Bangkok: Over 30% of Thai farmers are facing significant financial challenges, burdened with debts exceeding 500,000 baht. Proposals for debt restructuring are being considered to address the prevalent issue of "paying only interest," which traps farmers in a cycle of debt.
According to Thai News Agency, the director of the Puey Ungphakorn Economic Research Institute has highlighted that Thai farmers' debt levels are three times higher than other households. The chronic issue of paying only interest has become a common debt repayment behavior. Targeted debt restructuring, cost reduction, and increased incentives are proposed to achieve a sustainable solution. The director also mentioned the influence of the Middle East on the cost of living and expenses, which exacerbates the fragile household debt situation. The 400 billion baht loan decree is seen as beneficial in reducing informal debt and maintaining liquidity.
Ms. Somrasmi Chantarat, Director of the Puey Ungphakorn Economic Research Institute, emphasized at the PIER Research Brief No. 4/69 event that non-performing loan figures alone may not fully capture the severity of Thai farmers' debt issues. Research over a decade shows that median debt has increased from 200,000 baht to 250,000 baht, with more than 30% of borrowers carrying debts over 500,000 baht. The growing trend of borrowers paying only interest has risen from 20% to over 50% in the past eight years.
A significant barrier to overcoming the debt trap is that over 42% of borrowers have insufficient income to repay their debts, with income risks declining every three years. Behavioral obstacles and hidden transaction costs, such as mismatches between payment installments and income cycles, and high travel costs to make payments, also contribute to the problem. Short-term relief policies have distorted incentives, leading to a need for long-term solutions.
Research has categorized debtors into three groups: 25% can settle debts independently, 30% could do so with behavioral changes, and 22% have debts exceeding their capacity. Past farmer debt relief policies focusing on short-term measures have frozen the problem and undermined financial discipline. A long-term approach is required, focusing on restructuring debt to match borrowers' capabilities and reducing debt burdens through the proposed FEAST approach, which includes flexibility, ease of use, attractiveness, social mechanisms, and timeliness.
Collaborating with the Bank for Agriculture and Agricultural Cooperatives (BAAC), three measures were piloted in 120 branches: a new debt moratorium model, the "Good Payment, Lucky Draw" project, and the "Bank Near Your Home" project. These measures significantly stimulated debt repayment, despite the travel costs associated with the "Bank Near Your Home" project.
The government is urged to address debt problems through key measures: prioritizing debt restructuring investments, fostering cooperation between stakeholders, and utilizing digital technology and AI to assess individual assistance potential. New loans to support adaptation, coupled with strengthening financial discipline and resilience, are essential to enable farmers' self-reliance.
For managing non-performing loans through Asset Management Companies (AMCs), differentiated measures for the elderly group are suggested. Incentives should be offered to heirs to take over the debt if they own farmland, while partial debt reduction or write-off could be considered for those lacking capacity and assets, with strict conditions applied.
Ms. Somrasmi highlighted that unrest in the Middle East pressures the cost of living and production, increasing household debt vulnerability. Flexibility in government assistance measures is necessary to support those severely affected while maintaining financial discipline.
The household debt-to-GDP ratio is expected to rise due to a potential economic slowdown, with increasing demand for new loans to support living expenses and business liquidity. The government's plan to issue a 400 billion baht emergency decree is seen as a safety net to reduce reliance on informal debt. However, cautious implementation of soft loan measures and other stimulus efforts is crucial to avoid past mistakes and maintain long-term financial discipline.