Government’s comprehensive plan targets informal debt. It aims to free 5 million civil servants from ‘Debt Slavery’ and inject a substantial ฿500 billion into the economy.

The government’s wide-ranging plan to tackle household debt with a focus on high-interest informal debt is taking shape. On Monday, top spokesman for the PM, Chai Wacharonke predicted that the moves will have the same effect on the economy as an injection of ฿500 billion and that it will, ultimately, free 5 million civil servants from what the PM Srettha Thavisin has called ‘debt slavery’ when fully implemented.

Spokesman for Thai Prime Minister Srettha Thavisin Chai Wacharonke spoke to reporters about the government’s new plan on Monday. Nearly 100,000 people, ฿5.9 billion in debt, already registered for mediation through the Ministry of the Interior.

In what is morphing into a comprehensive effort to address Thailand’s escalating household debt crisis, the government has unveiled a detailed plan aimed at providing much-needed relief to various segments of society.

Spearheaded by Prime Minister Srettha Thavisin, it seeks to inject a substantial ฿500 billion into the economy. It signals a determination to tackle the issue head-on. 

The urgency of this plan was underscored during a high-profile cabinet meeting in November. At that time, household debt in Thailand was declared a national emergency, prompting swift and decisive action.

5 million civil servants released from debt bondage

On Monday, Mr Chai promised that the action being taken will boost spending power in the economy. He said it would release 5 million people in debt slavery within the public sector. 

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‘There are enormous benefits that will arise. If solving the entire debt system is successful according to the government’s plan. That is, at least ฿500 billion of purchasing power money will be brought back into the economy. We will be able to restore the production potential of the public sector for at least another 5 million people’.

Magnitude of the problem is unknown. It exceeds the country’s already staggering ฿16 trillion or over 90% of GDP, recorded level of private sector debt

The ubiquitous nature and scale of informal debt in Thailand has reached alarming proportions. It is thought to be in the range of ฿50 billion to ฿1 trillion. These figures are estimates. Observers fear the figure could be far higher.

Additionally, Thai borrowers find themselves owing a staggering ฿3.48 trillion to lending institutions not regulated by the Bank of Thailand. The total level of private sector debt in the kingdom is over ฿16 trillion or over 90% of GDP.

Recognising the gravity of the situation, the government has categorically labelled it a national emergency. Prime Minister Srettha compares the problem to long-term bondage or slavery. He emphasises the need for immediate and decisive action.

Nearly 100,000 hard-pressed borrowers have already applied for help. They used the mediation website launched by the country’s Ministry of the Interior

Since the declaration of national coordinated action, a mediation website was opened by the Ministry of the Interior. Significantly, 5,926 borrowers are already registered for mediation, with their accumulated debt amounting to a staggering ฿5.926 billion.

Meanwhile, the sheer volume of registrants indicates the widespread impact of the debt crisis on the ordinary people of Thailand.

Mr Chai Watcharong, spokesperson for the Prime Minister, took centre stage during a press conference on Monday, December 18th. He elaborated on the government’s multifaceted approach to tackle the debt crisis.

The measures are strategically categorised into four distinct groups, each targeting specific segments of the population.

Group 1: plan aimed at helping those in debt due to the COVID-19 pandemic. Over 1.1 million borrowers targeted with over 100,000 pronounced bad debts

This group encompasses individuals who have borne the brunt of the economic fallout from the COVID-19 pandemic.

Retail debtors, particularly those entangled with the Government Savings Bank and the Bank for Agriculture and Agricultural Cooperatives (BAAC), will receive comprehensive assistance. 

The government has mandated these banks to follow up and collect debts appropriately. This means providing aid to ensure this group of debtors can escape the clutches of bad debt. 

Accordingly, this initiative anticipates helping around 1.1 million small debtors.

Simultaneously, for SME debtors, state financial institutions will intervene through debt restructuring. This includes the suspension of debt payments for a year. 

At this point, this intervention is expected to cover over 99% of debtors struggling with bad debt in this group. These number more than 100,000 cases.

Group 2: Borrowers with regular income. This includes those with secure jobs in the civil service and other parts of the economy. Focus on take-home pay

This group divides into civil servants, teachers, police, and soldiers, along with individuals burdened with credit card debt.

Three fundamental approaches are outlined for these groups. The first entails an immediate reduction in interest rate charges to ensure they remain reasonable. 

