Taxpayers could be hit with a 250 billion baht bill under the government's return to a loophole-ridden rice mortgage subsidy programme, MR Pridiyathorn Devakula, a former deputy prime minister says.

The programme could also result in Thailand losing its status as the world's top rice exporting nation, he charged.

The Yingluck Shinawatra government next month will launch the rice mortgage programme offering 15,000 baht per tonne for paddy _ or unhusked _ white rice, and 20,000 baht per tonne for jasmine hom mali rice.

The prices are about 5,000 baht per tonne over current market prices. Under the Abhisit Vejjajiva government, the mortgage programme was scrapped in favour of an insurance programme that compensated farmers if market prices dipped below benchmark prices.

Under the mortgage scheme, rice is pledged as collateral against loans from the state-owned Bank for Agriculture and Agricultural Co-operatives (BAAC). If rice prices exceed the pledging price, a farmer can sell the rice in the market, repay the loan and pocket the difference as profit. But if market prices are under the pledging price, the BAAC essentially buys the rice, which is then held in government stockpiles and sold at auction to mills and exporters.

MR Pridiyathorn, a finance minister and deputy premier under the Surayud Chulanont government, said the high pledging price set by the current government would lead to farmers defaulting on their bank loans.

If 27 million tonnes, or 90% of the country's estimated 30 million tonnes of paddy harvested in the 2011/2012 season, was left in government hands, it would result in a loss of 135 billion baht, based on the difference between the pledging price and current prices.

Further losses could be expected, based on spoilage, declining global prices and a lack of bargaining power on the behalf of the government with local traders as it has held large stocks.

MR Pridiyathorn said the programme is also vulnerable to corruption and manipulation.
The project could be the "most damaging in history", he said, with potential losses including interest ranging from 135 billion to 250 billion baht.

MR Pridiyathorn said the government's economic leaders _ Kittiratt Na-Ranong, a deputy prime minister and commerce minister; and Thirachai Phuvanatnaranubala, the finance minister _ may have underestimated the potential scale of losses.

"I see that the finance and commerce ministers, who are responsible for the programme, didn't actually initiate the project. It was launched by some heavyweights within the [Pheu Thai] party who are currently banned from politics," MR Pridiyathorn said.

"I have watched the situation with profound regret, watching some vicious politicians press ahead with such a damaging project."

MR Pridiyathorn warned that Mr Thirachai, as BAAC chairman, could be liable for "gross negligence" if the programme leads to losses for the bank.

"I do not want either [Mr Thirachai or Mr Kittiratt] to not help farmers. But they should pass on the pledging scheme and look for other systems that work for farmers while limiting the cost to the country," he said.

Mr Kittiratt, when contacted by the Bangkok Post, declined to comment. Mr Thirachai, who is attending the annual IMF/World Bank meetings in Washington, was unavailable.

MR Pridiyathorn said making the government the sole buyer of the rice crop would squeeze exporters, giving competitors such as Vietnam a chance to boost their share in the global market.

"Historical records show that whenever the government pledged rice at a premium to market prices, the country's rice exports decreased," MR Pridiyathorn said.

"We might see Vietnam pass us as the leading rice exporter for the first time ever in 2012."

The rice mortgage programme was first launched by the Commerce Ministry in 1981 as a measure to help ease oversupply in the market.

The government booked large losses for the first time in 2004 under the now-disbanded Thai Rak Thai Party, when pledging prices were set well above market prices. Critics said then-premier Thaksin Shinawatra, Ms Yingluck's brother, had intentionally set high pledging prices to pander to rural voters.

State rice stockpiles rose to 6 million tonnes in 2003/2004 and 7.5 million tonnes in 2004/2005. Losses were put at 26.49 billion baht.

After the September 2006 military coup, the Surayud government cut the pledging price to match market prices. The loss for the first crop in 2006 was 319 million baht compared to 12.94 billion baht the year before. No loss was recorded in 2007/2008.

But a 26.63 billion baht loss was posted for the second crop in 2008 under the People Power Party led by Samak Sundaravej. During the 2008/2009 season, under the Democrat-led government, the second-crop loss was 33 billion baht.

Source: Bangkok post