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$1 billion stimulus package: potentially helpful
Vietnam’s current budget deficit is 5%. According to international experts, to gain economic growth of 5% next year, Vietnam will have to accept the budget deficit of 7%. With limited resources, Vietnam needs to direct its investment in the right direction, said Dr. Vo Tri Thanh.
The demand stimulus plan worth $1 billion is being complied. It will be considered and approved at the expanded cabinet meeting on December 25-26.
Tightly controlling demand stimulus package
In the world, around 20 countries and regions have issued groups of solutions to stimulate demand, prevent economic slowdown and regression.
According to the Director of the Centre for Information and Forecast (Ministry of Planning and Investment), Le Dinh An, consumption and investment stimulus ought to have been implemented earlier. “Experience from the 1997 crisis shows that we took too long to stimulate demand. Demand stimulating solutions took effect well in 2001-2002. So Vietnam has to do it quickly,” An said.
An said the government has to directly decide which areas and subjects will receive capital from the $1 billion package and should not use the traditional method of beginning with the grassroots level.
The Chief of the Monetary Policy Agency of the State Bank of Vietnam, Nguyen Ngoc Bao, said the government needs to give priority to projects that employ local sources of labour and materials, such as agriculture, rural development, small- and medium-sized enterprises, labour-intensive and vulnerable industries.
The Vice Chief of the Office of the Central Communist Party Committee, Nguyen Van Thao, said the $1 billion demand stimulus plan must be strictly controlled to avoid corruption.
Choosing right projects for investment: most important thing
Director of the International Integration Studies Department under the Central Institute of Economic Management, Dr. Vo Tri Thanh, pointed out that Vietnam is not as rich as the US or China, so it cannot release packages as big as theirs. Vietnam’s current budget deficit is 5%. According to international experts, to gain 5% of economic growth in 2009, Vietnam will have to accept the budget deficit of 7%.
“With weak, limited resources, Vietnam has to have accurate addresses for demand stimulus,” Thanh emphasised.
Bao noted that research of demand-stimulation packages of 20 countries revealed that the one thing Vietnam should keep in mind is that financial policy must hold the key role, that the fiscal policy and other macroeconomic policies are secondary.
Experts say that in demand stimulus, investment stimulus is very important. Compared to the 1997 crisis, it will be more difficult to raise capital from the world because all the world is facing difficulties. Thus, Vietnam needs to focus on investment stimulus.
Though Vietnamese enterprises are not generally in critical condition, on the verge of bankruptcy, many of them have stopped operating or are only operating on a moderate scale. What they need now is not capital but market demand.
Experts share the viewpoint that Vietnam needs to concentrate investment in infrastructure, administrative and institutional reform to prepare for post-reform, but they have outlined different approaches to investment stimulus and how to support enterprises.
Chairman of the Small- and Medium-sized Enterprise Association Cao Sy Kiem has suggested that there be no discrimination between big and small enterprises. Any firm that faces difficulties caused by inflation is eligible to receive funds under the $1 billion plan.
Chairman of the Vietnam Chamber of Industry and Commerce (VCCI), Vu Tien Loc, has the contrary view. He believes that only capable companies with potential that are in the most difficult situations should be eligible to receive funds. Loc noted that assistance must go with restructuring. Only companies that have high competitiveness can exist in the long run.
As for consumption, Kiem said encouraging consumption is one way to help enterprises have outlets. He said it is time to build-up the local market and encourage people to use local products.
Kiem also said that the government needs to pay attention to the salaries of state employees and private companies, developing retail banking services, abolishing restrictions for consumption loans, increasing capital for retailers.
Related to encouraging investment through infrastructure, Thao said the government has policies to develop sea economy, agriculture and rural development and many projects based on these policies are not being implemented due to capital shortage. These projects should be invested in under the $1 billion package.
“We have talked a lot about the construction of industrial zones on fertile fields because we didn’t have roads to remote and mountainous regions. We don’t have a kilometer of true highway; why don’t we invest in this?” Thao asked.
He also suggested investment in building warehouse systems to store and maintain rice, coffee, cashews, etc.
Mobilising all sources to stimulate demand
Thao said besides the $1 billion package of the government, all sectors must get involved in efforts to encourage demand. In China, just 25% of the demand stimulus package is state capital, 75% comes from enterprises, banks, foreign partners. The Chinese state both spends money and creates money through mechanisms, for example its tax policy can help create nearly $100 billion.
Bao said Vietnam needs to tap all resources of the economy to stimulate demand.
In the 1997 crisis, people in South Korea and Thailand even gave their gold rings and necklaces to the government, Thao said.
Idle money at commercial banks is quite abundant. Though they have cut interest rates they cannot lend money at the moment. According to Thao, this is a source for demand stimulus. The government can issue bonds for commercial banks because in this situation, only commercial banks can buy bonds, not businesses or individuals. By this method, the government will have more capital for demand stimulation while banks can effectively use their capital.
The Chairman of the State Securities Council Vu Bang said this method can also help eliminate risks in the international balance of payment.
How to implement $1 billion plan
Dr. Le Dinh An said Vietnam should look at the quick responses of other economies and learn from their experience. “We have to admit that Vietnam was late in changing its thinking and addressing the situation. When the crisis took place in the US, Vietnam considered itself an outsider. When the crisis went to Europe, Japan and South Korea, Vietnam realised there would be impacts on its economy, but it didn’t know what. It is only now the country is clear about it,” An said.
Chairman of the Small- and Medium-sized Enterprise Association Cao Sy Kiem said several months ago Vietnam tried to combat inflation and now it is trying to prevent economic slowdown.
Thao said he was worried that if Vietnam took action too late, methods that it employed might not be effective because the economy could have changed by the time the measures took effect.
VietNamNet
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