Speaking with Saigon Investment, Dr. NGUYEN TRI HIEU, a banking and finance expert, expressed his views on this issue.
Journalist: - Sir, there are many opinions on how the Vietnamese economy must find solutions to survive through the current Covid-19 pandemic phase. What is your opinion on solutions for the economy during these troubling times?
Dr. NGUYEN TRI HIEU: - For the economy to be able to survive through the pandemic, the top most priority is to step up vaccination and create a strong herd immunity in all communities. First, to achieve this high level of immunity, vaccination drives must cover about 70% of the entire population. This is a difficult goal to achieve by the end of this year, but it must be attempted and effort must be made to achieve it.
Second, in almost all industrial parks, enterprises must reorganize their operating methods. Workers must sit at a faraway distance from each other, and split into many shifts so as to reduce crowding any space. Enterprises need to develop a system of rules and sanctions in case any employee violates the strict procedures required to prevent, control and contain the pandemic. Enterprises must arrange for accommodation and activities for workers so that in case the disease breaks out, they can stay at their workplace. Every enterprise must also have a health care unit ready to support all workers and other employees whenever needed.
Such changes will create huge costs for enterprises. Hence, to be able to survive through this pandemic phase, many businesses need urgent support from the State. Specifically, they must be in a position to take out loans at low interest rates to be able to maintain operations, as well as keep production going even as the Covid-19 pandemic rages on relentlessly. Nonetheless, we must accept that the Consumer Price Index (CPI) may suddenly increase sharply in the very near future.
The CPI in the first six months was still very low but this will go up in the last six months of the year, when the price of iron and steel, petrol, electricity, water, and several commodities is expected to go up. If inflation rises, it will also push up the deposit interest rate as well, and then the loan interest rate will also increase simultaneously. Businesses will then face more difficulties in accessing loans, especially preferential capital with low-interest rates.
- Sir, in your opinion, does the Government have any formula to support businesses through the pandemic and also develop the economy?
- The Government has issued Decree 52/2021/ND-CP which extends the deadline for payment of value-added tax, corporate income tax, personal income tax, and land rent in 2021. The extension period is from three to eight months as per each tax, effective from 19 April 2021. Actually, tax extension is good, but it only helps profitable businesses and excludes loss making businesses.
In the current conditions, there are not too many profitable businesses that are still running. Even state-owned enterprises, such as Vietnam Airlines or the Vietnam Railway Corporation, are facing difficulties. So it is clear that it must be far more difficult for small businesses to pay taxes. However, in the current budget situation, it is difficult for the Government to offer large support packages.
Therefore, to help enterprises have capital and liquidity to maintain operations, at least through this difficult phase, it is necessary to have a national credit plan, in which all commercial banks must be made to participate, with a limit of about VND 300,000 bn. This credit amount with the Credit Guarantee Fund to provide unsecured loans at low-interest rates for businesses facing difficulties during the pandemic is quite risky. With the risk of small and medium enterprises, and enterprises affected by the pandemic, no bank would be willing to lend at this time.
- Sir, recently the Vietnam Young Entrepreneurs Association sent a document to the Prime Minister, proposing six solutions to support businesses to overcome difficulties during the Covid-19 pandemic, which included freezing of debts and reducing lending rates. What do you think about this proposal?
- The proposal of the Vietnam Young Entrepreneurs Association shows their desire to help solve difficulties for both small and medium-sized enterprises, but it is difficult for banks to implement this plan on a wider scale. Debt freeze measures are considered hopeful, but they are still limited. Each bank will have a plan to help businesses, although it is difficult to dictate terms to them, because the bank is also a business, and they still have to maintain operations. The collapse of any banking sector affects the whole economy.
Regarding the proposal to reduce interest rates on all existing loans by 2% for at least one year, of which the budget will support 1% and commercial banks will support the other 1%, if the Government and commercial banks agree, then it will be very good. However, if the interest rate is reduced by 1%, banks will lose profit and even see losses, as factually speaking banks have a lot of bad debts. These bad debts are a potential loss that will have to be accounted for in the future if customer performance does not improve.
- Sir, what sources do you think can be used to implement support packages for businesses to maintain and restore production?
- Currently, there are many businesses that need to be rescued urgently. For example, the tourism and transportation industries are key industries for a strong economy, but they have both been drastically affected by the pandemic. Many businesses in these two fields are calling for urgent help. When national resources are difficult to reach or are limited, perhaps the support of world financial institutions is needed. The government needs to have loan proposal programs sent to world financial institutions such as the World Bank, Asian Development Bank (ADB), or European Development Bank (EIB).
All these resources need to be utilized to facilitate the implementation of low interest loan programs and defer payment of principal for badly affected businesses. From there on, businesses have the opportunity to maintain as well as restore operations, and continue to contribute to the development and growth of the economy. As for banks operating on the principle of capital adequacy assurance on the basis of Basel, they cannot reconcile on that principle. Especially during the pandemic, their risks are greater, so they have to strictly comply with capital adequacy regulations, but such compliance cannot support the economy.
- Thank you very much.