With one in three Thais trapped in debt, populist political parties are promising solutions that risk plunging the country into debt before the elections.
Kavita Wongyakasem, 48, a business owner in Bangkok, struggles daily to keep her household afloat.
Running a business that provides services to a major energy company, she owns a house in Nonthaburi, drives a van and sends her two daughters to good schools.
But beneath the surface, she is 8 million baht (216,638 euros) in debt and has no savings.
"I think about it every minute," Wongyakasem admits, tears welling up in his eyes.
This personal story reflects a larger problem in Thailand.
According to the Bank for International Settlements, the country has one of the highest household debt-to-gross domestic product (GDP) ratios in Asia, surpassed only by South Korea and Hong Kong.
Solving this problem has become a central issue in the May 14 general election, with all major parties promising pay rises, debt moratoria, collateral-free loans and aid.
In the past, populist policies have contributed to rising household debt as governments sought easy solutions to stimulate the economy.
For example, between 2011 and 2012, the Yingluck Shinawatra administration offered a significant tax rebate to first-time car buyers, which caused household debt to skyrocket from 60.3 percent at the beginning of 2011 to 71.8 percent at the end of 2012.
The program ultimately cost the government an estimated 91 billion baht.
Pita Limjaroenrat, prime ministerial candidate for the Move Forward party, is proposing annual revisions to the minimum wage to tackle the problem of persistent inequality.
Pita Limjaroenrat quickly gained popularity and acknowledges that "once you are in debt, it is very difficult to move up the ladder."
In February, the Bank of Thailand expressed concern about the issue, stating that household debt ratios should be reduced from 86.9% of GDP at the end of 2022 to below 80% to mitigate financial risks.
See: Household debt continues to rise in Thailand
Analysts warn that extravagant election promises by political parties could increase macroeconomic risks posed by debt.
According to estimates by the Thai Development Research Institute (TDRI), the policies of the nine major parties could amount to 3.14 trillion baht, slightly less than the annual budget of 3.18 trillion baht.
The debt burden affects many Thais and can last a lifetime.
Central bank data shows that 58% of people aged 25 to 29 are in debt, while a quarter of people over 60 have outstanding loans averaging more than 400,000 baht (10,832 euros).
About 30% of credit card or personal loan holders have a combined debt of 10 to 25 times their income, double international norms.
The Covid-19 pandemic has exacerbated the problem, with the number of bad debts nearly doubling to 10 million.
While the pandemic has not had as severe an impact on the population as in other countries, the economy, which depends on tourism, has been severely affected.
Achin Chunglog, president of a national volunteer group that helps people in debt, likens the situation to "falling off a cliff."
A survey conducted in April by the University of Thai Chamber of Commerce (UTCC) found that the debt level of 1,300 respondents earning up to 15,000 baht (406 euros) per month was the highest since 2010.
Additionally, a study conducted in March found that 90% of farm households in rural areas had outstanding loans due to a "vicious cycle of debt."
For Kavita Wongyakasem, the recent struggle with falling income and increasing expenses to protect her 20-person team from the virus has led her to borrow outside the banking system.
While she acknowledges that the aid packages offered by political parties seem attractive, she believes they will not ease the burden on those in heavy debt.
For millions of Thai families like hers, the struggle continues.
Source: The Thaiger
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5 comments
Household debt has only increased as the economy has expanded and purchasing power has grown.
Coupled with the promises (obviously unfulfilled because unrealizable) of political candidates during national election years, this debt currently represents almost 90% of everything Thailand produces and sells, whether in domestic or international trade...
This obviously has a significant impact on purchasing power and domestic consumption of households and therefore on the economy in general, all areas combined.
For several weeks now, ahead of the elections on May 14, we have seen the same promises resurface in all parties, some even going so far as to promise a minimum monthly pension from the age of 60 or 65 to all Thai men and women in the amount of 5,000 baht (currently 600 baht)....
Politicians, whether in government or opposition, and those who are standing for (re)election in the next 4 years, know that this promise cannot be kept under any circumstances... Financially impossible to implement!!!
It is to the legislature that we must turn so that a series of laws and provisions are made so that banks cannot lend money beyond a certain repayment threshold, depending on income, in order to guarantee households a minimum of guaranteed "untouchable" resources for the expenses necessary for their survival (food and drinks, travel, education, access to electricity and the media).
In this perspective, do not forget to purely and simply prohibit loans between individuals, outside of banking channels, loans which are made at usurious rates too often used when banks refuse a loan for reasons of insolvency.
Many households have lost everything in this kind of process... house, car, land!
But apparently, no political candidate seems concerned about going down this path of protecting private borrowers from unscrupulous loan sharks.
Without these income-based borrowing limits and a relentless fight against loan sharks, the general problem of deadly household debt (many Thais end up committing suicide...) will not find a long-term solution.
The example of Greece, which 12 years ago was on the verge of state bankruptcy, is exemplary: it was only at the cost of drastic savings, reductions in household spending, price freezes, and tough and restrictive economic measures that the country was able, after the Covid crisis, to slowly leave the red zone of the European Community...
It took 11 long years, taking into account the fact that Greece was able to count on exceptional aid funds from Europe in the order of several tens of billions of euros!
In an identical scenario, Thailand will not be able to count on any such non-repayable aid... it will have to empty its own coffers and its foreign currency and gold reserves and agree to state loans from American, European or Chinese international banks...
Household debt will not find a lasting solution in the short or medium term, and certainly not within the constitutional period of four years that the legislative power of the future government will last. The worm is in the apple and it is getting fatter!
We need to do competitive devaluation with double-digit inflation.
Stop new non-productive borrowing.
It hurts a lot, but inevitably the loans quickly become worthless.
I'm not sure about the comparison with Greece...
In this case, it was the state that was over-indebted.
Here, it is the households that are...
Civil servants (and there are many of them) will continue to receive their salaries and the loans taken out by the state will continue to be repaid...
And the poorest Thais will continue to live as they always have... making do and accepting their fate, since it is their Karma...
Absolutely, Luc.
Thailand is "still" one of the countries free from international bankers; they do not have huge external debts like the USA or most European countries.
But that could change if the Shinawatra mafia comes to power.
As the goal of US agents is to indebt their country to make it dependent on these international bankers who can then take total control of it.
Like France, in the hands of Blackrock, among others.
Hello Luc… Yes, indeed, we cannot compare the situation in Thailand with that of Greece in the 2000s.
I just wanted to draw a parallel to emphasize that this kind of financial crisis takes time to resolve, and as Alfred says, it is not the Thai state itself that is over-indebted, but its citizens.
This has a huge impact on purchasing power and household spending, and the spectre of stagnation, or even a decline in living standards and domestic consumption, is altered...
It's a vicious circle and the Thai government doesn't seem to be willing to take the bull by the horns and legislate on the matter to change the habits of citizens stuck in a very liberal system of personal loans with usurious rates that sometimes reach 30% interest per year, which becomes impossible to repay!
But they fall into the trap through ignorance and credulity.
And it is the poorest who are strangled by the throat first!