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Economy not secure, needs new stimulus
A second stimulus package that is smaller in scale and more focused than the first is required to sustain Vietnam’s still fragile recovery from the economic crisis, experts say.
The global economy is showing signs of recovery from the worst economic crisis since the Great Depression. However, signs of a full recovery are not clear yet, said Vu Thanh Tu Anh, research director of the Fulbright Economics Teaching Program in Vietnam.
Although Vietnam’s economy began to pick up in the second quarter, “the recovery is not really fast and solid,” Anh told Thanh Nien.
The government, therefore, needs to keep economic support in place, he said.
“But before planning the second stimulus package, it is necessary to evaluate the first one to see how it has affected investment, consumption, job and economic growth,” Anh said. “We need to know where the stimulus money has gone to.”
“We spent a lot of money, credit growth is high and loans under the interest-rate subsidy program have been taken at a fast pace. However, at the end, if the package can’t stimulate growth, consumption and investment and all the money go to real estate and stock markets, then we’ve failed to achieve our targets.”
Vietnam put in place a fiscal stimulus package that it values at 8.6 percent of gross domestic product in a bid to boost the economy, which grew 3.1 percent in the first quarter, the slowest pace on record. Measures included tax exemptions, reductions and deferments for businesses, and an interest rate subsidy program.
No official assessment of the stimulus has been completed, but there is a general consensus among government officials and economists that the package has proved effective and helped speed up economic growth.
The economy expanded 5.8 percent in the third quarter from a year earlier, up from 4.5 percent in the previous three months, according to figures last week from the General Statistics Office in Hanoi.
Industry and construction, which account for 40 percent of the Vietnamese economy, grew 4.5 percent in the first nine months of the year, with the sub-category of construction alone expanded 9.7 percent.
“The encouraging resilience of economic activity reflects partly the underlying strength of the Vietnamese economy, but the stimulus package clearly also contributed to the uptick in activity in the second and third quarters,” said Benedict Bingham, the International Monetary Fund’s senior Vietnam resident representative.
“The robust rebound in construction suggests that the stimulus package was quite a significant factor, at least in that sector,” he said.
The government is considering whether to launch a second stimulus package or not, local media reports cited Government Office Chief Nguyen Xuan Phuc as saying last week. The final decision is expected to be announced later this month.
“There is a high possibility that the government will launch another stimulus package,” said Phung Trung Kien, the Hanoi-based head of research at APEC Securities Co. “But its scale won’t be as big as the first one. The areas that benefit from the additional package will also be limited.”
However, Kien warned that the new package would create pressure for the government as it would have to try and raise more funds. “The country doesn’t have enough resources for the new package, if it is approved.”
The Asian Development Bank said last month that this year’s stimulus package may increase Vietnam’s budget deficit to as much as 10.3 percent of GDP from 4.1 percent in 2008.
Anh said the budget deficit concerns mean that the second package should be small and for a short term only.
The first package included infrastructure and housing investment, tax breaks, funds for rural development and social welfare, and a 4-percentage point interest rate subsidy, he said.
“My viewpoint is that the loan subsidy program should not be kept in the second package,” Anh said, adding that prolonged subsidies would make businesses more reliant on stimulus.
The government should continue investing in infrastructure, which remains the bottleneck in the economy, he said.
The new package should also focus on measures that develop rural areas and improve social welfare for vulnerable residents, he said.
Economist Bui Kien Thanh told local online newspaper VnExpress Monday that the government should not mull a new stimulus package if it is all about interest-rate subsidies.
“It’s not practical for the government to keep on paying loan interest for companies and it is a sign of the old subsidy mindset,” said Thanh, who advises the government on economic policies.
“What is more important here is helping them avoid bankruptcy and any interest rate shocks. And yet it is not the job for a stimulus package, but for monetary policies.”
Last week the National Assembly Finance and Budget Committee also said the government’s loan subsidy program should end this year as planned, according to another online newspaper VietNamNet.
As of October 1, local banks had lent out VND408.2 trillion (US$22.8 billion) to businesses, up 0.97 percent from a week ago, the State Bank of Vietnam said in a statement. Total credit is expected to reach VND600 trillion when the loan-subsidy program wraps up at the end of this year.
VietNamNet, TN
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