Economic stimulation needed to cushion the blow of inflation

Stimulation is necessary, but …

Economic analysts say that the government’s first stimulus package has brought about many good results, helping Vietnam to achieve positive growth despite the negative effects of the global economic crisis. However, any remedy has its side-effects and for Vietnam runaway inflation is likely to return in 2010.
 

“The first package has begun to take effect and the national economy is showing the green shoots of recovery, so we’d better introduce this package in the end,” says Cao Sy Kiem,  a member of the National Monetary Advisory Council. “Practical measures should be employed to increase the efficiency of the interest subsidy programme for medium- and long-term loans which began in April 2009.”

 

Ayumi Konishi, the Asian Development Bank (ADB) Country Director for Vietnam, suggests that the Vietnamese government go ahead with its existing stimulus package and decide whether or not to adjust it depending on the state of the national economy.

 

Meanwhile, Victoria Kwakwa, World Bank Country Director for Vietnam, says that even though the global economy is beginning to ride out the storm, most countries are still adopting additional solutions to support their economies. She says that now is the right time for Vietnam to assess the efficiency of its first stimulus package and consider if it comes up with a second package and other long-term targets.

 

The fact is that the economic stimulation goes hand in hand with worries about inflation. Mr Konishi says that the State Bank of Vietnam’s fears of inflation returning are not groundless. Once the world economy regains its previous momentum, the prices of key commodities will increase again and this will subsequently put inflationary pressure on the national economy.

 

According to him, the global recovery could help Vietnam to boost its exports and attract more foreign investment capital. This also means that the country could run a higher risk of rising inflation. If the second stimulus package is adopted, its scale should be narrowed, he suggests.

 

Meanwhile, Mr Kiem says that in case a second package is not introduced, the government should gradually reduce its support for businesses to avoid shocks so that businesses will have more time to adapt themselves to the new situation.  

 

Another option he suggests is to extend the deadlines of the first stimulus package. However, he warns that various options could be taken to maintain production levels.

 

Businesses need government support, especially when the national economy has just experienced a downturn and is bouncing back.

 

Nguyen Van Tan, director of the Thong Tan Food Company, complains that small- and medium-sized enterprises (SMEs) have not enjoyed many preferences since the stimulus package was introduced. In addition, the government offered assistance when the world economy was facing its most difficult period. As a result, subsidised loans did not prove effective due to a sharp fall in the number of foreign orders.

 

“The global economy is now recovering and orders are being placed again, so we hope that the government will continue to assist us, especially SMEs, to make a leap forward,” says Mr Tan. Ngo Tan Giac, director of the Thu Ha Coffee Company, says that thanks to the government’s support programme, many businesses have survived the economic crisis.

 

“We have borrowed VND8 billion from banks and under the interest subsidy programme, we only have to pay VND40 million in interest per month instead of VND80 million as before. However, VND40 million is still a big amount of money for SMEs like us,” says Mr Giac. He believes that many businesses are in dire need of additional interest subsidies from the government. “We have just weathered the storm and we need more assistance to prime the pump,” he says.

 

According to the State Bank of Vietnam, the government is considering taking ‘another step’ to assist the national economy when the first stimulus package ends later this year. The central bank will continue to apply a flexible and cautious monetary policy, keep credit growth at a rate of 30 percent while reducing it over the following years.