The second involves consolidating debts into a single entity, such as a cooperative. This facilitates easier and more manageable repayment aligned with the debtor’s income. 

The third approach focuses on repayments taken out of salaries. The goal is to ensure that borrowers retain enough income or take-home pay to live with dignity. All three of these approaches will proceed concurrently.

Group 3: Borrowers with uncertain income including farmers, small-scale businesses and vendors. Decisive measures outlined including debt suspensions

Farmers, hire-purchase debtors, and those indebted to the Student Loan Fund (SLF) fall within this category. 

The proposed measures here include the temporary suspension of debt payments, interest reduction, or adjustments to instalment payments. 

These adjustments will align with the income of the borrower.

As a proactive step, the government has already rolled out a debt moratorium programme for farmers. These suspend both principal and interest debt for three years. Over 1.5 million farmers are participating in this debt suspension programme.

Group 4: Long-term borrowers on the books of government-owned financial institutions. Flexible repayment plans proposed after transfer to asset firm

This group involves individuals who have carried outstanding debt with government financial institutions for an extended period. 

The proposed solution is to transfer these debtors to an asset management company, a product of joint ventures between state financial institutions and asset management companies.

This strategic move aims to provide a flexible approach to debt restructuring, with an anticipated impact on approximately 3 million borrowers.

Plan to make the public more financially literate. Money management skills and community financial systems are on the way to preserve financial stability

In addition to these targeted debt-specific measures, the government is placing a significant emphasis on enhancing financial literacy. 

The focus is on promoting savings discipline, with initiatives such as the development of money management skills and the establishment of community financial systems.

The overarching goal is to empower individuals to manage their finances effectively, avoid falling back into debt, and contribute to the overall economic stability of the nation.

Challenges and scepticism among economic and banking analysts. Concern that ultimately this may undermine the country’s strong financial fundamentals

At length, while the government’s plan meets with cautious optimism, industry leaders and researchers are questioning the challenges involved.

At the same time, there is deep concern about the informal debt sector. Conservative estimates are ฿50 billion but it is more likely to be ฿1 trillion. 

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However, experts emphasise the need for a holistic approach, addressing root causes such as income distribution and economic benefits.

In summary, Thai workers need higher wages which the stagnating economy is not providing.

Key banking analysts support the new plan

Kasikorn Research Centre (K-Research) stands in support of the government’s measures, recognising them as a positive step. 

However, economists at the bank express uncertainty about the effectiveness of these initiatives, emphasising the importance of sustained economic growth to enhance debt payment abilities.

After that, they also fear that the moves, if progressed and developed, may ultimately lead to a weakening of the country’s sound financial fundamentals. 

This would undermine financial stability. Some, emboldened by the new government policy, are already calling for a loosening of banking provisions to boost liquidity.

Industry leaders warn cooperation with creditors is essential. The problem causes an increasingly sluggish economy including a falloff in car sales

The Federation of Thai Industries (FTI) acknowledges the government’s efforts but points to difficulty translating them into tangible outcomes. 

Kriengkrai Thiennukul, Chairman of the FTI, stresses the need for the cooperation of creditors, especially those involved in informal lending.

The government is acutely aware of the problem and has recently launched various measures dealing with formal debt, including the suspension of repayment and the reduction of interest rates.

Certainly, Thailand’s high household debt has far-reaching consequences. Undeniably, it strongly impacts industries such as the automotive sector. 

Surapong Paisitpatanapong, Vice-Chairman of the FTI and spokesman for its Automotive Industry Club links the decline in domestic car sales to concerns over non-performing loans (NPLs). Formerly, car sales fell by 7.51% year-on-year to 645,833 units from January to October  2023.

After all, the sluggish economy, influenced by high household debt, affects both business and consumer sectors.

Top economist warns that ultimately the only solution is higher incomes. This means creating higher value jobs and that means innovation and education

Anusorn Tamajai, Director of the Digital Economy, Investment, and International Trade Research Centre. He emphasises the long-term nature of Thailand’s household debt problem. 

Additionally, he identifies low-income growth and GDP below potential growth levels as contributing factors. To address this, he suggests fair income distribution. 

This means creating high-income employment opportunities and encouraging industries to add value through knowledge and innovation.

The Thai government’s ambitious plan to tackle the household debt crisis reflects a commitment to providing immediate relief. It is less clear if long-term solutions are on the cards but that outcome is also possible. 

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