Informal debt has been a chronic problem in Thai society, affecting a large number of people, particularly low-income earners.
At least three previous governments -- those of Thaksin Shinawatra, Abhisit Vejjajiva and Prayut Chan-o-cha -- tried to tackle this liability with limited and short-lived effects. Prime Minister Srettha Thavisin on Wednesday announced his campaign to deal with informal debt, something he vividly denounced as "modern-day slavery".
This latest attempt, unlike previous efforts, will bring creditors and debtors to the negotiating table to discuss a debt haircut with state banks providing soft loans to enable debt servicing. Simultaneously, state-appointed bodies, including the Royal Thai Police and the Interior Ministry, will deal with loan sharks and violent debt collection. The Prohibiting Interest Rates Beyond the Legal Limits Act BE 2560, which was promulgated by the Prayut administration, will play a key role in forcing informal creditors to come forward to join the debt mediation process.
Although Mr Srettha did not mention this law during his press conference this week, it is assumed that it will be invoked against creditors who may face jail terms of two years and/or fines of 100,000 baht if they fail to cooperate.
The question is: How can we expect a different outcome from the same old approach?
One thing that needs to be done in the latest bid to tackle informal lending should be amending the law. That said, the Prohibiting Interest Rates Beyond the Legal Limits Act of 2017 should be amended to give "more teeth" against defiant creditors, empowering the authorities to seize excessive interest charges imposed on their creditors as "ill-gotten gains", similar to the "dirty money" earned from drug trafficking or corrupt practices.
The government must not focus on penalising lenders. Informal creditors who agree to cooperate to settle debts amicably should be given a chance to operate Pico financing operations.
The government deserves praise for trying to find a money source to help. In this case, the Government Savings Bank will provide low-interest loans of up to 50,000 baht, payable in five years, to borrowers. The big question is how many borrowers can access this financial service because the GSB sets the condition that borrowers must have assets for collateral. That said, the government must review this condition so borrowers can use this service.
Nevertheless, debtors must be screened by officials concerned to determine the purposes of their loans, whether they plan to spend on the four basic needs: housing, clothing, food and medicine, or reasonable expenses, such as business investments.
Justifiable spending should be categorised separately from unnecessary spending, such as for gambling or luxury goods. The government must also help reduce living costs by providing affordable and decent mass transport, low-cost and decent tap water and a truly free education system. Needless to say, instead of increasing electricity prices, the government should rein in utility bills for low-income earners.
Most importantly, Thais should be educated in fiscal discipline, starting at the school level, as more Thai youths have recently become addicted to online gambling, falling into informal debt to sustain the habit. All attempts by the government to tackle the informal debt problem will be in vain if most Thais do not have fiscal discipline.