[h=2]Thailand’s economy[/h][h=3]The rice mountain[/h][h=1]An increasingly unpopular government sticks to its worst and most costly policy[/h]<aside class="floatleft light-grey"><time class="date-created"> Aug 10th 2013 </time> | BANGKOK |From the print edition </aside>
IT HAS not been a happy second anniversary for the government of Yingluck Shinawatra. Thousands of diehard opponents of her elder brother Thaksin Shinawatra, himself a former prime minister, took to the streets of Bangkok on August 7th to protest against a bill that could grant Mr Thaksin an amnesty for past offences and open up the possibility of his return from exile. Probably Ms Yingluck is used by now to these kinds of protests, along with the usual rumours of coups. More worrying, perhaps, is widespread and growing dismay over her government’s economic performance, supposedly its strong suit.
This week an opinion poll carried out by Bangkok University found that the government’s approval rating has fallen to its lowest level yet. Most damaging to its reputation is its flagship scheme to subsidise rice. This was the brainchild of Mr Thaksin, who dictates most of his sister’s policies from afar. It was a useful vote-winner during the election campaign in 2011. But its costs now jeopardise both the government’s finances and the economy as a whole.
The rice subsidy was classic Thaksin populism. Two-fifths of Thais work in agriculture, most of them as rice farmers. Ms Yingluck promised that, if she were elected, her government would buy unmilled rice directly from farmers at about twice the market rate, or 15,000 baht (about $500) per tonne. This would put money into poor farmers’ pockets and stimulate domestic demand. Naysayers warned that the scheme would be impossibly expensive. But Thaksin advisers said that withdrawing rice from world markets in this way would force up the price. Since Thailand was the world’s biggest exporter, the government would be able to cash in later by selling its stockpiles of grain at a profit.
So much for the weird theory. In practice, other countries have undercut Thailand, whose exports have tumbled (by about 4m tonnes, or a third, in the first full year of the subsidy scheme). India and Vietnam have overtaken Thailand as the biggest exporters. Unable to find buyers, the Thai government has been forced to stockpile 18m tonnes of the stuff and counting—equivalent to nearly half the annual global trade in rice. Buying rice from farmers is ruinously expensive, costing the Thai government $12.5 billion in the first year of operation. This year the cost is expected to rise to about $15 billion, or 4% of GDP. Storing the rice also carries administrative and logistical costs, and demands expensive new warehouses.
Concern is also rising over the quality of the rice piling up in the warehouses. Rice always deteriorates, but the suspicion is growing that stocks are being contaminated with substandard rice. Criminal gangs and bent officials are said to have smuggled in thousands of tonnes of cheap grain from Cambodia and Myanmar in the hope of profiting from government largesse. This rice has got mixed in with Thai grain. A good deal of Thailand’s rice is top-grade Hom Mali, or jasmine rice. So quality, and reputation, matter.
Poor quality may be one reason why the latest auction of rice stocks was so disappointing. The government managed to sell just 210,000 tonnes, well short of a hoped-for 1m tonnes. But this was also a matter of plain economics, says Vichai Sriprasert, head of Riceland International, a family-run exporter. Why buy now when the government will be forced to sell overflowing stocks later, at almost any price?
Millstone
It is a fiasco. But having invested so much political capital, Ms Yingluck vows to continue. She has tried to tinker with the scheme, for instance, by cutting the cost of the subsidy from 15,000 baht per tonne to 13,500 baht. That only angered rice farmers, her chief constituency. She quickly backed down, but she intends to try again. Her administration is frantically trying to secure deals for other governments to buy the rice, but this is making only a small dent in stocks. Iran has bought 250,000 tonnes.
Meanwhile, daily revelations of incompetence and corruption surrounding the rice scheme take their toll on the government’s standing, and investors fret about the wider effect on the public finances. Government debt levels are rising, and Moody’s, a ratings agency, has warned of the risk that the rice scheme poses to the country’s fiscal discipline.
IT HAS not been a happy second anniversary for the government of Yingluck Shinawatra. Thousands of diehard opponents of her elder brother Thaksin Shinawatra, himself a former prime minister, took to the streets of Bangkok on August 7th to protest against a bill that could grant Mr Thaksin an amnesty for past offences and open up the possibility of his return from exile. Probably Ms Yingluck is used by now to these kinds of protests, along with the usual rumours of coups. More worrying, perhaps, is widespread and growing dismay over her government’s economic performance, supposedly its strong suit.
This week an opinion poll carried out by Bangkok University found that the government’s approval rating has fallen to its lowest level yet. Most damaging to its reputation is its flagship scheme to subsidise rice. This was the brainchild of Mr Thaksin, who dictates most of his sister’s policies from afar. It was a useful vote-winner during the election campaign in 2011. But its costs now jeopardise both the government’s finances and the economy as a whole.
The rice subsidy was classic Thaksin populism. Two-fifths of Thais work in agriculture, most of them as rice farmers. Ms Yingluck promised that, if she were elected, her government would buy unmilled rice directly from farmers at about twice the market rate, or 15,000 baht (about $500) per tonne. This would put money into poor farmers’ pockets and stimulate domestic demand. Naysayers warned that the scheme would be impossibly expensive. But Thaksin advisers said that withdrawing rice from world markets in this way would force up the price. Since Thailand was the world’s biggest exporter, the government would be able to cash in later by selling its stockpiles of grain at a profit.
So much for the weird theory. In practice, other countries have undercut Thailand, whose exports have tumbled (by about 4m tonnes, or a third, in the first full year of the subsidy scheme). India and Vietnam have overtaken Thailand as the biggest exporters. Unable to find buyers, the Thai government has been forced to stockpile 18m tonnes of the stuff and counting—equivalent to nearly half the annual global trade in rice. Buying rice from farmers is ruinously expensive, costing the Thai government $12.5 billion in the first year of operation. This year the cost is expected to rise to about $15 billion, or 4% of GDP. Storing the rice also carries administrative and logistical costs, and demands expensive new warehouses.
Concern is also rising over the quality of the rice piling up in the warehouses. Rice always deteriorates, but the suspicion is growing that stocks are being contaminated with substandard rice. Criminal gangs and bent officials are said to have smuggled in thousands of tonnes of cheap grain from Cambodia and Myanmar in the hope of profiting from government largesse. This rice has got mixed in with Thai grain. A good deal of Thailand’s rice is top-grade Hom Mali, or jasmine rice. So quality, and reputation, matter.
Poor quality may be one reason why the latest auction of rice stocks was so disappointing. The government managed to sell just 210,000 tonnes, well short of a hoped-for 1m tonnes. But this was also a matter of plain economics, says Vichai Sriprasert, head of Riceland International, a family-run exporter. Why buy now when the government will be forced to sell overflowing stocks later, at almost any price?
Millstone
It is a fiasco. But having invested so much political capital, Ms Yingluck vows to continue. She has tried to tinker with the scheme, for instance, by cutting the cost of the subsidy from 15,000 baht per tonne to 13,500 baht. That only angered rice farmers, her chief constituency. She quickly backed down, but she intends to try again. Her administration is frantically trying to secure deals for other governments to buy the rice, but this is making only a small dent in stocks. Iran has bought 250,000 tonnes.
Meanwhile, daily revelations of incompetence and corruption surrounding the rice scheme take their toll on the government’s standing, and investors fret about the wider effect on the public finances. Government debt levels are rising, and Moody’s, a ratings agency, has warned of the risk that the rice scheme poses to the country’s fiscal discipline.
