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Reducing scattered investments
The Vietnam Shipbuilding Industry Group (Vinashin) has decided to cut 49 projects worth VND6,500 billion. This is a large sum when compared with the equity capital of economic groups and State-owned enterprises.
In the current economic situation, economic expert Ph.D Nguyen Quang A said that businesses must cease unnecessary investments.
What do you think of Vinashin’s decision to cut 49 projects?
Mr Quang A: State-owned enterprises and big domestic groups have used a huge amount of national resources for a long time but invested in areas which fail to bring any profits. The tightened monetary policy and the real positive interest rates are strong signals, forcing groups and businesses to reduce investments that are not necessary.
I think that by calling upon businesses to cut down on investments may not be as effective as changing the interest rate by 0.5-1 percent. It is a good chance for the public and both private and State-owned businesses to adapt to the situation. It also creates a firm foundation for the economy to develop sustainably and effectively.
In fact when big businesses and groups plan to cut investment projects they still have to follow the Government’s directions. Is it the only way for businesses to go when the interest rate is rising?
Mr Quang A: I think they must cut down on investments or otherwise they will go bankrupt. For example, Vinashin withdrew US$1 billion from its Posco steel project because it knew that if it continued to borrow high-interest loans from the bank it would face a number of difficulties keeping the project running effectively.
The Government forces businesses to cut down on unnecessary investments but when the market adjusts the interest rate, they will automatically adapt to the situation.
As a rule, adjustments in the interest rate would force businesses and groups to consider the efficiency of their projects and reduce a unnecessary investment. Could you elaborate on the impact of this measure?
Mr Quang A: I think that this is an effective market tool and the interest rate and other market tools can be much more effective than administration procedures. If the interest rate is used effectively, businesses should adjust and consider their investments carefully. Therefore, using tools and policies properly is very important.
What lessons should businesses learn after overcoming these difficulties?
Mr Quang A: I think that the country’s economy is on the right track to becoming a market economy. Difficulties and challenges are unavoidable. Government policies play an important role in helping businesses overcome these challenges and difficulties. However, we should realise that Government leaders are just people and they can make the same mistakes as anyone else. The most important thing is that they face reality when addressing these mistakes.
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