Chalongphob on depoliticising Thailand's development strategies
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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The Second World Congress on Agricultural and Rural Finance opened yesterday in Bangkok.
Finance Minister Chalongphob discussed current efforts by the interim government to make rural agricultural subsidies (also known as "populist policies") more transparent and less easy as a covert form of vote buying.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What short-term benefits were populist policies created for during the Thaksin administration?
2. What is the long-term cost of populist policies?
3. Could subsidies to the rural poor be a good thing?
(Express your opinion)
4. Under what conditions could subsidies to the rural poor be effective?
(Express your opinion)
5. Since the phrase "populist policies" has gained such a bad name for itself recently, what would be a better term for "effective rural subsidies"? (Express your opinion)
6. What action did the Thaksin administration take on rural debt?
7. What negative incentive effects can blanket erasing of farmer debt lead to?
Bangkok Post Article November 01, 2007
FINANCE / RURAL SUBSIDIESMinister attacks populist policies
WICHIT CHANTANUSORNSIRILong-term Debt Burden of Populist Policies
Populist policies implemented for currying favour among the rural poor come at the expense of the country's long-term economic viability, said Finance Minister Chalongphob Sussangkarn. Dr Chalongphob, speaking yesterday at the opening of the Second World Congress on Agricultural and Rural Finance, said populist policies implemented by the former Thai government had created unpaid fiscal liabilities of tens of billions of baht.
Poorly designed development policies not only affected the fiscal position, but also undermined agencies such as the Bank for Agriculture and Agricultural Co-operatives that were directly responsible for assisting the country's farmers, he said.
currying favour - do things to please another person (to gain their support and cooperation)
viability - able to continue operation (as intended)
fiscal liabilities - money the government owes
undermined - make less strong (more likely to fail)
Bank for Agriculture and Agricultural Co-operatives (BAAC) -
Debt Moratorium and Credit Discipline
One of the key policies implemented by the Thaksin Shinawatra government was to announce a three-year farm debt moratorium for loans owed to the BAAC to address rural poverty.
Critics said the programme had undermined credit discipline and increased expectations of government handouts among the public.
The BAAC and the Asia-Pacific Rural and Agricultural Credit Association are staging the second world congress, a four-day meeting of development financial institutions from 120 countries.
moratorium - officially stopping for a period of time
address - deal with and solve a problem
credit discipline - the rules that banks follow to ensure the money they lend out is repaid
expectations - what people believe will happen in the future (here receive subsidies and free things from the government)
government handouts - things that the government gives to people for free
stage an event - organise and oversee an event
Development Strategy Politicised
Dr Chalongphob was cautious in his speech about politicising development strategy.
"There is always a danger of a bank such as the BAAC being used as a political tool," he told the delegates.
"We have seen many populist schemes to gain favour with farmers and grassroots voters, such as the crop mortgage programme, where farmers mortgage crops with no intention of regaining their crops. The BAAC is usually the pawn in these schemes, being forced to lend out money to finance these mortgages and then having to go back to the cabinet to ask for compensation."
Dr Chalongphob said policymakers should guard against such "political trickery", and focus on developing agricultural and rural credit systems with "built-in" protection from populist schemes.
"Of course, this is much easer to say than actually attain. However, one should certainly not stop trying," he added.
politicising - making the non-political into the political
a crop mortgage - when farmers deposit crops to back a loan that they receive
an intention - a plan, a desired result
a pawn - without power, used by people with power (like a pawn moved around during a game of chess)
a scheme - a plan or arrangement to achieve some result
built-in - included as part of something, not separate
attain - achieve (cause a desired result through action)
Dr Chalongphob said that while agriculture now accounted for around 16% of Thailand's Gross Domestic Product (GDP), the country remained one of the world's largest exporters of rice, rubber, tapioca, sugar and shrimp.
Over the past several decades, poverty has fallen sharply, from 60% in 1960 to 9.6% in 2006, defined as those earning less than $1.63 per day. And while agriculture plays a smaller role in the Thai economy, up to 70% of the population is still employed in the farm sector.
Teerapong Tungteerasunun, the BAAC president, said the state-owned bank was responsible for clearly assessing the risks of any politically-imposed policies.
The bank would carry out its responsibilities and policies set by the government, he said, adding that the new Public Service Obligation (PSO) system was one way to guard the country against hidden costs from populist policies.
Under the PSO programme, state agencies must clearly stipulate the cost of public subsidies and programmes that are implemented as a direct result of state policy.
What does the new Public Service Obligation System (PSO) ensure?
Prevents hidden costs by requiring that "state agencies must clearly stipulate the cost of public subsidies and programmes that are implemented as a direct result of state policy."
x accounted for y% of z - x is y% of z
Gross Domestic Product (GDP) - a measure of economic activity in a country, adds together the total value of a country's annual output of goods and services (See The Economist Glossary)
assessing risks - evaluating risks, judging how great they are
imposed - use authority to force people to accept
Public Service Obligation (PSO) -
stipulate - state clearly that something must be done (for example in a condition in an agreement or contract)
implement - a plan is actually done, a plan is executed
x as a direct result of y - y and only y causes x (does not combine with other factors to cause)
Answer Key:
1. What short-term benefits were populist policies created for during the Thaksin administration?
They gained the favour and votes of people who live in rural areas.
2. What is the long-term cost of populist policies?
a. Adverse effect on Thai government's fiscal position: They created unpaid fiscal liabilities of tens of billions of baht that will have to be repaid in the future.
b. They reduced Thailand's long-term economic viability.
c. Undermined the effectiveness of state agencies such as the Bank for Agriculture and Agricultural Co-operatives (BAAC).
3. Could subsidies to the rural poor be a good thing?
(Express your opinion)
4. Under what conditions could subsidies to the rural poor be effective?
(Express your opinion)
5. Since the phrase "populist policies" has gained such a bad name for itself recently, what would be a better term for "effective rural subsidies"? (Express your opinion)
6. What action did the Thaksin administration take on rural debt?
They issued a three-year farm debt moratorium for loans owed to the BAAC.
7. What negative incentive effects can blanket erasing of farmer debt lead to?
So-called "moral hazard" effects can change farmer behaviour with respect to loans in the future. Expectations of free government handouts grow. Credit discipline is undermined and loans are made to people who never intend to pay them back.
After the 1997 crisis so many defaulted and got away with it, that a "culture of default" in which loan defaults were okay because everyone else was doing it, came into existence. (See The Economist and Wikipedia on Moral Hazard)
