Tightening monetary policies, but pumping capital into rural areas

17:07' 21/04/2008 (GMT+7)
VietNamNet Bridge – In order to deal with high inflation, other countries in the world are trying to develop agriculture. Meanwhile, Vietnam is trying to tighten monetary policies everywhere, in big cities and rural areas.
In China, together with measures to tighten monetary policies, the government is trying to control the domestic market, push up agriculture production and support low income earners.
On March 27, 2008, Chinese Prime Minister Wen Jia Bao announced that the government approved the financial aid package of $3.5bil, which will be added to the budget of $562.5bil approved before for agriculture and rural development. The sum of money is equal to 1/3 of the total money the government of China injected in agriculture in the previous five years.
The sum of money will be given directly to farmers to help them purchase materials, fuel, plant varieties and stud animals.
In the Republic of Korea, the government decided to exempt import tax on the grains used for processing food for cattle, provide $1bil to farmers to give them capital to maintain production.
Meanwhile, in Vietnam, the measures taken by the State Bank of Vietnam seem to aim to tighten the credit to agriculture and rural development.
The state owned Vietnam Bank for Agriculture and Rural Development (Agribank), which is considered the main bank serving agriculture and rural development in Vietnam, has set the credit growth rate for 2008 at 16-18% over 2007. The goal proves to be much lower than the targeted growth rate of 30% set for the whole banking system, and just equal to ½ of the 36.2% growth rate obtained in 2007.
In order to maintain the low credit growth rate within the Agribank system, the bank has set low credit limits for all branches.
Some branches have been asked to keep outstanding loans at the same level as the level reached by November 30, 2007. This means that the branches can only provide new loans if they can collect old debts. As a result, many Agribank branches have to refuse loans for farmers.
The Bank for Investment and Development of Vietnam (BIDV), which has the second largest operation network in Vietnam after Agribank, has also set limits on credit growth rates for their branches, including ones in mountainous and highlands areas, which will surely affect agriculture development and food production.
As planned, VND52tril worth of government money now deposited at state owned banks will be transferred to State Bank branches for management. It is estimated that some 40tril is being deposited at Agribank, which also means that the bank will lose VND40tril worth of capital, or VND20,000bil worth of capital which can be lent
As the capital is decreasing, Agribank will have to reduce loans, which means that agriculture production will have less capital to develop.
Analysts have pointed out that tightening monetary policies proves to be a necessary thing these days in order to fight inflation, but it is also necessary to create the best conditions to develop agriculture, which help curb food price increases and ensure food security.