BANGKOK – Thailand’s finance minister has mounted a strong defence of a much-criticised official rice subsidy scheme, saying it can continue indefinitely even though its multibillion-dollar annual cost is widely seen as undermining confidence in the country’s economy.
Kittiratt Na-Ranong said the two-year-old rice-buying programme – which has just been renewed for another year – was a small price to pay to ensure millions of poor farmers and their dependants “live a decent life”.
The scheme is one of several subsidies and tax breaks that have come under fire from many independent observers, who say the economy needs restructuring if it is to revitalise its historic export-led growth and insulate itself from possible external shocks such as the end of the US’ international bond-buying programme.
“If you have to suffer budget-wise to help 4.5m families to live a decent life then I think it’s fair,” Mr Kittiratt said in an interview. “Rather than waiting until this group of people suffer to the level that would cause them to come out on to the street, it’s the government’s job to take care of them.”
Mr Kittiratt dismissed critics who say the policy of deploying almost 700bn baht over the past two years to pay farmers between 40 and 50 per cent above market rates has been inefficient and wasteful. There has been a build-up of big rice stockpiles that will have to be sold at a loss because international prices fell almost a fifth during the first three quarters of this year.
The price of benchmark 5-percent broken Thai white rice will decline a further 12 per cent to $390 a ton by April – a five-year low – according to an analysis of trader and analyst estimates compiled this month by Bloomberg, the financial information provider.
Mr Kittiratt said the government was losing 120bn baht a year on the rice scheme, but added that it had the “fiscal space” to keep the subsidy going “forever” – or until official efforts to help rice farmers diversify into other crops such as sugarcane and tapioca had yielded results.
“I think it is all right to keep [the rice buying programme] because the switching process will take some time,” he said.
The dispute over Thai government subsidies goes to the heart of a long-running political struggle in the country, with rice farming communities in the north of the country forming one of the heartlands of the Puea Thai party of Yingluck Shinawatra, prime minister. The government in September doubled financial support to rubber growers in the traditionally opposition Democrat south, after a wave of strikes and disruption by farmers complaining that rice producers were getting preferential treatment.
Mr Kittiratt hit back at attacks on the Yingluck government’s approach of expanding subsidies and other financial handouts, such as tax breaks for people buying their first cars. Asked about a thinly veiled warning last month by Prasarn Trairatvorakul, central bank governor, over an economic strategy that “borders on the realm of populism”, Mr Kittiratt said: “I haven’t heard from him directly. And I don’t believe in things that I read from the newspaper. I have to hear him for myself.”
The minister also played down fears the eventual end of the US Federal Reserve’s massive bond-buying programme known as quantitative easing – and the resulting tide of cheap money that has helped buoy the Thai economy – could seriously hurt the country.
While Thailand is not in the first rank of Asian emerging markets seen as vulnerable to a reduction – or tapering – of QE, some analysts say the US policy has helped mask problems such as slowing economic growth and rising consumer debt.
But Mr Kittiratt said Thailand had suffered rather than benefit from US spending, because capital inflows had driven up the baht to “unnecessarily strong” levels and hurt exporters.
“The end of QE and even the possibility of tapering [would] benefit Thailand, because it will help bring the baht back to the level that we can manage,” he said. – By Pan Kwan Yuk in New York and Michael Peel in Bangkok