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Opinions vary on a third stimulus
The expiration date of the Government’s first economic stimulus package is coming soon, and the second round of stimulus has become a controversial issue among enterprises, commercial banks, economists and policymakers.
In February this year, the Government decided to launch the first economic stimulus package of VND17 trillion (US$1 billion) to subsidise companies by paying an interest rate of 4 per cent per year for short-term bank loans in dong.
So far, the package has produced good results, helping Viet Nam become one of few countries in the world to maintain positive growth rate, according to economists.
The interest rate subsidy has created conditions for companies and business households to reduce the cost of bank loan acquirement by 30-40 per cent, reduced product prices by 2.5-6 per cent, and 91 per cent of SMEs have successfully maintained and expanded their operations, as reported by the Viet Nam Chamber of Commerce and Industry.
Nguyen Thu Ha, deputy head of the Monetary Policy Department under the State Bank of Viet Nam, said that the loosening of monetary policy had enabled commercial banks to maintain reasonable interest rates, thus credit growth in the first seven months of the year was at 22.6 per cent.
The launch of the second stimulus package is still considered necessary given that the Vietnamese economy has just started the process of recovery and many enterprises need more help.
"Small- and medium-sized enterprises (SME) have not really enjoyed preference from the first stimulus package," said Nguyen Van Tan, director of the Thong Tan Food Company "Moreover, the preference was given at the time when global economies fell into deep recession and the number of orders from foreign countries shrank seriously, which caused enterprises not to make full use of their loans.
"Currently, the world economies have some sign of recovery, foreign orders start coming back to local companies. Thus, we hope that the State continue providing support to firms, particularly SMEs, so that they can create a breakthrough."
Director of Thu Ha Coffee Company, Ngo Tan Giac, said that thanks to the Government’s interest rates subsidy programme, many companies survived the difficult times.
Programme
"Currently, my company borrows from banks VND8 billion ($449,000) and each month, we have to pay an interest of VND40 million ($2,247). Without the programme, the interest amounted to VND80 million per month and this is a large amount of money for SMEs," Giac said.
He affirmed that currently companies still needed an interest-rate subsidy programme to have a quick recovery.
Le Duc Thuy, chairman of the National Finance Supervision Committee (NFSC), was also in support of the second subsidy programme. "We need a buffer to help our economy make a ‘soft landing’ as the crisis is not over; businesses may get shocked if they suddenly lose the 4 percent interest rate subsidisation after December 31, 2009," he said.
Another demand stimulus package would help the national economy gradually go back to the normal track and showed the stability of macroeconomic policies, he added.
Explaining his opinion, Thuy said that GDP in the first six months of the year increased by 3.9 per cent, but if the country was to reach a GDP growth rate of 5 per cent, then GDP in the last two quarters of the year must rise by 6 per cent.
In fact, State expense increase had not compensated for the decrease of the country’s total consumption, while export was 14 per cent lower than the corresponding period last year and stock industrial products from January to June rose by 34 per cent. These signs showed a slow and tentative recovery and slow GDP growth rate was a possibility, he said.
Cao Sy Kiem, chairman of the Small-and Medium sized Enterprises Association, said that the second stimulus package was necessary, but it must be more selective with a different scope of support given to different industries and enterprises.
However, chairman of the Bank for Foreign Trade of Viet Nam (Vietcombank) Nguyen Hoa Binh said that the State Bank of Viet Nam (SBV) should consider stopping the interest rate subsidy, because if continued it would lead to a return of inflation and cause the inefficient use of capital.
Besides, the cease of the programme would ease the budget deficit, he added.
Thai Tuan Chi, general director of Thai Tuan JSC, is one of few company owners who does not support the Government’s second package, saying that the more firms were subsidised, the more they relied on the Government.
If companies refused to renovate themselves, they would not develop no matter how many stimulus packages were issued in the next few years, he added.
"It is understandable that commercial banks are not much interested in the second stimulus package, because it would put pressure on them. They will have to mobilise more capital for the economy; meanwhile, lending interest rates are limited by the current ceiling level," NFSC chairman Thuy said.
Experts largely find the second stimulus package necessary, but were still conservative in their suggestions.
Vu Thanh Tu Anh, director of research at the Fulbright Economics Teaching Programme, agreed that the package was necessary given no reliable signs of recovery in both domestic and foreign economies.
"The important work that Viet Nam needs to do now is to reassess the efficiency of the first package and define where the money has been poured into," he said.
The second stimulus package should focus on high value-added industries and Viet Nam should ensure the money doesn’t just get poured into real estate or securities markets.
Viet Nam had grew amidst the global crisis, thus it had a foundation to speed up its recovery. Therefore, Viet Nam should not overindulge in short-term problems but should focus on mid-and long-term policies, World Bank country director in Viet Nam Victoria Kwakwa said.
Ngoc Bich
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