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Rising inflation, interest rates take their toll on Vietnamese enterprises

Update: April, 19/2012 - 10:25

Dr Tran Dinh Thien, director of the Viet Nam Institute of Economics, spoke to Thoi bao Kinh te Sai gon (Sai gon Economics Times) about why so many businesses are closing.

The first quarter of this year saw a reduction in the consumer price index (CPI) and the import index. Yet consumption power declined alongside sluggish production. What are your thoughts on this?

High inflation has led to high interest rates over a prolonged period, destabilising the macro-economy, hindering investment development and affecting purchasing power, which has led to stockpiling of products.

With the global economy in crisis, domestic firms have remained at a stalemate, many closing down or decreasing productivity.

Despite declining inflation, the national economy is still growing at a slow pace, threatening development.

The number of enterprises halting production has been on the rise. Is this the price we have to pay for keeping the macro economy stable?

Enterprise closure is the price we have to pay for prolonged macro-economic instability, which has kept inflation high, the economy slow and purchasing power weakened.

Has capital shortage and credit access contributed to the problem?

Yes, credit access remains a concern with bank liquidity weak.

In my opinion, high interest rates are not the main barriers in borrowing from banks however. The problem is that enterprises have little capacity to absorb capital. Many have bad debts, which disqualifies them from obtaining loans. If they cannot sell their products what is the use of producing new ones. It is a vicious circle.

In your opinion, what can be done to alleviate the situation?

We have to maintain macro-economic stability and reduce inflation to lower both deposit and lending rates.

Secondly, output needs to improve. If enterprises cut production people will lose their jobs alongside much needed incomes.

I suggest the government reduce taxes or give tax exemptions to firms instead of only delaying tax payments. This would mean tax revenue and public spending reduction alongside an increase in the efficacy of spending.

Proposals to collect new fees, in my opinion, should be considered carefully in order to avoid high taxes, tariffs and fees which could further cripple enterprises. — VNS

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