Off-House debate on borrowing bill

Achara Deboonme,

Sirivish Toomgum

The Nation March 22, 2013 1:00 am

Kittiratt Na-Ranong

Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong has assured that Thailand will not have trouble repaying the Bt2-trillion infrastructure loans, given the economic returns to be reaped from the projects, which will facilitate repayment.

Envisaging the issuance of short-term and long-term bonds for local investors, and probably institutional investors, he said the bonds would absorb excess liquidity from the financial market and reduce the current pressure on the baht.

"It's like mortgage repayment. In the first years, we repay a small sum of the principal. We set the 50-year repayment target to show all when these loans will be fully repaid. This is the first borrowing bill that includes the repayment clause. While the loans would be repaid in 50 years, the [new assets] will last many more decades," he said on Krungthep Turakij TV's Business Talk programme yesterday.

He admitted that the Bt2-trillion sum is huge, at 20 per cent of the current Bt12-trillion gross domestic product. However, through time, the sum will be smaller as new infrastructure will help boost the economic size.

He argued that conventional financing through fiscal budgets does not guarantee continuity of the projects. For example, the Ranong-Chumphon Road is now half-finished after five years, as recurring budgets could cover only parts of the project.

Furthermore, widening the budget deficits to finance the projects will send a wrong signal to the global community that the government is stimulating the economy.

"That's against our objective, which is to address the poor infrastructure issue in light of low public debt," he said. Through the project, which will reduce fuel consumption and generate new economic activities, this will narrow both the income and distance gaps.

He also attacked Democrat deputy leader Korn Chatikavanij, for saying that Korn, as the former finance minister, had tried to achieve a balanced budget and his government had successfully narrowed the deficit.

"What we are investing in is what we should have been done years ago," he said. "It is to ensure the economy of speed which also ensures economy of scale. An old adage goes that large fish eat small ones. A present-day adage is faster fish eat slower fish."

He said that it is estimated with the infrastructure investment, the economy could expand by Bt235 billion per year.

"Borrowing rates may be higher than inflation. But paying interest for years [to finance the investment] is better than doing nothing now," he said.

He asserted that if previous governments had invested in the projects, the domestic financial market would not have been flooded with excess liquidity. Thanks to current account surpluses, Thailand's foreign reserves are swelling to more than US$180 billion. Though foreign exchange stabilisation bonds having been issued in the past years to absorb the dollar-led liquidity, outstanding short-term bonds have risen to Bt3.1 trillion. Given that half of the Bt2.2-trillion investment should be spent on import content, he said this will help stem the baht appreciation in the following years.

"We'll gradually pull out the funds to finance the investment," he said. "This is one of the key issues that I will have to address."

The Bt2-trillion infrastructure borrowing bill, which will allow the government to raise the entire amount by end-2020 and require it to clear the debt in 50 years, is now ready for parliamentary screening. The Cabinet approved the draft bill on Tuesday.

Recently Prime Minister Yingluck Shinawatra said most of the loans would be obtained from domestic sources, adding that the Finance Ministry - entirely in charge of the borrowing - would work out the details of the loan conditions.

The borrowing bill has been heavily criticised by academics, economists and opposition politicians, who expressed worries over public debt. Despite the Public Debt Management Office's hint that the borrowing could raise the country's public debt to 60 per cent of gross domestic product (GDP), the government said in the bill that the ratio would not exceed 50 per cent.

Under the bill, the Finance Ministry plans to start repaying the loans in the 11th year. In years 11-20, 10 per cent of the borrowing will be repaid; 20 per cent will be paid in the next 10 years; 30 per cent in the following 10 years; and 40 per cent in the final 10 years.

The bill requires all ministries involved to seek opinions from the National Economic and Social Development Board, the Budget Bureau and the Finance Ministry for their projects, before seeking Cabinet approval. They are also required to submit regular updates on the projects.

Recently, Kanit Sangsubhan, director of the Fiscal Policy Research Institute Foundation, said the government's proposed Bt2-trillion investment on infrastructure, if implemented, could boost the per capita income of Thais to US$10,000 (Bt300,000) per year from the present $5,000 per year within the next 10 years.

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