Thailand slum dwellers left homeless after a fire in Bangkok. Pic: AP.
Thailand has received its fair share of bad press over the past year with violent protests, a military coup and a faltering tourist industry. A less talked about, and potentially far graver, issue is Thailand’s household debt problem.
The rise of Thailand’s middle class in the past decade looks to have come at a high price as more households struggle with debt, with some turning to loan sharks charging extortionate interest rates. As it stands, Thailand’s debt-GDP ratio is 85 percent, up from 60 percent 5 years ago, – the highest in Southeast Asia – a situation fueled by increased access to credit after the 2011 floods.
Thailand’s debt burden has prompted action at the highest level. Junta leader and Prime Minister Prayut Chan-o-cha implored Thais, in a recent televised address, to “refrain from racking up debts… (because they) may slow down the country’s progress.”
But Orapan “Kate” Pratomlek, a spokesperson for the Goodwill Group Foundation in Bangkok, told Asian Correspondent that the onus is on the PM to adjust his approach: “The Thai government should raise wages and provide better jobs including social welfare instead of providing interest free loans.”
She added that the situation could be remedied if marginalised Thais had easier access to government aid and resources, adding that the Prime Minister’s recent efforts in that regard have fallen short.
“Thailand’s poverty policy should pay more attention to the people who do not have access to the government’s financial support. Even though the government set a lower requirement to take loans, they are still not accessible to many of these people who resort to borrowing from loan sharks,” she said.
Pratomlek is also concerned about the pressure that household debt places on parents in the slums.
“It means many parents cannot financially support their children to continue their studies,” she said, adding: “If children were to drop out of school before grade 12, they will only have the choice to work for lower-paying and insecure jobs, limiting their social welfare.”
The aforementioned loan sharks are notorious for baiting Thai slum dwellers with 10 to 20 percent interest rates that ensnare these low earning borrowers in debts they can’t settle. And while the Kingdom’s most marginalised citizens are saddled with the initial expenses, Krystal Tan, an analyst at British research consultancy Capital Economics, says the ensuing societal costs will burden Thailand’s most upper echelons.
“It’s going to be a drag on growth,” she told told Asian Correspondent during a recent phone interview. She added: “What happened in Thailand is that there was rapid unsustainable growth for years, which has been slowing. It will slow further, and as a result that will weigh on private consumption and hit overall growth.”
John Padorr, spokesman for a shelter and orphanage organisation called Mercy Centre in Bangkok, told Asian Correspondent that children are not the only victims of Thailand’s debt crisis. He said his own organisation’s credit union, established in 2000, not only provides a lifeline to indebted Thais but also gauges which demographic bears the brunt of financial pressure.
“Our credit union came to be known as a ‘Women’s Groups Savings & Loan’ because the vast majority of members, over 90 percent, are women, and they control their household finances,” Padorr says. He added that the women who take out such loans, along with their families, have “always been in debt, and almost always to loan sharks.”
Padorr added that borrowers often ask the credit union for huge initial sums to settle their loan shark debts, which finally frees them to focus on mundane but equally essential expenses.
“Their following loans tend to be much smaller and are made to meet very specific household needs,” he said. “They borrow to fix a broken pipe in their home or to repair a leaking roof, to pay school fees for their children, or to hold a wedding for a son or daughter.”
The situation in Thailand hasn’t been helped by
economic growth of just 0.7 percent last year amid falling exports and a shaky tourism industry amid last year’s political turmoil. Both sectors showed signs of improvement late last year and 3.5-4.5 percent growth is expected this year. It remains to be seen whether the junta will make the tough decisions required to effectively tackle Thailand’s household debt problems.
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Sirisena met with PM Modi and Indian officials on Monday, February 16, after arriving on his first foreign visit since winning a general election in January. The four-day visit has been seen by analysts as an attempt to ease tensions and strengthen ties between the South Asian neighbors.
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