Warning on $1 billion stimulus package

Business leaders say the government should focus its stimulus spending on improving infrastructure, such as ports The government should carefully consider the use of a stimulus package of over US$1 billion that it plans to spend on spurring investment and consumption, analysts warn.

“With its limited funds, Vietnam should pinpoint the beneficiaries of the stimulus package,” Vo Tri Thanh of the Central Economic Research and Management Institute said. He added that the key measure to boost investment is strengthening support for small and medium-sized enterprises and fostering rural production. Cao Si Kiem, chairman of the Vietnam Association of Small- and Medium-Sized Enterprises, said the country should spend the stimulus package on helping all firms reeling from the high inflation, without choosing between large and small ones. The chairman of the Vietnam Chamber of Commerce and Industry, Vu Tien Loc, said, however, the government should assist firms with potential for development but in temporary difficulties. Kiem, a former governor of the State Bank of Vietnam, said the government should deploy the package to develop infrastructure, including ports, airports and roads, and housing, especially for low-income earners. Thanh agreed, saying that the government should pour money into infrastructure and social welfare for the poor. Nguyen Minh Phong of the Hanoi Socio-economic Research Institute said the government, to boost investment, should intensify trade and investment promotion, foster administrative reform, further cut taxes to help businesses, boost credit guarantee, and accelerate the equitization process. It should also improve the quality of its analysis and forecast of the global financial and economic situation, and work out measures to cope with changes, flexibly adjust interest and foreign exchange rates, and closely monitor outstanding loans, he added. The recent cuts in fuel prices are thought to be a good move to strengthen consumption and beef up people’s purchasing power. The government last lowered gasoline prices on Wednesday, cutting them by VND1,000 a liter to VND 11,000 as world oil prices hover around $43 a barrel. It is the 10th reduction since the retail price reached a high of VND19,000 last July when world prices hit a record of over $147 per barrel. The government also needs to increase the quantum of consumption loans, remove hurdles to obtaining consumption loans, enable retailers and distributors to access loans to purchase stocks, and increase salaries for public employees, Kiem said. It is also necessary to encourage people to buy Vietnamese goods, he added. Phong said the government should reduce personal and corporate income taxes, increase social welfare support to the poor and people living in disaster-hit areas, and reduce education and medical fees. Monitor stimulus package The economists said the government should closely monitor the use of the stimulus package to ensure its proper use, and mobilize all international and domestic resources to spur investment and consumption. The government should focus on both reducing inflation and preventing an economic slowdown, and ensuring there is enough liquidity in the economy to meet investment and consumption needs, Kiem said. The economy is expected to grow at 6.7 percent this year, compared with 8.48 percent last year. At the beginning of the year, the government expected growth of up to 9 percent. The government has also lowered its inflation forecast for the year to 22 percent from an earlier estimate of 24 percent. It is scheduled to approve the stimulus package at a meeting later this month, and release details of how or when the money would be spent. TARGETING CONSTRUCTION, HOUSING Most of the government’s $1 billion stimulus package would be spent on construction projects and housing for people most affected by the slowing economy, Deputy Minister of Planning and Investment Cao Viet Sinh told Bloomberg Thursday. The plan, scheduled to be submitted to Prime Minister Nguyen Tan Dung for final approval next week, would be carried out early in 2009, Sinh said. The government may lend the money, less than 1.2 percent of Vietnam’s gross domestic product, at a zero percent interest rate, Minister of Planning and Investment Vo Hong Phuc said in a December 9 interview on national television. Small- and medium-sized companies would not benefit from the spending as they have received support through measures like reductions in interest rates and corporate tax cuts, Phuc said. The government may also provide guarantees to help the companies gain access to loans, Phuc said. Reported by Ngan Anh