professor kriengsak chareonwongsak greater expenses

When the state has greater expenses than income due to increased payments on its national debt, it is left with little option but to raise taxes. However, since most farmers are poor and are therefore exempt from income taxes, the tax burden would fall on parties aside from the poor farmers of the agriculture sector.
The long-term effects of a debt moratorium would also be negative. Public dissatisfaction would rise as people realized that even non-farming Thais, with tight economic constraints, would be have to support the farmers generously as well. In the long term, rootless business people may move their investments and wealth to other countries with lower taxes than Thailand. At the same time, foreign investors may not be willing to establish much of their business ventures in a nation where higher taxes are possible. Investors may fear the government would impose a debt moratorium in other sectors as well and no matter how widespread the effects would be, the overall effect would be costly for Thailand.

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

Professor Dr. Kriengsak Chareonwongsak The non-agriculture

    The non-agriculture sectors would assume a heavier burden
This proposal would severely strain the national budget. At present (2000), farm NPLs stand at 36.9 billion baht. Because this money is charged an average interest of 10%, the state would need to allocate a minimum of 3.69 billion baht per year to cover the interest on these loans. In a worst case scenario, if farmers defaulted on all their current debts, which total some 2.28 hundred billion baht, it would require a government infusion of 22.8 billion baht for one year to cover interest payments alone.

    That may not be too large in terms of the total national budget of 9 hundred billion baht in normal circumstances, but this year (2000) the government will face higher expenses and more severe demands for budget monies from every sector. In addition, dealing with the large remaining public debts incurred during the economic crisis will place considerable pressure on the budget from 2001 onwards as the government has to set aside 8-10% of total government expenditure for repayment of public debts. This is a very high figure for these coming years.
This necessity has itself already severely curtailed government spending in other areas of the public sector. Normally, the government assigns 74% of the budget to the public sector, most of which goes towards civil servant salaries. Moreover, over the following fiscal year (FY 2002), the government will need to allocate a higher percentage of its budget to reform in many areas, such as expansion of basic education, restructuring the production sector and upgrading of work skills for low skilled laborers. Consequently, the ability of the government to cover farm debts is quite limited.

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

Professor Dr. Kriengsak Chareonwongsak Farm debt moratorium

The situation becomes a moral hazard 
    Suspending loan payments would violate the ethos of loans and only hinder the farmers’ ability to repay the BAAC. One study has already shown that 52.38% and 31.04% of BAAC clients, in the provinces of Buriram and Roi-et respectively, have used more than 30% of the amount of money they borrowed for non-productive purposes such as family expenses, old debt payments or home repairs. If the government were to implement a debt moratorium, it would only exacerbate the problem of careless spending. Farmers would begin to expect the government to help them every time they ran into financial problems, which surely is an unhealthy attitude.
Use of grants or low interest loans as means of improving the financial status of farmers would have other long-term repercussions also. Their sense of responsibility towards such loans could be diminished and farmers may tend to invest in high-risk projects in the agricultural sector, causing even higher levels of NPLs in a future agricultural sector. 

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