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  Policy & Strategy

New interest rates on preferential investment and development loans

The Ministry of Finance just has announced a new interest rate on preferential investment and development loans granted in Vietnamese Dong.

Decree number 106 of April 1, 2004 coming into effect next week, stipulates that the new rate is equivalent to 70 percent of the average commercial rates applied by the state owned commercial banks.

According to Pham Phan Dung, head of the Banking and Finance Department of the Ministry of Finance, the new rate might range from 6.6 percent to 7.2 percent per annum instead of the current 5.4 percent. This rate will be applied only after the project begins operating. The MoF hopes this will force investors to pay more attention to the efficiency of the projects. The interest rate, approved by the MoF, will be applied for all projects that borrow long-term preferential loans from the Development Assistance Fund (DAF) said Dung.

In the past the government set one official rate, but interest rates varied by project because some projects received more advantages than others.

The agreed interest rates will continue to be applied for the duration of the projects that signed lending contracts with the DAF before the new rules were enacted. The decree allows flexible adjustment of interest rates for preferential long-term loans. The MoF has right to adjust the interest rates when the rates in the market experience a fluctuation of 15 percent and higher.

The MoF only defines the rates a maximum of twice a year because a changing rate can upset business plans, and the investors are not able to count on all investment expenses.

The decree also specifies a listing of the projects that are eligible to enjoy preferential long-term loans, which have declined from 40 to 15 groups. The new list, including pig-iron production, industrial salt processing, anti-biotic production and forest planting, is valid until December 31, 2005.

VNCG-VDC1 - (23/04/2004)

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