Opportunities for Vietnam’s Economic Development

 

The conference offered an opportunity for economic experts to discuss and put forth policy recommendations to help State management agencies to see the reference when they make policies to respond to global economic risks in 2012 and subsequent years.

 

As global economies slow down, even possibly slide into crisis, Vietnam may suffer a decline in merchandise exports to developed countries, foreign investment capital, and other impacts of world economies. Meanwhile, according to Deputy Prime Minister Vu Van Ninh, rising inflation and high interest rates have left adverse impacts on operations of enterprises, weakening the confidence of enterprises and citizens. In addition to that, the country is dealing with unstable exchange rates, widening trade deficit, modest foreign reserves, and weak fiscal policies.

 

Economic difficulties are translated into the collapse of 48,700 enterprises since the start of this year. Growing competition coupled with market risks facing small and medium-sized enterprises (SMEs) are becoming a daunting challenge to economic development. The current economic hardship is an opportunity for Vietnam to review growth model for 2012 and the next five years.

 

Dr Deepak Misha, Chief Economist of the World Bank (WB) in Vietnam, said: “It seems that the Government is also reluctant to make a definitive policy.” According to experts, Vietnam has experienced cyclic macroeconomic uncertainties and has been essentially affected by structural elements. Recent solutions only address short-term symptoms, not reach long-term problems and nature. Suggesting ‘input’ solutions to the Vietnamese Government to deal with the fundamental structure of economy, Dr Deepak Misha said the application of the Resolution 11 should lay emphasis on the use of fiscal policies, not just monetary policies. Specifically, it is necessary to speed up the transparency of the State Budget. The Vietnamese Government will also need medium-term fiscal policies from 3 - 5 years which must be suitable to efficient public investment and GDP growth vision.

 

Meanwhile, Dr Le Xuan Ba, Director of the Central Institute for Economic Management (CIEM), frankly said: “It is said that the economy must be restructured and reform must be started from the brain. If the thinking is not changed, new growth model will never take shape.”

 

The Resolution 3 of the Central Party Committee clearly defines that SOE reform and public investment are two of three core contents of economic restructuring. These were also hot topics of discussion for experts. According to economists, troubleshooting these problems is considered the driving force for the Vietnamese economy to pass through existing difficulties.

 

Former Minister of Planning and Investment, Tran Xuan Gia, said that the solvency of Vietnam is very low and it is required to adopt good plans and policies to enhance its solvency. At present, Vietnam’s public debt to GDP ratio has reached 50 percent, he said, warning that if the sovereign debt increases to 70 percent of GPD, it may fall into default. To deal with this, Vietnam must rearrange public investment and it needs to start from SOEs which are notorious for rampant and inefficient investments.

“Ineffective investment projects must be put to an end, even sold off and sold cheap to take back capital. We should not add more projects to create new pressures on us to find out repayment sources. What the State does well, it will undertake; what the private sector does better, let it do,” Gia added. He also proposed aggressive measures to sort out effective SOEs. Firstly, we should restructure output. Secondly, we should sell, even at a loss, incomplete State projects to private sector to take back money to do other jobs.

 

Concurring Mr Gia as many other attendants, Mr Nguyen Xuan Thanh, a speaker at Fulbright Economics Teaching Programme, said: “Such projects, even underway ones, are necessarily sold or put off because public debt to GDP ratio is still high. If we do not lower it now, we may not be able to repay our debts.”

 

Dr Le Xuan Ba added that the most important task is to determine full functions of the State in the market economy.

 

However, Ms Victoria Kwakwa, Country Director of World Bank in Vietnam, noted, it is necessary to have thorough consideration over the projects to choose the ones for sale, because the projects which have much significance to the socioeconomic development should not be put on sale. “Do not equate all SOEs. It is vital to define the functions of SOEs: business or society. A commercial project should be sold as soon as possible, not let it impede economic development and change growth model of Vietnam,” he added.