“The challenge is to transform GDP growth into long-term socio-economic development” said Professor Michel Henry Bouchet, a French senior expert in international banking, especially country risk management in a talk with reporter Lan Anh about assessments of Vietnam’s economy.
According to the Institutional Investor magazine's risk ratings for 2010-11 in Asia, Vietnam's rating (76) is better than Pakistan, Sri Lanka, Laos, Cambodia,but worse than many countries in the region like the Philippines (72), Indonesia (60), Thailand (52), China (23), Singapore (4), etc. However, in terms of FDI confidence index in 2010, according to AK Kearney, Vietnam ranks at 12th, higher than France, Russia, Indonesia and Malaysia.Could you help to explain these different assessments?
In fact, the AK Kearney survey reflects the long-term position of investors who are fairly optimistic regarding the long-term potential of Vietnam’s market. This is based on the large and your population, the increase in purchasing power, the growth rate of GDP, a skilled and educated population, and the key geographical location near China and Japan. However, the short-term look is less positive as Vietnam is struggling with overheating economy, meaning large deficits, inflation, and exchange rate instability. Many investors wait and see regarding the measures taken by the SBV before concluding that Vietnam is back to a track of sustainable development.
What is your opinion of Vietnam's capital market and the risks involved?
Vietnam’s capital market is small by regional standards. It is not mature and dynamic enough to mobilize the financing for both the Government’s spending and the investment financing requirements. The domestic capital market will not be attractive as long as foreign (and domestic investors) are not fully comfortable with the long-term real value of the Dong, “real” meaning after taking into consideration inflation.
What steps do you think Vietnam needs to take to ensure sustainable development?
The challenge is to transform GDP growth into long-term socio-economic development. So far the impressive economic growth has not produced a decisive enough improvement in socio-economic indicators if one takes into consideration the poverty ratio in Vietnam as well as the wealth gap and the infrastructure weaknesses.
What should Vietnam do to get out of its dependence on the US dollar and strengthen Vietnam’s own currency Dong?
Strengthening the Dong is not a technical matter but rather a matter of long-term confidence in Vietnam’s socio-economic development prospects. This requires stemming capital flight, reducing the trade deficit, increasing reserves, while developing domestic capital market, i.e., restoring confidence (the domestic capital market remains small by regional standards). To keep the Dong competitive (to stimulate exports and attract capital inflows), depreciating the exchange rate has little meaning if the real effective exchange rate does not get more competitive. What makes things challenging in Vietnam is that exports are import-based (e.g., machinery and equipment, steel as well as intermediary goods for processing trade). Hence exports tend to rise hand in hand with imports!
Many international agencies already mentioned Vietnam's problems in financial - monetary governance in their assessments. In your opinion, what are these problems and how are they addressed?
Today, global capital markets consider the data communication, good management and transparency are crucial to build up long-term confidence in countries. In fact, countries are competing all over the world to attract capital flows and good governance is more and more taken into account.
Box: Professor Michel Henry Bouchet is Director of CERAM’s Global Finance Centre. He has held high-level positions in international banking, including at BNP (country risk management), the World Bank (financial engineering assistance to developing countries) and the Institute of International Finance (senior international economist) in Washington, D.C. He was CEO of Owen Stanley Financial SA.
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