Does Vietnam Economy Need Another Stimulus?

It can be affirmed that the first stimulus package has been working well, reviving Vietnam’s economy. According to Governor of the State Bank of Vietnam Nguyen Van Giau, giving support in the form of interest rate is Vietnam’s own way and is unprecedented in the world and in Vietnam as well. However, up to now, this selected solution is an optimal mode, suitable with Vietnam’s conditions and highly effective. The package has reached its goal in supporting enterprises and stimulating the economy to overcome the crisis.

 

A survey of Vietnam Chamber of Commerce and Industry (VCCI) shows that the four % interest rate support package helps production basis reduce borrowing cost by 30-40 %, product price by 2.5-6 %, maintain and expand production and business, and generate job for labourers. Thanks to the programme, up to 91 % of small and medium sized enterprises get their production and business developed in this crisis period.

 

Survey figures from localities show that interest rate support helps reduce borrowing cost by 36.6 % in Ho Chi Minh City and by 30 % in Thua Thien Hue. And according to ACB’s survey, this type of support helps enterprises reduce borrowing cost by 36.64 %.

 

Mr Tran Dinh Thien, Head of the Vietnam Economics Institute, believes that the government’s stimulus package has completed its mission to rescue the economy. Mr Cao Sy Kiem, Chairman of the Vietnam SME Association, is also pleased when stating that the interest rate support package attached by tax reduction and exemption is believed to enable enterprises and business households to reduce borrowing cost, product price and create job. The number of bankrupt enterprises is smaller than estimated.

 

Although it is three more months to go before the expiry date of the stimulus package and there has not been any official assessment, enterprises, managers and experts all have positive assessment. Proposals for another stimulus package have been mentioned by many ones.

 

For the first time, opinions of the second stimulus package have been officially mentioned by the national monetary policy advisory board. Immediately, opinions of whether or not to continue another stimulus package are raised, especially when the government is assigning ministries to conduct research and seek for further solutions to help recover the economy after the crisis.

 

Governor Nguyen Van Giau believes that it is necessary to take a further step to limit borrowers and interest rate in order to stabilize psychology. However, he also notes that when the economy recovers, Vietnam cannot extend its support for good since there are regulations on competition… Enterprises have to seek for ways to enhance their competitiveness and should not lay hope on something which is yet to be visible and being considered.

 

Meanwhile, Mr Cao Sy Kiem expresses another stimulus package can help enterprises continue to recover quickly and compete better. But Mr Kiem also believes that enterprises should not hope that there will be a large sum which is going to be pumped into the market. The new package – if available, will be allocated to necessary areas and enterprises only; the support scale and level cannot be as before. Besides, credit quality is very important.

 

Associate professor Nguyen Thi Mui at VietinBank thinks that the stimulus package, if available, should be of smaller scale, in a shorter time, for a narrower list of borrowers and has a lower support rate. Professor Dinh Trong Thinh from Academy of Finance also supports this opinion, believing that the new stimulus package should be more concentrated and the support rate should be 2 % in stead of 4 %.

 

Contrary to above opinions, representatives of many enterprises have different ideas. Hoa Viet Corporation’s representative thinks that the government should abandon the stimulus package since it creates unhealthy competition between enterprises and nurses an attitude of reliance… Doing away with the stimulus package will create condition for enterprises to integrate.

 

Mr Thai Tuan Chi, Chairman and General Director of Thai Tuan Group Corporation, also extends no support for another stimulus package. “When enterprises make no changes, they cannot go further regardless of the presence of one or many stimulus packages within the next few years,” he says.

 

Seeking the best measure 

Ms Nguyen Thi Hong, Deputy Chairwoman of Ho Chi Minh City People’s Committee, believes that supportive solutions during the past time are remedies to help enterprises overcome obstacles and maintain development only. When the rescue programme is over, support in terms of interest rate and tax is no longer available, enterprises will find it more difficult. As such, here comes an issue for the government: whether the global economic and financial crisis comes to an end and how will the recovery trend of big economies be? According to Ms Hong, accurate broadcast of this issue will help Vietnamese enterprises identify an appropriate time to make adjustments and changes to policies and stimulus solutions.

 

Mr Nguyen Hoa Binh, Board Chairman of Vietcombank, also believes that in the post-crisis period, it is necessary that Vietnam stabilizes low interest rates. The basis interest rate of 7 % has been maintained during the last six months. This is a positive rate to help stabilize the market, encourage investment, reduce difficulty for enterprises and stimulate economic development, etc.

 

In fact, although GDP of QII 2009 is higher than that of QI, the average increase for the first six months of the year is 3.9 % only. To reach a growth rate of 5 %, it is necessary that GDP growth rate in QIII and QIV be 6 %, which is not an easy task at all. It is possible that the GDP growth rate will be low.

 

Another stimulus package will possibly not arrive as expected but the presence of a series of supportive measures to guarantee no shock for enterprises and economic development after the crisis is possible. What matters here is how to stimulate in the post crisis period?