Vietnam's central bank said it is encouraging lenders to tighten credit for some borrowers in one of the first signs Asian economies are readying to rein in stimulus spending if the world economy continues to recover.
Like the U.S., China, Vietnam and other Asian nations have flooded their economies with cash over the past six months to avoid a deep recession. But as evidence mounts that the worst stage of the downturn is ending, many economists are advising governments to start curtailing credit lest some sectors overheat and trigger serious inflation problems in 2010 or beyond.
Economists are particularly concerned about Vietnam, a favorite of foreign investors in Asia that has experienced serious trouble with asset bubbles in the recent past, including a period when inflation soared to 28% in mid-2008. Although inflation is now below 4%, many analysts worry the government has gone too far to stimulate growth by subsidizing hefty bank lending programs that are feeding more money into the economy. Real estate and stock prices already have started to climb rapidly.
On Wednesday, State Bank of Vietnam Governor Nguyen Van Giau appeared to confirm those fears by saying the central bank wants local credit institutions to tighten lending to real estate and stock investors, as well as to consumers. He said lenders should focus instead on extending loans to small- and medium-sized enterprises to boost their production, and to major state-owned projects. Further details on the potential tightening, which appeared in a statement published in the central bank's Thoi Bao Ngan Hang newspaper, were not available.
"I think the key reason behind the central bank's comment is that it wants Vietnam to avoid high inflation," said Nguyen Duy Hung, chief executive of Saigon Securities Inc., a Ho Chi Minh City-based securities company.
Since the beginning of the global economic crisis, Vietnamese state banks have poured at least $19 billion in loans into the economy, equivalent to about one-fifth of the country's annual gross domestic product, as part of a broader stimulus program aimed at expanding credit for state enterprises and exporters. Partly as a result of the stimulus efforts, total outstanding loans in Vietnam's banking system at the end of June were 17% higher than at the end of 2008, and 17.5% more than a year earlier, the government said this month.
Unfortunately, economists say, it's hard for the government to police borrowers to know exactly how they are using the stimulus money. Many analysts suspect that large sums are leaking into activities the government doesn't want to stimulate, with borrowers taking money to speculate in stocks or real estate rather than investing in new productive capacity, though proving they are doing so is difficult. Since March, Vietnam's benchmark stock index is up more than 70%.
"I think it's the right decision" to begin reining in credit to some parts of the economy to make sure the money is used wisely, says Vu Thanh Tu Anh, an economist with the Fulbright Economics Teaching Program in Ho Chi Minh City. It may difficult to do so, he said, unless policymakers take more concrete steps such as putting a cap on loan growth or raising interest rates. Asian governments remain wary of taking those kinds of steps because they are still uncertain about the outlook, despite recent signs of economic recovery.
Either way, the pressure to wind down some stimulus packages is growing. In a report released Wednesday, HSBC economists warned that "money's too loose in Asia" and raised the specter of new asset bubbles, especially in real estate. Although Asian countries generally aren't tightening credit yet, "it won't be long, I suspect" before they start doing so on a more widespread basis, says Tim Condon, an economist at ING in Singapore.
Wall Street Journal