Each Public Debt Needs Different Solution

 

Public debt is a global problem and not only Vietnam faces it. Why is it a global concern? Because overheating global economic development requires enough resources for growth and all governments have to invest and borrow. Many governments even have to perform international obligations, such as the United States and China.

 

When economies develop healthily, debt is just a kind of credit, but when economies are not as good as expected, the ability to repay debts or solvency is weakened and problems emerge. Troubled solvency means that State revenues earned from economic activities are not enough for debt settlement. Therefore, a number of countries are heavily indebted like Greece, the United States and some other EU nations. Vietnam is also seeing a big problem as the Government has confirmed Vietnam’s public debt to GDP ratio of over 50 percent. Public debt worries worsen when world economies are sliding into crisis and Vietnam has to look into this matter seriously. For the time being, the global public debt phenomenon is the solvency fears that all governments feel.

 

Once public debt is mentioned, they tend to hide solvency by expressing concerns over the amount of debts. When they compare debt to GDP, that is the way they express their fears over borrowing and repayment. This is also the case in Vietnam. Public debt is a very popular lesson and it is very easy to look back to the many lessons in the past to learn from.

 

The solution to public debt is tightening spending if we look at the first part of the story. Spending tightening means borrowing less and this will force economies to go down because of insufficient investments. Declining economies will cause more people to lose jobs and rising unemployment engenders devastating social responses. For that reason, the faculty of US President Barack Obama is tested by his resolution on unemployment. A rise or fall in unemployment is a very critical indicator to measure the capacity of repaying debts. In an unprofessional economy, the concept of unemployment is also unprofessional. Therefore, for long, when we look into economic and social situations, we usually skip a very important criterion that proves the faculty of the Government: Unemployment settlement.

 

In my opinion, the Vietnamese National Assembly only discusses measures to restrict public debt. Public debt measurement in Vietnam is also contradictory. In fact, the government debt is public debt, not Government-run companies, because all companies are equal under the law. But, who are the owners of Government-run companies? As the Government is the owner of such companies, known as State-owned enterprises (SOEs) in Vietnam, it must assume the responsibility for their liabilities. Therefore, the Government has launched a SOE reform programme with the purpose of boosting investment efficiency. Balancing debt and repayment capacity is important to resolve debts in general and public debt in particular. It is essential to have a concept for a “family” of public debts to make it clearer and easier to seek solutions.

 

I would like to underscore the concept of a “family” of public debts. To deal with debt problems, it is not enough to resolve only input matters: restricting spending because it will put a brake on development and growth. We must build up a family of public debts and categorise them and each item will have a different solution.