Measures to help enterprises should be analyzed carefully and implemented at the right time to ensure efficacy
Prudence Counts
By Tam Dan
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| The support given to enterprises must not deviate from or hamper such vital goals as controlling inflation, fostering a favorable macroeconomic climate and ensuring social security. Photo: Kinh Luan |
Measures to help enterprises should be analyzed carefully and implemented at the right time to ensure efficacy
The woeful performance of many enterprises in Vietnam has captured public attention. Apart from criticisms of the authorities’ seemingly tardy responses, several solutions to this thorny problem have been proposed. The question is how to translate them into concrete actions that not only alleviates enterprises’ suffering but also restructures the economy.
Admittedly, the sorry state of many businesses reflects Vietnam’s weaknesses such as persistent inflation and macroeconomic instability. It is thus urgent, albeit immensely difficult, to rescue troubled firms.
A few principles must be upheld in the process. First, the support given to enterprises must not deviate from or hamper such vital goals as controlling inflation, fostering a favorable macroeconomic climate and ensuring social security. If an enterprise has to shut down because of internal weaknesses, its plight should be considered a necessary price to pay in the fight against inflation. In such a case, the short-term pain bred by rising unemployment and plunging income is likely to pale in comparison to the long-term benefits from avoiding soaring inflation.
Furthermore, help for struggling businesses must be in line with efforts to restructure the economy. Ultimately, economic restructuring should seek to cultivate a new development recipe, based on quality and quantity. The process may be painful, especially in the nascent stage, but it is crucial for eradicating the economy’s fundamental flaws. At this stage, it is perhaps useful to sum up these weaknesses. To begin with, Vietnam’s growth formula is hugely reliant on investment, natural resources, cheap labor and short-term speculations, rather than efficiency, quality and innovation. Moreover, the country’s investment is scattered instead of being used to strengthen local and national comparative advantages. Finally, economic institutions such as the State, the market and enterprises have not been sufficiently developed. Transparency, efficiency and the rule of law remain ideals instead of an integral part of these institutions.
This being the case, the authorities should hammer out a strategic plan to nurture economic restructuring in tandem with measures to support troubled firms. Of paramount importance are adjustments to capital supply and interest rates.
In particular, there should be a policy framework to expand the group of business entities eligible for debt restructuring. Measures that lessen the burden imposed by debt repayment obligations will be most useful. Besides, capital should be injected into projects that, while still in progress, stand a good chance of operating successfully and recouping investment swiftly upon completion. The array of debt restructuring and risk management practices in place should be wider, too. Tax incentives will also serve as effective financial leverages. Of course, management agencies must exercise vigilance to steer clear of policies that can increase the financial burden on firms and society.
Vietnam is still in the first stage of economic restructuring. As challenges continue to abound, the Government will do well to adhere to its goals. Support for enterprises should be analyzed carefully, so that their implementation is both timely and appropriate.