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Swift Inflation Fall Hits Economy: Expert

13-Jun-2012 Intellasia | thesaigontimes | 7:01 AM Print This Post

Strong inflation control measures have produced positive results but the faster-than-expected decline in prices has led the economy to almost come a halt, said Tran Dinh Thien, director of the Vietnam Institute of Economics.

Increasingly large numbers of enterprises are shutting down or suspending their business over tough market conditions, Thien said at the two-day Vietnam Banking and Investment Conference in Danang City held by Danang City in coordination with Euromoney Conferences and slated to wrap up on Friday.

“The important thing is a stable macro-economic environment… Pulling down inflation to 7-8 percent has turned out to be an easy job but the point is how to do it without affecting the economy,” he said.

Sharing this view, Simon Andrews, IFC regional manager for Vietnam, Laos, Cambodia and Thailand, said investors were wondering what policy Vietnam would bring out in the next six months to support small and medium enterprises.

The issue of GDP growth depends on the policy stance of the authorities, which will either hurt economic growth or cause instability. The consistency in macro-economic policies is of great importance to stimulating the economy, and such consistency does not need to be rigid,” he added.

Capital sources and lending rates were discussed at the conference as well. Experts said the central bank had adopted a timely policy on interest rates, but enterprises, particularly small and medium ones, still had difficulty accessing bank loans.

Sanjay Kalra, resident representative of the International Monetary Fund (IMF) for Vietnam and Lao PDR, said the central bank had been aggressive in interest rate adjustment. However, it should be more independent in monetary policy making, he said.

Experts said that while big firms can issue bonds and shares, small and medium enterprises mostly rely on bank loans but they find it difficult to access this source of financing at present.

Bad debt was also mentioned at the event. Kalra said reports showed that this was not an issue of concern yet but he was afraid that the figures did not match reality.

If the bad debt ratio shot up, it would be very difficult to remedy, he stressed. In addition, if State-owned enterprises continued to account for as high as 60-65 percent of the banking system’s total outstanding loans, then Vietnam’s economy would be severely impacted.

Vietnam’s government is making reform efforts to overcome this problem, but how to reform efficiently remains to be seen, said Kalra.

In response to the concern of foreign experts, Thien said the national resources that have been poured into State-owned enterprises are enormous, but these entities are of low economic efficiency. State conglomerates are allowed to invest 30 percent of their capital in non-core businesses, which turns out to be inefficient.

Thien noted local private enterprises had developed rapidly over the past time but yet to receive due attention. He said State firms should only be allowed to invest in certain sectors, instead of competing directly with private companies.

Experts and enterprises highlighted specific and transparent policies, together with a consistent legal environment are their biggest concern.

Regarding the economic outlook for 2012, experts said Vietnam would confront challenges from both external and internal factors. Thanks to the joint efforts, Vietnam’s economy has made a big step forward, but there remain obstacles and uncertainties that need to be resolved thoroughly.

Apart from economic issues, the conference discussed the property market, the issues relating to agriculture, the retail market, overview of Vietnam’s banking situation and State corporate sector restructuring.


Category: Economy

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