US embassy cable - 05BANGKOK7040

UNCLAS SECTION 01 OF 02 BANGKOK 007040 
 
SIPDIS 
 
STATE FOR EAP/MLS, EB/TPP/BTA. PM/RSAT 
COMMERCE FOR JKELLY AND JBENDER 
TREASURY FOR OASIA 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, EAGR, ELTN, MASS, TH 
SUBJECT: THAILAND GOVERNMENT PROCUREMENT: RICE FOR ROLLING 
STOCK? 
 
1.  (U) SUMMARY:  The Royal Thai Government (RTG) has floated 
the idea of paying for four mass transit lines in the Bangkok 
metro area at a cost of about $5 billion with cash and 
agricultural products through barter deals negotiated with 
other governments.  Agricultural commodities, however, are 
exported by the Thai private sector, and the leading products 
are already produced for export to commercial markets 
overseas, with few carry-over stocks.  The purposes of 
announcing any barter initiative seem to be to insulate the 
RTG from corruption charges and to shore up support for RTG 
policies among farmers, a critical element in the political 
base of Prime Minister Thaksin Shinawatra and his Thai Rak 
Thai Party.  END SUMMARY 
 
2.  (U) On October 17, Minister of Transport Pongsak 
Ruktapongpaisal convened a meeting with diplomats of China, 
France, Germany, Japan, Russia, the United Kingdom, and the 
United States to explain the RTG,s plans to build four 
subways and an elevated electric train in and around Bangkok 
at a cost of approximately 200 billion baht (US$ 5 billion) 
and to solicit reactions and questions.  The RTG,s 
"megaprojects" program of public works is expected to total 
about $42 billion. 
 
3.  (U) Prime Minister Thaksin has reportedly tasked the 
Ministry with finding "a macro approach to financing the 
megaprojects."  Transport Minister Pongsak announced that the 
RTG envisioned contracting for construction of the four lines 
on a design and build basis according to agreements 
negotiated government-to-government.  The foreign governments 
would select contractors and submit bids. The RTG would make 
payment in cash and some portion of the purchase price in 
agricultural products (the specific amount to be negotiated). 
 Ministry officials specifically mentioned rice and chickens. 
 They also stated explicitly the desire of the government to 
find an approach that benefits the agricultural sector. 
 
4.  (U) Diplomats at the meeting voiced their skepticism 
about the proposed procurement arrangement, particularly the 
government-to-government aspect.  Other questions concerned 
whether the barter deal had to be bilateral (as opposed to 
arranged on a global basis as is the case with many 
counter-trade agreements), whether the RTG would be able to 
contract with a consortium including companies from several 
different countries, and how risk would be apportioned. 
Since the meeting, the RTG has said that it is discussing the 
matter further with China, France, and Russia.  According to 
one securities analyst familiar with RTG policy, China has 
significant spare capacity that its government wishes to put 
to use. 
 
5.  (U) With the exception of rice, the RTG does not hold or 
maintain stockpiles of agricultural commodities. Thai 
agricultural production has been flat for several years, and, 
in view of lack of investment in the sector, it is unlikely 
to increase. Additionally, leading agricultural products that 
are geared toward exports (rice, rubber, chicken meat, 
shrimp) are produced and marketed by the private sector 
without intervention by the RTG.  Incentives to create barter 
supplies are not known to be in the works.  According to the 
securities analyst noted above, the government is considering 
how to raise farm incomes rather than increasing exports, but 
that it has not thought out what actually will be required to 
increase production. 
 
6. (U) This effort to exchange rice for rolling stock 
compares to the RTG,s attempts to procure military hardware 
by way of barter or counter-trade deals.  In one pending 
transaction, a major American manufacturer was asked to 
accept up to 100 percent of payment in agricultural products. 
 When the company,s financial consultants examined 
Thailand,s agricultural production, however, they determined 
that there is not, nor is there likely to be, nearly enough 
surplus production for the RTG to buy and use as payment for 
such multi-million dollar purchases. The company accordingly 
concluded that the actual likelihood of having to accept a 
significant percentage of payment in agricultural production 
is quite low. 
 
7.  (U) In practice, the above deal with the US company is 
designed to act as a safety net, to sponge up any surplus 
agricultural commodity that may arise over the ten-year span 
of the contract.  The price of purchase would be "the 
prevailing market price."  It affords a way for the RTG to 
offload excess purchased farm products, should the need 
arise, and not dump them onto the domestic market.  Thus, the 
barter is not being used to increase exports or to conserve 
foreign exchange so much as to put a floor under agricultural 
prices.  The risk of applying this model more broadly by 
involving the government would be to increase competition 
with domestic traders, with the effect being an increase in 
the price of exportable supplies that renders Thai products 
commercially less competitive abroad. 
 
8.  (U) Prime Minister Thaksin has recently highlighted the 
idea of using agricultural goods as currency in international 
transactions.  At the annual meeting of the Thai Chamber of 
Commerce in Phitsanulok on October 30, Thaksin said that the 
RTG has drawn up a three-year plan providing for a 
substantial increase in barter trade so as to protect the 
nation,s trade balance. 
 
------- 
COMMENT 
------- 
 
9.  (U) Given the several hundred million dollar value of the 
RTG,s weapons procurement deal, it is doubtful that an 
additional $5 billion would provide further security to Thai 
farmers.  This is a deal designed for the optics not the 
economics.  It enables the Prime Minister to speak to his 
political base in the farming communities of rural Thailand, 
a constituency particularly visible as a result of a recent 
four-day rally at Government House by over 2,000 farmers 
calling for debt relief.  By connecting farmers, livelihood 
to the massive government spending programs that will benefit 
Bangkok commuters, the Thaksin government positions itself as 
standing up for the interests of all Thai citizens, rather 
than just the minority of the population that lives in the 
Bangkok metropolitan area.  Whether the RTG intends to 
propose some sort of loan program to encourage more farm 
production in the future, or whether such barter deals are 
simply an insurance program in case surpluses accumulate, it 
is too soon to know. 
 
10.  (U) The Embassy also thinks that one motive for the 
government-to-government approach is to insulate the RTG from 
charges of involvement in any impropriety.  Several recent 
scandals, particularly those associated with construction of 
the new Bangkok airport at Suvarnabhumi, still loom very 
large in the minds of Thais, both inside and outside of the 
RTG. 
BOYCE