UPDATE 1-Thai army rulers rush to placate rice farmers, boost economy

Mon May 26, 2014 9:01am EDT

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(Recasts after meeting on economy ends)

* Govt begins paying billions of dollars owed to rice farmers

* VAT, corporate, income tax cuts rolled over

* Stalled infrastructure plans to be revived

By Orathai Sriring and Alan Raybould

BANGKOK, May 26 (Reuters) - Thailand's new military rulers are moving fast to tackle economic problems caused by the absence of a proper government since December and are making it a priority to pay arrears owed to rice farmers, big supporters of the government they ousted.

The military seized power on Thursday after nearly seven months of turmoil that hurt business confidence, halted much government spending and scared away tourists. The economy shrank 2.1 percent in the first quarter and recession was on the cards.

Former Prime Minister Yingluck Shinawatra dissolved parliament in December and called an election for February. From that moment, her caretaker government was unable to initiate new policies, even as the economy foundered, and found it impossible to raise funds for the troubled rice scheme.

The military has now torn up the constitution and the finance ministry has moved quickly to find money for the farmers, inviting banks to tender early next month to provide 50 billion baht ($1.53 billion) in loans to fund the rice scheme.

"We have seen their intention to help farmers. This is an urgent issue," said Chaiyarit Anuchitworawong, a senior vice-president at Bangkok Bank Pcl, Thailand's top lender.

Gothom Arya, a lecturer in human rights studies at Mahidol University, did not think the urgency was necessarily political, designed to placate supporters of Yingluck, her Puea Thai Party and her brother, Thaksin Shinatra, another former premier deposed by the army in 2006 .

"There are hundreds of thousands of farmers in need of money and they are owed months of payment, which wasn't possible while both sides were squabbling," he said.

"The army isn't thinking right now about turning a pro-Thaksin electorate away from Puea Thai Party or any other pro-Thaksin party. My view is that they're thinking: Let's solve one of the most pressing problems in the country first."

BOOST TO RURAL ECONOMY

Whatever the motivation, 40 billion baht will be injected into the rural economy fairly quickly as the state-run Bank of Agriculture and Agricultural Cooperatives pays some of the 90 billion baht owed to farmers from its reserves.

The military government plans to pay the remaining 50 billion baht in less than a month, according to comments from coup leader General Prayuth Chan-ocha.

Air Chief Marshal Prajin Juntong, who is overseeing economic matters for the junta, told reporters after meeting top civil servants that the rice payments could add 0.2 percentage point to economic growth this year.

He said that would be on top of forecast 2 percent growth. That is the middle of the range forecast by the NESDB planning agency, which compiles Thailand's GDP figures.

Business leaders are expecting an economic stimulus package and are relieved that it should now also be possible to get a state budget ready for the new fiscal year from Oct. 1.

Prajin, who is also chairman of flag carrier Thai Airways International, said the budget would be on time.

"This should be positive for the economy in the second half," said Surachai Kositsareewond, an executive vice-president at Bangchak Petroleum Pcl. "The clearer economic policies should help boost confidence and the private sector is ready to adjust."

The new government will roll over a cut in the corporate tax rate to 20 percent, which lapses in December, and an extension of the 7 percent value-added tax rate before it reverts to 10 percent in September, Somchai Sajjapong, head of the Finance Ministry's fiscal policy office, told reporters.

The deposed government had planned to do this but did not have the authority, leaving businesses up in the air.

The government will also extend cuts to income tax rates brought in at the end of 2013, Somchai said.

It will go ahead with some projects under a halted 2 trillion baht ($61 billion baht) infrastructure plan, as well as parts of a 350 billion baht water management project drawn up after disastrous floods in 2011 but repeatedly delayed.

Somchai said he was confident the economy would grow more than 2 percent this year and that the ministry was hoping for 3 percent. To reassure financial markets, he said the military government had no intention of imposing capital controls.

The last military-led government in Thailand brought in draconian controls in December 2006, at a time when the baht was soaring. They caused the stock market to plunge 14.8 percent in a single day. ($1 = 32.5950 Thai baht) (Additional reporting by Bangkok bureau; Writing by Alan Raybould; Editing by Simon Webb and Ron Popeski)

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