This year has marked great changes in the financial and monetary markets with a range of policies to curb inflation and stabilise the economy. For fiscal and monetary policies to be more appropriate next year, a thorough reassessment of what has been achieved this year is needed. The Viet Nam News Agency spoke to senior economist Bui Kien Thanh on the issue.
How do you assess the Vietnamese financial and monetary market this year?
The market continued to be affected by the previous fiscal year's difficulties, particularly high credit growth. The growth rate was 38 per cent in 2009 and roughly 30 per cent last year. With the latency of the policies, this growth has pushed inflation up. Banks did not fully comply with the law. The act of dodging ceiling interest rates and other regulations prescribed by the State Bank especially became quite common. Meanwhile, the sanctions had not yet produced effectiveness as hoped. These, in turn, made financial and monetary activities, to a certain extend, disordered. It was not until late this year did the efforts of the State Bank achieve some positive results.
In addition, the management of interest rates did not come up to our expectation. The central bank wanted to control annual loan interest rates at 17-18 per cent and deposit interest rates at 14 per cent per year. However, Viet Nam has only somewhat controlled deposit rates. Loan rates remained high, leaving enterprises facing a number of challenges. They had to cut down on or even halt their production.
While a part of the situation was brought about by the upheavals of the global economy, the main culprit lay in our policies and management methods. Therefore, the management of the monetary market next year needs more transparency and a closer watch.
Many allege that the operation of the banking system needs to be restructured for better efficiency. What is your opinion?
Banking operation does not encapsulate only the services of lending and deposits but also performs many other services, the most important of which is consulting borrowers about how to effectively invest in business. If banks run nothing than lending, they are not much different from a pawnshop. Nevertheless, many banks cannot perform consulting services well due to the lack of capacity and human resources. So the Government should immediately carry out health tests to define and settle ailing banks, avoiding adverse impacts on the system.
Another problem is that in the past few years, banks from localities made their appearance in big cities so quickly that they had to compete with large banks by reducing interest rates to attract capital, troubling both the banking system and the financial/monetary market. Meanwhile, there were not enough banks in provinces to provide essential services for local development. Therefore, it is necessary to reinforce local banks serving development in rural areas.
What do you think the central bank should do to effectively run the financial and monetary market next year? Is the target of bringing inflation rate to a single digit and GDP growth at 6-6.5 per cent achievable?
I think the top priority now is to create favourable conditions for enterprises to continue production and to develop, so that the economy can attain sustainable growth. To actualise this, we will need to ensure an adequate supply of credit with reasonable interest rates for businesses. Only when the economy and businesses thrive well can we solve other internal problems. So, interest rates should be at least reduced to below 10 per cent, companies will be able to borrow and make profits.
I also think that the State Bank should run monetary policies closely and flexibly in accordance with Resolution 11. However, I would emphasise that close management does not mean tighter policies. The policies have to be more flexible in a manner that analysis is made to adequately respond to the needs of the economy.
Regarding the Government's target in inflation and GDP growth rate for the coming year, it will be feasible if the economy and businesses are well-developed in the context of low interest rates and stable prices. To do so, appropriate policies are to be issued. If there are no changes in policies or the changes are not seriously implemented, this target will be hard to be obtained.
(source: VNS)
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29/12/2011 04:11:26 PM | 