BOT chief backs bonds for rice scheme debt

[Lite Beer]

SAYING MINISTRY SHOULD DROP 'NANO-FINANCE' MOVE
BOT chief backs bonds for rice scheme debt
Erich Parpart
The Sunday Nation

Prasarn

BANGKOK: -- The Bank of Thailand (BOT) governor has agreed with the Ministry of Finance's decision to issue long-term bonds to cover debt worth Bt682 billion from the costly rice pledging scheme. But he said management of the amount of each offer and the spread between maturity dates should be done with care so it does not affect other government operations and market interest rates.

The central bank also commented that the ministry's idea of introducing "nano-finance" might cause unnecessary complications and the ministry should make "life easier" by revising regulations of existing micro-finance schemes instead of launching a new loan scheme.

BOT Governor Prasarn Trairatvorakul told reporters at the central bank's annual meeting with the press yesterday that "the rice bonds being issued to get rid of the huge short-term debt was the right thing to do in order to ease a burden that is naturally covered by the state". But he said the spread of offerings between the maturity of each issue should be done with other debt burdens in mind - so it does not become an obstacle in repaying other debts or other state operations that require government debts, such as spending on infrastructure investments in the next seven to eight years.

"The offering of the bonds and the spread of the bonds between each maturity from three to 10 years should not be in a bunch, and it should not distort demand for capital or loans in the market, since if the offering is bunched up, the private sector would fight over the resources," he said.

In terms of the interest rate for the bonds, Prasarn said if demand is more than the supply, the interest rate would be expensive, while the issuing of these bonds should not effect the economic situation, financial stability and the inflation rate. If it does, the central bank might have to do something to manage the situation.

But he said the BOT was not worried as the bank was confident about the Public Debt Management Office and the amount of debt was manageable.

In regard to "nano-finance", the governor said the BOT would propose to the Finance Ministry that it revise its decision to introduce the programme, as regulations of the micro-finance scheme do not state a minimum loan amount and has a maximum limit of only Bt200,000 - which means the loan amount could be Bt100,000 or even Bt60,000. But one part of its regulations that should be changed was the part that states that the loan should only be for consumption and cannot be used to fund business operations.

Prasarn said the micro-finance move could be changed by the central bank right away, if needed, and the ministry should make "life easier" for themselves and concentrate on other matters that require more immediate attention instead of spending time introducing the new scheme.

Meanwhile, the increase in government investments next year and direct subsidies to rice and rubber farmers should not create problems for government's liquidity, since the new expenditure amount was not "too much" and things were still "manageable" he said.

Source: http://www.nationmultimedia.com/national/BOT-chief-backs-bonds-for-rice-scheme-debt-30247859.html

-- The Nation 2014-11-16

[BSJ]

All the micro rich farmers around here would probably love to buy some nano bonds with some of the macro money they have stashed under their regular size mattress.

It must be hell sleeping on all that pledging scheme money!

[recycled]

Bloody hell! He hass aged some what, but ET has returned.

Edited November 16, 2014 by recycled

[RustBucket]

They will still be in debt to the bond holders and when the interest is paid on maturity of the bonds they will be more than 682 Bn in the hole.

Surely freezing all liquid assets of the Shin clan (all of them) and seizing all hard assets will make a nice big hole in the debt, then they can go through all the assets of the PTP MPs and seize all 'unusual' wealth.

[Sviss Geez]

Bloody hell! He hass aged some what, but ET has returned.

There's always one isn't there? Let's see a picture of you, Adonis, see how you compare.

[rickirs]

"Prasarn said if demand is more than the supply, the interest rate would be expensive"

Prasam seems to view a bond interest rate as if it were a price to be paid for a retail commodity, ie an asset. If demand exceeds supply, it's a seller's market and the price is raised. If supply exceeds demand, it's a buyer's market and the price is lowered.

A government bond is a debt instrument, an IOU. Its pricing has nothing to do with retail commodity pricing.The interest rate is driven largely by risk of the issuer to meet its bond service obligations. High risk such as that assigned to Greece who is already carrying high debt will require a higher interest rate to attract investors. At the other spectrum you can have such a high demand for "safe" government bonds that the interest rate can even become zero, ie., USA.

Government bond interest rates are not elastic in the normal sense as a retail product. And you can bet that should there be a demand for a government bond that exceeds current supply, the government will just print more bonds. But interest rates do not change.

The danger for Thailand is to excessively borrow easy money that can damage the nation's debt service capacity so as to cause interest rates to increase. And then an economic spiral of debt can get out of control. Since the General Prayuth's executive branch through the NCPO dominates the NLA legislative body, there is a real potential for failure of any real independent check and balance to unrestrained government spending. Prasarn should be more concerned about that situation.

[RubbaJohnny]

"Prasarn said if demand is more than the supply, the interest rate would be expensive"

Prasam seems to view a bond interest rate as if it were a price to be paid for a retail commodity, ie an asset. If demand exceeds supply, it's a seller's market and the price is raised. If supply exceeds demand, it's a buyer's market and the price is lowered.

A government bond is a debt instrument, an IOU. Its pricing has nothing to do with retail commodity pricing.The interest rate is driven largely by risk of the issuer to meet its bond service obligations. High risk such as that assigned to Greece who is already carrying high debt will require a higher interest rate to attract investors. At the other spectrum you can have such a high demand for "safe" government bonds that the interest rate can even become zero, ie., USA.

Government bond interest rates are not elastic in the normal sense as a retail product. And you can bet that should there be a demand for a government bond that exceeds current supply, the government will just print more bonds. But interest rates do not change.

The danger for Thailand is to excessively borrow easy money that can damage the nation's debt service capacity so as to cause interest rates to increase. And then an economic spiral of debt can get out of control. Since the General Prayuth's executive branch through the NCPO dominates the NLA legislative body, there is a real potential for failure of any real independent check and balance to unrestrained government spending. Prasarn should be more concerned about that situation.

Refreshing analysis from someone with a true grasp of risk management thank you.

[Strangebrew]

Well hell I will rush oops flock on down and buy me some of those bonds sounds like sound investment. Hope BOT bigwigs don't buy all of them up .

[meatboy]

Well hell I will rush oops flock on down and buy me some of those bonds sounds like sound investment. Hope BOT bigwigs don't buy all of them up .

if its only ONE BANK thats allowed to sell them we little people wont get a look in.600billion the money is already there and waiting to go? well well who's money is that then? only one guess.

[maidee]

buy your junk bonds here ... who wants some junk bonds ...

and they think the demand will be bigger than supply ...

55555555555555555

10% intrest per month, than I would also join