The Finance Ministry’s new plan to borrow funds to pay rice farmers through an auction of promissory notes worth 100 billion baht this Thursday will likely fail, as open bidding is scheduled on the same day that caretaker Prime Minister Yingluck Shinawatra must answer the charge of dereliction of duty in the rice pledging scheme.
The National Anti-Corruption Commission (NACC) announced on Feb 18 there was sufficient evidence to proceed with a charge of dereliction of duty against her as she knew about the alleged corruption in the rice scheme but failed to stop it. The NACC has asked Ms Yingluck to answer the charge on Feb 27.
A senior official at the Finance Ministry who asked for anonymity said the ministry plans to gradually open bidding for the notes on Feb 27, which if successful will garner proceeds to pay farmers on March 4, but the timing of the auction is less than ideal because of the NACC probe.
“It could severely affect the confidence of financial institutions who may be interested in bidding for the promissory notes,” said the official.
The official added the note auction remains in doubt as well, as it may conflict with Section 181 of the constitution, preventing caretaker governments from any activities that may commit the next government, and barring caretakers from using the state’s human capital and resources to do anything that could influence an election, as the Feb 2 election is not considered complete.
The caretaker government has struggled to find funds to pay farmers pledges of 116 billion baht, as over 900,000 farmers signed up for the main crop 2013/2014.
Recently the Finance Ministry pulled off a major move, borrowing an uncommitted 5 billion baht via interbank loan from the Government Savings Bank (GSB), but the lender decided to cancel the deal after a 100-billion-baht deposit run over the course of a week as anti-government protesters and the GSB labour union expressed their frustration with the deal to the bank’s board of directors and its president. They accused the caretaker government of manoeuvering a covert deal with the state-owned bank to help the Pheu Thai Party pay off its rice pledging obligations.
The incident forced Woravit Chailimpamontri, president and chief executive of the GSB, to submit his resignation, effective from the end of March.
Prior to this, the ministry also failed to garner funds from its auction for a bridging loan worth 20 billion baht on Jan 30, as no financial institutions joined the bid.
Since its start in October 2011, the pledging scheme was troubled by the failure of the Commerce Ministry to sell enough of the government’s rice stockpile, leaving insufficient liquidity to pay off pledged paddy to farmers. Policymakers designed the pledging scheme with 50% of funding to come from loans, with another 50% from rice stock sales.
Repaying pledged paddy for the main 2013/2014 crop has been sporadic, mainly because the government did not prepare a financial plan for the crop, even though pledging costs were estimated up to 270 billion baht. The government also failed to secure a committed lending deal in time even though it left the farmers to wait for money over two months before the House dissolved.
The Bank for Agriculture and Agricultural Cooperatives (BAAC) was forced to advance funding to the scheme, to the point that it raised concerns about whether the bank may face liquidity problems.
The BAAC ultimately refused to lend its final liquidity of 55 billion to the scheme because it was unsure when it would receive repayment and feared it was violating election law, submitting a letter to the Election Commission asking as much.
The government has paid rice farmers 62.9 billion baht for the current crop, some 3.91 million tonnes of paddy, and still owes the farmers 116 billion baht for 6.7 million tonnes pledged.
However, in the 2014 fiscal budget, the Public Debt Management Office only set up a borrowing plan for 60 billion baht to force the Commerce Ministry to speed up its rice sales. The office hopes more government rice sales will reduce pressure on the Finance Ministry to raise funds for pledging.
A senior finance official stated previous government attempts either to use the government’s 130-billion-baht borrowing fund under the 2-trillion-baht infrastructure investment to repay farmers in the pledging scheme, or to use the Electricity Generating Authority of Thailand’s project funds for the same purpose, are likely to be considered unconstitutional.
Though the GSB’s interbank loan of 5 billion baht, guaranteed by the Finance Ministry, was already scrapped, it would have carried interest of 36 million baht, and whose responsibility to repay it was unclear.
Another question is if the government succeeds in a promissory note auction, and the Finance Ministry is obliged to guarantee the loan, is this legal?
A final consideration is the auditor-general is prepared to inspect the government’s rice stocks across the country to find out if estimates are correct and clarify whether there are any fake accounts.