Sunday, May 13, 2012

Billions of dollars needed to rescue enterprises | Look At Vietnam

Billions of dollars needed to rescue enterprises

May 13, 2012
The Government should spend US$3 billion or so to help enterprises restructure their debts if the national economy is to be put back on the development track, said a local economist.
Le Xuan Nghia, former vice chairman of the National Financial Supervision Committee, said the Government should buy enterprises’ debts totaling billions of U.S. dollars to help trigger the cash flow in the economy again, otherwise the stagnation would worsen.
“The Government could issue bonds (to have capital for buying debts) and in my opinions many banks with ample funds will be ready to buy up the Government bonds,” Nghia said in on Wednesday’s issue of Sai Gon Tiep Thi.
He said that “we should tackle debts of groups 4 and 5 (as the worst non-performing loans), and I estimate that the total amount of debts of these groups requires three billion dollars.”
The economist explained that heavily-indebted enterprises either dare not borrow more funds from banks, or are not eligible to take out more loans. Even if they can take out loans, many of them will wrongly use the capital by using it to service old debts.
Nghia highlighted the urgency of rescue packages now that the cash flow has almost stalled as seen in the inactivity in the banking sector.
As of the end of the first quarter, the credit growth was minus 2%, while deposits increased a mere 1.5%, Nghia said.
Many banks are facing a glut of funds, such as Asia Commercial Bank with some VND50 trillion in its coffer, while big State-owned lenders have hundreds of trillions of Vietnam dong each, he said.
Another sign of the stagnant cash flow is the tumbling transaction volume on the inter-bank market, although the overnight rate has crashed to only 5-6% annually.
Commenting on rescue solutions being mapped out by central agencies, Nghia hailed the measures of imposing the lending rate cap, resuming bank loans for the property sector, as well as extending value-added tax and corporate income tax.
However, he also observed that such measures had been taken too late, and should have been introduced since last year when business conditions worsened.
However, the extension of corporate income tax is of limited effect, since many enterprises have virtually halted business without any income generated, so the solution is not of any help to them.
If the Government had come to enterprises’ rescue earlier, the price to pay would be less expensive, he said. “Now, the cost (of rescue) is higher, but the effect will be smaller and come longer.”
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