Thread: Govt brushes off central bank’s call for review of digital wallet scheme

The Bank of Thailand (BoT) has sent an urgent letter to the government advising it to downsize the “digital wallet” scheme by only providing the 10,000 baht benefit to about 15 million so-called “financially fragile” people, instead of the 50 million people as currently planned.


This would enable the plan to be implemented immediately and would only cost 150 billion baht, according to the BoT.


The government has, however, shrugged off the central bank’s last-minute call, saying that there is nothing new in its recommendations.


The central bank reasoned that these “fragile” people, who include low-income earners and holders of the state welfare cards, tend to spend more on consumption and buy more locally-produced products than other groups and the 10,000 baht would help ease their financial burden and stimulate the economy more efficiently.


It also recommends that the digital wallet scheme be implemented in phases, which would reduce the impact on fiscal stability.


It warns that the scheme, which will cost about 500 billion baht in its current form, will produce a long-term fiscal burden, put Thailand at risk of a credit rating downgrade by Moody’s and a loss of confidence in investment in Thailand if the government cannot maintain the stability of public sector debt.


The planned allocation of money from the 2024 fiscal budget to fund the scheme will also reduce the reserves of the Central Fund for use in emergency situations, to the level that there won’t be enough money to cope with an actual emergency, should one arise, such as an extreme natural disaster, said the central bank.


The BoT goes on to say that the 500 billion baht should be spent on more worthy projects, which address structural problems and increase long-term economic potential.


Citing its capacity as the regulator of special financial institutions, such as the Bank of Agriculture and Agricultural Cooperatives (BAAC), the central bank noted that the government has designated the BAAC to support the digital wallet scheme, despite the fact that it still owes the bank a staggering 800 billion baht, which may put the bank at risk of liquidity problems and significantly affect its operations and the confidence of depositors.


The central bank also expressed concerns over the system to be used in the scheme, its vulnerability to cyber attack, leaks of information on private individuals and business transactions. It recommends that measures to address these potential intrusions be announced with immediate effect.


Finance Permanent Secretary Lawaron Saengsanit said, however, that the central bank’s letter will not have an effect on the scheme because it has already been approved by the cabinet.


He said that all the recommendations in the letter have already been addressed by the central bank’s governor and the Digital Wallet Scheme Policy Committee has already responded to the central bank.


The scheme will go ahead as scheduled and the 10,000 baht benefit will be distributed to about 50 million Thais in the fourth quarter of this year, said Lawaron.

Govt brushes off central bank's call for review of digital wallet scheme | Thai PBS World : The latest Thai news in English, News Headlines, World News and News Broadcasts in both Thai and English. We bring Thailand to the world

Srettha still struggling with funding for digital wallet scheme

Thailand’s ruling coalition continues to juggle with the challenge of arranging funding for the digital wallet scheme that involves cash handouts totaling 500 billion baht.


The government had planned direct borrowing of the entire amount, but the risk of violating the Constitution and the state fiscal and financial disciplines act forced it to look for alternative sources. The fiscal discipline act allows borrowing by the government to distribute cash to the people only in an emergency situation. The government’s repeated attempts to label the Thai economy as “in a crisis” has not cut much ice to justify the massive spending aimed at boosting consumption.


Alternative funding sources


The government recently abandoned its legislature loan proposal. Instead, Prime Minister Srettha Thavisin is dipping into the normal annual budget for fiscal 2024 and 2025, extracting an estimated 175 billion baht and 152.7 billion baht respectively.


The government also plans to tap funds from the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) totaling around 172.3 billion baht.


The borrowing from the BAAC will be a long-term debt, and the bank will be compensated via its annual expenditure plans.


The government is confident that the use of the quasi-fiscal measure would not risk violating the Constitution and related laws. But critics have warned of the risk of violating the BAAC law, which could stymie the stimulus project or lead to it being scaled down.


Somporn Isvilanonda, an economist at the Knowledge Network Institute of Thailand, said the government’s current debt to the BAAC amounts to around 500 billion baht. A half of that amount was incurred in implementing the Yingluck administration’s rice-pledging scheme and the rest from rice subsidies provided by the subsequent government of General Prayut Chan-o-cha.


“The BAAC law mandates the bank to provide loans to farmers. It does not give the bank the authority to hand out cash to farmers. The digital wallet is a money handout scheme, so it could violate the law,” Somporn argued. The bank board would be held accountable if they approved the scheme, he added.


If it runs counter to the law, it could lead to the cancellation of the planned scheme.


Korn Chatikavanij, former finance minister and a former chairman of the BAAC, posted on this Facebook page that the government’s move would be against the law. He argued that the BAAC’s responsibility was to support the farming sector, not the government’s economic stimulus scheme.


The trade union at the BAAC has also opposed the government order, voicing concerns that the scheme would suffer the same fate as the rice-pledging crisis in the past. It intends to take up the matter with related agencies.


Srettha has pledged that the scheme will reach 50 million people in the fourth quarter of this year. Thai citizens aged 16 years and above, whose annual income does not exceed 840,000 baht, and whose combined bank deposits are not more than 500,000 baht, will receive a one-time digital handout of 10,000 baht.


Recipients could use the handout to buy necessities at grocery or small shops participating in the scheme.


Registration will start in the third quarter via a new application which is currently under development. They have to buy goods from shops in their own districts and spend the money within six months.


