Vietnam to End Stimulus Program
The Vietnamese government said it will end a key economic-stimulus program earlier than expected as it moves to counter signs that parts of its economy may be starting to overheat.
The stimulus program -- which provided subsidized loans to borrowers to inject billions of dollars of cash into the economy -- is credited with helping Vietnam maintain far stronger growth than most other countries this year despite the worst global recession in decades. Some officials and business leaders wanted the program to continue until March, and possibly much longer.
But the loan subsidies have come under fire recently from analysts who fear they could be flooding Vietnam with too much capital. The Vietnamese government now plans to terminate the loan-subsidy program for short-term business loans by the end of this year, it said on its Web site Wednesday, after bank credit expanded 36% in the first 11 months of the year -- exceeding a full-year target of 30%. A smaller program for medium- and long-term loans will remain in place for now.
The announcement came less than a week after Vietnam devalued its currency, the dong, by about 5% and raised interest rates a full percentage point in a bid to ease other speculative pressures weighing on the economy.
Although Vietnam's gross domestic product is forecast to rise 5.5% this year, compared with 6.2% in 2008, it continues to grapple with imbalances left from 2008, when the country was a hotspot for international investors. Inflation got out of control, peaking at 28% in August 2008.
Vietnam's economy has stabilized since then, but many of the underlying problems remain. Vietnam is one of the few Asian countries with both a fiscal budget deficit and a current-account deficit, and inflation, while much lower than in 2008, has started to tick up again. HSBC has predicted that inflation could again reach double-digit levels by the middle of next year. Property prices have continued to rise.
Some analysts feared the loan-subsidy program was exacerbating those problems, with stimulus money leaking into real estate. By offsetting the cost of four percentage points of interest on any loans by Vietnamese banks to the business sector, the program encouraged financial institutions to lend aggressively at a time when credit in other countries was drying up.
Vu Trong Khanh / Patrick Barta