Will the latest round of debt-restructuring for farmers, with various loans as well as subsidies, which has been launched by the Prayut Chan-o-cha government reduce their debt?
This question came to the minds of several people after the government approved the scheme seen by many as a populist measure.
I will start with the one-year interest payment exemption plan that aims to help farmers who owe up to 300,000 baht to the Bank of Agriculture and Agricultural Cooperatives (BAAC). They will be exempted from interest payment which will be covered by the regime with special rates provided by the bank.
Decharut Sukkumnoed is head of Kasetsart University's Agricultural and Resource Economics Department and well-known for his civic role.
Indeed, this policy is tantamount to a cash handout for the farmers. The difference is that the eligible recipients must be those who are indebted to the BAAC. The policy is known as a "conditioned cash transfer".
For those who may be curious if this will help ease debts for farmers, the answer is "No", since the loan amounts will stay the same. The immediate benefit for the farmers is that they are exempted from paying the interest (which will be paid by the regime) for one year. The farmers are still obliged to pay back the debt with interest the following year.
Some may ask if the 300,000 baht ceiling is too high. This is hard to say. There are two sets of figures that should be taken into consideration in answering this question.
The first is that the 300,000-baht ceiling is much higher than the average debt for individual farmers which is less than 200,000 baht. This means the assistance goes beyond small-scale farmers.
Secondly, the above information is crucial if we take into consideration the fact that in transferring the interest payment to the government, the BAAC is offering a 3% discount for each 300,000-baht loan, or about 9,000 baht. It's arguable whether this amount is a bit excessive.
Then we should compare the above-mentioned measure with the debt moratorium. The former is applicable to all the farmers who owe the BAAC for a one-year period, while farmers who wish to be eligible for the latter must register in a special programme which lasts three years. The scheme targets 3.8 million farmers.
Some may ask what is the benefit of the debt moratorium scheme?
Initially, the main benefit for those who register under the scheme is that they are allowed to delay debt payments. Yet, they still have to pay interest.
The delay means the deposits will be kept unchanged for three years and the registrants will have to pay back the amount after that.
Some may be curious in what way the farmers will benefit from a debt moratorium. In principle, the scheme will allow for better cash flow in the farm sector. When exempted from debt repayments, farmers will have more cash for other activities, which they will hopefully use for business restructuring.
But will the debt repayment holiday lead to successful business restructuring? This depends if the restructuring plans help generate more income or more profit. More importantly, in order to implement changes, the farmers need new investment. However, there are reports that the BAAC has prepared new loans for this activity.
What I want to say is if we look carefully at the plans, we can see that they are the BAAC's regular activities. If they are successful, there is no need to repackage them as a "new or flagship" policy which may inadvertently result in a setback.
I mention this because what is projected as a "new" plan will entice a large number of farmers all at once. Three-year debt moratoriums are tempting for everyone. But the "new" scheme will be a success or not depends on each farmer's "business restructuring plan". If they fail, they will have to repay the same or, perhaps, even greater debts, if they sought further loans during the process.
Besides, there is the question of whether the BAAC will be able to help the farmers implement new business plans. This question is crucial. We need to ask why they have failed to do this before.
It's also necessary to take into consideration that last year the BAAC provided help in farm production restructuring to some 30,000 farmers, while this year's 3.8-million target is ambitious. If all the targeted farmers register for the scheme at the same time, will it be too much for the bank to handle?
My question is: Instead of issuing a "new" policy, with such an ambitious goal, would it be more realistic for the BAAC to improve on its regular activities of increasing manpower and resources through debt/business restructuring -- a crucial factor that will lead to success?
In short, what the regime announces as a "new, flagship" policy is what the BAAC has done all along. By using a marketing tactic, making it appear to be a flagship policy, the regime makes it a big burden for the bank, as it is likely farmers will scramble to apply for the plan and that may compromise the debt reduction goal as the number of clients will go up sharply.
Finally, there is no mention of similar schemes by previous administrations such as the one implemented by the Thaksin Shinawatra government. Were they a success or a failure? Did farmers' debts increase or come down in the following years? Can such restructuring plans work? If not, why not? By raising these questions, I have no intention of politicising the issue. Such data is important if we are to learn about public policy with regards to the farm sector. It would be sad if we cannot learn from past experiences.
Finally, I have to say I hardly see any positive signs in this "new" policy.