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Stimulus plan revealed soon – will it stay or go?   2009-09-21 - VNE

Businesses will soon find out if the Government’s stimulus package aimed at combatting the global downturn will continue beyond its originally planned end oft December 31 2009.


The Ministry of Planning and Investment (MPI) says it will soon submit the economic development plan to be implemented after the current  demand stimulus package ends.


Questions have already been raised as to whether the  package should continue.  Launched in early 2009 it saw businesses enjoying a four per cent interest rate subsidy aimed at boosting downturn survival.


While some experts believe it’s necessary to continue the Government’s support others say prolonged subsidy would further distort the market.


At the meeting in mid August 2009 of the National Advisory Council for Monetary Policies only three out of 15 members supported extending the  package until late 2010.


Just over two weeks later,  the National Finance Supervision Council released a report revealing smooth and satisfactory results during the package’s 8-month implementation.  As a result many council members backed its extension.


Meanwhile, the State Bank of Vietnam, which implements the subsidy programme, is yet to voice an official view on the issue.


However, deputy director of the Monetary Policy Department under the State Bank of Vietnam, Nguyen Thu Ha suggested that prolonging interest rate subsidies would ‘distort’ the monetary market. The interest rate subsidy has meant lending rates have become lower than deposit interest rates.  He claims this has badly affected the total money supply and hindered efforts to stabilise interest and exchange rates.


An MPI senior official source revealed that if the international and local economies both recover soon then Vietnam should stop running the demand stimulus programme in order to avoid to a more serious state budget deficit


The official said: “The reports by domestic and international institutions about Vietnam’s economy all show that Vietnam’s economy has recovered quickly.”


He added that if Vietnam decides it still needs to extend the interest rate subsidy the number of beneficiaries from the extended programme will be lowered.


“The plan for the post-demand stimulus package period will be submitted to the Prime Minister in late September,” the official said.


According to the Minister of Finance Vu Van Ninh, the state budget collection will see a decrease on the original estaimates of 29-63 trillion dong in 2009.  This is due to the tax incentives aimed at stimulating the national economy.


MPI, in its report on supervising the socio-economic development, has also warned about decreases in state budget collection.


Nearly a half of the state budget receipts have been from crude oil and exports and both are expected to decrease in the medium and long term.


In particular, regarding the receipts from import-export activities, current policy on restricting imports and cutting tariffs is likely to affect the collection of future import-export tariffs.


Meanwhile analysts have also warned that the state budget will not be able rely on receipts from businesses for another one or two years as a result of difficulties due to the economic downturn.


It would mean continued pressure on the state budget if the Government continues providing the four percent interest rate subsidy.

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