Thai PM under fire as rice scheme sinks, poll challenged

Pressure on Thailand's embattled government mounted on Tuesday, when a flagship rice-buying scheme vital to its support stumbled closer to collapse and the opposition filed legal challenges that could void a disrupted weekend election.

The crisis in the rice scheme is a humiliating blow for Prime Minister Yingluck Shinawatra - it helped sweep her to power in 2011, but has become mired in allegations of corruption and growing losses that are making it increasingly hard to fund.

(Read more: Thailand's politics remain a mire, so why are its shares up?)

The commerce minister said China had cancelled an order for 1.2 million tons of rice due to a corruption probe, while state-run Krung Thai Bank (KTB) joined other lenders in saying it would not provide loans urgently needed to rescue it.

Protesters succeeded in disrupted voting in a fifth of constituencies in Sunday's election. The incomplete poll means Yingluck could head a caretaker administration for months, unable to make policy decisions, while demonstrators continue to block parts of the capital as they have been since November.

Anti-government protesters chant slogans while preventing voting at a polling station in Thailand's general election on February 2, 2014 in Bangkok, Thailand.
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The opposition Democrat Party boycotted the election and on Tuesday filed challenges to its legality. It is also trying to get Yingluck's Puea Thai Party disbanded for holding the vote under abnormal circumstances, with Bangkok under a state of emergency.

"We will argue that the election violated the constitution," spokesman Chavanond Intarakomalyasut said. "In a separate petition, we will file for the dissolution of Puea Thai Party."

The Democrat's last spell in power, between 2008 and 2011, came after the courts banned a previous ruling party loyal to Yingluck's elder brother, Thaksin Shinawatra.

(Read more: Thai rice subsidies: damned if you do, and don't)

The rice programme was one of the populist policies pioneered by Thaksin, a former prime minister central to a stubborn conflict that has divided Thais for at least eight years. He was toppled by the military in 2006.

Losses to the taxpayer, estimated at 200 billion baht ($6 billion) a year, have fuelled protests against Yingluck's government, and payment problems now risk alienating farmers at the heart of her support base in the poorer north and northeast.

Taxpayers' money

The anti-government demonstrators, mostly from Bangkok and the south, say Yingluck is Thaksin's puppet and the costly giveaways that won his parties every election since 2001 are tantamount to vote-buying using taxpayers' money.

Thailand is 'quite a mess right now': Pro

They say Thaksin's new political order is tainted by graft and cronyism and want an appointed "people's council" to replace Yingluck and overhaul a political system hijacked by her brother, who lives in exile to avoid a jail term for graft.

Yingluck and her government are being investigated by an anti-graft panel for alleged irregularities in the rice scheme. That and other cases going through Thailand's politicised courts could dissolve her Puea Thai Party and ban top officials.

The Election Commission said it was looking into complaints over alleged abuse of authority by the government during Sunday's vote and would meet on Wednesday to discuss disruption before and during the poll.

Ten people have been killed in sporadic violence since the anti-government protests began late last year. The election was generally peaceful, however, with no repeat of the chaos seen on Saturday when supporters and opponents of Yingluck clashed in north Bangkok, and the capital has been calm this week.

(Read more: Thailand offers to sell rice at a huge loss)

Plea for funding

More than a million farmers are owed money from the government for the rice subsidy scheme, which was supposed to guarantee them an above-market price, and some have protested in the provinces, blocking major roads.

The government is struggling to find the 130 billion baht it needs to pay them and sought bridging loans from banks.

So far none has agreed, not even lenders in which the government holds stakes, such as KTB, 500 of whose employees held a demonstration on Tuesday to urge executives not to provide any loan.

Elections not the solution to Thailand's problems: Pro

"Some legal issues are not clear and the bank will not get involved in the rice-buying scheme at this point," KTB President Vorapak Tanyawong told reporters. "We don't want to get involved in corruption."

The government scheme has pushed up the price of Thai rice at a time of weak global demand, making it difficult to sell. Industry experts estimate state stocks are as high as 15 million tons.

Commerce Minister Niwatthamrong Bunsongphaisan said a tender would be held to sell 400,000 tons from stocks next week after China scrapped the deal agreed last year.

"China lacks confidence to do business with us after the National Anti-Corruption Commission started investigations into the transparency of rice deals between Thailand and China," he told reporters.

(Read more: Thailand's 'Teflon' economy put to the test)

The anti-government protesters closed two of their camps on Monday. They have blocked big intersections in Bangkok since Jan. 13 and their leader, Suthep Thaugsuban, said efforts were being made to minimise public disruption.

"But this does not affect our decision to surround and close government ministries," Suthep said. "We will push ahead."

The election is almost certain to renew Yingluck's mandate, although it is unclear when re-runs of votes will be held.

Her supporters believe the military and the establishment, including the judiciary, are threatened by the rise of the billionaire Shinawatra family and accuse them of colluding over the years to oust governments led by or allied to Thaksin.

The coup-prone military has stayed in the wings this time, offering to mediate with no success.

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