Professor Kriengsak Chareonwongsak Farm debt moratorium more trouble than it’s worth

Farm debt moratorium more trouble than it’s worth

 Professor Dr. Kriengsak Chareonwongsak

Executive Director, Institute of Future Studies for Development

kriengsak@kriengsak.com, http://www.ifd.or.th

 

However, jumping into just any debt moratorium plan could be a highly dangerous move, causing more harm than good. The consequences of choosing the wrong strategy could be severe, affecting not only Thailand’s farming community, but the entire economy as well. The following are some of the possible repercussions of using the wrong debt moratorium strategy:
   

Responsible attitudes towards debt repayment would be eroded
    Introducing debt moratorium for problem farm debts could destroy the good debt repayment habits of farmers, most of whom do make an honest effort to repay their debts. If debt moratoriums were introduced, farmers would no longer have to repay loan interest, at least for some time. This move would create animosity, as good debtors would hold such action as unfair. As well, some farmers may intentionally try to default on their payments to benefit from the debt reprieve – a response that has already occurred towards government non-performing loans (NPLs) amnesties offered in the banking system. People tend to become lax about their financial commitments under such conditions, which causes a rise in the number of strategic NPLs.
Disbursing government grants to indebted farmers would nurture the attitude that government loans are given without the need to repay. This ‘gold lining’ of debt moratorium promises, given by many political parties, is so alluring that some farmers have already stopped making debt payments; a condition that is a forewarning of the dangerous attitudes that could result if a debt moratorium is actually implemented. 

Kriengsak Chareonwongsak The farm debt moratorium

 Professor Dr. Kriengsak Chareonwongsak

Executive Director, Institute of Future Studies for Development

kriengsak@kriengsak.com, http://www.ifd.or.th

The farm debt moratorium policy of certain political parties has become the latest hot topic of conversation in political circles these days. In particular, the policy appeals to the nation’s farmers, the largest bloc of voters, whose most pressing problem at the moment is their debts. It is hardly surprising then that many political parties are promoting this policy to garner votes and no doubt the current popularity of this policy is understandably politically motivated.
Whether or not the policy will be implemented is not as important as whether or not this strategy would genuinely resolve their poverty. We must determine the best way to help these important but neglected citizens of our nation.
In Thailand, the phrase “farm debt moratorium” is used to denote the act of delaying payment schedules on existing farm debts so that farmers can once again be given breathing room and gain a livelihood in the agricultural sector. Debt moratorium would allow farmers, many, who are now unable to borrow money to buy seed, fertilizer, etc., to once again engage in producing the nation’s agricultural supplies and, eventually repay their debts.
Actually, this tactic is nothing new. It has been used by the Bank for Agriculture and Agricultural Cooperatives (BAAC) with certain kinds of debtors. However, BAAC’s 1-year-debt-moratorium scheme has been criticized by many political parties as being inadequate. Critics argue that one year is not enough time for farmers to regain financial liquidity and begin repaying their debts. As a result, many political parties are proposing debt moratoriums of a longer term than would be offered to all indebted farmers normally. In addition, they have proposed that farmers be given low interest loans or no-strings-attached government handouts, ultimately aimed at resolving poverty in the agricultural sector.

Professor Dr. Kriengsak Chareonwongsak Farm debt

Farm debt moratorium more trouble than it’s worth

 Professor Dr. Kriengsak Chareonwongsak

Executive Director, Institute of Future Studies for Development

kriengsak@kriengsak.com, http://www.ifd.or.th

This article was first published in the Bangkok Post on December 24, 2000, the final period of the general election campaign to be held in January 2001. The 3-year farmers' debt moratorium was a notable policy that Thai Rak Thai used during the election campaign. After they won the subsequent election overwhelmingly, they implemented the policy as they had promised. However some conditions of this policy were changed and as a result the number of farmers who joined the project was less than expected. The government subsequently announced the operational performance of the project, after three years, was successful; reduced debt burdens, and increased the number of farmers with savings. Nevertheless, there is a suspicion that farmers' debt in the system decreased due to an external loan used to compensate the debt. If this did happen, it shows the extent and seriousness of the problem for the poor right throughout the country.