IMF calls on Thailand to end costly rice subsidies

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Associated Press

Posted on November 12, 2013 at 5:33 AM

Updated Tuesday, Nov 12 at 6:36 AM

BANGKOK (AP) — The International Monetary Fund called on Thailand to drop its multibillion dollar subsidies for rice growers, saying the program is undermining confidence in the country's finances.

The IMF said Tuesday in its annual review of Thailand's economy that losses in the program will continue if the policy remains unchanged.

The rice buying program, a flagship policy of Prime Minister Yingluck Shinawatra's government to win support in Thailand's vote rich farming regions, has accumulated losses of at least $4.46 billion since it was introduced in 2011.

The government buys rice from farmers at above-market prices but has had difficulty in reselling the grain on international markets. The scheme was renewed by the Cabinet for the third year in October but the government decided to cap the total value for each qualifying household.

"With the pledging prices about 40 percent above market prices, it is inevitable for the government to incur losses as long as the scheme remains unchanged," the IMF said in its report. "The government has committed 410 billion baht ($13 billion) to the revolving fund for managing the scheme, but it is unclear how losses will be contained within the size of the fund."

Rice is Thailand's staple grain and one of the country's main exports. But India and Vietnam surpassed Thailand as the world's top rice exporters in 2012 as the Thai government stockpiled rice to avoid even bigger losses.

The IMF also said lack of data about the rice purchasing program has diminished confidence in Thailand's public finances.

Thai officials said in the report that a reduction in the pledging prices or a purchase limit might be necessary to sustain the policy but insisted the scheme was aimed at reducing economic inequality in the Southeast Asian nation.

The IMF suggested the Thai government replace rice price pledging and other generalized subsidies with programs that are targeted at vulnerable groups, including low-income farming households.

Thai governments have intervened in the rice market through a variety of means since the early 1960s to help farmers, but the current scheme has its roots in the populist policies of Yingluck's brother, former prime minister Thaksin Shinawatra, who won landslide victories in two elections before he was ousted in a 2006 coup.

The scheme has been dogged by corruption and accusations the government has hidden its true cost.

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