VCN - The development and impact level of the acute respiratory infections caused by new strain of the Corona virus on the socio-economy are serious, complex and unpredictable. Therefore, supportive moves especially fiscal and monetary policies will be needed but must be prudent.
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Support to reduce interest rates
According to a Ministry of Planning and Investment report on the impact of the epidemic on Vietnam's socio-economy, the epidemic will have direct or indirect impacts on all industries and sectors of the economy. The targets of the 2020 Socio-Economic Development Plan assigned by the National Assembly will be hard to achieve, especially the targets of economic, trade, import and export growth. Thus, besides deploying solutions to prevent and control the epidemic, one solution proposed to restore production and stabilise people's lives is that agencies such as the Ministry of Agriculture and Rural Development, Ministry of Industry and Trade, and the State Bank of Vietnam (SBV) should study supportive policies for businesses, cooperatives and farmers affected by the epidemic, such as debt freezing, extension of debt repayment terms and exemption and reduction of loan interest rates.
In fact, before these directions, the banking sector implemented solutions to support businesses and people affected by the epidemic. Accordingly, the SBV directed credit institutions to support and restructure the repayment term, and consider exemption and reduction of loan interest rates for people and businesses, especially in tourism, rural agriculture and import and export. Many commercial banks immediately endorsed the direction and announced support to reduce interest rates by 1-3 percent for businesses in affected fields and businesses of which export markets or import markets are mainly China. In addition, many banks have also provided low-cost credit packages of trillions of dong for businesses, or exempted or cut international payment fees for business customers engaged in pharmaceuticals, medical equipment and supplies and mask materials.
Currently, the VND lending interest rate is at 6-9 percent per year for short-term loans and 9-11 percent per year for the medium and long term loans. Thus, businesses can save a lot of costs, compensating for the damage caused by the Corona epidemic. SBV Deputy Governor Dao Minh Tu said banks need to see that support and sharing difficulties with businesses are also for their benefits in the long run. In addition, the SBV will also be ready to support liquidity for commercial banks if they are affected by the epidemic.
Flexible and prudent
Business results in 2019 were announced by many banks with profits up to trillions of dong and many banks even recorded new profit records. According to experts, the fact that commercial banks achieved high profits will be an important basis for banks to launch supporting programmes for businesses in this Corona epidemic without worrying much about affecting their 2020 profit target.
According to Dao Minh Tu, the liquidity of commercial banks is currently abundant and there is no phenomenon of a lack of capital. Therefore, the SBV has instructed commercial banks not to raise interest rates, including deposit rates. If necessary, the SBV will make adjustments to indirectly support commercial banks to reduce interest rates.
The above options can be considered a move to loosen monetary policy to support the economy. Experts say this move is necessary because the Corona epidemic is exerting strong impacts on inflation as well as the economy.
MBS Securities Company’s report on economic outlook in the end of January, 2020 said the above situation is the motivation for looser monetary policy from the SBV, partly balancing the impact on inflation. However, due to high inflation at the end of 2019 and January 2020, the SBV will be limited in its ability to continue easing monetary policy to support the economy. However, according to MBS, in general, pressure on inflation will be reduced due to the weakening of economic activity in the first quarter and first half of the second quarter.
Experts warned that the support of monetary policy easing must be very prudent. According to Dr. Nguyen Duc Thanh, Director of the Vietnam Institute for Economic and Policy Research (VEPR), measures to adjust exchange rates and interest rates must be careful because they can affect many other industries as well as the more heavily affected industries such as tourism or agricultural products. In particular, use of macro tools such as currency, fiscal and credit requires a certain selection, which needs to be properly provided to industries and businesses which are most affected by the virus.
He also raised concerns about the risk of capital leakage into other sectors or industries, especially sensitive sectors such as real estate, resulting in unnecessary bubbles because the market is facing problems. The use of exchange rate tools may not have a specific value in the current situation and may cause a negative impact on the whole economy. Because of these concerns, the SBV's leader also emphasized that credit institutions support the right subjects and avoid cases of ambiguity and taking advantage of support for losses which are not caused by diseases.
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At the same view, Dr. Dang Kim Son, former Director General of Institute of Policy and Strategy for Agriculture and Rural Development, said policies must be prudent and flexible. Policies such as debt freezing, tax reduction and opening of distribution channels may bring temporary support to the economy in the complex context of the epidemic. But in the long run, the economy needs radical solutions such as diversifying markets, building value chains from production to final consumption, shifting small and ragged production into large-scale production. Moreover, according to Dr. Nguyen Duc Thanh, the State needs to use micro-supportive measures within certain industries and markets, helping businesses have more new technical and specialised solutions.
By Huong Diu/ Huyen Trang