Loans not needed: Abhisit

Kittiratt says borrowing Bt2 trillion to fund projects no threat to fiscal discipline

The opposition yesterday agreed that the country needs massive infrastructure investment but found fault with the government's plan to seek a Bt2-trillion project loan through issuing a special decree and bypassing the annual budget, which could lead to lax fiscal discipline and ballooning public debt.

During the House-Senate debate on the bill authorising the Finance Ministry to arrange the loan, opposition leader Abhisit Vejjajiva said the government has no need at all to ask for Bt2 trillion from the financial market, the biggest borrowing in Thailand's history, because it could rely on the annual budget or run additional budget deficits. That would be enough to finance the projects without pushing public debt up to the ceiling as a percentage of gross domestic product (GDP), said the Democrat Party leader.

While the government estimates the total financing cost at Bt5 trillion - Bt2 trillion in principal and Bt3 trillion in interest - this assumes that interest rates will remain low throughout the 50-year repayment period. That is rather doubtful given the global economic uncertainty. The resulting rise in public debt per GDP, which is currently at 45 per cent, was a major concern, he added.

Finance Minister Kittiratt Na-Ranong said the borrowing would not upset the fiscal balance. While it will take time to completely pay off the debt, what the country will get in return is infrastructure assets, which will serve the country for decades.

The government could accelerate debt repayment by just paying more principal back to reduce the interest burden.

Most of the funds will come from the local market, so the income from interest payments will end up in the pockets of the Thai people.

To ensure spending transparency, the projects proposed by state agencies will be scrutinised by the Finance Ministry, NESDB and Budget Bureau, he added.

Kittiratt said the government wants to maintain its goal of achieving a drop in the budget deficit until it achieves a balance.

Abhisit said the government could also employ existing mechanisms such as the public-private joint venture law to encourage private sector investment to support the projects. Then the government might not need to seek such a huge loan.

Transport Minister Chatchart Sithiphan said the government should be the main investor while the private sector would be encouraged to take part in some projects on a case-by-case basis.

These projects are not aimed at generating revenue, but rather at developing the economy and cutting the country's logistics costs. If the private sector played a role, they might charge high fees or fares for people to use the infrastructure, he said.

Abhisit said the government must exercise strict fiscal discipline and prioritise which projects it would finance. The government has spent heavily on its populist policies and it would be better to channel some budgets of populist policies to this infrastructure development scheme, he said.

Kittiratt said the country needs to build up its resources to boost the economy, promote connectivity within the country and with neighbours and enhance the country's competitiveness. The borrowing will also ensure the continuity of project development to completion.

Abhisit said the government should not just spend profusely on upgrading infrastructure and ignore spending to improve other not less important areas such as education and healthcare.

MP Boonjong Wongtrairat, from the opposition Bhum Jai Thai Party, said at yesterday's House debate that the Finance Ministry did not have any clear plans about how it would repay the huge public debt, adding that there would probably be a tax hike.

Boonjong said he was also not convinced that the transport minister would be able to manage the projects successfully, judging from the fact that its State Railway of Thailand was making big losses.

Prime Minister Yingluck Shinawatra told the opening session that the public debt to GDP ratio might jump during the initial investment phase but these projects would facilitate faster GDP growth, which would bring the ratio down in the long term. She gave her assurances that the projects would be implemented with complete transparency and that auctions and e-auctions for the projects would be conducted in strict compliance with the procurement regulations of the PM's Office.

Chatchart said the investment would help lower the logistics cost to GDP ratio. The logistics cost for last year was Bt1.75 trillion, or 15.2 per cent of GDP of Bt11.5 trillion. The projects can help shave Bt200 billion off the overall logistics cost.

Over 80 per cent of Thailand's freight goes by land, 2 per cent by rail and 12 per cent by water. The logistics cost for land transportation is Bt1.72 per tonne per kilometre, for rail is 93 satang per tonne per kilometre and for water is 64 satang per tonne per kilometre.

Points of contention

Abhisit: Funding could come from the annual state budget at a rate of Bt300 billion-plus a year for the seven-year period.

Kittiratt: That arrangement does not sit well with the government's goal of achieving a balanced budget.

Kittiratt: Thailand needs to invest in new infrastructure to boost the economy and promote linkages with neighbouring countries. Borrowing will ensure continuity of project development.

Abhisit: The government should not focus only on "hardware" upgrades while ignoring other areas such as education and public health.

Abhisit: The private sector should be encouraged to contribute more to the mega-projects to save taxpayers' money.

Chadchart: In principle, the government has to invest in these projects itself, as the primary goal is to generate economic returns for the country.

Latest stories in this category

• Loans not needed: Abhisit


• Kittiratt says borrowing Bt2 trillion to fund..


• Legislature, courts caught up in political divide


• Court ruling on infrastructure bill sought

We Recommend

• Senators to sue Thaksin for Skype orders to party lawmakers


• Former prime minister Thaksin Shinawatra could..


• Ford, Toyota insist they will maintain investments..


• Shortcomings seen on both sides

Comments conditions

Users are solely responsible for their comments.We reserve the right to remove any comment and revoke posting rights for any reason withou prior notice.

Source: http://www.news.thethailandlinks.com/2013/03/29/loans-not-needed-abhisit/