Government proposes using state money to settle bad debts
14:21 10/10/2014
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The government has unexpectedly asked the National Assembly to include expenditures on bad debt settlement as part of the state budget.

Government proposes using state money to settle bad debts

The proposal on settling state-owned enterprises (SOEs) bad debts with the state's money was noted in a 70-page report on the plan to restructure three key fields in the national economy.

The report shows that the economy and bank restructuring process has proceeded very slowly and that drastic measures are needed to speed up the process.

The government proposed using the state's money to settle SOE bad debts as a solution to accelerate restructuring.

The proposal has surprised many economists because the government, in the past, said many times the state's money must not be used to pay enterprises' debts.

The Minister of Planning and Investment, when answering National Assembly inquiries at a working session, also said that enterprises' debts must not be paid by the state budget.

He stressed that it was the debtors who have to pay back debts, and that the debt burden must not be put on the government. Every dong spent must bring optimal efficiency and the capital must be poured into highly profitable projects, he said.

A preliminary report showed that up to 70 percent of bad debts have been incurred by state-owned economic groups and general corporations, while creditors are mostly state-owned commercial banks.

Most recently, the Governor of the State Bank of Vietnam, Nguyen Van Binh, said at a meeting of the National Assembly's Steering Committee that the State Bank had not thought of using the state's money for debt settlement.

“We understand well there are many existing problems, while the State has to allocate money to many important projects,” he said.

An analyst commented that settling bad debts with the state's money is the only solution for Vietnam, and that everyone feels impatient about the slow debt settlement process.

A series of measures have been applied to settle bad debts, described as “cubes of clotted blood” that have caused the national economy to get “stuck”.

The Vietnam Asset Management Company (VAMC) was set up to be in charge of buying bad debts from commercial banks, to “liberalise” them from the “clotted blood”. The powerful company is funded and backed by the State.

However, economists all say they doubt the company, with modest chartered capital of VND500 billion, can help debt settlement. VAMC has bought trillions of dong worth of debts so far, but it still does not know what to do with the debts.

The economists pointed out that Vietnam needs big cash to settle debts, not bonds issued by the VAMC.

The bad debt ratio of the banking system is 4 percent of total outstanding loans, as reported by the State Bank at the banking sector's six-month review conference. Meanwhile, foreign institutions estimated that the figure had reached 15 percent at one point.

Dat Viet

Source Vietnamnet

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