After years as the world's top rice exporter, Thai PM Yingluck
Shinawatra's populist policies are causing serious problems.
As the elected senator of
northeastern Nakhom Phanom province, Dr. Vitthaya Inala is in a difficult
position.
The majority of his roughly
750,000 constituents, many of them poor paddy farmers, are in full support of a
year-old government scheme that promises them 15,000 baht ($488) per ton of
white rice, he says, far more than they earned in the past.
“If this is a success, and poor
farmers get the benefits, it will be very good for the Thai people,” says Dr.
Vitthaya. Except the government’s rice-pledging policy is already proving to be
a monumental failure, he adds.
Last week, the Senate Committee
on Economics, Commerce and Industry, of which Dr. Vitthaya is vice-chairman,
filed a damning report blaming the scheme over rampant corruption and a rising
mountain of debt as big as the piles of unsold rice fill warehouses across
Thailand. A populist policy that was part of the platform propelling the
relative unknown Yingluck Shinawatra to power last May, the scheme now
threatens to severely damage the government. Some say it could even bring the
Prime Minister’s coalition down.
The chairman of the central bank
has already criticized the scheme – so too have academics, economists and even the
U.S. Department of Agriculture, the latter of whom warned of the policy’s
effects on international rice prices – and at the end of this month Prime
Minister Yingluck Shinawatra’s Pheu Thai party faces a two-day grilling from
the opposition and the Senate all asking the same question: How did it go so
wrong?
In theory, the policy makes
perfect sense. If you pay farmers above the market rate for paddy they will
earn more, Thai rice – already known for its quality – will rise in price and
in turn force up prices on world markets.
But at 15,000 baht a ton, and
20,000 baht for high-quality Hom Mali jasmine, critics argue that Thai rice has
simply become too expensive. As the government has struggled to sell rice to
foreign governments at cost price, an increasing stockpile has accumulated
costing the taxpayer a spiraling bill.
A recent Senate report said
public debt, which was 42.4% of GDP at the end of April, would rise by an
average of 4% per year if the scheme continues, and the Prime Minister has already admitted as much. Having spent
300 billion baht on its rice-pledging scheme this year, the government has
earmarked an additional 405 billion baht
for 2013, a combined roughly U.S. $33 billion.
Meanwhile, the rice needed to
fund this policy remains holed up in storage slowly going bad, according to
rice millers. With Thailand in the middle of its second harvest, the government
is under pressure to either sell off as much as possible or risk running out of
warehouse space. An estimated 14 million tons of rice are currently in storage
across Thailand, a new record, and more than the country can sell in a year,
even by the government own ambitious goal to export 8.5 million tons of rice in
2013.
Last month, Thai press reports
said the Ministry of Commerce had made a deal “in principle” to store rice in
an aircraft hangar at Bangkok’s Dong Muang Airport in a bid to find somewhere
to put the incoming harvest.
“We are looking for warehouses
anywhere,” says Amraporn Suntivong, vice president of the government’s Public
Warehouse Association. “We are inviting warehouse owners to come forward.”
When the Democrat Party quizzes
the government on the scheme at the end of this month, it is widely expected to
point to mounting evidence that warehouse owners are benefiting from the scheme
with storage rents having risen sharply in recent months.
Critics also say that coalition
politicians are taking kickbacks on contracts from the millers and exporters to
whom they have chosen to sell quotas of rice overseas, all while many of the
poorest farmers are seeing their prices reduced significantly by the time the
money filters down the food chain, albeit while still earning more than before
Yingluck Shinawatra took power.
“We don’t know how much rice is
in the warehouses, how much is being exported and how much the farmers are
actually making – we don’t know anything,” says Democrat Party spokesman
Chavanond Intarakomalyasut.
Kreetha Charatkulangkun, director
of Tek Seng Rice Mill, a rice export company based in Bangkok, says the scheme
has proven devastating for the country’s rice industry.
For years, Thailand was the
world’s number one exporter in the world, but is expected to slip to the third
position this year, with the U.S. Department of Agriculture estimating it will
export 6.5 million tons of rice in 2012 compared with India’s 9.75 million tons
and Vietnam 7 million tons.
“In my and many other opinions,
the government’s rice-pledging scheme is very extreme and is clearly a
vote-buying policy,” says Kreetha. “It is the worst political policy in the
history of Thailand.”
As enemies of the state’s rice
scheme have queued up to criticize Yingluck’s government, most have pointed
fingers squarely at her brother, former Prime Minister Thaksin Shinawatra, who
has calmly defended the policy in exile where he remains on the run from a
two-year prison term for corruption. A day rarely passes without a Thai
newspaper reporting on efforts by Yingluck to smooth her brother’s passage back
to Thailand.
Meanwhile, the main farming areas
in the north of the country remain as supportive of the current government as
they were of Thaksin when he was in power from 2001 to 2006.
In a poll last month by Khon Kaen
University in the northeastern Isan region (which includes Nakhom Phanom
province), 81% of respondents said they supported the government’s overall
performance, even if only 46.8% backed its performance on the economy, a figure
much lower than in many other areas including the coalition’s handling of
democratization, social issues like crime and drug use, foreign policy, and
environmental protection.
Suthin Wainwiwat, director of
E-Saan Poll which conducted the survey, said as long as the Shinawatras
continue their populist policies aimed at the millions of families who farm in
the north they will remain unstoppable at the ballot box, no matter the
criticism in Bangkok.
“They support Yingluck because
they hope that Thaksin will be able to come back and help them again,” he said.
Steve Finch
Business & Investment Opportunities
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