After fighting against inflation, VN now tries to stimulate demand

VietNamNet Bridge – The bailouts, if they are launched, should target consumers in order to stimulate the demand, experts say, warning that the deflation, if it occurs, would be more dangerous than the inflation.


Dr. Tran Dinh Thien, Director of the Vietnam Economics Institute, has noted that the inflation has decreased more rapidly than expected, but there have been signs of the economic decline.

Despite the interest rate reductions, businesses still cannot access bank loans because of the strict requirements set by the banks on borrowers. Commercial banks keep reserved when providing loans, because they still cannot clear the big bad debts.

Economists believe that in such conditions, a new bailout is really necessary for now. Dr. Tran Hoang Ngan, a Member of the National Advisory Council for Monetary Policy, thinks that the bailout should target consumers, saying that stimulating the demand is a way to indirectly support businesses.

The biggest problem for enterprises at this moment is the high inventories. Therefore, once the government stimulates the demand, this would help businesses clear their stocks to get money back to cover the expenses.

How should the bailout be?

Since 2008, the government has applied a series of measures in an effort to stop the economic decline. The total sum of money spent so far, according to the Ministry of Planning and Investment, has reached VND143 trillion.

However, the huge bailout could not reach the right addresses. A National Assembly’s report showed that the bailouts have had impacts on profitable businesses, while unprofitable businesses could not get the support in need.

The 2009 bailout, in the eyes of economists, aimed to stimulate the supply, not the demand.

Meanwhile, Phung Quoc Hien, Chair of the National Assembly’s Finance and Budget Committee, has warned that the bailouts, if they cannot be managed effectively, would make the financial burdens heavier on the national economy.

As such, economists say, if Vietnam is going to launch a new bailout, it should be a credit package to target consumers to stimulate the people’s demand, encourage them to spend money on goods and services.

“We need to warm up the total demand of the national economy,” said Vu Viet Ngoan from the National Financial Supervision Council.

In order to reach that end, the government needs to increase its spending, or the public investments. This would help encourage the production and create more jobs, thus helping rescue the national economy from recession. Besides, the government has also been urged to cut tax to support enterprises and people.

In late 2008, the Chinese government announced it would launch a bailout worth $586 billion. The bailout comprised a mater program on restructuring the country’s infrastructure system. This included the projects on upgrading the rural infrastructure systems, railways, highways and airports, the projects on developing power transmission networks, protecting the environment and developing healthcare, education and culture.

China decided to focus on the infrastructure development as the basis for the demand stimulation, because the country decided to rely on the domestic demand to overcome the economic recession.

The bailout did not aim to rescue commercial banks or big conglomerates in difficulties, but aimed to stimulate the domestic production.


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