Of the SOE outstanding loans estimated at 55-60% of GDP in 2009, only 4.2-6.9% was guaranteed by the State, says a report of the economic committee.

Such a percentage of underwritten outstanding loans can be repaid, even when bad debts of the State corporate sector stays at high levels

However, the threat to public debts is the fact that SOEs always enjoy lax policies of the State. When SOEs run into troubles, they are often assisted by the Government in settling their debts at home through additional capital, debt repayment extension or debt transfer.

All these indulgent policies push up the State budget spending. Given the constant budget deficits, the State has to issue bonds, so the nation’s public debts will increase.

According to the report compiled in coordination with the United Nations Development Program (UNDP), the closest indirect relationship is the soft loans that Vietnam Development Bank (VDB) offers SOEs.

VDB fund raised from issuing valuable papers and receiving ODA for lending made up 72.4% of its capital inflow in 2009. Those are the loans that the Government ensures they will be repaid to the creditors, or it is to say they are public debts.

A large portion of such fund has been given out to SOEs for investment purposes.

The report quotes VDB general director Nguyen Quang Dung as saying that SOE debts accounted for some 75-80% of the bank’s total outstanding loans. “In the current context, leaders of many State groups and corporations have sent me petitions for debt repayment extensions,” said Dung on Vneconomy on September 13, 2011.

If this was the case, the SOE credit volume indirectly guaranteed by the Government through VDB would have been VND130-150 trillion in 2009. As such, the SOE debts guaranteed by the Government directly and indirectly amounted to 20-25% of the total outstanding loans of this sector in 2009.

Overdue debts and non-performing loans at VDB once surged to 8.9% in 2007, but then fell to 3.75% in 2009, mostly because of the Government’s demand stimulus program. Given the poor business performance of SOEs in recent years, SOE bad debts will pick up, affecting the loans given out by VDB.

As for the SOE debts at commercial banks, the State still has to intervene to repay the debts in case the situation turns worse. For instance, the State had to make up for the banks that were asked to freeze interest rates for the debts of Vinashin.

Moreover, some of Vinashin debts were transferred to Vinalines and PVN, but this might bring troubles to other SOEs and eventually the State has to bear the burden.  The State budget was also mobilized to raise Vinashin capital from VND9 trillion to over VND14.6 trillion.

Besides, the US$45-million debt that Construction Machinery Corporation (COMA) and Machines and Industrial Equipment Corporation (MIE) owed to ANZ Bank is guaranteed by the Ministry of Finance when the Dong Banh Cement project co-invested by these two firms runs into losses.

The report warns that loss-making SOEs cannot timely pay back debts to VDB, commercial banks and foreign creditors. Since most SOEs are “too big to fall,” bad debts are eventually shouldered by the State budget.

Source: SGT