VietNamNet Bridge - The government plans to transfer its burden of acting as a guarantor for loans to commercial banks in an effort to better control public debt.

 

The newly released government Resolution, which has for the first time mentioned the government’s guarantee for new loans, says that the work ‘would be gradually transferred to commercial banks’.

An analyst, commenting that the government has ‘taken the right move’, noted that the government might have been aware of the high risks for the national economy when turning state-owned enterprises’ (SOEs) commercial loans into the nation’s liabilities. 

With the government’s guarantee, if SOEs, or borrowers, cannot pay debts, the government has to fulfill the payment duty. 

With the government’s guarantee, if SOEs, or borrowers, cannot pay debts, the government has to fulfill the payment duty.

The analyst commented that by passing the ‘ball’ to commercial banks, the government might hope this will force SOEs to think carefully before borrowing money to run their development projects. 

In principle, commercial banks will think carefully before granting guarantees for SOEs’ loans, and they will only act as the guarantors if they think enterprises can pay debts.

As such, the new mechanism would not only help the government ease the public debt burden, but also help improve SOEs’ business performance and governance skills, thus indirectly influencing the restructure of SOEs.

He noted that the government was cautious about the new policy when pointing out that the guarantee ‘would be gradually transferred to commercial banks’. 

This means that the government would still continue acting as a guarantor in some cases, because many SOEs would not be able to borrow capital without the guarantee.

Chau Dinh Linh, an expert, said he can see two big problems in the government’s guarantee. First, the debts guaranteed by the government account for a big proportion of the total public debts. 

A report shows that 80 percent of total public debts are government’s debts, 19 percent government-guaranteed debt and 1 percent local authorities’ debt. 

Second, the investment efficiency of many projects implemented with government-guaranteed loans is very low. This explains why the government has to pay more and more year after year to pay debts for SOEs.

In 2010, the government had to pay VND1.676 trillion for SOEs, while the figures rose to VND2.437 trillion in 2011, to VND2.588 trillion in 2012 and VND1.728 trillion in 2014.

Therefore, Linh believes ‘this is a right decision providing that it can be implemented in the right way’ by the government, enterprises and commercial banks.

Nguyen Tri Hieu, a banking expert, also thinks the new policy would help ease the burden of public debt which is on the rise, and that it would be good for the market economy.


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