State Bank Recommends Enterprises To Limit Foreign Loans

In an official letter to the Government concerning changes in the limit of foreign commercial loans of Vietnamese enterprises in 2005, the State Bank of Vietnam recommends enterprises, particularly foreign-invested enterprises, to be very careful about borrowing foreign capital since the loan may adversely affect the use of the State’s reserve funds and worsen Vietnam’s foreign loan situation.

 

According to the State Bank, the Government should only act as a guarantee for foreign loan projects of State-owned enterprises that are really effective, are solvent, and are already verified by the Ministry of Finance.

 

Within its modifications, the State Bank has proposed to increase the total limit of enterprises’ medium and long term commercial loans from US$2.2 billion to US$3 billion. This is just because at the beginning of this year, Prime Minister Phan Van Khai approved US$2.2 billion worth of total limit of enterprises’ medium and long term foreign loans, including US$1.6 billion for foreign-invested enterprises and US$600 million for Vietnamese enterprises.

 

However, the Government has recently assigned the Ministry of Finance to underwrite nine cement projects, 23 power projects, one aircraft purchase project, one pulp production project, and one transport project with a total capital of US$1.9 billion worth of foreign loans.

 

If these loans are included in the total limit of Vietnamese enterprises’ commercial loans, total foreign medium to long term commercial loans will increase to US$3.5 billion (including US$1.9 billion for the above projects and US$1.6 billion for foreign direct investment enterprises), which is equal to the total balance of enterprises’ foreign debts thus far.

 

According to the State Bank, the increase in foreign commercial loans will adversely affect the State’s reserve funds and the Government’s sustainable foreign-debt indexes.