Thai government bank loan not enough to pay off rice program debt

BANGKOK Sun Feb 16, 2014 6:25am EST

Workers at the Udon Permsin rice mill pile up sacks full of rice to for storage in the northeast province of Udon Thani, Thailand January 21, 2014. REUTERS/Nir Elias

Workers at the Udon Permsin rice mill pile up sacks full of rice to for storage in the northeast province of Udon Thani, Thailand January 21, 2014.

Credit: Reuters/Nir Elias

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BANGKOK (Reuters) - A loan given to the government bank operating a controversial and expensive rice program could temporarily ease pressure on Thailand's prime minister, but it is a fraction of the sum needed to settle a 130 billion baht ($3.99 billion) debt owed to up to a million farmers.

Thailand's Government Savings Bank said on Sunday it loaned 5 billion baht ($153.42 million) to the Bank for Agriculture and Agricultural Cooperatives (BAAC), but stopped short of confirming whether the money would even be used to pay farmers for rice bought under the scheme.

The program was operated through the state-owned BAAC and paid farmers well above the market rate for their rice, making it uncompetitive on world markets.

As a result, the government has struggled to sell enough rice to fund the scheme, prompting thousands of farmers, many of whom have been waiting for their money for months, to take to the streets in protest. Thailand's anti-graft body said it may also file corruption charges related to the program.

"The Government Savings Bank has lent 5 billion baht to the BAAC, but we have no idea what the BAAC will use the money for. This is a normal interbank loan," Worawit Chailimpamontri, president of the Government Savings Bank, told reporters, adding that the loan might raise concerns among the bank's clients if used to fund the struggling program.

Thai government officials and representatives from the BAAC were not available to comment.

Hundreds of farmers continued to rally at the commerce ministry in Bangkok on Sunday. The unrest has added to increasing pressure on Prime Minister Yingluck Shinawatra who has been facing off against a Bangkok-based protest movement seeking to drive her from office for more than three months.

In a further blow to the scheme and her party's stability, Thailand's anti-corruption agency is investigating the money-guzzling subsidy program.

Thailand's National Anti-Corruption Commission (NACC) said last week it expects to file formal charges later this month against Yingluck for her role in the rice scheme while an NACC panel has already brought formal corruption charges against 15 people involved in government-to-government rice deals.

Those allegations prompted China to cancel a deal to buy 1.2 million tons of Thai rice.

The rice program was a signature policy of Yingluck, who swept to power in 2011 with the help of millions of rural votes, but it could prove to be her government's undoing.

The government opened a tender to sell 400,000 tons of rice from state warehouses last week in an attempt to pay farmers. Eighteen exporters submitted bids to buy up to 460,000 tons, prompting the government to announce it would sell a further 500,000 tons from state warehouses next week due to over subscription.

In sign of the enormity of the rice problem, traders told Reuters the two sales combined are unlikely to raise around 20 billion baht, a fraction of the 130 billion baht needed to pay farmers.

The rice intervention scheme has helped fuel anti-government protests in Bangkok that began in November. The protests, which are still blocking parts of the city, have found much of their support from middle-class, urban taxpayers outraged at what they see as waste and corruption in the rice scheme.

The commerce ministry said last week that it did not have the authority to extend the scheme beyond February as the caretaker government of Yingluck has been left with limited policy-making powers pending the outcome of a February 2 election.

Varathep Rattanakorn, a minister to the prime minister's office, asked anti-government demonstrators to stop trying to make common cause with farmers who are protesting in Bangkok, although separately from the political demonstrations, and allow the government to try to resolve payment issues.

"We must make a distinction between the pressing needs of farmers and the National Anti-Corruption Commission investigation into the rice pledging scheme," said Varathep.

($1 = 32.59 Thai baht)

(Writing by Amy Sawitta Lefevre; Editing by Matt Driskill)

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