Funding for the agricultural sector would dry up
Government intervention in Africa and South America resulted in many agricultural financial institutions being forced into bankruptcy. Similarly, forcing Thailand’s BAAC to announce a moratorium on some of its debts would be highly risky as the government has limited resources to cover the expenses of such a move. Financial institutions would come under greater pressure as many farmers took advantage of the situation. Under such conditions, creditors and depositors would lose confidence in BAAC, creditors would recall their money and depositors could withdraw their money in a panic. The BAAC would then be placed in a liquidity squeeze as 76% of all BAAC monies comes from personal deposits. Other financial institutions would no doubt hesitate to extend credit to farming clients under such conditions.
A debt moratorium would ultimately come back to bite farmers themselves. Since 92% of all credit extended to the agricultural sector comes from the BAAC and commercial banks, they would be unable to provide loans for farmers, causing a lack of funding for rural development and agricultural sector liquidity. Even if farmers have other sources of funding, they must still provide collateral for such loans. In the end, poor farmers would be cut off from all sources of funding.
Government intervention in Africa and South America resulted in many agricultural financial institutions being forced into bankruptcy. Similarly, forcing Thailand’s BAAC to announce a moratorium on some of its debts would be highly risky as the government has limited resources to cover the expenses of such a move. Financial institutions would come under greater pressure as many farmers took advantage of the situation. Under such conditions, creditors and depositors would lose confidence in BAAC, creditors would recall their money and depositors could withdraw their money in a panic. The BAAC would then be placed in a liquidity squeeze as 76% of all BAAC monies comes from personal deposits. Other financial institutions would no doubt hesitate to extend credit to farming clients under such conditions.
A debt moratorium would ultimately come back to bite farmers themselves. Since 92% of all credit extended to the agricultural sector comes from the BAAC and commercial banks, they would be unable to provide loans for farmers, causing a lack of funding for rural development and agricultural sector liquidity. Even if farmers have other sources of funding, they must still provide collateral for such loans. In the end, poor farmers would be cut off from all sources of funding.
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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