Vietnam split over second stimulus package

Oct 26, 2009, 9:48 GMT

   Hanoi - Vietnamese government plans for a new economic stimulus package are causing divisions among experts, economists and bankers said Monday.

   The stimulus would come on top of an earlier package of some 1 billion dollars spent since the beginning of the year on recession-fighting measures, mainly low-interest loans to businesses. Some experts worry the plan will encourage poor investments and could bring back inflation, which hit 23 per cent in 2008.

   'I am very concerned about the risk of inflation returning to Vietnam if the government goes ahead with a second stimulus package,' said senior economist Le Dang Doanh.

   Doanh said if a stimulus is implemented, it should focus on farmers and private-sector companies.

   The first round of stimulus consisted mainly of subsidies in which the government paid 4 per cent of the interest on businesses' loans. But a State Bank report said just 22 per cent of Vietnamese businesses, mainly state-owned enterprises, could access the loans.

   Government officials have renewed calls for a second stimulus package in recent weeks.

   Minister of Finance Vu Van Ninh was quoted by the Vietnam Investment Review on Monday saying that in view of the continued global economic crisis, more interest rate subsidies would be needed to stabilize the economy in 2010.

   Senior monetary policy official Le Duc Thuy told the European Chamber of Commerce in mid-October that a halt in stimulus spending would shock Vietnamese businesses that have yet to fully recover from the global crisis.

Earlier in the month, Vu Viet Ngoan, vice chairman of the National Assembly's Economic and Budget Committee, supported continuing stimulus spending into 2010.

   But other National Assembly deputies have been skeptical. On October 20, Ha Van Hien, chairman of the Economic and Budget Committee, asked the government to stop the current stimulus package's 4-per-cent loan subsidies at the end of the year.

   Bankers are also divided over the wisdom of continuing the loans.

   'As a bank official, I support a second stimulus package because banks will benefit from it,' said Nguyen Thi Thu Hang, head of the Credit Policy Department at VietinBank, one of Vietnam's largest. 'But as a citizen, I do not support it, as it will raise the ratio of bad debt.'

   A September report on Vietnam by the Economist Intelligence Unit said there were signs that credit growth under the stimulus was leading firms to invest in unpromising projects, potentially leading to asset quality problems for banks in the future.

   Hang said she thought the government was confusing its political and economic goals.

   In September, Prime Minister Nguyen Tan Dung set a target of 6.5 per cent GDP growth for 2010. The government designs policies to meet such targets, particularly GDP growth, even though in this case it may risk setting off inflation.

   The state-owned Vietnam Investment Review reported Monday that Nguyen Dai Lai, vice head of the State Bank's Credit Information Centre, had said credit had grown 28 per cent in the year to September. Lai said the surging credit had contributed to the economic recovery, but that a return of inflation was 'the most serious risk here.'

   The government said it would make a final decision on a second economic stimulus package at the end of October.