Finding Solution to “Rescue” Enterprises

Although the interest rate is lower, considered a direct measure to reduce difficulties for businesses, in practice, they still face lots of difficulties in accessing loans with the preferential interest rate. It can be said that the credit support program for 4 priority areas set by the State Bank of Vietnam can hardly achieve its expected goals. Looking back at the Government’s 2009 bailout package and this current package, we can see that the need for rescue is huge while the Government’s ability to meet the demand is limited, like a drop in the bucket.

 

As for business community, it is undeniable that there are many enterprises lacking management capability, spreading ineffective investment and abusing financial leverage. It should be accepted that these poor businesses will, sooner or later, go bankrupt. The rescue is situational, short term and unsustainable. However, screening such businesses cannot be done overnight.

 

Enterprises having good business strategies and well-trained staff meeting development requirements are affected by macroeconomic instability to their business activities, so they are also facing difficulties. Thus, implementing the rescue is not different from finding causes of business difficulties. The dying enterprises in 2009 and 2012 blame high interest and tax rates and scarce credit capital for making their financial burden untenable.

 

When the difficulties of businesses are not promptly remedied, the collapse will surely happen, forcing companies to narrow their business activities, employees lose their jobs and unrest begin to appear. The demand in the economy declines which cuts domestic goods sales and more enterprises are pushed to the brink of bankruptcy.

 

In addition, in early 2012 the consumer price index began to decline, inventory remained unsold, production sank into stagnation, making thousands of small and medium enterprises go insolvent. At that time, it seemed that we still believe that the bankruptcy of private enterprises is a severe but necessary screening of market.

 

How to save businesses? Dr Tran Dinh Thien, Chairman of Vietnam Institute of Economics said again the prediction about Vietnam’s situation in 2011: Vietnam is one of seven emerging economies having highest risk of overheating growth in the world. He said that the world economy is suffering the most difficult time and economic uncertainties cause people to be more pessimistic than ever. In that context, Vietnam’s economy cannot avoid the consequences; therefore, to rescue businesses, we have to stabilize the macro economy first, which requires changes in resource allocation. The longer the restructuring process is, the fiercer the consequences become.

 

To overcome the difficulties of the economy, Mr Thien gave 3 solutions: Firstly, the priority is the reform of public sector wages. We should make the wages adequate for the work and create rules. The second priority then goes to public enterprises and investment in banks.

 

Secondly, we have to accept the pain to cut public investment, the current situation is very urgent and cannot continue in the same direction.

 

And lastly, we have to conduct good policy coordination, particularly coordination between monetary and fiscal policies, focusing on fiscal policy; it means that the State should pay attention to cut spending.

 

According to Mr Truong Dinh Tuyen, former Minister of Trade, in general, the difficulties also create opportunity to restructure the business system. He gave an advice on the restructure of products. Specifically, enterprises exporting agricultural and food products still have many opportunities and should take advantage to occupy a position in the advantaged competition. The difficulties in the aftermath of major flooding in Thailand become favourable conditions for Vietnam’s agricultural commodities to boost exports.

 

Mr Nguyen Tat Thinh, President of PTI business school, said that enterprises often connect closely to their products, so small businesses have to choose products with fast capital turnover or using less capital, clinging on the current market and when business cannot develop temporarily, it should change strategy, move to safe position and then seek profit.