Government pledges $1 bln to spur investment, consumption

The government promised Wednesday to spend around US$1 billion to spur investment and consumption and said it wants to lower taxes to help businesses as it seeks to fend off an economic slowdown.

The country battled runaway inflation and a widening trade deficit for much of the year by tightening monetary policy and curbing lending, but officials have become increasingly worried that the global credit crisis could drag down growth and have taken their foot off the brake and put it back on the gas pedal. The investment plan, outlined in a report at a cabinet meeting, came one day after the government revealed what will be the central bank’s fourth benchmark interest rate cut in six weeks, to take effect on Friday. “The focus is now on immediate measures to prevent an economic slowdown and a stagnant production and business environment,” the government report quoted Minister of the Government Office Nguyen Xuan Phuc as saying. “The government will set aside around $1 billion to boost investment and consumption,” it said, without giving details of how or when the money would be spent or where it would come from. The government also asked the Ministry of Finance to produce a list of taxes that could be reduced to help businesses. The ministry Wednesday recommended to the government to reduce 30 percent of corporate tax, apparently across the board, in the fourth quarter of this year, and by the same amount just for small and medium companies and companies in difficulties next year. The payment of the remaining amount could be delayed by six to nine months, the proposal said. The corporate tax rate is currently 28 percent and this will be reduced to 25 percent from January 1. The ministry is also considering delaying the imposition of capital gains tax on stock income until late next year to support investors and boost the stock market, Minister Vu Van Ninh told a meeting of financial officials Wednesday. The tax is scheduled to take effect on January 1. The ministry plans to help local companies sell bonds in a bid to reduce their dependence on bank loans as the economy slows and the global credit crisis raises borrowing costs. The ministry said in a statement on its website Wednesday that it would help businesses “increase issuance of corporate bonds instead of obtaining loans from banks.” “This will help companies get money quickly for projects while minimizing lending risk for banks.” Growth vs. inflation Gross domestic product, or the value of all goods and services produced in Vietnam, grew at a rate of 8.48 percent last year, but the latest government estimate for growth this year is 6.7 percent. At the beginning of the year, it expected growth of up to 9 percent. Even though the country saw its 13th consecutive month of double digit inflation last month, with the consumer price index 24.2 percent higher than in November last year, it is no longer the main concern for the government, the report said. It also said the government has lowered its annual inflation forecast to below 21 percent from its previous estimate of 24 percent. The revision, the second in as many weeks, was a result of lower world oil prices and aggressive policies to contain consumer price rises, it said. Lower world oil prices have helped Vietnamese oil product distributors cut fuel prices seven times since early October. Still, the effect of policies to keep the economy on track remains to be seen, given the flood of bad economic news coming from its big trading partners. The report said demand from the US, the EU and Japan for products like clothes and wooden furniture, Vietnam’s key exports, has dropped by up to 30 percent but did not state over what period. “Growth is expected to remain soft, not least because external demand has weakened a great deal, but also because conditions at home have deteriorated given the impact of previous monetary tightening, collapse in equity/property markets and an inflation shock,” HSBC said Wednesday. The Vietnamese stock market has been Asia’s worst performer this year, falling some 60 percent. Banks were loath to lend and with borrowing costs high, companies were unwilling to take on new debt. “Domestic demand has already slowed and will probably weaken more before getting better,” HSBC said. Buy Vietnamese The Ministry of Industry and Trade (MIT) will launch a campaign to encourage people to buy Vietnamese-made goods, the deputy minister said at a press briefing. Le Duong Quang said the campaign is designed to reduce local businesses’ large inventories and make up for lower international demand. Figures from the MIT show that exports in November were worth $4.8 billion, a 4.8 percent decrease from October. Retail spending in the last 11 months reached VND872 trillion ($52 billion), a year-on-year increase of 30.9 percent, according to data from the General Statistics Office. But adjusted for inflation, the increase will be a mere 6.2 percent, the lowest level in the last five years. Growth in consumption, which moved up sharply at the end of previous years, has slowed since September. Month-on-month growth in November was 1.7 percent, compared with 3 percent in October and 3.6 percent in September. The MIT also asked domestic businesses to replace the new-year cash bonus with coupons for Vietnamese-made goods. Source: Agencies