VietNamNet Bridge – The Asian Development Bank’s country director for Vietnam, Tomoyuki Kimura, talked over macroeconomic issues in Vietnam, especially the settlement of bad debts.

Regarding the current macroeconomic situation in Vietnam, what concerns you the most?

- Tomoyuki Kimura: The Government has done a good job in stabilizing the macro economy especially in curbing inflation and the exchange rate volatility. Of course, as a result, the economic growth is slowing down. So to bring the economy back to sustainable growth of seven percent per year, the immediate issue is actually to address the banking sector. The short-term economic outlook is hindered by concerns over the health of the financial sector, particularly the nonperforming loan issues. The Government needs to take specific actions. I think they have started a combination of policies, but the market needs to see these policies implemented.

Tomoyuki Kimura

On the other hand for the medium and the long term, the concern relates to the structural reform, with regards to the financial sector, SOEs, and public investment. The next three or four years would be critical for the Government to realize the growth model of the country to improve competitiveness and productivity. How to tackle these three major reforms would be the key.

However, the price we are paying is too expensive when a large number of enterprises have disappeared from the market?

- Of course.  Previously the economic growth of this country was driven by a very aggressive liquidity. And a lot of them did not use the money in a productive manner. Now there is some process of restructuring or reallocating resources. In this process, some players are not very efficient and profitable. At the same time we see the new firms also coming up. This is a painful process without this the country’s economy will not be competitive and productive.

How do you assess the rate of non-performing loans in the country now, because there are so different figures. The ADB, IMF, and WB have warned that Vietnam did not deal with NPL in the right way.

- I don’t know how much the non-performing loans the banking sector has right now. Perhaps nobody knows. There are a lot of numbers brought up around and it is not easy to say what the right number is.

Anyway in addressing this huge challenge, the Government should come up with all possible actions, for example the establishment of VAMC. That’s the good direction, but of course the key is the implementation. Unless the market and investors see those policies are implemented, the concerns over the banking sector will not be removed, and continue to constrain the outlook.

Many countries have faced the same issue, such as Japan, Korea, Thailand, or Indonesia. It is very difficult to address this issue at one time. It has to be tackled over a certain period of time. I don’t know how long it would take.

But now the Government has all possible policy options. They have established VAMC. They have to come up with some certain road map. The market does not expect the Government to completely address the issue in one year. No, it is impossible. It takes some times. Showing a clear roadmap will give confidence to the market that the Government is really committed to this issue. This is very important, as the people will start to think about new investment, banks start to think about new lending, and the economy starts to grow.

Some experts have said that the economy would be fatally injured if the property market collapses. But, if the Government tries to rescue the market, another round of instability would return. What is your comment?

- The Government can’t do with the property market because it is the market economy. But properties in many cases collaborate with loans. Actually huge amounts are related to investment in those properties. So at the end of the day, there would be some parts of loans that cannot be recovered because of the current condition of the property market. To help the banking sector function, the Government has to step in. I don’t know how much, but they have to use the Government funds to address this issue. But I don’t know what size of the Government’s financial support would be needed to address it. I hope the establishment of VAMC and other policy measures will make it clearer.

The Government has said that accelerating ODA-funded projects is among the policies to cope with the current economic downturn. However, the shortage of the counterpart capital from Vietnam is a big problem. How do you think?

- In some projects we are facing with this problem, i.e. the lack of counterpart funding because ADB cannot finance 100% of the cost. So projects get delayed. There are many other reasons why some of the ADB-funded projects and other ODA-funded projects are delayed. All reforms including SOEs, public investment including ODA need some money of course. The Government fund is limited. So can’t just keep the size of public investment. They have to prioritize the short or medium development strategies.

In the process they may have to drop some projects. I hope all ODA-funded are considered the top priority projects in the public investment program. So I hope the Government will give priority to ADB-funded projects and other ODA-funded projects in allocating the Government funds.

But we are cutting public investments. How does this affect ADB-funded projects?

- I understand that due to the difficult fiscal situation, the Government is struggling to make necessary government funding for ongoing public investment programs including ODA projects. But at the same time, many donors including ADB have made huge commitments for many projects and a large junk of commitments still remain unused.

What we are telling the Government is ‘you have to accelerate the implementation of the projects.’ There are a lot of money already committed but not yet used.

You know, the Government has to make sure that whatever funds either ODA fund or the Government fund must be utilized in a more efficient and productive manner. So the planning is very important. In the past, because of the Government policy on decentralizing some investment planning, some provinces come up with huge investment plans without assurance of the funding. This is a good time for the Government to look at the overall investment portfolio, and then focus on really important projects for the use of its limited funds.

Source: SGT