To understand this phenomenon Saigon Investment held a discussion with Dr. CẤN VĂN LỰC, Chief Economist and Director of BIDV Research and Training Institute on the issue of government bonds.
JOURNALIST: - Sir, the State Treasury issues government bonds with the purpose of mobilizing capital from organizations and individuals to invest in the economy, but is this money then sent to banks, with the banks again using this cash flow to buy government bonds? Is this not creating a vicious cycle in the cash flow?
Dr. CẤN VĂN LỰC: - Currently, commercial banks have increased the purchase of government bonds, which can be considered as both a mandatory factor and at the same time it also helps increase the efficiency of idle money. The reason is that it is imperative that the banking system keeps control of some highly liquid assets to manage liquidity risks, which is very important for any bank. And to push cash flow away, banks now have only three ways, namely, invest in government bonds, lend for investment purposes, and lend to banks themselves to support mutual liquidity.
In my opinion, credit institutions naturally know what to do to be both effective and safe, because there is also pressure on them. This is according to regulations of the Government and the State Bank of Vietnam that banks must ensure liquidity to be safe and they must have a good amount of liquid assets. If the bank does not buy, this will be handled by the State Bank of Vietnam immediately.
- Sir, it is known that there is currently about VND 1,000,000 billion of capital for public investment, salary reform, and capital construction investment. These are still outstanding at banks in the form of deposits to earn interest instead of flowing into the economy for investment and production. Will this cause the economy to lose its growth momentum?
- I think that money still in the banking system is not necessarily so bad, or rather, it is just how we approach that money. Because in essence, it is the amount of money that has not been disbursed for public investment, but waiting for disbursement for certain projects and it is still required to have an available amount of money. For instance, the North-South highway project when being implemented will need to disburse cash so the money will be used immediately.
In principle, the money stays in the banks. Here I want to add that, actually, the amount of money in the above-mentioned banks has an address and is waiting for disbursement for projects but we cannot use it for other purposes.
- Sir, what is the cause of the delay, or rather the bottleneck that is preventing cash flow from moving faster for public investment projects?
- The reason that the cash flow of public investment capital is currently sitting in banks is due to the bottlenecks in the Law on Public Investment. On the one hand, the Law on Public Investment requires money to set up a project, because when the project is completed, then without the money the project is not feasible. But on the other hand, when there is money, then the project is set up and implemented, which leads to delays, like the money backlog in the banks mentioned above.
Therefore, my view agrees with that of Mr. Hồ Đức Phớc, our Finance Minister, which is to review and amend a number of provisions in the Law on Public Investment to be more appropriate. For instance, it is recommended to add the rule that parallel execution of two tasks at the same time when preparing to develop a plan for a project, you must also develop a financial plan and prepare money for that project. There should be no hard rules that require money to start a project because that will be too slow.
In addition, the cause of the above-mentioned congestion is also due to the lack of standardization by the ministries, branches, and localities when formulating public investment projects. In fact, the process of preparing public investment projects is very important, requiring localities to do better. Currently, there are many localities that still set up projects for that, but in fact, there is nothing to supplement, adjust, and re-plan. This is the main thing that localities have to learn from.
As for other problems related to stages such as planning, site clearance, and material arrangement, the Government has directed on this very clearly in the past. From the beginning of the year until now, the disbursed public investment capital has also increased by about 18 percent over the same period last year with the absolute amount increasing by about VND 40,000 bln. It is still slow overall, but there is clearly progress in this.
In addition, we also have to consider another feature that public investment is seasonal. The beginning of the year is usually the time to prepare documents and projects. It takes until the last months of the year, like in the third and fourth quarters, to start disbursing money. This is also the time when the amount of money that is said to be outstanding is in the new banks and needs to be used.
- Thank you very much.
