missteps in an integrated manner. 
Criticised for offering a high price, which in effect sets up competition with exporters, she said the government had no policy to reap profits from the project. The programme is simply to realign supply and demand. Without the mechanism, rice prices would fall to an irrecoverable level. The project incurs some losses, but it won’t affect the overall economy. Higher rice prices were raising farmers’ living standards and this would boost economic cycles, she said.
While supporting the other policies of the Pheu Thai government, Virabongsa expressed strong opposition to all pledging schemes for agricultural crops that involve rice, rubber, tapioca, corn, shrimp and other crops. 
In an article he wrote for Prachachart Turakij, dated August 15, 2011, when the Pheu Thai government took office, he lashed out at the pledging scheme. This article has resurfaced again on media websites, at a time when the government has pledged to proceed with the scheme despite a possible no-confidence debate launched by the Democrat-led opposition.
“Since agricultural pledging schemes were first introduced in 1986 [by the Prem Tinsulanonda administration], Thailand had wasted a huge amount of money and farmers were not end-beneficiaries as expected. Much of the gains fall into the pockets of rice millers, ministers and politicians’ cronies, which explains why nobody wants it to end,” Virabongsa said in the article.
‘Flawed’ process
A pledging policy in general means items are pledged below market prices in the expectation that the owners will later redeem the items. However, in this scheme, rice is pledged above market prices and the government needs to release stockpiles at a loss, he said.
In theory, rice prices are determined by global demand and like other agricultural products, they can be substituted by other crops and new supplies are hitting markets all the time. Accumulating stocks now can’t influence global prices, he said.
In practice, the process in choosing participating rice millers contains flaws. Millers can forge pledging documents, showing the government that they buy “invisible” rice at the guaranteed price. However, when farmers actually sell rice, the millers buy at market prices, which are below the pledging levels, he said.
Then, when the government holds rice auctions to unload stocks, exporters with political connections bid for the rice, containing physical and invisible rice, as they know the actual cost. Millers and exporters without connections would go bankrupt, he said.
“In the corruption loop, the government lost hugely and farmers gained nothing … It remains 
to be seen how this will end,” he concluded.