Building up Confidence to Stabilise Economy

Two years after the global financial crisis started to wreck on the world economy in September 2008, Vietnam is striving to strengthen its position as one of best performing economies in Asia Pacific. With a GDP growth of 6.5 percent in the first nine months of 2010, Vietnam is likely to achieve a GDP growth of nearly 7 percent in the year, according to United Nations organisations in Vietnam at the Consultative Group Meeting for Vietnam in 2010 recently held in Hanoi.

According to the United Nations Development Programme (UNDP), it is widely recognised that the quick response of the Vietnamese government at the first stage of the crisis played a very important role in preventing worst impacts of the crisis, contributing to maintaining growth and economic activities while ensuring employment and social harmony.

 

However, these achievements have to be exchanged with certain things. The fast economic growth in the past two years has partly resulted from the rapidly expansionary fiscal and credit policies, and this expansion now continues. In the 10 months of 2010, the credit growth reached 22.5 percent while the budget deficit remained at over 5 percent of GDP, higher than estimated. Several recent reports estimate Vietnam’s public debt equalled 56.7 percent of GDP, higher than the acceptable threshold of 50 percent. All these developments are contributing to a worsening macroeconomic prospect, dragged by persistent inflation, widening account deficit and shrinking foreign reserves, especially growing pressures of falling rate of exchange of Vietnamese dong against foreign currencies. This is gradually deteriorating trust of the public as well as international investors and global capital markets. It is noted that these events concur with the burst of the terrible scandal of State-owned Vinashin Group - the largest shipbuilder in Vietnam. This, once again, weaken the confidence in Vietnam’s macroeconomic prospects.

At present, according to the UNDP, the Government should take into account macroeconomic context, and take resolute actions to ensure growth together with macroeconomic stability and social development as the Government has done in recently.

 

Many of measures needed to achieve long-term sustainable socioeconomic development require the upgrading and modernisation of existing economic management systems and structures to adapt to new economic contexts where Vietnam has become the middle income country. This has been long considered a priority by the Vietnamese Government and development partners, and there are now initiatives in such areas as macroeconomic management and coordination, science and technology, commercial policymaking capacity improvement.

 

Nonetheless, under current circumstances, two specially important fields are SOE reform and governance.

UNDP pointed out that the recent Vinashin case has exposed crucial weaknesses in SOE governance regime in Vietnam, where preferences and priorities are not always fully utilised to ensure effective business activities and strategies, and responsibilities as well as the decentralisation of responsibilities between the Government agencies and SOEs (State-owned enterprises) are unclear. This places an emphasis on professionalization requirements at SOEs in Vietnam. The Government has announced a series of measures to address specific problems with Vinashin Group. However, the Government should also take this opportunity to settle some popular systemic weaknesses in corporate governance in the entire SOE block in Vietnam.

 

Operating management measures to the sector with many SOEs can help improve SOE operating performance.

 

State-funded investment sector is also encountering many challenges. In the next decade, Vietnam will need to refurbish its infrastructure system in key areas like transport and energy to spur economic growth and enhance competitiveness on international arenas, improve the transportation of people and goods all over the country and abroad, ensure accommodations for rapidly growing urban population, and address challenges to climate change adaptation.

 

In particular, Vietnam needs to continue with determinations to invest in for-everyone education as the central factor of ensuring sustainable socioeconomic development. According to international experience, education investment is the most effective tool to prevent income inequality and ensure benefits for all people. Education has also been proven to be the best way to avoid double trap - rising inequality and low competitiveness - the middle income country often meets, by improving productivity of the economy and ensure good employment opportunities for everyone.

 

In addition, according to UNDP, Vietnam needs to more efforts in human resource management and pro-people public administration served by enthusiastic, capable and knowledgeable officials and civil servants.