BANGKOK – It’s not yet clear whether Thailand’s credit-rating is at risk from its multi-billion dollar rice subsidy program, but its credibility is already taking a beating.
Government officials Friday struggled to explain the extent of potential losses from the subsidy program after Moody’s Investors Service on Monday warned that losses from the subsidy could threaten Thailand’s stable Baa1 rating. Commerce Minister Boonsong Teriyapirom told a news conference that the losses from the two-and-a-half-year-old subsidy are lower than the 260 billion baht or $8.8 billion figure leaked to local media, but conceded that it is too soon to say what the actual figure is.
Analysts say the amount could be substantial, though. The United States Department of Agriculture estimates that the Thai government is holding 17 million ton of milled rice in its warehouses for which the government paid around $13 billion – the equivalent of 85% of the country’s annual rice output.
The problem is selling it. Prime Minister Yingluck Shinawatra’s government introduced the subsidy in 2011 to boost rural incomes, gambling that as the world’s largest rice exporter at the time Thailand would be able to drive up global prices, too.
Instead, rival exporters such as Vietnam and India stepped up production while key importers such as the Philippines increased their output in a long-standing bid to improve food security.
The result: Vietnam and India are selling rice at around $150 to $170 a ton less than the $530 that Thailand charges for similar grades of rice, making it difficult for the country to shift its massive stockpiles without incurring a politically embarrassing loss.
Analysts say the situation could get worse. India and Vietnam continue eating into what previously was a Thai-dominated market. Thai exports of milled rice fell 17% on year in April, while total exports in 2012 were down 34% from 2011.
“The current situation of high stocks may not only persist but even worsen in the next few months unless Thailand accepts lower prices,” said Darren Cooper, senior economist at the London-based International Grains Council.
The cost of storing the rice is growing, too, providing fresh ammunition for Thailand’s opposition Democrat Party, which has repeatedly criticized the rice subsidy. The Public Warehousing Organization says it costs 300 million baht or around $10 million a month to maintain Thailand’s rice stockpile in mint condition, and the agency is seeking another 2 billion baht from the government to store it for another year.
The Thai media, meanwhile, is also growing increasingly impatient with the government’s apparent difficulty with coming up with the figures to explain the situation, further raising the pressure on Ms. Yingluck’s administration.
Reporters repeatedly interrupted government officials at speaking at a news conference at the Commerce Ministry on Friday.
After a half hour of reassurances over how beneficial the rice subsidy program is, one Thai journalist said, “Seriously, a few days have passed [since the Moody’s report] and this is all you can tell us: Nothing?”
Others repeatedly yelled out “How much is the loss?” before officials quickly brought the event to an end.
Government officials said Finance Minister Kittiratt Na-Ranong will now study the issue, stirring speculation that authorities might have a better idea of what’s going on by Tuesday’s weekly Cabinet meeting.