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Asia Girds for Greece as Vietnam, Indonesia Pledge Spending

June 15 (Bloomberg) -- Southeast Asian nations from Vietnam to Indonesia stepped up pledges this week to protect their economies, ahead of a Greek election that threatens to exacerbate the European debt turmoil and derail global growth.

Vietnam will accelerate state spending and boost bank lending to bolster the economy, Deputy Prime Minister Nguyen Xuan Phuc told the National Assembly in Hanoi today. Malaysia’s government asked parliament yesterday to boost the annual budget by 13.4 billion ringgit ($4.2 billion), and Indonesia said June 13 it will implement stimulus measures to spur domestic consumption and infrastructure spending.

The region’s governments are signaling readiness to support their economies after central banks in Indonesia, Thailand and the Philippines held fire on interest-rate cuts this week before the June 17 vote in Greece. While cutting Asia’s already low borrowing costs would risk asset bubbles, China, South Korea, the Philippines, Indonesia, Singapore and Hong Kong are in the strongest position to boost fiscal spending if needed, HSBC Holdings Plc said in a note today.

“All countries in Asia are saving ammunition for if contagion spills over from Europe into the U.S. and into international financial markets,” said Wai Ho Leong, a Singapore-based senior regional economist at Barclays Plc. “That’s when all countries in Asia will stimulate through fiscal spending quite aggressively. They are all prepared.”

The benchmark stock indexes in Malaysia and Vietnam rose today. The Ho Chi Minh City Stock Exchange’s VN Index added 1.8 percent, its first gain in a week. The FTSE Bursa Malaysia KLCI Index rose 0.3 percent as of 4:13 p.m. in Kuala Lumpur.

Help Businesses

Vietnam’s government expects to disburse about 21 trillion dong ($1 billion) a month for the rest of the year, including from the state budget as well as loans and grants from organizations such as the World Bank and donor nations, Phuc said today.

The measures “will help increase market demand, reduce companies’ stockpiles and sufficiently help businesses and bolster the economy,” Phuc said. The government aims for full-year credit growth of 12 percent to 13 percent, he said.

The government plans to cut corporate income tax by 30 percent, defer sales tax payments by six months and lower lending rates for some companies to help businesses overcome difficulties, the Ministry of Finance said in a statement on its website last month. The tax-break package is estimated at about 29 trillion dong, Phuc told the legislature today.

Slowest Pace

The Southeast Asian nation’s economy grew 4 percent in the first quarter, the slowest pace since 2009. Vietnam’s economy may expand 4.31 percent in the first half of the year, Phuc said. Growth may be as low as 5.2 percent in 2012, Deputy Minister of Planning & Investment Cao Viet Sinh said June 5, which would be the slowest pace in more than a decade.

Malaysia’s Deputy Finance Minister Awang Adek Hussin tabled a supplementary budget bill for 13.4 billion ringgit in parliament yesterday. The allocation is meant to cover operating costs by 14 ministries, including Treasury General Services, the Election Commission and the Prime Minister’s Department, according to the government.

Prime Minister Najib Razak, who unveiled a record 232.8 billion-ringgit budget in October, has raised civil servant salaries and pensions, waived school fees and boosted handouts for the poor. In May, he announced private investment plans worth a total 20.5 billion ringgit.

Fiscal Muscle

“Asia, fortunately, has sufficient fiscal muscle to lift growth,” Frederic Neumann, Hong Kong-based co-head of Asian economics at HSBC, wrote in the report today. “This can be targeted at weaker sectors, without dousing the entire economy with stimulus, and be rolled out, as well as withdrawn, quite rapidly,” he said, adding that Malaysia “may have to tread more carefully.”

Indonesia’s government will tap last year’s 24 trillion-rupiah ($2.5 billion) budget surplus to fund building projects, and lift the tax-free annual income level to 24 million rupiah from 15.8 million rupiah, Bambang Brodjonegoro, head of fiscal policy at the Ministry of Finance, said earlier this week. Indonesia currently targets a 2012 budget deficit of 190.1 trillion rupiah, on capital spending of 168.8 trillion rupiah.

In contrast, South Korea this month eschewed fiscal stimulus while the central bank kept interest rates unchanged even as countries from China to Brazil have lowered borrowing costs. Bank Indonesia has held off from adding to a February rate cut, seeking to support a currency that has fallen about 4 percent in 2012 as the European crisis hurt exports and spurred outflows from emerging markets.

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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