Q: Much to everybody’s surprise, to save the economy the central bank has come up with a series of new policies, from monetary tightening to rapid interest rate slashes and realty credit loosening. What would you say about these policies?

A: Notwithstanding better macroeconomic indicators such as lower inflation, improving balance of payments, growing foreign reserves and shrinking trade deficit, I’d say that macroeconomic stability should be the ultimate goal. Risks are out there when the trust of the general public remains fragile. However, compared with last year, polices have been much more eased and flexible. The reason is that corporate difficulties are no longer confined to growth but have turned out to be a social problem which could possibly evolve into macroeconomic instability if measures taken are flawed.

So, it’s necessary to implement consistent policies which are more flexible to support the business sector. I would choose the word “support” instead of “save” to describe those policies.

Then how should businesses be supported?

First off, production should be promoted by interest rate cuts. But interest rates are just a minor issue. What matters most now is how to make credit accessible to businesses. Next come tax reduction and exemption, including both corporate income tax and value-added tax. Another thing is to let companies afford bank loans and official development aid (ODA) and then government bonds. We’re petitioning the Government for allowing infrastructure projects which may not be finished this year but their ripple effect could reach small and medium enterprises. Beyond that, overseas trade promotion campaigns should be stepped up. So should domestic demand.

Businesses have bemoaned that they don’t have access to credit. Are banks lacking money?

Money is out of the question. More notably, the velocity of circulation of money is now very slow. To speed it up, we have to rebuild trust. After the peak time, I’d say in this May, when the problem of the nine feeble banks is fully addressed and interest rates are further down, the economy may become better.

Regarding the production sector, easier access to credit should accompany interest rate slashes. Next, policy support should be resorted to in order to create demand. Also of prime importance is to deal with bad debts relevant to real estate together with the feeble banks. Other options such as debt restructuring should be considered to create better conditions for realty firms to access credit.

Currently, opinions differ on whether the current deposit rate ceiling should be abolished. Some businesses have lobbied for a postponement of such abolition. Instead, they propose a lending rate cap of some 15% for production loans as of May, which will be effective for six months. They argue that if this is done, half a year will be enough for them to come to life again, and then, when rates are floated, they would be able to survive.

Some have opined, however, that the State should not necessarily meddle in by financial tools because such interference won’t help the realty market stand on its own feet.

In my opinion, the interference means to create a defroster for the realty market. Therefore, apart from assistance lent to real estate firms, this will also produce the ripple effect on other enterprises, particularly those in the construction industry. More importantly, only in so doing, the bank restructuring can have more favorable conditions. All these issues are relevant to macroeconomic stability. In fact, without a boost to the real estate market and a solution to its bad debts, the banking system will find it hard to continue to exist.

Source: Saigon Times.