KTB rejects funding rumours

Vorapak Tanyawong, president of the state-owned Krungthai Bank (KTB), is insisting that loans to finance the rice pledging scheme were not on the agenda of yesterday's board meeting.

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Worries as to whether borrowing by the caretaker government violates the constitution have discouraged the country's second-biggest lender by assets from considering such loans, he said.

"KTB does not want to involve itself in any corruption, and the rice pledging scheme has been the source of strong rumours about the issue," said Mr Vorapak.

"I'm a professional executive, and it is unnecessary for me to repay a kindness to anyone."

He spoke to media and the bank's staff, who dressed in black yesterday to show opposition to loans for the cash-strapped rice subsidy scheme.

Rumours have spread in social media that the bank's board plans to approve lending to the project.

The 130-billion-baht borrowing plan to meet payments to farmers has been a hot potato that no bank wants to touch despite a Council of State opinion that the caretaker government could proceed with the borrowing.

The government is scrambling for fresh funds to pay farmers, a key constituency of the Pheu Thai Party. But the loans have been delayed because of waning public sentiment and the unclear legitimacy of such borrowing.

At the moment, rice sales appear to be the only option for the caretaker government to obtain money to pay farmers.

The Finance Ministry's Public Debt Management Office called off an auction for the first 20 billion of 130 billion baht in bridging loans last Thursday after nearly all banks shunned the bidding.

The second auction scheduled for yesterday was also cancelled after banks showed a reluctance to lend money.

As of Jan 24, the Bank for Agriculture and Agricultural Cooperatives, which is responsible for the payment system, had paid 55 billion baht to farmers who pledged 3.41 million tonnes of paddy from the main crop starting last Oct 1.

Farmers who sold an additional 7.2 million tonnes of paddy worth 120 billion baht have yet to be paid.

Mr Vorapak said his bank's legal unit could neither confirm whether the caretaker government could borrow, nor identify which state agencies have a mandate to clear up the legal issue.

He said KTB understood the unpaid farmers' financial hardship, but he insisted the solution must be done legally and in a way that does not add any burden to the bank, as it must answer to depositors and shareholders.

KTB has 12 million retail depositors and more than 40,000 retail shareholders.

In related news, Kampon Adireksombat, head of the economic strategy unit at Tisco Securities, said the effect of delayed payments to farmers depends on when the government will pay for the pledged paddy and whether the policy will continue as before.

Overdue payments hurt farmers' spending power, but other sectors have experienced this predicament as well, he said.

Mr Kampon said despite increases in farmer income and purchasing power, the rice pledging scheme should be discontinued, as the pledging price set 40-50% above market prices has caused hefty losses.

A Finance Ministry subcommittee tasked with auditing the scheme earlier estimated that losses could reach 400 billion baht for the 2011-12 season.

The estimated losses have been highlighted by MR Pridiyathorn Devakul, a former finance minister and central bank governor, who forecast that losses could be as high as 420 billion baht for the same period.

Mr Kampon said the programme is unsustainable because it has distorted market mechanisms in terms of price and created a massive unsold stockpile, lowering the quality of rice.

Although Thailand's economic fundamentals and political stability are factors influencing the international credit rating agencies' assessment, the rice pledging scheme also contains risks that could lead to a downgrade of the country's credit rating, with losses from the scheme estimated at 1-2% of annual GDP, he said.

Mr Kampon said ending the scheme would result in undesirable consequences, but it would be a one-off negative impact in exchange for long-term economic stability.

He urged the government to consider measures to help boost farmer incomes through programmes that cut production costs.

Pimonwan Mahujchariyawong, deputy managing director of Kasikorn Research Center, said delayed payments for farmers' pledged paddy and uncertainty over whether the rice pledging scheme will be extended to the second crop of this harvest season would hurt farmer incomes in the coming months, with the added injury of falling agricultural prices.

The private sector previously expressed concern over how the programme had accumulated higher public debt and lowered the quality of exported rice, she said.

The government should look at measures aimed at increasing rice yields and adding value to rice, said Ms Pimonwan.

A Bank of Thailand report on Thai economic conditions in 2012 said: "Although the rice pledging scheme has helped to improve farmers' income and purchasing power, it has also incurred important social costs. The scheme adversely affected both domestic and export markets and created distortion in farmers' production incentives.

"In effect, should this programme continue for a long time, it will have a significant bearing on the country's budget and management of rice stock, an issue that must be taken into account in order to achieve an efficient and appropriate subsidy scheme."

Shares of KTB closed yesterday on the Stock Exchange of Thailand at 16.80 baht, down 10 satang, in trade worth 650 million baht.

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