Vietnam: Gov’t urged to minimize credit policy impact on economy

by **ADMIN** Mon Jul 04, 2011 7:34 am

July 3, 2011
Gov’t urged to minimize credit policy impact on economy

VietFinanceNews.com - The National Assembly’s Finance-Budget and Economic committees on Thursday asked the Government to be more flexible in monetary policy to minimize negative impacts on investment and manufacturing.

While upholding the Government’s credit tightening policy done in the first six months this year, the two committees suggested that the Government avoid hiccups in fiscal and monetary policies to avert any shocks to the economy. Such a suggestion hints at preventing the possible move by the Government to pump more money into the economy in the rest of the year given the dire need of capital among enterprises.

The Economic Committee said that the Government should regulate the credit growth and disbursement of investment capital from the State Budget to avoid any surge in money supply towards the year’s end that would pile pressure on inflation.

A report by the Government at the meeting shows that by June 20, money supply increased by less than 3% while the credit growth was slightly over 7% from late last year, while the Government’s earlier plan for this year set the targets at 15% and 20% respectively.

That means outstanding loans can still grow an extra 13% and money supply can increase by another 12% for the second half of the year, which if fulfilled may lead to an upsurge in money supply and credits for the economy.

Ha Van Hien, chairman of the Economic Committee, said the Government should closely monitor the economy, especially fiscal and monetary issues.

“Besides flexible monetary management policies, the Government should pay attention to market management, supervise credit institutions’ operations and gradually decrease the interest rate to ward off difficulties for enterprises,” he said.

Hien added the Government should stabilize the forex rate but should not let the Vietnam dong appreciate against the U.S. dollar which can hinder export.

The Finance-Budget Committee said the Government should actively use market instruments rather than administrative measures that could create negative reactions on the financial market.

In an unexpected move, the committee suggested that the Government resort to the initial credit growth target of 23% instead of 20%, as a sharp fall in credit expansion from 31% last year to 20% this year would pose more challenges to the business circle.

Regarding efforts to reduce public investment, the two committees shared a view that the Government had not yet issued clear guidance on downscaling, delaying, or rescheduling the progress of projects, prompting confusion among localities.

In addition, according to feedback from provincial authorities via NA members, many projects that had been started early this year before the issuance of Resolution 11 on inflation fighting have now been stalled due to financing sources being choked off. Many of them play important roles in master projects that are vital to provincial economies, according to the two NA committees.

“If those projects cannot go on, it will create a big waste for society,” said the Economic Committee.

At the meeting, the Government asked the NA for approval in revising up 2011 inflation target to 17% from the 15% made one month ago.

The Government pledged to keep other targets like GDP growth rate at 6%, budget deficit less than 5% of GDP, and trade deficit at 16% of export revenue.

http://www.vietfinancenews.com/2011/07/govt-urged-to-minimize-credit-policy.html