The interest rate subsidy package has proved effective in helping the national economy to get back on the right track. However, the second domestic stimulus package should only be introduced if the export market sees no bright prospects ahead, said Dinh Van Nha, Deputy Director of the National Assembly’s Finance and Budget Committee.

Increasing the interest rate subsidy for farmers

Regarding the interest rate subsidy programme, Dr Nguyen Ngoc Bao, Head of the State Bank of Vietnam’s Policy and Monetary Department spoke highly of the subsidized lending rate of 4 percent that helped reduce borrowing and production costs by 30-40 percent and 2-6.5 percent, respectively and lift the credit growth rate to 19.22 percent to stem the economic down turn in the first half of this year.

According to a recent survey carried out by the Chamber of Commerce and Industry (VCCI), 91 percent of small and medium sized enterprises can now maintain their production activities as a result of the interest rate subsidy package.

However, interest rate subsidies also revealed a number of shortcomings such as a lack confidence in borrowers. Dr Bao said that it is difficult to control negative influences when taking out loans with commercial banks and this can affect the stability of interest rates and the foreign exchange rate.

The Finance and Budget Committee has been working with the Bank for Agriculture and Rural Development and the Bank for Investment and Development which recently refrained from granting loans to those businesses already enjoying an interest rate subsidy. For lack of capital, many new projects were unable to get off the ground. Especially, no sooner had farmers gained access to information about capital sources than banks started limiting the granting of loans.

Stimulating domestic consumption is necessary

It is essential to have a second stimulus package, especially to help boost domestic consumption in the face of weak export performance, said Mr Nha. He analysed that the policies on interest rates have contributed to improving the quality of Vietnamese exports in the recent past. However, it is still difficult to achieve growth targets as the world’s major markets are still in a fix.

In the long term, Vietnam must seek new outlets for its export industry instead of depending too much on traditional markets such as the US and the EU. In addition, there must be incentive policies for export businesses to meet the demands of domestic consumers while waiting for opportunities to increase export sales. “The State should spend more money from its budget encouraging the purchase of domestic goods, machines and equipment”, he said.

Mr Nha also stated that despite some signs of economic recovery, it is also necessary to adjust policies in line with the real situation. However, restructuring the national economy remains a thorny issue, which will need to be addressed over the coming years.