CHIANG RAI -Thailand’s decision to expand subsidies for Rice and Rubber farmers to quiet protests is undermining efforts to control rising debt, even as governments in neighboring Malaysia and Indonesia cut back support programs.
The government will pay 21.2-B baht (US$681-M) directly to Rubber farmers’ bank accounts to offset falling prices, up from 10-B baht agreed on earlier, after violent clashes between the police and growers demanding subsidies.
The Yingluck administration also promised to buy Rice at above-market rates for another crop year, at a cost of 270-B baht.
The payouts may slow Prime Minister Yingluck Shinawatra’s plan to balance the budget by Y 2017 and contain the ratio of debt to GDP that rose to 44.3% in June this year from 38.2% in Y 2008. A business sentiment index dropped in July to the lowest level in more than a year and consumer confidence fell to a 9-month low on concern political risk is rising as the economy weakens.
The Thai baht is the 3rd worst performer in the past 6 months among 11 Asian currencies tracked.
Thailand’s SET Index (SET) has gained 6.8% this year, lagging its regional peers in the Philippines and Vietnam.
As many as 12,000 farmers blocked roads and railways for two weeks from Aug. 26, stranding thousands of passengers and disrupting traffic in the southern provinces that account for 80 percent of the nation’s rubber output. About 76 police officers were injured and nine vehicles torched in Nakhon Sri Thammarat at the height of the clashes earlier this month.
Yingluck said on 15 September that the government and most Rubber farmers had agreed on the subsidy amount, prompting many demonstrators to return to their plantations.
Rubber futures in Tokyo have dropped 14% from an 11-month high in February as slowing growth in China and a recession in Europe reduced demand. In Thailand, the world’s largest Rubber producer and exporter, prices tumbled 19% to 83.20 baht a kilogram from this year’s high of 102.7 baht.
The Southeast Asian nation has also spent 675-B baht since October 2011 on buying Rice directly from farmers. The government estimates it lost about 137-B baht in the 2011-2012 crop year as it then sold the grain at a loss.
Yingluck’s administration earlier this month backtracked on a plan to lower payments after Rice farmers threatened to demonstrate on the streets of Bangkok.
Falling commodity prices will increase pressure on the economy, which unexpectedly contracted 0.3% in the 3 months through June from the previous Quarter, when it fell by 1.7%, official data showed. The statistics agency cut its Y 2013 GDP forecast to 3.8 to 4.3% from 4.2 to 5.2% , and the exports growth target to 5%
Thai rice prices may drop to $425 a ton by year-end from about $458 now, and fall to $400 a ton by the end of 2014, Capital Economics estimates. The nation’s total exports fell 1.5 percent in July, a third straight month of declines.
There is no real driver for the economy except exports, falling agricultural prices weaken farm income and consumer spending. Investments won’t rise when the economic outlook is grim. people at hoping for the best and prepare for the worst in 2-H
The central bank last month kept its benchmark interest rate unchanged for a 2nd straight meeting after cutting by a quarter of a percentage point in May to aid growth.
Governor Prasarn Trairatvorakul said 28 August the economy had hit bottom last Quarter and should recover in 2-H of this year.
Yingluck’s 2 yr-old administration tried to speed up budget disbursement as plans to spend 2-T baht on infrastructure and 350-B baht on water-management projects have been delayed. The government also plans to cut import duties on luxury products to help boost tourism revenue and counter the slowdown in domestic spending. Stay tuned…