Workers build a ship for delivery later this year at a Vinashin shipyard in the central province of Quang Ngai. The state-owned shipbuilder incurred debts totaled more than US$4 billion.
Vietnam has started 2013 with a record: January was the first month ever that the businesses dissolved outnumbered those formed, according to official data.
Many small businesses have survived 2012 by depositing money at banks, and they said they have not figured out a better option for this year.
The director of a garment company in Ho Chi Minh City, only identified by his given name Lam, said he had the worst year after 20 years in the business.
For 11 months, the company lived merely on bank interest. It managed to negotiate an annual rate of 18 percent when the rate cap was 11 percent, and between 10-11 percent when that was lowered to 9 in June.
Machines were run in December for the Lunar New Year festival, the country's biggest holiday that falls this year in February, but sales have been slow, Lam said.
He said the deposit rate cap was cut to 8 percent in December and it might go further down, so he needs to put the money somewhere else, but he just does not know where.
"It's not just me, but many other businesses have not been able to calculate anything. We might just continue playing it by the ear, we don't dare plan ahead," the director said.
Businesses' inventories rose to an average of 21 percent of output.
A survey of large businesses by the country's pioneer rating company, Vietnam Report JSC, found that 46 percent did not believe the economy would recover in 2013, while 44 percent said it could, in the best conditions, but only from the second half of the year.
Economists share the pessimism, saying there are no easy solutions to the economy's major problems bad debt and stagnant production.
The government's main solution is to contain inflation, reduce deposit rates, and then, lower lending rates to encourage businesses to put their idle money into production. Interest rates ranged between 15 and 17.5 percent by the end of 2012, and are still there, according to central bank reports.
But banking experts said the government's approach does not seem to be working, given that inflation has already risen this month and is likely to continue through the festival season.
They also said that banks' liquidity is yet to recover to become strong and stable, and given the withdrawal trend during the festival, a deposit rate cut will only make the situation worse for them.
Any deposit rate cut should wait until the middle of this year and any reduction should be small, they said.
Nguyen Van Thuan, finance and banking university lecturer in Ho Chi Minh City, told Vietweek the current deposit rate cap of 8 percent is already reasonable and that it should only be cut to 7 percent when inflation goes down.
Thuan said a deposit rate cut will not by itself cause businesses to switch from saving to production. Consumption has to be stimulated for this to happen, he added.
Truong Dinh Tuyen, former minister of Industry and Trade, speaking at a Saturday conference held by the National Assembly's Economics Committee and the National Economics University to discuss business restructuring and macroeconomic balancing, said the government is having difficulties tackling inflation and stimulating production at the same time.
Consumer prices in January have increased by 1.25 percent from last month and 7.07 percent over the same period last year, according to a posting last week by
the General Statistics Office. Foreign banks ANZ and HSBC have forecast that inflation can rise to between 8 and 10 percent this year.
Tuyen said the situation looks "very gloomy," at least in the near future, as credit growth is slowing down and prices are going up while consumption remains low.
"The entire economy is stuck with bad debts, as banks are more cautious with lending and will not cut rates. The central bank keeps talking about rate cuts, but that is impossible," he told Thoi Bao Kinh Te Saigon Online.
Bad debts at Vietnam's commercial banks have totaled VND100 trillion (US$4.8 billion), according to a December 26 posting on the government's website.
Tuyen said the government is being very slow in solving bad debts and restructuring the banking system, thus keeping capital away from the economy.
He said most bad debts are owed by state-owned businesses but no move has been made to reform such investments.
Economist Vo Dai Luoc also criticized state firms for dragging the economy down and leaving other businesses to suffer the consequences.
"None of those that caused a disaster to the economy have died, while a lot of those contributing to the economy have fallen," Luoc said at the conference.
He said Vietnam cannot restructure the economy and continue to keep state-owned businesses as a driving force.
"There are no economies in the world that is comprised of a giant state sector that accounts for as much as 34 percent of the GDP.
"In restructuring the economy, Vietnam should not stick to its traditions and abandon innovative elements in the world economy," Luoc said.
Other economists also said that by putting state businesses first in all funding policies, even when they keep making losses, the government has run out of resources to save the economy. A budget deficit of $6 billion was reported as of the end of last October.
Trinh Quang Anh, director of the economics research center at Maritime Bank, said, "A big challenge to Vietnam this year is the risk of a financial crisis if the economic restructuring goes beyond the government's capability."
Pham Hong Chuong, a lecturer at the National Economics University, said without practical and effective rescue policies, Vietnamese businesses will need at least five years to recover their competitiveness, which has been destroyed in the past years when many of them focused too much on the property market instead of production.
"Countries in the region are outpacing us, even those who used to be weaker. The gap is widening," Chuong said.
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