The government estimates that if a VND17 trillion stimulus package is used to provide businesses an interest rate subsidy of 4 percent, around VND420,000 billion will be injected into the national economy late this year. As of April 10, around VND218,420 billion will be poured into the economy and another VND202,000 billion will be disbursed by the end of the year.

When the first stimulus package was implemented, many credit institutions and businesses received word of the upcoming second package, which offers businesses an interest rate subsidy of 4 percent for up to 24 months. The subsidy programme will be implemented from April 1, 2009 to December 31, 2011, with the aim of providing businesses with long-term capital sources.

Where to mobilize money?

According to Ngo Tuan, head of the Department of Banks and Financial Institutions under the Ministry of Finance, the government and the MoF have agreed that the second stimulus package will provide businesses with an interest rate subsidy of 4 percent from now until late 2011. Money for the second package will be drawn from the first VND 17 trillion package.

When being asked whether VND17 trillion would be enough to finance both packages, Mr Tuan said “When all the money from the first package is used up, we will mobilize additional sources. However, this still depends on how effectively the packages are disbursed, and also how to avoid idle capital. 

Cao Sy Kiem, a member of the National Advisory Council for Monetary Policy says that to mobilize money for the second package, the government will issue bonds domestically in future.

However, the recent issuance of government bonds in dongs was not successful. One of the reasons is that the MoF often sets a yield limit of about 7.5 percent, which is nearly the same as the interest rates at banks, while investors ask for 8-8.2 percent.

Director of Fulbright School in HCM City, Vu Thanh Tu Anh, says that the government should not be too particular about whether the bond yield is 7.5 percent or 8 percent as the gap is not too big. “If we do not seize opportunities and let them slip through our fingers, even more money will be useless”. He adds that the MOF is considering bond yields before making any decision.

Post-inspection - an important task

Another important question is whether the second stimulus package can be used effectively to stimulate the national economy.

At a recent economic conference held in the northern province of Hai Duong many experts argued that the money dispersed under the subsidy programme has been not used wisely.

In the view of Tran Du Lich, director of the HCM City Economic Research Institute, a strict supervisory and post-inspection mechanism is needed to ensure that the subsidized money is used effectively. It is necessary to ensure that small and medium-sized enterprises can get access to cheap credit sources. If the post-inspection mechanism is not strict enough, the national economy is likely to face inflation, corruption and instability.