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.
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
Professor Dr. Kriengsak Chareonwongsak
Executive Director, Institute of Future Studies for Development
kriengsak@kriengsak.com, http://www.ifd.or.th
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