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Economists say go steady on credit supply, avoid sharp turns
Vietnamese economists, reports Tuoi Tre, insist that inflation is not a worry for now, and that emphasis should be on sustaining economic growth and avoiding distortions.
Inflation is not worrying
Three times this year, Vietnam’s state bank has changed its target for credit growth. It started 2009 aiming for 21-23 percent expansion of credit, raised the target to 30 percent in June, and now has pruned it back to 25 percent for state-owned banks and 27 percent for joint stock (private) banks.
Vietnamese economists are watching carefully. Because too easy credit can create an inflationary bubble, and too little credit can throw the economy into recession, just how high the credit growth rate target should be is the hottest topic in all economic forums.
“In the current circumstances, the thing policy should care about is the quality of credit, not the quantity,” said Dr. Tran Hoang Ngan, a Vice President of the HCM City Economics University.
Ngan thinks a 30 percent growth rate would still be acceptable if Vietnam has a higher than expected economic growth rate. In Ngan’s view, the same credit growth rate should not be set for all commercial banks. They have different conditions and capability.
Also according to Ngan, Vietnam’s consumer price index (CPI) had risen by only 3.2 percent through the first seven months of 2009, which makes it feasible for the Government to aim at holding inflation to only 6-8 percent this year. Therefore, inflation is not worth worrying about at this moment, Ngan says, when businesses now need capital for production.
Nguyen Xuan Giao, a senior executive at VietCapital investment fund, agreed. Vietnam should not be obsessed by inflationary fears, he said, but strive to maintain economic growth.
Post-demand stimulus period: prepare for a ‘soft landing’
Ho Xuan Nghiem, a top Sacombank officer, said that it is time to review the five month experience of implementing Vietnam’s demand stimulus package to determine which businesses need support and which do not.
Nghiem noted that some have suggested the Government discontinue subsidizing loans to favored businesses. (A four percent loan interest subsidy is a key feature of the stimulus package). The Sacombank executive cautioned against a precipitate move to stop the program. It remains unclear, he said, how strong economic performance really is, and attention must be paid to businesses’ ability to repay loans if the interest rate subsidy is withdrawn now.
Other experts argue that it is time to think about the period after demand stimulus measures are ended. They say that Vietnam needs to have a transitional stage, rather than an absolute cut-off, to cushion shocks to businesses.
Ngan of the Economics University scoffed at concern that capital injected into the economy by the demand stimulus package may be used for wrong purposes, e.g., pumping up the stock and real estate market, instead of supporting production. Ngan said that the volume of capital diverted to such purposes is not enough to create new bubbles in either market.
According to Ngan, the loans disbursed under the interest rate subsidy programme account for just one fourth of the total outstanding loans in the national economy, not enough to generate high inflation. Similarly, a small volume of the subsidized loan capital leaking into speculation cannot create.
What’s the best way to reunify the foreign currency market?
A side effect of the stimulus programme’s emphasis on lending to ‘productive enterprises’ has been the re-emergence of a modest black market in US dollars. The ‘curb rate’ is now about 500 dong per dollar above the official rate, reflecting demand for dollars by businesses unable to acquire enough of them at the official rate. Experts believe that the State Bank should reconsider the method of regulating exchange rate to ease demand pressure on the foreign currency market. As the demand for foreign currencies is too high, the black market thrives despite the effort by the State Bank to tighten its control over currency exchange.
The experts argue that the central bank should rely on economic measures rather than administrative ones to stabilize the market. For example, it may consider stopping providing subsidized loans to those businesses which refuse to sell dollars to banks, or raise the interbank exchange rate while narrowing the trading band.
vietnamnet, tt
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