Facing production stagnation, businesses welcome 2012 in anxiety

The government has stated that it will continue following a tightened policy in order to stabilize the macro economy in 2012. Meanwhile, businesses, which are facing high inventory level and production stagnation, welcome the New Year 2012 in anxiety.

High inventory level

On December 29, 2011, the General Statistics Office GSO announced at a press conference that the inventory index by December 2011 of the processing and manufacturing industries increased by 23 percent over the same period of the last year. GSO reassured the public that this was not an overly high level, because the index was 127.9 percent last year.

As anticipating the high inflation, right at the beginning of 2011, the government had to release the Resolution No 11, putting forward drastic measures to curb inflation. The resolution has helped prevent the inflation from galloping, but the fiscal and credit tightening policy has had sided effects on the national economy.

Home appliance centers in the commercial hubs in Hanoi were quiet in 2011, while at traditional markets, merchants sat idle. The owner of a fashion shop at Thanh Cong Market said that the demand in 2011 was just equal to 30-40 percent of the last year, while restaurants said the number of customers dropped by 50 percent.

An expert has commented that the total demand has never dropped so dramatically before. It is clear that the 23 percent inventory index shows a big problem.

The figure that 50,000 businesses have stopped operation, stopped paying tax or have got dissolved and bankrupted, released by the Ministry of Planning and Investment can also shows the difficulties businesses are facing.

Production stagnation risk more obvious

Dr Vu Dinh Anh from the Finance Research Institute has warned that in 2012, Vietnam’s economy may not only face the high inflation, but the production stagnation as well. If so, the production capability would be destroyed, while the market would get chaotic.

The unsalability would lead to the production decrease, while the lack of goods may lead to the increase of the imports and smuggling.

A lot of businesses are still owing big sums of money to banks, while they cannot sell goods and do not have cash. Therefore, the businesses have to scale down the production and do not think of expanding business.

The statistics show that by the end of the third quarter of 2011, the inventory level of listed companies had increased by 30 percent over the same period of the last year. Meanwhile, a lot of businesses have been found as having the ratio of total debts on total assets higher than 90 percent.

Businesses need the government’s support

Analysts believe that it’s now the time for the government to think of slashing the lending interest rates to rescue businesses. The consumer price index (CPI) has been on the decrease over the last 5-6 months, while the government may curb the inflation rate in 2012 at one digit level.

The profuse supply of goods and the low demand are the factors that show that there would not be any sharp CPI increases in the Tet and post-Tet months.

The Vietnam Food Association has affirmed that with the total rice output of 42 million tons in 2011, the supply would be enough to satisfy the domestic demand. Meanwhile, the food prices have been stable, except the sugar price which has decreased by 1500 dong per kilo.

Prime Minister Nguyen Tan Dung has requested banks to reduce the lending interest rates right from the beginning of 2012. He said that there is no reason not to slash interest rates, once the CPI has been increasing by no more than one percent in the last six months.

Cao Sy Kiem, former Governor of the State Bank, now Chair of the Small and medium Enterprise Association has warned that if the interest rates keep unchanged for 5-6 months more, a lot of businesses would go bankrupted – Vietnamnet