Promissory notes 'unlikely to raise targeted $777 million for farmers'

Thai rice farmers waiting by farm trucks and tractors on a highway road in Ayutthaya province before they head to protest at Suvarnabhumi airport on February 21, 2014.

BANGKOK - The finance ministry expects that the auction of promissory notes to raise funds to pay farmers in the rice-pledging scheme might not meet the target of 20 billion baht ($777 million), as the state agencies invited to join the bid might feel reluctant to take part, given opposition to the rice scheme within their organisations.

According to the Bank for Agriculture and Agricultural Cooperatives (BAAC), the state enterprises that the Public Debt Management Office invited to join the bid would propose the coupon rate today. If the rate is acceptable, the notes will be allotted as planned. However, if the rate is too high and the PDMO does not accept the offer, the note sales will fail.

A ministry source said the PDMO did not expect to see the full 20-billion baht value being sold out as state enterprises have faced opposition from within. The source added, however, that falling short of the 20-billion target would not be a disaster.

"It would, at least, help build up market confidence after the PDMO recently scrapped a sale of 20 billion baht worth of bonds as financial institutions offered [coupon] rates that were too high," the source said.

The money raised from the promissory notes and the 20 billion baht allotted by the Cabinet from the central budget will be used to pay farmers who have been earmarked by the government since December as being in arrears under the pledging programme.

In response to former finance minister Thirachai Phuvanatnaranubala's comment that no primary dealers were taking part in the promissory-note auction and the coupon rate would not reflect the market's actual borrowing costs, the same source said that recent auctions by the PDMO had been done through primary dealers. However, the office cut them out and made direct offers to state enterprises so it does not have to pay the dealers' 0.50-per-cent commission.

The government is said to have three sources of financing for the rice-pledging scheme: the Commerce Ministry's rice sales; borrowings; and the government's budget. Previously, the Finance Ministry could not borrow for the pledging scheme as financial institutions were concerned that the government's caretaker role would make such lending unconstitutional, and there were also objections from several other parties.

The Metropolitan Waterworks Authority (MWA) backed out of the bid for the BAAC promissory notes after its legal team warned that taking part could violate Section 181 (3) of the Constitution. It had been reported that the MWA intended to bid for 1 billion baht worth of notes. But according to an MWA memorandum yesterday, its legal team pointed out that A caretaker government is barred from doing anything that would create a debt burden for the next government.

TOT executives yesterday also denied a rumour that it had decided to take part in this promissory-note bid.

Meanwhile, the government is expected to generate a total of 10 billion baht from selling 1 million tonnes of rice through the futures market during the first six months of this year. However, that would not provide the immediate funding needed to get the farmers' payments up to date.

The Agricultural Futures Exchange of Thailand (Afet) expects the government will be able to get about 5 billion baht in the first half of the year from the futures market, said Sakda Thongpalad, acting president to the organisation.

The Afet will continue to open bidding for about 200,000 tonnes a month through June. Every 100,000 tonnes sold through the Afet is expected to generate about 1.5 billion baht.

A total of 17 traders joined the auction in the futures market yesterday for 162,157 tonnes of 5-per-cent white rice and 230,748 tonnes of jasmine rice. The bids were quite low compared with the current market price as the market acknowledges that the supply of rice is very high, while the Thai government needs to release rice from stocks to raise badly needed funds.

Bids for white rice were 1.70-4 baht per kilogram lower than the market price for delivery, and 1.60-6.40 baht a kilo lower for jasmine rice. Currently, the market price of white rice is quoted at 13.70 baht a kilo, while the price of jasmine rice is 30.75 baht.

The next round of Afet bidding is scheduled for March 12, for about 200,000 tonnes of rice.Suchat Sinrat, deputy director-general of the Internal Trade Department, said the Commerce Ministry could continue to sell rice via the futures market.

The Commerce Ministry is planning to open a general auction for another 300,000 tonnes of rice next week.