This is a reversion to a decision the Government announced a month ago to extend the interest rate subsidy program until end-March next year to help the corporate sector gain access to cheap bank loans to create operating capital.

“The Government decided to maintain interest rate subsidy at two percentage points (half the previous level) as per Decision 131 until the end of Quarter 1 in 2010,” Minister Nguyen Xuan Phuc, chairman of the Government Office, told reporters in Hanoi while the government was in a regular monthly meeting.

“However, credit growth is alarmingly high, so the subsidy will stop at the end of the year.”

But the Government keeps subsidizing loans extended to farmers and rural areas as well as medium- and long-term bank loans, but the level of subsidization will be reviewed, Phuc said.

Facing calls for a continuum of interest rate subsidy to prevent the economy from being shocked by any abrupt stimulus withdrawal, the Government announced in late October to move on with a second stimulus package.

Nguyen Dong Tien, deputy governor of the State Bank of Vietnam (SBV), told the Daily that credit growth in the year to end-November had reached 36% year-on-year, compared to the permissible level of 30%.

“The SBV, the National Assembly Economic Committee, the Ministry of Planning and Investment and some other agencies want to end the stimulus at the year-end but a month ago the Government decided to extend it to spur the economy,” he said.

“Nonetheless, since (the central bank) changed the foreign exchange rate (a week ago), the Government has found it appropriate to end the stimulus to stabilize the market and improve the competitiveness of the corporate sector.”

The central bank changed monetary policy on November 25 by raising the benchmark base rate by one percentage point to 8% a year and letting the Vietnamese dong drop 5.44% against the U.S. dollar on the interbank market.

As for the stimulus for farmers, Cao Viet Sinh, deputy minister of planning and investment, said no meeting had been called to discuss a revision of the scale of subsidization and an impact of the two-percentage-point interest rate subsidy in the wake of the central bank’s revising up the base rate from 7 to 8%.

If this stimulus continues, the actual interest rate will be 10% rather than 6.5% as enjoyed earlier this year and this level is almost the same as the highest rate for non-subsidized loans in late November which stood at 10.5%. This means the current rate subsidy is no longer significant.

The central bank has forecast total subsidized loans will amount to more than VND400 trillion this year, with the Government disbursing VND10 trillion to support interest rates.

Tien of the central bank said all policy moves would be carefully considered to ease inflationary pressures, especially after the dong/dollar exchange rate was adjusted to stabilize the value of the local currency which had already declined 3% in the past one year.

The Government has forecast the consumer price index this year at 6%, with consumer prices rising 0.55% from a month ago.

Gold prices in November grew 10.08% from October and the dollar picked up 1.45% against the dong, but compared to December 2008, the respective increases were 48.72% and 7.28%, thus exposing the economy to macro-economic instability.

The trade deficit is on the rise, with the November figure amounting to US$1.97 billion, 41.9% of total exports. The first 11 months saw the trade deficit reaching US$10.41 billion, 20.3% of export revenue.

January-November exports dipped 11.6% year-on-year to US$51.3 billion, placing pressures on the balance of trade and the balance of payments on the economy.

Source: VietNamNet/SGT