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Experts recommend capital IRs returned to normal
Vietnamese economists have suggested not applying the 4 percent interest rate (IR) subsidy programme past December 31, 2009 after similar advice was given by World Bank experts.
When asked why they think that the interest rate subsidy programme should not be extended, the economists said that the second interest rate subsidy package (providing long-term loans) is only emergency aid which aims to resuscitate businesses instead of restructuring businesses.
Bui Quang Tuan, Deputy Head of the Vietnam Economics Institute, said that maintaining an emergency policy will distort the business environment.
With the 2-year interest rate subsidy package, enterprises which can access the capital source will benefit, while other businesses will have to bear higher capital costs, which will lead to unequal competition.
The worrying thing, according to Tuan, is that in many cases, those enterprises which can access the capital are not the enterprises which really need low-cost capital. At present, businesses which have good relations with commercial banks have advantages in getting capital. Those businesses do not include many small- and medium-size enterprises, while it is precisely those enterprises that most need low-cost capital.
Tuan said that the first demand stimulus package (which provides short-term, working capital to businesses) also created unfairness in the business environment. However, the launch of the first package was necessary, because Vietnam needed to rescue businesses.
However, as the situation has changed, Vietnam needs to reconsider if it should maintain the interest rate subsidy programme.
Experts have also warned about the return of high inflation. The loosened monetary policy, the open fiscal policy, plus the pressure on the payment balance and exchange rate all will push the budget deficit up. A higher money supply is a cause of high inflation.
In such circumstances, the reconsideration of the interest rate subsidy package proves to be necessary. The termination of the programme would help ease the pressure on the money supply and change the conditions of the business climate and put everything back to normal.
When interest rates return to normal with no subsidisation scheme, businesses will be able, depending on their capability, to access capital sources to develop business and prepare themselves for the post-crisis period.
Experts from the International Monetary Fund have suggested removing the ceiling interest rate scheme as soon as possible. Meanwhile, Vietnamese experts believe that this still needs considering.
“If the conditions of the national economy do not worsen, the removal of the ceiling interest rate should be considered in eight months,” said Vo Tri Thanh, Deputy Head of the Central Institute of Economic Management.
Statistics show that economic sectors have benefited from the demand stimulus packages. The construction industry, for example, has got the high growth rate of 8 percent, while the service sector 6 percent.
VietNamNet, DTCK
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