Tightening Monetary Policies Threaten Vietnamese SMEs

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Mar. 29 – The Vietnamese government’s monetary policy seems to have been stuck in a dilemma. While raising interest rates and restricting lending amounts seem to be the common ways to exacerbate the high inflation rate, the reduction in loan issuance is directly hurting the business operation and development of the country’s small and medium sized enterprises (SMEs).

Cao Sy Kiem, chairman of the Association of SMEs, warned at a National Assembly meeting on March 26 that more than 30 percent of SMEs now lack access to bank loans. Admitting a tightened monetary policy is necessary for inflation control, Cao believes the policy also brings significant challenges to SMEs.

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Dang Van Xuong, a representative of Southern Vietnam’s Long An Province, is also on Cao’s side, mentioning many southern companies have to reduce their production and face bankruptcy risks due to the lack of capital.

Xuong urges the government to lower the interest rates “at all costs.”

The Vietnamese government has reduced its credit growth goal for 2010 from the earlier 23 percent to 20 percent. To reach the target, the central bank also required all the creditors to limit their loans to non-production businesses at 22 percent of total loan issuance by June 30, and 16 percent by the end of the year.