Benefiting big businesses?


On the business side, the government has stipulated that shop owners will not receive cash until they use that digital money to buy goods from larger retailers or wholesalers.


In the first round, groceries or small shops will not get cash. As the government wants to draw more businesses into the tax system, it has imposed a requirement that operators will get cash in the second round only after the groceries buy supplies from them. To receive cash, the businesses must register in the value-added tax system, or annual individual income tax or corporate income tax.


Opponents say this condition may benefit large retailers, while small shop owners may not want to participate.


Move Forward Party deputy leader Sirikanya Tansakul is concerned that the scheme will benefit big businesses, as the government has set conditions that do not favor small shop owners.


Other critics also say that big retail chains, such as 7-Eleven, may benefit the most from the scheme.


Debate continues on merits of scheme


The government insists on the need to bolster the economy by injecting large funds to boost consumer spending and projects, promising an extra surge in GDP growth by 1.2 to 1.8 percentage point. Somporn, who specializes in agricultural economics, and other economists strongly oppose the planned use of massive funds to boost consumption, saying it would be a waste of money. They are suggesting that the amount be used for productive investment that would increase Thailand’s competitiveness.

Srettha still struggling with funding for digital wallet scheme | Thai PBS World : The latest Thai news in English, News Headlines, World News and News Broadcasts in both Thai and English. We bring Thailand to the world

Will digital wallet hang both Pheu Thai and conservatives from same rope?

One of the latest signs that all is not well with the government’s flagship policy is, again, the prime minister’s mood when asked about the matter this week after a crucial Cabinet meeting.


Srettha Thavisin said something along the lines of “Didn’t we agree that there was nothing left to talk about?”


Truth is that there is pretty much left to talk about. Most of all, Srettha was leaving a Cabinet session during which digital wallet had been supposed to be intensely discussed, a moment of truth for the conservatives who have largely kept away from the hot potato.


Politically, it’s bad for obvious reasons. Thailand’s divide was caused by disagreement over two main things: Were Pheu Thai leaders corrupt and deserved to be punished? And did “populist” policies of Pheu Thai, formerly People’s Power Party and Thai Rak Thai Party, destroy state monetary disciplines and encourage corruption?


Digital wallet represents the latter controversy. It reeks of unhealthy populism. Some suspect that it was designed to help big corporates. Last but not least, corruption alarm bell is ringing.


The Yingluck government’s rice pledging scheme and the Srettha government’s digital wallet are similar in many aspects. Conservative politicians launched no-holds-barred attacks on the former but have been conspicuously reticent regarding the latter.


Legally, it’s worse. For example, the Constitution states that the Cabinet is required to tell Parliament upon swearing-in how it will find money to fund state policies. That the Srettha government only became clear-cut on the “how” question just a few days ago is a potential trouble.


The constitutional will on the record points out that the requirement is aimed at preventing reckless populist policies from being implemented in complete disregard for the source(s) of funding. It is also designed to pre-empt unrealistic election advertisement that could make a political party win votes.


The legality of “money” will also continue to be controversial, especially when “normal” money from state budgets and farmers’ bank is turned into something that cannot be used anywhere and anytime.


Additionally, the political party law which supplements the Constitution requires campaigning parties to clearly show how they would fund their election promises. Again, this seeks to block pipe dreams or expensive vows associated with high economic risks.


Next is the legal headache concerning the state-owned Bank for Agriculture and Agricultural Cooperatives. The government recently abandoned its Bt500 billion legislative loan plan, hoping to steer clear of parliamentary troubles. Instead, Pheu Thai dipped into the normal annual budget for fiscal 2024 and 2025, extracting an estimated 175 billion baht and 152.7 billion baht respectively.


The rest of the money, totaling around 172.3 billion baht would hopefully come from the BAAC.


But should a major refuge, or last resort, of needy farmers allocate a big chunk of its asset to give birth to a political agenda that many don’t agree with? The question can be both legal and political.


Budgetary money may face less-intense questioning, but the fact that tax-payers’ contributions are needed to make digital wallet possible will make the issue potentially explosive all the same.


Now, the Central Bank. The Bank of Thailand has never stopped being a thorn in the government’s side when digital wallet is concerned. Its latest request, for a drastic downsizing of the programme, will infuriate Pheu Thai, but will also make it more difficult for the ruling party to rein in the agency since any rash government act may be perceived as a political revenge.


The bank suggests that only really “economically fragile” Thais should be covered by the programme, but the government has brushed it off, saying all relevant concern had already been thoroughly addressed by the Cabinet.


With hindsight, Move Forward was lucky. If it had formed a government with Pheu Thai, it would have been haunted by the digital wallet ghost. Now, the biggest political party can sit on the fence amusing itself.


But it cannot be said that Move Forward has been able to take full advantage of the situation. The party said nothing during the election campaign and very little since Pheu Thai became the government. Harshest criticism has come from current or former financial technocrats, not politicians.


Yet it’s safe to say that Move Forward has dodged a bullet. If it had not divorced Pheu Thai then, it might have to now.


Will digital wallet hang both Pheu Thai and conservatives from same rope? | Thai PBS World : The latest Thai news in English, News Headlines, World News and News Broadcasts in both Thai and English. We bring Thailand to the world

As said elsewhere, doubtless another hare- brained scheme from the Thaksin clique.