Support targeted for struggling businesses

Vu Nhu Thang, director of the Ministry of Finance's Financial Strategy and Policy Institute

Vu Nhu Thang

The Government's decision has supported enterprises in a timely move with appropriate measures to help them overcome difficulties. I think this is an opportunity for enterprises to restructure.

When recommending the support package to the Government, the Ministry of Finance evaluated the enterprises' difficulties in the context of the macro economy, looking at imports, exports, GDP growth and the inventory status of a range of businesses. The ministry also analysed the number of newly-established enterprises and those which dissolved or went bankrupt.

In the first quarter of this year, about 18,700 enterprises were established. The number that dissolved and stopped business during this period was over 10,300, and of those, 65 per cent were new ones that had just been in the market for one to two years only. With such a limited time, the new enterprises had really just approached to the market. Their business had not expanded much. In principle, investment-production-business schemes need three to four years.

Through evaluation of business inventories, we found out the difficulties facing many production enterprises, especially those in engineering, cement, iron and steel, leather and shoes, and the garment and textile industries.

It is true that the 30 per cent reduction in corporate income tax would be a boost to enterprises that have substantial incomes. But I think the six-month deferment of the value added tax (VAT) would benefit even enterprises who suffer losses. Once they can sell their products, they will also get income and can pay the VAT. When the tax is deferred, the enterprises will have opportunities to increase the liquidity of capital flow during this time.

The Government will also push up the disbursement speed of public investment and expenditure. This would help enterprises in general strengthen inventories, for instance, by buying iron, steel and cement for basic infrastructure projects.

The Government's long-term target is to stabilise the macro economy and maintain a reasonable growth rate. So we need to make support effective and efficient. Enterprises that have the capacity to succeed, but still face temporary problems due to high input costs and a difficult market while also having full inventories would get support. Besides, we need to obey all international pledges when doing this.

The support will also have to work in accordance with monetary policies, or the support package will have a bad impact on the macro economy.

The use of the fund for credit guarantee funds for small-and medium-sized enterprises will also be researched so it can be honed. We will take into account suggestions and recommendations to supplement measures to support enterprises facing bankruptcy.

We hope the support package can be applied within this month since most of the measures can be implemented right away. The Ministry of Finance has also compiled guidance documents to help enterprises get the support soon.

Cao Sy Kiem, chairman of Small -and Medium-Sized Enterprises Association

Cao Sy Kiem

In my opinion, this support package only helps ease the burden of struggling enterprises to a limited extent. In the financial package worth VND29 trillion (US$1.38 billion), a major proportion, VND16 trillion, actually comes in the form of extending the tax deadlines. This means the State only delays collecting this year's taxes to some other time in the future, the enterprises will still have to pay that amount of taxes anyway. Of the remainder of the package, only VND4 trillion comes from tax exemption which can practically benefit the enterprises. Nonetheless, this amount when divided by dozens of thousands of enterprises will result in an insignificant amount for each of them. I'd say this package is just giving a moral shot in the arm of enterprises in that sense, not to mention the concern whether the aid will actually go to those who really need it.

To provide substantial help for the enterprises to be able to rise from the economic doldrums, five measures need to be put in place in sync immediately. First we have to do everything we could to cut down production costs which somehow relates to the second measure of pushing for stronger administrative reforms. I have to say there are still many burdensome administrative procedures that could slow down an enterprise's progress and result in higher costs. The third measure is to get all the economy's actors to work together and support each other because they are closely related. For example the steel, cement and bricks are outputs for the material industry but these items are also inputs for the construction industry, the result is houses which are then an input for the real estate industry. The important thing is to ensure that everything flows smoothly from one component of the economy to another. The fourth measure is increasing the efficiency of the relevant policies. Normally, it takes a great deal more time than is necessary from the drafting of a policy to putting it into practice. We need policies that are able to respond quickly and efficiently to economic developments. The fifth measure, which is no less important, is to spur domestic consumption by reducing prices and increasing salaries to boost sales.

That being said, there is more to be done in the long run if we want the economy to thrive again. This involves taking big macro-economic steps such as financial restructuring, adjusting growth models and improving resources to make sure that once we go out of this difficult situation, we will not fall back into it again.

Nguyen Dinh Cung, deputy director, Central Institute for Economic Management

Nguyen Dinh Cung

I do not think the support package for enterprises would be effective. I do not like it. Of the VND29 trillion ($1.38 billion) in tax breaks proposed by the Ministry of Finance, some VND16 trillion ($763 million) would come from a reduction of VAT and corporate income taxes for enterprises. This may help enterprises ensure their liquidity, but this sounds too small compared to the number of enterprises in need. It is just equivalent to 0.7-0.8 per cent of the total value of credit in the economy. Assuming that some 200,000 enterprises out of the total 400,000 can be beneficiaries, the benefit each gets is too little and insignificant.

Talking about tax exemptions, they are supposed to help enterprises increase their revenue. The problem is that enterprises already don't have much profit, so this measure will only take effect when applied to enterprises with earnings, while those which are really in trouble and facing bankruptcy cannot benefit.

The third measure is to speed up the disbursement of State spending. But this is just about procedures taking place earlier while the total investment remains the same, and the total demand for the year remains. So there is nothing really effective here.

Of course I highly appreciate the effort of the Government to share the difficulties of enterprises by proposing the support package. However, this is just a short-term band-aid measure on a small scale. In addition to this package, the Government should have longer-term measures in place, including restructuring the banking system to ensure liquidity, improving the business environment through legal reform, and attracting new sources of capital and new flows of investment. — VNS