The heavy deposit run at the Government Savings Bank (GSB) may not be a crisis for this century-old institution regarding its accumulated assets worth 2.17 trillion baht. But it is the first time in its 100-year history that the bank, established by King Vajiravudh and run with the well-known "guaranteed by the government" slogan, has been hit with such a credibility loss.
Customers of the Government Savings Bank rush to withdraw their cash earlier this week following reports that the bank has lent to the Bank for Agriculture and Agricultural Cooperatives to pay for the rice-pledging scheme.
The massive cash pull that began on Monday, totalling 30 billion baht, was stunning, to say the least. The amount was three times higher than normal — the highest amount of cash withdrawn after extended holidays has only reached seven billion baht in the past. The total deposit run in two days amounted to 48 billion baht.
Therefore, it is obvious that a large number of depositors are upset with GSB's decision to issue a loan to the ailing rice-pledging scheme.
GSB president Worawit Chailimpamontri on Sunday announced the bank has given a five billion baht loan — out of the 20-billion-baht credit line that had been approved by the board — to the Bank for Agriculture and Agricultural Cooperatives (BAAC).
Mr Worawit insisted the short-term loan was a normal inter-bank transaction aimed at smoothing the cash flow of the latter. He was vague about the rice scheme funding details.
But the bank run phenomenon that took place mostly in Bangkok and nearby provinces — an area that accounts for 40% of the bank's deposit base — as well as most of the southern provinces indicated many depositors do not believe him. They suspect the loan was a hidden deal to fund the faltering rice pledging scheme.
The BAAC admitted the following day that the five-billion-baht loan was indeed meant for the rice scheme. However, the bank eventually decided not to take the loan for fear that it might cause panic among its clients.
Later in the afternoon, Mr Worawit announced the loan's suspension and also a decision to abandon a plan to auction a Finance Ministry loan that was to be launched on Feb 27, amid questions about whether the caretaker government has the mandate to implement such a policy.
In fact, the abrupt loan termination is an effort by the GSB to reclaim public trust and credibility. Mr Worawit decided to step down to show his responsibility on Tuesday.
Some may think that by withdrawing so much money, city people don’t want to help farmers obtain their rice-pledge money — the only income that many of them earn all year. But I beg to differ. The sight of tearful farmers who came to Bangkok to beg the government to honour its promises to pay them for their rice makes people in Bangkok cry. They also were saddened by a series of suicides by debt-ridden and distressed farmers.
The rush to withdraw funds is, in fact, just a show of public frustration and anger over the scheme that has not only created an enormous financial burden to the nation, but also undermines the competitiveness of our rice industry.
The government has failed to listen to warnings by academics, businesses and those in the opposition camp, and carried on with a scheme which many believe is plagued with corruption. The public finds it unacceptable that the government would continue to dump more money into it.
The government, in its bid to raise short-term borrowing of 20 billion baht, introduced a bridging loan auction last month. But it became a flop as most bankers turned their back on the plan. They were concerned that the caretaker government lacks a clear mandate, and are also worried about the scheme itself.
The agricultural reform plan initiated by former prime minister Thaksin Shinawatra, who hoped to manipulate world market prices by holding on to rice stocks for a few years, has flopped.
Genuine reform must aim at bridging the gap between the urban and rural sectors. But in reality, farmers are pawns of politicians who have lured them with grand but unsustainable populist policies. As long as politicians treat farmers as election fodder with which to beat their political rivals and secure their rise to power, true reform will continue to be but a distant dream.
Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.