Vietnam pledges $1 billion to spur investment

HANOI (Reuters) - Vietnam's government promised on Wednesday to spend about $1 billion to spur investment and consumption and said it wanted to lower taxes to help businesses as it sought to fend off an economic slowdown.

The country battled runaway inflation and a widening trade deficit for much of the year by tightening monetary policy and curbing lending, but officials have become increasingly worried that the global credit crisis could drag down growth.

The investment plan, outlined in a report about a cabinet meeting, came one day after the government revealed what will be the central bank's fourth benchmark interest rate cut in six weeks, to take effect on Friday.

"The focus is now on immediate measures to prevent an economic slowdown and a stagnant production and business environment," the government report quoted Minister of the Government Office Nguyen Xuan Phuc as saying.

"The government will set aside about $1 billion to boost investment and consumption," it said without giving details.

The government also asked the Finance Ministry to consider which taxes could be reduced to help businesses.

Later, the state-run news Web site Vietnam Net quoted the Prime Minister Nguyen Tan Dung as saying corporate income tax would be cut by 30 percent, apparently across the board, in the fourth quarter of this year, and by the same amount just for companies in difficulties next year.

The government was also considering delaying the taxation of income from equity investments until the end of next year, the Web site VNExpress reported quoted Finance Minister Vu Van Ninh as saying.

GROWTH VS INFLATION

Vietnam's economy grew at a rate of 8.48 percent last year, but the latest government estimate for growth this year is 6.7 percent. At the beginning of the year, it expected growth of up to 9 percent.

Even though Vietnam recorded its 13th consecutive month of double digit inflation last month, with the consumer price index 24.2 percent higher than in November last year, it was no longer the main concern for the government, the report said.

The report also said the government had lowered its annual inflation forecast to below 21 percent from its previous estimate of 24 percent. The revision, the second in as many weeks, was a result of lower world oil prices and aggressive policies to contain consumer price rises, it said.

Lower world oil prices have helped Vietnamese oil product distributors cut fuel prices seven times since early October.

Still, the effect of policies to keep the economy on track remained to be seen, given the flood of bleak economic news coming from its big trading partners.

The report said demand from the United States, the European Union and Japan for products such as clothes and wooden furniture, Vietnam's key exports, had dropped by up to 30 percent but didn't state over what period.

"Growth is expected to remain soft, not least because external demand has weakened a great deal, but also because conditions at home have deteriorated given the impact of previous monetary tightening, collapse in equity/property markets and an inflation shock," HSBC said on Wednesday.

The Vietnamese stock market has been Asia's worst performer this year, falling some 60 percent.

Vietnamese banks remained loath to lend and with borrowing costs high, companies were unwilling to take on new debt.

"Domestic demand has already slowed and will probably weaken more before getting better," HSBC said.

(Editing by Jan Dahinten/Ruth Pitchford)