Restrain credit growth, but do it step by step: WB

Friday, May 23, 2008
It is necessary to restrain credit growth, but this should not be done too rapidly, Chief Economist of the World Bank in Viet Nam Martin Rama said.

In a recent interview with Tuoi tre newspaper, Mr Rama said that Viet Nam’s economy is now safe thanks to the state’s policy of prioritising macroeconomic stability.

The big trade deficit may be a disadvantage to the national economy, but exports have also been increasing considerably. Viet Nam is now benefiting from the world’s food price increases. The stock market is sliding with few transactions, but it will recover, sooner or later.

When asked to comment about the country’s interest rate policy, Mr Rama said that the World Bank supports the government of Viet Nam’s policy to restrain the credit growth rate as the credit has been overly hot. However, he stressed that this work should not be carried out too rapidly as it could shock people and businesses. The government should explain to people about what it is doing and what it aims to do.

He said that interest rates are now overly high. The inflation rate is now at 21%, which includes the prices of food, which are always high and unstable. Meanwhile, non-food price increases are now at some 10% only, and he said that the government should consider the non-food price increases to define suitable interest rates.

“Interest rates should be bearable for businesses. The government should avoid setting overly high interest rates,” Mr Rama said.

The sharp credit growth reduction may badly influence payment capability. The government wants to reduce the credit growth rate from 58% in 2007 to 30% in 2008, but everything should be done in a suitable way to reach the soft credit growth reduction.

Viet Nam seems to be going in the right direction to overcome current difficulties: i.e. it has good policies. However, it will still need good skills to resolve its difficulties.

The World Bank highly applauds the government’s policies on prioritising macroeconomic stability and reducing public expenditures. However, it will be very difficult to implement set policies, and Viet Nam will certainly meet challenges on its way.

In fact, challenges in macroeconomic management skills prove to be a part of development. Viet Nam has never before had to face such a large volume of portfolio investment capital and large number of banks (100) as nowadays.

Mr Rama said that the policies on macroeconomic stability are good; one the other hand, he stressed, Viet Nam still needs to think of longer-term reforms. For example, there are latent risks for economic groups investing in the real estate sector.

It is clear that Viet Nam’s system of managing portfolio investment remains problematic. It can reckon the money inflowing into Vietnam, but it does not know if the capital is short- or long-term. Meanwhile, the State Bank of Viet Nam should know when and how much money has come in and whether the money will stay in Viet Nam or be withdrawn a short time later. (Tuoi Tre)