VINACHEM

VietNamNet Bridge – The Ministry of Finance once had money to pay foreign debts but now has very little, as most of its funds have been used to pay the debts of state-owned company’s cement projects.

More than 96 percent of the National Assembly’s deputies have asked the Minister of Finance at the ongoing session about public debt.

The public debt includes the government’s domestic and foreign debts, the debts guaranteed by the government, and local authorities’ debts.

According to The Economist, by the end of March 2014, Vietnam’s public debt had exceeded the $80 billion threshold. Meanwhile, Vietnamese experts have noted that Vietnamese public debts have been increasing steadily and rapidly.

However, National Assembly’s deputies will not argue about how high the Vietnam’s public debt is and if it goes beyond national solvency. They are interested in how Vietnam pays debts.

The deputies have every reason to worry about sovereign debt solvency. A lot of projects implemented with foreign debt are unprofitable, which means that the government will have to come forward and pay the enterprises’ debts.

In 2005, the government issued $750 million worth of international bonds to fund the Vietnam Shipbuilding Industry Group’s (Vinashin) projects. The bonds are expected to mature in 2016. However, Vinashin, which is bogged down in difficulties, has to undergo a restructuring process and was renamed SBIC.

Experts noted that there has been no report made public about the efficiency of the loans.

In principle, when borrowing one dong for investment, the government needs to expect profits higher than one dong to be able to pay debts on schedule.

However, it is unclear how much profit Vietnam can make from one dong of money it borrows, and how many dong of the profits Vietnam should reserve for the debt payment and how much for re-investment.

The problem is that there has been no official report about the issues, while it is unclear which ministries are in charge of preparing the reports to submit to the National Assembly.

An expert noted that National Assembly’s deputies have not been informed about the effects of the loans on social security works, including roads, bridges, irrigation, and school and healthcare projects.

He warned that if Vietnam cannot calculate the effects and improve the use of the capital, the public debts would burden the national economy one day.

Issuing rollover bonds, i.e mobilizing the capital from the public through bond issuance to get money to pay due debts, is believed to be a good choice for now, when the average interest rate is falling due an abundant supply of capital.

However, he said the Ministry of Finance needs to consider the gap between the dong and US dollar interest rates in case it plans to seek capital in the international market.

However, issuing rollover bonds is only a last resort. Building up a savings fund for foreign debt payments is believed to be a better solution.

However, sources said the fund has become empty because all of its money has been used to pay debts for cement projects.

Meanwhile, no one has mentioned the establishment of a savings fund for domestic debt payments.