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Bad decisions curb good policies

Update: December, 29/2012 - 09:28

There are many good policies but bad decisions limit their impact, says Pham Chi Lan, an economic expert, speaking to the newspaper Thoi bao Kinh doanh (Business Times).

In your opinion, what are the major problems facing Vietnamese enterprises at present?

There are three main problems that Vietnamese enterprises are currently struggling against.

The first problem is output. The weak domestic market means companies have weak purchasing power and low investment capacity. This is the main reason that many enterprises are seeing huge inventory. According to statistics, the inventory index this year is much higher than previous years.

The second problem is increased prices in both domestic and international markets.

And the third problem is credit access. The high interest rate discouraged enterprises from borrowing money from banks or credit organisations. However, the recent decrease in the interest rate still did not help enterprises much. The banks say that they have money available, but the enterprises don't want to borrow it. But in reality, many enterprises, including those that have been making steady profits, still cannot borrow money from the banks.

In 2012 the government came up with various policies and measures to support enterprises, including tax cuts and tax extensions. What do you think of these policies?

Enterprises highly appreciate these decisions, which demonstrate the Government's willingness to help firms with their problems.

Frankly speaking, however, these policies have not achieved their intended result, that is, rescuing the enterprises from the current difficult situation.

Many enterprises have benefited from the government's tax extensions, but in the end they still have to pay taxes - not this year but next year. In other words, they still owe a debt to the government.

The government's decision to cut office leasing fees for trading enterprises only applies to certain localities. However, weak purchasing power has forced a number of enterprises to close.

Do you think the situation will improve in 2013?

That depends heavily on the government's efforts to stabilise the macro economy, particularly the ongoing process of economic restructuring. If the process is conducted with fairness and effectiveness, all businesses will be able to develop.

As for how to support enterprises in overcoming their difficulties, as far as I know, the National Assembly and the government are thinking about adopting more basic, yet effective solutions - for example, reducing taxes for enterprises. It is high time for them to make such a decision. At its year-end meeting, the National Assembly decided to increase the individual income tax threshold to VND 9 million ($ 440) per month – a good decision. We're now waiting for the National Assembly to cut taxes for enterprises to 20 per cent. This basic measure would help enterprises stand up again.

Some say that the outlook for Vietnamese enterprises is not so bleak, as the number of newly-established enterprises surpasses the number of those that dissolved or went bankrupt. How do you respond to that?

This is still alarming news, as the number of dissolved/bankrupt enterprises is the number of "dead" enterprises. Consequently, many employees are out of work.

While the newly-established enterprises may have obtained business licences, chances are good that they are not yet in operation. If things go on like this, what will be the future of our economy?

Another concern I want to mention here is the "step backward" of domestic enterprises in both international and domestic markets. An evidence of this is the decline of export turnover coupled with the increase in foreign direct investment (FDI), which accounts for about 75 per cent of the nation's export turnover.

Regarding the domestic market, FDI enterprises show a tendency to merge with and acquire domestic enterprises.

Vietnamese enterprises, particularly small and medium enterprises, are in a tough situation despite the government's efforts to rescue them. Do you think the root cause of the problem is poor co-ordination between implementing agencies?

As I have mentioned above, many policies are good, but they are not well-implemented. Case in point: the decision on tax exemptions and reductions for enterprises vs. the decision to increase prices of petrol and electricity.

No doubt the price increase on these products will add to firms' production cost – presenting another dilemma for enterprises. — VNS

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