Staying the course in 2013

In his New Year’s message last week, Prime Minister Nguyen Tan Dung laid out the government’s top priorities for 2013. They are institutional improvements, a close combination of monetary and fiscal policies, supporting businesses, administrative reform, economic restructuring and guarantee of social welfare.

To support enterprises, Dung said that within the approved state budget overspending limits [VND162 trillion ($7.79 billion), or 4.8 per cent of gross domestic product], more resources should be sought to raise total demand and support the market.

“Tax measures should be introduced to ease difficulties facing enterprises. Proper assistance, including debt rescheduling, should be adopted for enterprises with temporary difficulties. New mechanisms providing credit guarantee to small- and medium-size enterprises (SMEs) will be promulgated,” he said.

At 2012’s year-end teleconference with ministries and localities nationwide, Dung said the government would enact a resolution on supporting enterprises’ business performances and another on key measures to implement socio-economic development and state budget spending plans in 2013.

For instance, under a draft of the resolution on supporting enterprises’ business performance, there are nine major solution groups aimed to help enterprises. Specifically, the government would help enterprises approach sources of capital, reduce the cost of production and boost consumption. SMEs, including housing investment and trade companies, would enjoy a deferment of six months for paying corporate income tax (CIT) and value-added tax.

Interest rates would continue being cut, after six times being trimmed in 2012. Meanwhile, increased credit would be provided to SMEs and exporters.

Notably, a 20 per cent CIT rate will be applied from July 1, 2013 for SMEs employing fewer than 200 workers and having an average annual revenue of VND20 billion ($961,500), according to the draft.

“These solutions will help enterprises gradually ride out difficulties. The number of enterprises with narrowed production, losses and bankruptcy will reduce. Enterprises will be revitalised,” said Minister of Planning and Investment Bui Quang Vinh.

The Ministry of Planning and Investment reported that 2012 saw a record 51,800 enterprises face bankruptcy or cease operations.

However, Dung said: “It should be noted that measures and policies are important and supportive, but the activeness of enterprises is decisive. Enterprises should know how to convert difficulties into opportunities to speed up their restructuring process in order to raise their competitive capacity and take up market share.

“They should seek ways to reduce costs as much as they can, effectively utilise resources they have, lower prices to quickly clear inventories and actively deploy measures to expand domestic and foreign markets.”

Dung said that given the limited state budget and the narrow-space of fiscal policy, monetary policy played a vital role in curbing inflation and promoting growth.

“Based on the principle of maintaining a tight monetary policy, interest rates must be regulated flexibly at levels relevant to inflation targeting. Drastic direction is required to handle non-performing loans to unfreeze capital flow for the national economy,” he said.

Dung noted the State Bank of Vietnam (SBV) was tasked to effectively use open market operations (OMO) to lower lending rates and ensure reasonable credit growth and to strictly manage and supervise operations of credit organisations.

The SBV was also asked to reduce administrative measures in regulating the monetary market.