Experts are warning against government guarantees for enterprises to borrow foreign loans as most borrowers failed to clear the debts and the government has to pay up.
Phung Quoc Hien, head of the National Assembly’s Committee of Financial and Budget Affairs, admitted the necessity for domestic companies to borrow foreign loans for development as their financial capacity was limited.
However, he called for a reduction in government-backed guarantees, even for those state-run enterprises, since the government would certainly be held responsible for any debts the guaranteed companies failed to settle.
Another economic expert, who used to be member of the State Bank of Vietnam, said the government’s debt coverage for businesses would burden the state budget.
Moreover, he said, the guarantees would make the businesses willing to take risks as the government is always there to clear their debts in case of failures.
At present, most of the businesses under government guarantees to borrow foreign loans are in the state economic sector, which he said would result in unhealthy competition for private enterprises as the guaranteed firms could borrow with lower interest rates.
“The government should only guarantee for key projects that contribute to the national development,” said Doctor Tran Dinh Thien, head of the Vietnam Institute of Economics.
A recent case
Recently, the Ministry of Finance has petitioned the government to help Lang Son Province-based Dong Banh Cement Company cover the foreign debts it failed to repay.
Nguyen Thanh Do, head of the Ministry of Finance’s Debt Management and External Finance Department, said Dong Banh Co was guaranteed by the Ministry of Finance.
In principle, he said, the government had to find a solution to cover the debt of Dong Banh Co since the company was under its guarantee, adding that the Ministry of Construction suggested allowing the company to borrow from the Accumulation Fund for Foreign Debt Repayment.
Since the fund was part of the state budget, the public is wondering that their tax collection would be used to pay the debts.
But Do said the fund would not use its budget to pay the debts on the company’s behalf but only lend them money, and they are required to return it to the fund.
He said the government had evaluated the business operation of the enterprises before issuing them the guarantees.
But this leaves the public skeptical about the evaluation tasks, as many guaranteed companies proved to be making losses.
Do protested that the evaluating process was conducted carefully but the enterprises could still get into trouble due to the unexpected difficulties.
He also admitted that many other companies were also calling for aids from the government.
As for the Dong Banh case, he said he had petitioned a solution to the Prime Minister.
“In any circumstances, the government has to ensure the debt clearance of the company,” he said.