The Finance Ministry is about to issue laws to take over debt incurred from the Yingluck Shinawatra government's rice-pledging schemes to make the balance sheet of the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) more flexible for business expansion.
Taking debt from the rice-pledging scheme off the BAAC's balance sheet will allow the farm bank to run without worries over the massive debt, a Finance Ministry source said yesterday.
The subcommittee overseeing accounting of all rice-subsidy schemes earlier estimated losses from buying 84 million tonnes of milled rice in the 15 schemes from 2004-14 amounted to 682 billion baht, with the Yingluck Shinawatra government alone accounting for 518 billion. The combined loss will be higher if depreciation, missing milled rice from warehouses, interest costs and warehouse rental fees are included.
Rent to store the rice in warehouses amounts to 2 billion baht a year, and the interest from borrowing 500 billion baht to fund the scheme is charged at 3% annually, while the depreciation rate of the rice stands at 10% per year.
An inspection of the 17 million tonnes of milled rice bought under the previous government's scheme found only 2.19 million tonnes were standard quality and classified as Grade A rice.
Some 14.4 million tonnes were judged to be substandard or Grade B, while the rest was classified as Grade C because it was either rotten or had been registered incorrectly. The inspection was done by a team working for PM's Office Minister ML Panadda Diskul.
The source said the debt takeover would be similar to the Financial Institutions Development Fund debt takeover of 1.4 trillion baht from the 1997 financial meltdown.
The government is legally required to use proceeds from pledged rice sales to pay the principal and interest in addition to the government budget set each fiscal year, the source said.
The debt takeover will also help to lower interest costs, as the Finance Ministry has a better credit rating than the BAAC, the source said.
It will be impossible for the government to pay off the debt within a short time period, as this would constrain public investment, meaning it is obliged to structure the debt as a long-term loan to match revenue from the rice sales and the budget.
The ministry may also take over other state enterprise debt from previous government policies, the source said.