Thai political crisis threatens budget, rice scheme, public works

BANGKOK Fri Feb 7, 2014 5:42am GMT

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BANGKOK (Reuters) - Thailand's inability to form a new government has left the country facing a slow-burn budget crisis, with a costly rice-buying scheme close to collapse and public investment plans that were meant to support the flagging economy under threat.

Prime Minister Yingluck Shinawatra has led a caretaker administration since December, when she called a snap election in a bid to end protests that have shut down parts of the capital and with it much of normal government business.

But the demonstrations have continued, and protesters were able to disrupt voting in enough places to prevent a new administration being installed after the poll on February 2.

"The fiscal budget plan has not started yet. We haven't seen this situation before," Manas Jamveha, director general of the Comptroller General's Department, told Reuters.

"We have to wait for a new government and its policies before proceeding on a budget framework."

By law, a caretaker government can only embark on new spending with the approval of the Election Commission and it cannot initiate projects that commit the incoming government.

According to the Budget Bureau, ministers should have set a budget outline by January 28 for the fiscal year starting in October. Details should be thrashed out in April and the budget sent to parliament in May.

But with the opposition challenging the legality of the poll and dozens of by-elections needed to fill vacant seats, It may be weeks, or even months, before Thailand has a proper government again.

Most urgent is the rice-buying scheme, which was a cornerstone of the populist platform that won Yingluck a landslide election victory in 2011 but in recent weeks has all but collapsed due to cash problems.

The cost of the scheme, which guaranteed farmers an above market price, has fuelled protests in Bangkok. Big banks have refused to offer bridging loans to keep it afloat, unconvinced the government has the authority to seek them.

Some farmers have not been paid for their rice for months and the scheme lapses at the end of February, when the current crop ends. Similar schemes have been routinely rolled over for decades, but not this year.

"These payment problems stem from the dissolution of parliament, which made it difficult under the framework of the law to approve payments," Yingluck, who will almost certainly be declared the winner of the election if is not annulled by the courts, told reporters on Wednesday. "Whether this scheme is extended or not is up to the next government."

The protest movement has been trying since November to force out Yingluck and install an unelected administration to ram through political and economic reforms, with the objective of reducing the influence of her brother, former premier Thaksin Shinawatra who was ousted in a 2006 coup.

GROWTH FORECAST SLASHED

Many government ministries have been closed for weeks because of the protests, with civil servants working from home or back-up facilities. Many from the Commerce Ministry, for example, have relocated to a royal arts and craft center north of Bangkok and on Monday officials held the monthly inflation briefing in a restaurant.

As protest numbers dwindled this week, some ministries have tentatively reopened. But policymaking remains restricted.

Brokerage Thanachart Securities has slashed its economic growth forecast for 2014 to 2.0 percent from 3.2 percent because of the likely fall in government spending, as well as delays to both public and private investment.

"Our expectation of a reduction in populist spending, especially on the massive rice scheme, forces us to lower our consumption growth assumption this year from flat growth to negative growth of 1.2 percent," said its head of research, Pimpaka Nichgaroon, noting that consumption in Thailand accounts for around half of GDP.

A centerpiece of the government's economic policy - set to increase growth by one percentage point in a full year, it said - was a 2 trillion baht ($61 billion) infrastructure program focused on mass transit and high-speed rail networks.

Ministers approved related borrowing in March 2013 but it was contested by the parliamentary opposition because it was off-budget and the case has been mired in the courts. It now seems unlikely the work will begin any time this year.

State-owned Electricity Generating Authority of Thailand (EGAT), the country's largest power producer and operator of the national grid, said this week a $515 million infrastructure fund might be delayed if a new government was not formed soon. It needs the money for new power plants and transmission lines.

A planned power station in southern Krabi province must await approval from the next government.

Public investment and infrastructure account for about 30 percent of total cement demand, so big suppliers are concerned.

"If the government is unable to approve new infrastructure projects, new public spending will not happen. That will drag down the overall sector," said Kan Trakulhoon, chief executive of Siam Cement Pcl. ($1 = 32.7600 Thai baht)

(Additional reporting by Khettiya Jittapong, Amy Sawitta Lefevre, Apornrath Phoonphongphiphat, Kitiphong Thaichareon and Boontiwa Wichakul; Writing by Alan Raybould; Editing by Alex Richardson)

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