Moody’s threatens to downgrade Thailand

A worker carries a sack of rice at the National Food Authority warehouse in Quezon City, suburban Manila on July 27, 2010.  The Philippines, once the world's largest rice importer, is now overstocked with the grain and will sharply cut its importation, a senior government rice official said. Lito Banayo, recently-appointed head of the government's National Food Authority (NFA), said there had been excess importation of the grain and hinted that corruption may be involved. AFP PHOTO/NOEL CELISGlobal rating agency Moody’s Investor Service has warned Thailand that accumulated losses from its rice pledging scheme could result in a credit rating downgrade as it increases the difficulty of the Thai government’s task of reaching its goal of a balanced budget by 2017.

The agency estimates that the rice scheme resulted in losses of 200 billion baht ($6.5 billion) from the 2011-12 harvest year, which is a much higher amount than the 70-100 billion baht the Thai finance ministry has named and even more than the World Bank’s estimate of 115 billion baht.

The rice subsidy scheme was set up in October 2011 to boost Thai farmers’ incomes but has also been criticised as being a populist political measure to keep 16 million rice farmers in Thailand loyal to the ruling Pheu Thai Party-led coalition.

In the scheme, the government purchases rice at around 50 per cent above world market prices, which has resulted in a decline in rice exports. Total earnings from rice exports fell in 2012 to $4.6 billion from $6.4 billion in the previous year, owing to the government withholding rice stocks for sale in the hopes world rice prices will rise. However, rice exports for 2013 will meet the government’s target of 8.5 million tonnes, Commerce Minister Boonsong Teriyapirom said on June 6.

Moody’s current rating for Thailand is “BAA1″ with a stable outlook, and the Thai government had hopes to regain an “A” rating once assigned before the financial crisis in 1997. However, the losses from the rice scheme were “credit negative” for the country’s fiscal balance, Moody’s said.

The government in Bangkok reacted after an emergency meeting on June 6 and said that the loss calculated by Moody’s were “exaggerated” and based on “wrong figures”.

The prime minister’s office said that the 200-billion-baht figure was “most likely” the amount of money the government spent to purchase rice from farmers rather than the loss incurred. Real losses would be in the “tens of billions of baht” range.

H0wever, the government said it does not have a full evaluation yet on revenue generated from selling stockpiled rice. 

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Arno Maierbrugger

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