Possibility of No Second Stimulus Package

More information is being collected to have a more accurate review on the effects of the first stimulus package. In addition to positive impacts on the economy, many sources of information pointed out that up to VND5,800 billion of outstanding loans have “duplicated” borrowers.

Specifically, the Vietnam Bank for Agriculture and Rural Development (Agribank) lent VND5,138 billion, accounting for 88 %, and other commercial banks and financial companies loaned the rest. Duplicated borrowers are mainly faming households (168,585 customers). Meanwhile, as of August 31, 2009, outstanding loans for interest rate subsidised beneficiaries provided by three decisions (Decision 497/QD-TTg, Decision 131/QD-TTg and Decision 443/QD-TTg) only reached VND6,299.32 billion.

Classified by borrowers, outstanding loans for purchasing machinery, equipment and tools for production and processing agricultural products were VND508.91 billion, accounting for 8.7 %, and loans for purchasing materials for agricultural production were VND5,328.83 billion, or 91.3 %.

Giving the remark on this effect, Mr Nguyen Dong Tien, Deputy Governor of the State Bank of Vietnam, said: “Shortcomings of the interest rate subsidy policy have been exposed, causing negative impacts on macroeconomic stability and banking operations.” The short-term interest rate subsidy policy, according to Mr Tien, caused inequality. With the subsidy of 4 % of interest rate (a considerably big amount) applied to many economic sectors, if the support is long, enterprises will rely on State assistance, prices and profits will not reflect the operating productivity and efficiency. Eventually, the competitiveness and sustainable development of businesses will be affected.

According to the latest data from the Ministry of Planning and Investment, the size of the first stimulus package has ballooned to some VND122 trillion, or USUS$6.9 billion. Of the sum, VND100.6 trillion has been used for 2009 while the remainder of VND21.4 trillion will be used in 2010 and 2011.

The first stimulus package has brought in positive effects on the economy although it is not as high as initially expected by the Government. According to Planning and Investment Minister Vo Hong Phuc, the implementation of the stimulus package and social security protection helped the Vietnamese economy only keep from falling into depression. For example, GDP growth stood at 3.14 % in the first quarter, 4.46 % in the second quarter and 5.76 % in the third quarter. In 2009, Vietnam is expected to see GDP growth of 5.2 %. The total social investment will exceed 42 % of GDP in 2009, higher than the initial target of 39.5 % of GDP approved by the National Assembly, the highest lawmaking body. In spite of being assigned as the leader in proposing the second stimulus package, the Ministry of Planning and Investment seems to be of the two minds. The Ministry prefers ending the stimulus policy if the economy returns to the normal state because the continued support may lead to the weakening competitiveness of the economy. But, if the economy is still encountering difficulties, another stimulus package should be considered. Members of the National Assembly Finance and Budget Commission and the State Bank of Vietnam prefer ending the first stimulus package as scheduled, rather than launch the second one.

I agree with the viewpoint that the interest rate subsidy policy of the Government has basically completed its mission of saving the economy, assisting enterprises to continue production amid difficulties in working capital on slumping domestic and global demand. And, I think the reasons for continuing with supportive policies (instable economic recovery or extra supports to avoid shocks for enterprises which have lived on interest rate subsidy) are groundless. This is rooted from the old business-doing thought. In fact, Vietnam has ended the economic slump since the first quarter of 2009.

However, it not as simple as ending the stimulus policy but we have to know clearly what should be continued and what should be stopped. I think we should keep interest rate subsidy for farmers in rural areas and craft villages as provided in the Decision 497/QD-TTg to solve their difficulties to boost their operations. The disbursement of State funded capital for key projects need to be accelerated and focused.

The “credit guarantee for enterprises” programme is only continued if it helps boost efficiency and competitiveness. Rampant guarantee should be eliminated to avoid credit disorder. Complex tax reduction and exemption should be replaced by the transparent and equitable solution to encourage long-term investment, technological renovation and economic restructure to increase the attractiveness of the investment climate after the crisis: Corporate income tax will be reduced from 25 % to 20 %.