High on the agenda of the National Assembly session that opened on October 20 is whether or not to the government’s economic stimulus package, implemented this year as a counter-recession measure, ought to be extended. Over the last few months there has been a lot of debate inside and outside the Government, but no clear trend has yet emerged.

Both economists and businesses acknowledge the positive effects of the first demand stimulus package. Nguyen Duy Hung, CEO of Saigon Securities Incorporated (SSI), calls it “the lifebuoy that rescued the national economy” when many people were panicked by the sudden onset of the global financial crisis.

The most important component of the stimulus package was a subsidy on ‘production loans’ that reduced the commercial bank rate by four percent.

Saigon Hanoi Bank (SHB) Chairman Do Quang Hien recalled the difficult time when the first demand stimulus package was launched. Export markets were shrinking, while the domestic market was flat. Because companies could not sell products, they did not have money to pay their bank debts. Some of them could not pay staff salaries. Bankers themselves faced huge difficulties and low liquidity.

Hien, believes that though businesses have survived the worst period, they are still face difficulties and need continued support. A lot of enterprises still report high inventories of unsold products. The bank chairman thinks that consumer price inflation won’t be a problem next year; in his view, the important thing is to keep taking measures to help businesses.

Surprisingly, the Small and Medium Enterprises’ Association doesn’t support another round of demand stimulus. However, SMEA deputy chairman Nguyen Quang Luu says the first package has cost the state budget heavily and that another package would further burden the budget.

“A big sum of capital from the first demand stimulus package has gone to the wrong addresses,” says Luu.

“No more than 10-15 percent of the several thousand members of the SMEA could access the first demand stimulus package,” Luu said, “mainly because of the too strict lending conditions.”

He explained that many businesses could not borrow money either because they could not present a feasibility study for investment projects or they did not have collateral for the loans or because they were already behind in paying off existing bank loans.

“It seems as though policy makers did not understand that the businesses which needed help the most were the most unprofitable and most difficult businesses and nearly all of them had overdue debts,” he said.

Pham Ngoc Doan, Director of An Viet Company, worries that the money under the demand stimulus package has been ‘thrown through wrong windows’.

Echoing Luu, Doan said that the most hard-up businesses, which really need preferential loans, cannot access the support programme, while stronger businesses encounter few obstacles thanks to better prestige and good relations with bankers.

“The good swimmers have climbed into the lifeboat, while weaker swimmers can’t even find a lifebuoy,” he said.

Hung, the Saigon Securities chief – and someone whose firm benefitted very much from the stimulus package -- judged that many businesses borrowed money this year package just because they found the subsidized capital too cheap to resist, although they did not really need it. That explains why the funds in the first demand stimulus package were disbursed so rapidly.

Some studies indicate that some seven trillion dong from the demand stimulus programme has not gone to support businesses in difficulty, but has instead been flowing to the stock market. Hung thinks the actual figure is higher, noting that the recent trading volume has averaged 4,000 to 5,000 trillion dong per day on the two bourses. And that’s why, he suggests, that when there was a report that credit will be more closely controlled, the stock market shivered.

A survey conducted quarterly by the credit rating firm WVB Vietnam and PVFC Invest indicates that Vietnamese businesses became less optimistic in the third quarter of 2009 than in the two previous quarters. In particular, confidence ebbed in the efficacy of the demand stimulus measures. Meanwhile, the latest survey showed that only 40 percent of businesses believe that the demand stimulus package is effective, and 13 percent call it ineffective.

Source: VietNamNet/VNE