Containing spread of pandemic is top priority


The US Federal Reserve (Fed) has made its second interest rate cut in less than two weeks to around zero in an effort to prevent a drastic economic free fall due to the Covid-19 pandemic.

Fight the pandemic first, then support the economy!

Fight the pandemic first, then support the economy!

Immediately, the State Bank of Vietnam (SBV) also cut its operational interest rate and adjusted some other interest rates to make it less difficult for production companies.

However, Dr. Nguyen Tri Hieu, a finance and banking expert, in a talk with Saigon Investment, expressed that such monetary changes maybe good but not what companies really need at the moment.

JOURNALIST: - Sir, over the last one and a half months, 42 central banks have cut their interest rates, but only after the Fed cut its interest rate for the second time in less than two weeks did the State Bank of Vietnam decide to cut its operational interest rate. What effects will this have on our socio-economic situation now?

Dr. NGUYEN TRI HIEU: - At this time, any measures or efforts to assist businesses are seen as good. Restructuring of bad debts and most recently the cutting of interest rates are significant measures. The SBV has reduced operational interest rate in the second market, while other banks can take loans at low costs and have more money to provide loans at low interest rates in the first market. Hence it is necessary to consider whether reduced interest rates on loans can improve the economy or not.

In the present scenario, companies that meet the loan requirements do not want to take loans because their current problem is how to maintain business activities and ensure that their employees can make ends meet. Meanwhile, companies that do not satisfy the loan requirements really need to take loans but no bank is willing to take that risk into giving loans to them. Reality is that credit growth in the last few months was much lower than in the same period last year, because credit needs are very low now. Reducing interest rates on loans and providing credit while credit needs are low has become like a stone that can kill no bird.

The current problem for the economy, companies and even the people is liquidity rather than credit because sales have plunged drastically. Airlines and production companies are concerned how long they can survive the recession while workers are worried whether they will still have work to do the following day and make enough money for their families as lots of companies have suggested a cut in employees’ salaries or take turns in unpaid leave days.

In the USA, for instance, the securities still plummeted by 12% even after the Fed lowered the interest rates, which means that the entire economy could see that a lower interest rate was not the arrow that can hit the target. The target now is how to maintain the buoyancy in the whole economy, in businesses and for the people. Things are just the same in Vietnam and the SBV has followed the same route. Central banks in other countries have made rate cuts, and so has the SBV, and it has reduced costs for businesses. However, what people and businesses need now is more direct support rather than credit assistance.

- The recent Directive 11 of the government mentions two important support packages for businesses and for people affected by the pandemic, namely, a credit package of VND 250,000 bn and a fiscal support package of VND 30,000 bn. If we say credit assistance is not what businesses expect at the moment, will the VND 30,000 bn in fiscal support package be more effective?

- Actually, the VND 30,000 bn fiscal support package is just part of the budget for delaying and reducing taxes while the VND 250,000 bn credit package is the amount provided by the banks as support for the economy rather than an aid package from the state. The fiscal support package could be more workable for the credit situation now than the credit package. However, this fiscal package is too small. I suggest the Government provide a bigger package with more support for businesses and the people.

In the USA, small and medium-size businesses (SMBs) get assistance from a guarantee agency when they take out loans from banks. When such a business fails to pay its debts, the agency will take the funds to pay from a concerned bank. In Vietnam, the Government should provide such support for businesses affected by the pandemic by pumping money into funds that guarantee credit for SMBs. These are measures that can provide the necessary direct assistance, but lower interest rates on loans cannot help much in the present situation.

- Sir, where are the resources that can provide direct support?

- The State can consider and balance other resources to create a direct support package for businesses and for the people for the time being. Recently, for example, efforts to disburse the public investment capital has been repeatedly referred to in an attempt to promote economic growth this year. I believe it is highly advisable to maintain public investment plans and step up infrastructure development, but it is essential to implement key national plans only and extract part of the amount to create resources as support for businesses, and take the economy away from reaching a point that could prove fatal.

 When an individual gets sick, all plans to make money and get rich must be put aside and the money must be spent on the treatment of the sick person. So in the same way, plans for business activities cannot be considered until the activities related to it are fully functional again. Our country is now in such a crucial stage. Therefore, there should be plans to contain the disease and stop its spread, before any plans for economic growth can be implemented for the future.

It is vital for businesses to get essential and immediate support to survive now. When we have managed to weather the recession, we can think of economic stability and growth. Let's say the pandemic reaches its peak in the next three months, then we can focus on gradually recovering from the depression in the remaining months of the year, and the recovery may take more than a year. This means, the world economy and the Vietnamese economy will not return to normal until the middle of 2021. This is why a support package is really necessary for the people now and for businesses to tide through this difficult period.

- Thank you very much.

Translated by Nguyễn Gia

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