This was a question raised by many enterprises for senior financial expert Bui Kien Thanh at a conference entitled “Discussing solutions for post-economic crisis” held in Hanoi on July 4. Surprisingly, the expert said, it is impossible to know when the world economy in general and the Vietnamese economy in particular will touch the bottom. He also gave specific explanations about urgent measures needed to be implemented in the financial sector and to develop the domestic market to recover the local economy from the difficulties.
Reserve figures
Figures on Vietnam’s economic situation announced by the Ministry of Planning and Investment on July 01, 2009 raised some concerns. Vietnam’s the first quarter economic growth was considered at the bottom line and the country has shown signs of recovery in the second quarter. Industrial production value in June grew by 8.2 per cent, making an on-year rise of 4.8 per cent in the first-haft economic growth rate. Production value of agro-forestry-fishery sector increased 2.6 per cent on-year. However, these figures were very modest compared to the six-month period’s on-year rise of last year. Vietnam saw an on-year increase of 16.5 per cent in industrial production value in the first six months of this year, and the rate for the agro-forestry-fishery was 4.5 per cent. This year’s export turnover dropped 18.1 per cent compared to the same phase of 2008.
Domestic trade value grew steadily between January and June from 4 per cent in January to 5 per cent in February, 6 per cent in March, 7.4 per cent in May and 8.8 per cent in June.
Despite improvement in the nation’s overall economic picture, it can not be said for sure that the economic situation will be better from now to the year end. The demand stimulus policies are just temporary measures to limit bad impacts by the global economic slow down. In the long run, Vietnam needs to build a comprehensive policy not only to deal with challenges but also fully develop its advantages.
In terms of the demand stimulus package to offer 4 per-cent subsidized loans, the country has disbursed over VND370 trillion for the five-month implementation period. Total credit outstanding loans of the banking system reached VND1,200 trillion. Therefore, if the package’s loans are offered for business activities, the credit outstanding loans will rise to some 30 per cent. However, the growth rate of the credit outstanding loans was reportedly at just 17 per cent, proving that the majority of the package’s money transferred to banks under the popular form of rollover debt.
Meanwhile, a large amount of money is pouring into the stock market to make profits in the short-term. This has impacted the local stock market over the past few months. The stock market’s bubble will be maintained for a time to come and will go flat because, in reality, the macro-economic situation has not developed so strongly that created a foundation for rally of share prices from 60 per cent to 100 per cent over the past three months.
If not strictly controlled, rollover debt and short-term financial investment will be very dangerous for businesses and the banking system. Companies are still facing difficulties and the banking system’s risk burden will be curbed only for a short time and will reoccur in the current unstable macro economic situation. And then subsidized loans will be returned to banks with new loans without subsidy. The race to increase interest rates is seen among banks, thus, it is impossible to know the new interest rate premise.
The second stimulus package worth VND20 trillion designed to provide subsidized loans under Decision 443/QD-TT will happen like the first one. One of the main reasons is that businesses can not deploy business projects with loans of a 24-month term. Hence, loans will be used for short-term purposes, mostly rollover debts and stock investment. A consideration amount will be pumped into the real estate sector to save projects on the verge of bankruptcy.
In short, the two stimulus packages being implemented have not fully developed their effects as expected for the national economy.
The priority solution is that the government should adjust and replace subsidized interest rate policy with a low interest rate credit policy for every subject, but not causing budget state deficit. This is being implemented by most of economies worldwide, which means that the State Bank lowers discount rate and replenish capital for the commercial bank system at the lowest level if any (from 1 per cent to 2 per cent) to enable commercial banks to offer loans of 4-5 per cent loans for companies, but not affecting macro-financial balance.
Commercial banks will be supervised for the implementation of “Laws on Credit Organisations and Lending Mechanism”. Customers have to feasible investment projects and business and production methods. All businesses will be treated equally. Enterprises will receive different loans, depending on their objective conditions. The “ask-give” mechanism and other negative factors will be removed.
The domestic market should be concentrated
Unlike economies like the US and other countries, with the redundant domestic market and a surplus production system, Vietnam is a relatively market which needs the supply of consumer goods. Its production system needs to be modernised. With suitable policies and a contingent of good managers, Vietnam can reach high economic growth of 5 per cent.
Necessary measures to develop the domestic market include: studying replaceable goods to reduce import; encouraging companies develop products meeting the domestic market’s demand and applying appropriate investment policies.
Currently, Vietnamese firms are penetrating into foreign markets, but they do not pay attention to the local market. The domestic is a good place for international groups. Vietnam signed the Bilateral Trade Agreement with the US in 2001 and started negotiating with the WTO since 1995. During that time, the country did not prepared well for the domestic market. Now, it is time for Vietnam to change its way of thinking and develop creativeness strength of economic sectors to develop the domestic market.
It is important to create favourable conditions for 70 per cne of the country’s population living in rural areas such as financial support, good infrastructure and good breeds. All agriculture needs should be carefully done. Labour productivity in Vietnam now remains low. The good development of rural areas will help boost economic development, expected to lead to the change of economic structure from agriculture into industry.
The rural area is a big market but also a big battle field. With the population of over 80 million, Vietnam should have proper policies and be determined to build develop the rural market which will be a driving force for the national economic development. If not, Vietnam will lag behind world economies.
In the context of new risks and opportunities, Vietnam should be willing to reform state management and tackle social evils. After 20 years of economic reform, it is high time for Vietnam to reform the state management method strictly. This requires local authorities’ high determination in training cadres.
Thanh Tam
Vietnamese
