How will the US$1bln stimulus package be used?

Published: 23/12/2008 05:00



VietNamNet Bridge - The government has just approved a US$1 billion measure to stimulate investment and consumption to cope with the slow growth of the economy, and difficulties of low-income people. How will that huge sum of money be used effectively?

Nguyen Hoang Hai, General Secretary of the VAFI

ietNamNet Bridge - The government has just approved a USD 1 billion measure to stimulate investment and consumption to cope with the slow growth of the economy, and difficulties of low-income people. How will that huge sum of money be used effectively?

The Vietnamese Association of Financial Investors (VAFI) recently proposed several measures how best to use the US$ 1 billion package effectively in order to boost the development of the economy.

The VAFI says that it should be used to guarantee credit and support interest for transportation, electricity and water, real estate and infrastructure construction projects. Through these projects, enough investment can be attracted in order to help create jobs and a stable income for employees.

“Many countries now use two levels to boost investment and consumption in their own struggles against the recessions in their economies. For example, China and the US have increased the level of government spending on infrastructure development, in which the government is the primary investor,” said Nguyen Hoang Hai, General Secretary of the VAFI.

According to him, it would also be a god measure for Vietnam’s government to also invest in transportation infrastructure development.

Can we solve all the current problems of the economy if we boost infrastructure investment?

If construction projects are carried out, it will create millions of jobs for the population. Moreover, construction materials, such as iron, steel and cement prices will also rise, and help out the companies dealing in those products.

I know that several electricity projects have been postponed due to a lack of capital. Banks hesitated because they were taking too long complete the projects. So it is essential to remove credit difficulties for businesses.

Do you think the sum of US$ 1 billion USD is both within the capacity of the government’s budget, and will it also meet the economy?

The capacity of our country is not as plentiful as other countries. The sum of USD 1 billion is not enough to lend to businesses to carry out infrastructure projects. So it will be used to stimulate, and mobilize many billions of USD from both businesses and the population.

Do you mean that it is best to boost infrastructure development instead?

That is right. If we are talking about stimulating demand, I think stimulating demand in infrastructure is the key, because our infrastructure is still quite weak. Furthermore, it will create more jobs, and simulating demand in consumption is only a temporary solution. To solve the greater difficulties of the economy, they must be solved at their source.

Which sector do you think is the viable and correct target for investment in order to stimulate demand?

The construction sector has huge demand, which means the demand of society and of people, therefore, it be easiest to get back the invested capital from that sector.

The sectors of banking or stocks are now abundant and solvent, so we should not pour money into them, or establish new banks or stock companies. Accordingly, I see that construction as the most feasible sector.

Investment in infrastructure is more propitious because of its capable economic growth. People’s income is enough to pay for these infrastructure works. Furthermore, the price of the raw materials needed are dropping at the same time that bank interest rates are being reduced.

Several electricity, water, road or bridge projects have been postponed due to a lack of capital. Procedures have been finished and the ground has been cleared already, so these projects should be considered first when deciding which projects to carry out first.

The real estate market has become frozen because it does not benefit mid-income people, only high-income ones. Millions of people do not have adequate housing to live, so there is a big demand there, but they can only afford to buy VND 400-500 million houses.

The demand for houses for mid-and low-income people is big, therefore, it a breakthrough in this field is needed.

How we should we achieve this breakthrough?

VND 2-3 billion apartments are too expensive for most people to afford, but I think that many people will be able to buy VND 400-500 million apartmentsm, although they are higher than their income. With the current construction cost of VND15 million per square meter, 30-40 square meters apartments would suitable for the majority of people.

Hong Kong and Singapore have many 30-50 square meter apartments but Vietnam has very little. We mainly build 70 - 80 square meter, and even bigger apartments. However, the majority people do not have the income toc afford to buy these apartments.

Thus, real estate businesses should re-structure their products right now. They should built apartments which are suitable with low- and mid-income people to meet the demands of the majority of the people, and break the freeze of the domestic real estate market.

If we pour money into infrastructure projects, which will take a long time to finish, that money will be taken out of circulation. Aren’t you worried that this might cause a money-commodity inbalance, and increase inflation?

According to me, this could happen because it usually takes a long time to implement change; therefore, the problem is that money has to be pumped in quickly and effectively in order to stimulate demand in 2008-2009.

If USD 1 billion is given to a state agency, which then gives loans to businesses or projects using complicated procedures, it will take a long time to disburse the money, and maybe it will be pumped into unfeasible projects, which will not create or stimulate demand.

During the 1997-1998 financial crises, we tried to boost demand, but we did it too slowly. The capital used then came from the state budget, and it took a year from planning projects in provinces to the disbursement phase, which had no effect to boost rising demand, because it was done too slowly.

What criteria and plans does VAFI have to use the sum of money effectively?

Projects having the above criteria proposed by the VAFI will have credit guaranteed at 20-30% out of the value of the loan contract from commercial banks by the state. In terms of credit guarantees, the state can provide a loan interest rate of 3% for business, and annual payments for bank loans.

Why have we assigned this to commercial banks? It is because they will do it faster due to their have dozens and hundreds of branches, and can disburse the money faster.

(Source: CPV)

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