New Thai Prime Minister Thaksin Shinawatra presented his controversial policies to parliament on Monday, promising to boost the flagging economy with grants to villages and set up an agency to take over bad debt from banks.
Fresh from a weekend brainstorming meeting with bankers at which the outline of a state asset management company (AMC) to take over bad loans was agreed, Thaksin said in his first major speech to parliament urgent action was needed on the economy.
“People at all levels have been in severe hardship because of… unemployment, low commodities prices, and falling purchasing power,” he said.
Thaksin’s Thai Rak Thai (Thais Love Thais) Party holds more than half of the 500 seats in parliament after a runaway victory in Thailand’s January general election.
But the opposition led by former Prime Minister Chuan Leekpai is bitterly opposed to many of Thaksin’s policies and launched a fierce attack on the government after the premier’s speech.
Chuan spent two hours ridiculing Thaksin’s party and its motto, “New Thoughts with New Approaches”, saying the new government offered neither new ideas nor new policies.
Thaksin said he would follow an expansionary fiscal policy but brushed aside criticism he would sacrifice fiscal discipline.
“We will maintain the fiscal deficit position for a while under suitable fiscal discipline and will adjust to a balanced position when the economy can grow sufficiently,” he said.
Thaksin laid out nine top priorities to get the economy moving, focusing on boosting consumption.
He said the government would boost consumption by distributing a one million baht revolving fund to each of Thailand’s 70,000 rural villages and city communities.
The Finance Ministry has said it plans to spend 10 billion baht (US$234 million) in the current fiscal year to end-September on the village funds plan.
Thai Rak Thai also plans to suspend debt repayment for small-scale customers of the country’s agriculture bank for three years to give them more money in hand to spend.
The debt moratorium will start in April with an initial cost of 5-7 billion baht a year, officials say. There would be 2.1 million eligible borrowers.
Thaksin has also promised cheap health care, with hospital visits costing only 30 baht each.
On privatization, Thaksin said the government would continue to privatize state firms, but would make the process more efficient and profitable to raise more money.
For the financial sector, the party plans a “People’s Bank” or micro-credit financing institution to give poorer people more access to funding, and a bank for small and medium-sized enterprises.
But the centerpiece of the government’s financial sector policies is its plans for a national AMC to shoulder much of the country’s burden of non-performing loans.
Thaksin says the AMC would take on 900 billion baht of bad debt from state banks and around 300 billion baht of non-performing loans from commercial banks.
Finance Minister Somkid Jatusripitak said the AMC would issue up to 300 billion baht of 10-year bonds, guaranteed by the central bank’s Financial Institutions Development Fund, to finance the takeover of bad assets.
For commercial banks, only bad loans involving three or more creditors can be sold to the national AMC. The key issue of the price at which loans are transferred has yet to be decided.
Thaksin said the price will be set at net book value minus a discount. A committee is due to decide on the size of the discount within two weeks. A loss-sharing formula will also be agreed on for loans that prove impossible to restructure.
Thaksin says that once the AMC takes on some bad loans, banks will be able to start lending more, boosting the economy.
Although flush with liquidity, Thai banks have restricted their lending because of their precarious balance sheets.
Thaksin also says a centralized AMC will have greater clout to restructure bad debts. The agency will have a strategic role, seeking to restructure debts of key viable businesses first to get them back on their feet and kick-start the flagging economy.