It is undeniable that Government policies are giving a boost to the Vietnamese economy to ride out global economic crisis. However, many concerns have been raised over the effectiveness of interest rate subsidy-based stimulus package launched by the Government. Ms Pham Chi Lan, former senior economist of the Government and former vice President of the Vietnam Chamber of Commerce and Industry (VCCI), shared her concerns with the press.
Many have deepened concerns over the effectiveness of government stimulus packages on boosting economic development. What is your opinion about this?
In general, the demand stimulus package initiated by the government has had positive impacts on Vietnamese businesses and the economy. The stimulus package has helped the national economy maintain a positive growth rate in the context of the global economic downturn, with higher rate in the second quarter than in the first. Tax delays and discounts and personal income tax exemption help reduce difficulties for enterprises.
What is your opinion about the stimulus package based on 4 per cent interest rate subsidy? Why are there many dissimilar viewpoints over its effectiveness policy?
According to reports, banks have lent more than VND300 trillion under the programme of 4 per cent interest rate support. There are many different points of view over the effectiveness of the stimulus package basing on 4 per cent interest rate support. In my opinion, however, it is also necessary to look at both sides of the issue. On the one hand, the stimulus package increased credit growth, estimated 30 per cent by experts, instead of 17 per cent only.
A certain proportion of credit has gone to production and business activities and some uplifted stock market and real estate market. Banks enjoy fewer difficulties vis-à-vis bad debts.
However, the stimulus package has not obtained the desired effects because the credit growth rate should have been higher, estimated at 30 per cent by experts, instead of 17 per cent only. This means that a certain proportion of credit has not gone to the right addresses to serve production and business, but has returned to banks under the mode of “debt swap” (borrowing new debts to pay old debts). The “debt swap” has helped make the accounts of enterprises “cleaner” thanks to old debt payment and they enjoy lower interest rates and seek new loans more easily. For banks, the “debt swap” has also helped clean “bad debts” they incurred since last year when borrowers took the money to invest in the stock and real estate markets. Borrowers became insolvent when the stock and property bubbles burst.
The support scope of the stimulus package is also lower than expected, which is reflected in the modest industrial production growth rate of 4.8 per cent in the first half of 2009. Meanwhile, exports are still facing great difficulties.
According to reports submitted to the State Bank of Vietnam, banks have not released the number of small and medium-sized enterprises and exporters accessing to the soft loans. The goal of the package is to support SMEs and export companies because they use most labourers. Doubts over the effectiveness of the stimulus package intensified as there are no reports on the results of the package and beneficiaries after a long time of implementation.
If the money is not used for the right purpose, inflation will gallop.
Between the interest rate support and share purchase (as in the US), which is good for Vietnam?
Each economy has its own conditions and development level. Some measures could be good for the US economy but may not work well in Vietnam. The level and scale of the US economy are quite different from Vietnam. For the US, the main problem is banks and investment funds while this is not the case in Vietnam.
The measures launched by the government are suitable for our economy. However, there is one issue that I have thought about, is that in Vietnam, interest rate subsidy is being carried out through the banking system because other regional countries which have similar conditions and development levels to Vietnam give direct supports to enterprises, not through banks.
What do you say about the way we have been trying to escape crisis?
As I mentioned, my concern is whether groups of measures can bring Vietnam out of global crisis storm. Launched solutions may not be sufficiently implemented or cared by all concerned entities. For instance, the first of five measures to avert the economic downturn is to help businesses settle difficulties and improve the business climate. However, we have not done much for the goal, while we have just focused on stimulating demand and money disbursement. I think that’s not enough. I think that helping businesses settle difficulties in production should be the top priority.
Businesses not only need direct support from the State but they also need a good business environment to develop in. This is the development basis for the future and the way to go out of crisis.
Reported by Thu Huyen
Vietnamese
