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Perfect demand stimulus implementation will make inflation between 7-8%
If the demand stimulus packages can bring the desired effects, it is expected that the inflation rate for the whole year 2009 will be between 7-8%, the ideal figure in the current conditions.
The Government has announced two demand stimulus packages so far which aim to provide loans to businesses to help them survive the current difficulties. It is expected that the total capital volume to be provided to businesses will reach US $9 billion, or VND 160 trillion. The interest rate subsidy program is expected to last until 2011, which will have positive impacts on the national economy and society.
However, a question has been raised that if the putting of a big volume of cash into circulation will lead to the high inflation returning.
Disbursement rate will be higher
To date, two demand stimulus packages have been announced worth US $2 billion. The first one aims to provide working capital to businesses, while the other one aims to help businesses develop their investment plans. As for the former package, the outstanding loans had reached over VND 218 trillion. The second interest rate subsidy program, which mainly provides medium and long term loans, has been kicked off. Analysts believe that the package will see a higher disbursement rate in comparison with the first program.
According to the National Finance Supervision Committee, several tens of billions of VND will be injected in agriculture, rural areas, and transport network development. Several tens of billions of VND will also be used to develop houses for students and for low income earners. Businesses can also access bank loans with the guarantee of the Vietnam Development Bank. As such, a big sum of capital will be pumped into the national economy to stimulate economic growth.
At the recent workshop organized by the Institute for Development Studies, participants said that demand stimulation via the interest rate subsidy proves to be a new policy which has never been applied before in Vietnam and other countries. However, it is difficult to predict the efficiency of the packages.
Dr. Nguyen Duc Thanh, Director of the Information Centre under the Hanoi National University, said that the interest rate subsidy proves to be an effective tool in stimulating investment. The interest rate subsidy allows businesses to access low cost capital, while commercial banks do not have to slash the interest rate ground which may keep cash away from flowing into banks.
Keeping cautious with year end
In principle, any move on loosening the monetary policies will lead to high inflation, trade deficits, and increasing bad debt. Experts have also said that Vietnam should learn the lessons from the post-economic crisis period in Asia in 2000-2001.
Dr. Thanh said that with the stock market warming up in recent days, the more bustling real estate market, and the higher car purchasing power, all show that there is a capital flow going strongly to the asset market with the support of the consumer credit expansion.
If the recovery period coincides with the warming up of the world’s economy, the factors that now support the price decreases will disappear, while the price increase tendency may return.
Sharing the same view, Dr. Nguyen Minh Phong from the Hanoi Socio-Economic Development Institute said that the demand stimulus packages in many countries in the world have shown effects, and are showing signs that the world’s market will warm up in the upcoming months.
The prices in the world have been increasing considerably, especially the oil price. In the domestic market, experts believe that inflation will not be likely to occur in three or four months, but the risks will be higher at the end of the year. The year end will be the time when the side impacts of the loosened monetary policies, the influences of the wage increases, and higher oil prices are shown.
According to the National Advisory Committee for Monetary Policies, if the demand stimulus policies can bring the desired effects, the inflation rate would be between 7-8% this year, the figures which are considered safe in the current conditions.
According to Dr. Le Xuan Nghia, Deputy Chairman of the National Finance Supervision Committee, high inflation proves to be a worrying problem, but it will not be the story of 2009.
The GDP growth rate much depends on credit growth rate. Meanwhile, the credit grew by 3.3% only in Q1 2009, despite the measures to boost loaning. Prior to that, the credit was frozen in the last four months of 2008. With such a rate, the credit growth rate would be only 16% in 2009.
VietNamNet, NLD
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