Pros and cons of second stimulus

Le Tham Duong, head of the Business Administration faculty of the HCMC Banking University, says that the nation has yet to turn out clear conclusions on the effects of the first stimulus package under which banks enjoyed most of the benefits. However, the banking system is very important to the economy and the package is creating positive effects for the nation, he told a recent seminar.

Concerning the second stimulus package, Duong says this is the right solution even if the nation is not in a crisis. The most important thing is that the nation carefully discuss the package, how large it is and how to promulgate it. If the Government can supervise capital flows, the second interest rate subsidy package is absolutely possible, he says.

In a conference on post-crisis currency policies held by the central bank last month, many lecturers proposed carrying out an assessment of the real impacts of the first stimulus to consider expansion of the second.

Some enterprises have exploited loopholes of the subsidy program to ask for loans at low rates that increase the volume of bad debts and harm the banking system, says Nguyen Minh Phong, head of the research department at the Hanoi Institute for Socio-Economic Development Studies. He also proposes a national level inspection into credit solvency of corporate borrowers to evaluate the program.

From the viewpoint of banks, a deputy general director of a commercial joint stock bank says that lenders have never applied such strict measures on credit as do the subsidized loans. Each bank has established a group to supervise the loans and inspectors from the central bank have examined this supervision regularly.

If banks loosen the credits and the ratio of overdue debts exceed 5%, they will be put under the special control of the central bank, he adds. Meanwhile, the nation has yet to closely monitor the effects of State-invested projects and State-run enterprises and corporations.

Most experts suggest another lending rate subsidy package be released after the first one ends. However, the subsidized interest rate could be lower than four percentage points and the number of beneficiaries could also be narrowed down.

Tran Du Lich, deputy head of the HCMC delegation of National Assembly deputies, says the Government should extend the medium and long-term loan interest rate subsidy program to help enterprises reorganize their business instead of promulgating a short-term subsidy program. Banks have so far disbursed a modest capital sum for the current package while the central bank has regulated the subsidy for loans disbursed in 2009 only, he explains.

In addition, the agriculture sector, small and medium enterprises and infrastructure projects are those with high demand for the subsidy program. The Government should support enterprises with subsidized loans or facilitate low-cost housing projects for workers and low-income residents, Duong says.

On the other hand, Le Duc Thuy, chairman of Vietnam’s Finance and Monetary Oversight Committee, is for promulgation of the second stimulus package and has joined members of the National Advisory Council for Monetary Policies to submit the proposal to the Government. The second subsidy package will help ensure sustainable recovery for enterprises, he told a recent customer conference of the Asia Commercial Bank.

The Government is considering assigning relevant departments to design the package and apply it early next year.

Many officials have suggested that the second package should be more selective than the first one to limit the number of beneficiaries, time and scale. The Government will discuss the suggestions in a conference on tax reductions and exemptions, Thuy said.

However, continuation of stimulus packages will increase the State budget deficit in the future, says HSBC Bank’s senior Asian economist Robert Prior-Wandesforde. Vietnam’s budget deficit is estimated at 8% of the gross domestic product (GDP) in 2009. Although the figure is not as high as other nations in the region, the Government should be cautious about the problem and seek solutions to reduce the deficit, he says.

Wandesforde also says that Vietnam does not need the second stimulus package as the economy is on the path to recovery.