PDMO tries to move pledging-scheme debt

PDMO tries to move pledging-scheme debt

B500bn transfer to cut interest expenses

Commerce Ministry officials examine the quality of pledged rice in a warehouse in Nakhon Pathom province. The government is considering a transfer of the 500 billion baht in BAAC debt accumulated from rice-pledging schemes to the fiscal ledger. TAWATCHAI KEMGUMNERD
Commerce Ministry officials examine the quality of pledged rice in a warehouse in Nakhon Pathom province. The government is considering a transfer of the 500 billion baht in BAAC debt accumulated from rice-pledging schemes to the fiscal ledger. TAWATCHAI KEMGUMNERD

The Public Debt Management Office (PDMO) will make a fresh effort to transfer the 500-billion-baht debt of the Bank for Agriculture and Agricultural Cooperatives (BAAC) incurred under the Yingluck Shinawatra government's rice-pledging scheme to the fiscal debt ledger at next month's meeting.

It plans to raise the issue at the PDMO's January board meeting to be chaired by Finance Minister Apisak Tantivorawong, a ministry source said.

The move was initiated by former finance minister Sommai Phasee, as the ministry drafted a bill on transferring 720 billion baht of state enterprise debt incurred under previous government policies.

Liabilities to be transferred under the new law include debt from rice intervention schemes, a 63.2-billion-baht unpaid contribution to the Social Security Fund and debt shouldered by the State Railway of Thailand and the Bangkok Mass Transit Authority.

However, the bill has not been considered by the cabinet yet, as Mr Apisak is concerned the move could be seen as political.

The source said transferring the debt would cut interest expenses and allow the PDMO to lengthen its maturity up to 40 years to lower its debt management burden and lock in long-term interest rates.

Even though the BAAC's bonds to fund the rice-pledging scheme have been guaranteed and paid by the Finance Ministry, their coupon rates are 30-40 basis points higher than the ministry's bonds, with that gap equivalent to an additional 2 billion baht in interest, the source said.

"We can save on these expenses by transferring the debt to the Finance Ministry's balance sheet," the source said.

"The burden is now shouldered by the ministry despite being booked on the BAAC's balance sheet."

The rice-pledging scheme was a major populist policy of the Yingluck government, which set the pledging price 40-50% higher than the global price at 15,000 baht a tonne for paddy and 20,000 baht a tonne for Hom Mali rice.

Farmers comprise a major voting bloc for the Pheu Thai Party.

The scheme was meant to kill two birds with one stone -- putting money directly into farmers' pockets to stimulate the economy and hoarding a large supply from the market in the hope of a higher price -- but it backfired.

Farmers' incomes did rise, but the scheme also encouraged them to run up debts while the market price remained low and the massive stockpile sat in warehouses.

Running the scheme for only five crops was estimated to cost taxpayers at least 400 billion baht.

The Yingluck government used the BAAC as a funding source for the costly rice-pledging scheme.

The source said the BAAC's bonds to fund the subsidy scheme were issued in several batches and had a short lifespan of one or two years.

Therefore, they require management to prevent any unintentional problems that could lead to default.

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