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Rescuing weak businesses or letting them die?
Experts have been arguing about whether to rescue weak businesses by providing preferential loans, or let them get dissolved.
The Government of Vietnam has announced the second demand stimulus package, which allows businesses to borrow money for investment at subsidized interest rates.
Many experts, however, commented to Vietnamese on-line journal Dau Tu Chung Khoan that it is not advisable to rescue businesses on the verge of bankruptcy, and that it would be better to let them ‘die’. The experts said that the disappearance of the weak businesses will help make the national economy healthier.
Nguyen Huu Lam from the HCM City Economics University applauded the Government’s demand stimulus package, but cautioned that capital should not be provided to weak businesses just to rescue them from bankruptcy.
Dr. Dinh Van An, Head of the Central Institute of Economic Management (CIEM), said that it is necessary to accept the bankruptcy of businesses, a process he called ‘creative destruction’. An stressed that it would be a blunder for the Government to try to prolong the life of the businesses which are now at the point of death.
However, Truong Dinh Tuyen takes issue with An. The former Minister of Trade, now a member of the National Advisory Council for Monetary Policies, said he well understands the ‘creative devastation’ theory but does not think that the Government should pursue a strict hands-off policy. If firms are dying because of their own mistakes, he said, it is best to let them fail. However, it is still necessary to find out first why the businesses have fallen into such a depressed situation.
“Suppose the businesses fail simply because the Government applies severe policies?” he questioned.
Tuyen recalled the tightened monetary policies Vietnam applied last year to try to curb inflation, which pushed the interest rate up to 21% per annum. “No business can live with such a sky high interest rate. If we let businesses die in such a condition, that means we deny our responsibility,” Tuyen said.
“I supoport the Government’s intention to support businesses which first suffered from of our tightened monetary policies in the past, and are now suffering from the global economic crisis,” he added.
Dr Tran Du Lich, also a member of the National Advisory Council for the Monetary Policies, shared Tuyen’s view that the Government should try to rescue firms, even when they are on the verge of bankruptcy.
“We have to try to rescue them while a ray of hope endures,” Lich said.
Commercial banks are now disbursing capital to businesses under the interest rate subsidy programme. However, they have not eased the conditions that businesses have to meet to qualify for loans, even though the banks have abundant capital and want to speed up lending.
Nguyen Viet Manh, Deputy General Director of Vietinbank, said that he has asked branches within the state-owned bank’s network to consider clients’ investment projects thoroughly before providing loans.
“They have been told to be very cautious when providing credit to businesses,” Manh said.
General Director of Lien Viet Bank Nguyen Duc Huong also said that the bank will refuse to give loans if it finds the clients’ business plans unfeasible. The bank’s staff has been told to stop the disbursements immediately if find out that the loans have been used for the wrong purposes.
vietnamnet, dtck
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