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Enterprises need help to cope with soaring inflation
Enterprises should weigh the pros and cons and save costs in order to adapt their business operations to the current economic climate, said Dr Cao Sy Kiem, in an interview granted to a Voice of Vietnam (VOV) reporter, on how to slove difficulties for businesses in the face of soaring inflation.
Reporter: The Vietnam Association of Small-and Medium-Sized Enterprises recently underlined the need to iron out snags for enterprises in this inflationary period. What are the major difficulties currently facing domestic enterprises?
Mr. Kiem: Vietnamese enterprises, especially small and medium-sized enterprises (SMEs) are currently facing difficulties in capital flows, professional skills and technology due to their failure to keep pace with rapid economic development.
In the face of soaring inflation, enterprises are encountering more difficulties as bank loans have shrunk by nearly half from 56 percent to 30 percent while interest rates have increased by two-fold from 11 percent to 20 percent. Furthermore, enterprises’ input-costs are high while output from the purchasing market is limited, posing more and more obstacles for their operations.
If such difficulties, particularly in capital flows are not dealt with, enterprises with poor management and borrowing high volumes of bank loans will be at the high risk of bankruptcy.
Reporter: Nearly 20 percent of domestic enterprises are at risk of bankruptcy. On what analysis is this figure based?
Mr. Kiem: We have analysed this based on three elements: information provided by localities, through seminars and meetings with entrepreneurs and our regular updating of information.
Reporter: the decision by banks to limit the provision of loans for SMEs for the time being aims to avoid high risks. Will SMEs face a vicious circle of more difficulties in the future?
Mr. Kiem: Enterprises will have more difficulty maintaining their operation since the runaway inflation has greatly effected banks’ capital flows. Banks need to manage existing funds carefully, and consider the impact of higher interest rates on businesses. Otherwise, banks will run the risk of losing their lending capital. Meanwhile, if enterprises fear they will fail to pay debts due to their poor management and ineffective business practices, they will be unwilling to borrow capital from banks.
Reporter: Are there any solutions for this problem?
Mr. Kiem: There are three solutions. First, businesses must calculate and adjust themselves to minimize expenses, diversify goods, upgrade technology, improve market relations and restructure their organisation in accordance with the current climate. Second, businesses should cooperate with each other and call for more assistance from associations to help them overcome difficulties. For example, businesses have advantages in technology should cooperate with producers, and businesses that have a great source of capital should assist those facing a shortage. Third, the State should give a helping hand to businesses in various fields. For instance, the State can reduce or remove tariffs for businesses, while functional agencies continue to implement administrative reform to help businesses ease difficulties and grasp opportunities.
Reporter: What is the role of the SMEs’ association in removing difficulties for businesses?
Mr. Kiem: At present we are implementing four measures. First, we support cooperation between businesses and banks. Second, we provide businesses with market information and assis them in developing products and expanding business operations. Third, we help businesses develop vocational training activities and organise seminars. Fourth, we help businesses protect their legal rights, even in disputes and transactions. In addition, we proposed the Government allocate more investment capital to SMEs. The Government should offer preferential loans for SMES and those businesses experiencing a heavy impact caused by inflation.
Reporter: In fact, many businesses still find it hard to access the Government’s preferential loans. How can the association help them tackle this issue?
Mr. Kiem: We will identify businesses facing a shortage of capital due to difficulties caused by inflation and call for budget allocation from the State in support of these businesses. The classification of businesses will help increase the effectiveness of investment capital and boost the development of the macro-economy. For businesses suffering numerous difficulties, we should help them dissolve themselves or merge with others to strengthen the whole business system.
Reporter: Thank you.
VOV
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