Former prime minister Thaksin Shinawatra's recent idea to solve the problem of non-performing loans (NPLs) in the household debt sector is just a further extension of two similar programmes introduced by a previous Pheu Thai-led government to ease the financial burden of small debtors and SMEs.
The first programme tackles informal debt introduced by the previous prime minister Srettha Thavisin using "carrot and stick" measures on informal creditors. About 146,000 debtors with total informal debt amounting to about 10 billion baht registered to join, and the Interior Ministry managed to settle debts for about 16,000, or roughly 10% of the total.
The second is the Khun Soo, Rao Chuai ("You Fight, We Help"), jointly implemented by the Bank of Thailand, the Thai Bankers Association, the Finance Ministry, the National Economic and Social Development Council, other financial institutions and non banks to assist small debtors and SMEs by extending their repayment period and affording them with an option of interest payment suspensions for three years if they fulfil their obligations.
However, Thaksin's "think aloud" idea is to buy all the household debt back from commercial banks and have the debtors settle through re-financing. At this point, it remains unclear whether the government needs to purchase the debt first or if asset management companies in the private sector will assume the role. Former PM Thaksin told voters during his speech at a local administration election campaign in Phitsanulok that the government would not have to spend a dime.
In addition, he said debtors can have their names removed from the list kept by the Credit Bureau. This would be a heaven-sent gift for debtors, but there is doubt whether the promise is the real deal or will turn out to be a tale of "building idiomatic castles in the sky".
There are many questions yet to be clarified by Thaksin himself or his Pheu Thai Party about how the idea can be realised, particularly the claim by the former prime minister that the government need not spend any money at all.
Thailand's total household debt, by the end of the third quarter of last year, amounted to 16.3 trillion baht which is equivalent to 89% of GDP, according to the Office of the National Economic and Social Development Council. NPLs alone from housing, car purchases, business and personal loans amount to 1.23 trillion baht.
So how can the government secure the money to buy household debts from commercial banks? Thaksin claimed he has "friends" in the business sector who may be interested in investing in the re-financing operations. But do his business friends have such a large amount of cash? Or if they do, is the project worth the massive spending?
The reality is that there are, currently, 87 asset management firms which already have purchased bad loans from commercial banks to manage for a profit. But the NPLs purchased from banks are worth only 300 billion baht which is far lower than the total 1.23 trillion baht value of NPLs.
Thaksin also claimed the government does not need to spend any "real" money.
However, his promise of cheap debt clearance neither received much attention nor was mentioned in media. Hence, the likelihood is that the government will issue digital money or virtual money to buy up the household debt from commercial banks. But will commercial banks be gullible enough to let go of the debt in exchange for volatile and intangible digital currency without any substantial funds or government bonds to back it up?
It would be more sensible for the government to simply buy up the NPLs from commercial banks, for just 1.23 trillion baht, according to the Credit Bureau, as suggested by Finance Minister Pichai Chunhavajira. That means a change of creditor from commercial banks to the government. The household debt does not automatically disappear, but will transform into public debt for which all taxpayers will have to bear the burden.
The new creditor, in this case the government, may be more benevolent too because it expects them to return the favour in the form of votes in the next general election for Pheu Thai. As wise men say: nothing comes for free in this world.
Normally, the funds available to buy the NPLs would be much less than their value. So, it depends on whether the Finance Ministry can negotiate a haircut with the banks, of say 50%, which would still end up costing about 600 billion baht of taxpayers' money.
There also remain big question marks whether the government even has the money as it is still said to be struggling to fund the remainder of the digital wallet scheme. The third phase of disbursement for the 16–20 age group of recipients, scheduled at the end of this month, is yet to be implemented. The fourth phase of the scheme for the last group of Thai people, aged 20–60, is hanging in the balance.
Helping debtors to ease their financial burden through refinancing with fewer restrictions and lower interest charges is a good idea. But at this stage, there is nothing concrete about the idea besides positive response from Pheu Thai officials in the Finance Ministry.
Or it is just empty talk by Thaksin to curry favour among gullible party followers who are ready to absorb whatever he says without question?
Thaksin has also made several other promises, such as reducing electricity to 3 baht per unit without explaining how this can be done.
Most of us appear to have forgotten what the Pheu Thai Party promised during the election campaign, such as a 600 baht minimum wage by the year 2027. But to date, the tri-partite wage committee is still unable to agree on a hike to 400 baht. Or the 25,000 baht salary for university graduates which still remains an empty promise.
So, do not take Thaksin's latest bout of "thinking aloud" too seriously until something substantial or concrete comes of it.
Veera Prateepchaikul is former editor, Bangkok Post.