Vietnam Economic Scenarios for 2012: Focus on Economic Restructuring

2012 is a special year featuring the dismal picture and volatility of the economy. According to experts, Vietnam needs a scenario with strong, clear actions in accordance with the spirit of restructuring - the main task for Vietnam and the leading access to ease inflation and stabilise macro economy. At the conference entitled "The World and Vietnam: Forecasts 2012” recently held in Hanoi, leading domestic and international economic specialists and institutions shared the common viewpoint that this was a chance for Vietnam to reform and improve its capacity to create a historic turning point for its economy.

 

There are many reports that share the gloomy outlook on the world economy in 2012, even much worse than that in 2011. Two most important leading points for such a forecast are the global economic slowdown, especially growth centres (the United States, the European Union, Japan and China), and the growing volatility and potential outburst of currency war and trade war (even the risk of a double-dip crisis).

 

With fast-opening economic integration, the Vietnamese economy is likely to be afflicted with strongly negative impacts from the above trend of the world economy. In 2012, Vietnam has to restore macroeconomic stability, control inflation and revive growth. In principle, these are ‘normal’ tasks of an economy when it falls into decay.

 

But, Dr Tran Dinh Thien, Head of the Vietnam Institute of Economics said: “2012 is a special year. This year, the economy falls into a dilemma but it has to create a turning point to shift the situation, i.e. stabilise the situation (prevent the return of inflation) to restore confidence, lower inflation to a level that will help enterprises stay away from a worse tragedy (more enterprises go bankrupt and collapse).”

 

In addition, the year 2012 is also special highlight: Economic restructuring with actually strategic actions to change growth model.

 

Dr Tran Dinh Thien added that excessive budget deficit and public debt are intolerable pressures on developed countries like the EU, the US and Japan, and are dire threats to the stability of the world economy. These predicaments will negatively impact Vietnam’s development.

 

At present, Vietnam is facing with growth slowdown, spiralling inflation, serious trade and budget deficit, and weakening currency. “These have persistently existed for years. It is time to talk about the ‘spiral’ of economic development: Stagnation coupled with high inflation. If Vietnam falls into this 'whirlpool', it will be a very dangerous situation,” Mr Thien stressed.

 

The Ministry of Planning and Investment reported for the first time that nearly 50,000 businesses, or 9 percent of the total, went bankrupt in the first 9 months of 2011 - the figure that portrayed the gravity of the situation. This evidenced the ‘health’ of enterprises now. Dr Can Van Luc, a financial and banking expert, noted that the global economic picture in 2012 portrayed continued debt crisis and political unrest in the EU and the US in couple with public debt concerns in Japan, which led to austerity policies, recession in eurozone, stock market slump and weakening US dollars and euro.

 

Remarking on the Vietnam’s economy, Mr Luc said exports expanded strongly in 2011 but the growth was forecast to be lower this year; inflation was projected to top in the region; and trade deficit was predicted to remain high. Besides, stock and real estate markets would likely face difficulties. Nonetheless, he noted a lot of 'bright spots' on the picture like capital inflows from developed countries and overseas remittances which were estimated at US$9 billion in 2011, making Vietnam one of 10 largest recipients of remittances.

 

In 2012, Vietnam will confront numerous difficulties in growth and macroeconomic stability because it has to restore growth, curb inflation, stabilise macro economy while stepping up economic restructuring. “The economy cannot step backwards any further; thus, we needs to make a turning point. The most important task is to curb inflation but it is vital to determine how much to lower to ensure that enterprises will not go bankrupt,” said Mr Thien.

 

In economic restructuring, increasing accountability of the State administrative apparatus and restoring disciplines is very important. Salary reform needs to be given priority. The State budgetary system reform is necessarily stepped up because improper spending to actual situations and markets will lead to imbalance. In addition, land policy will be essentially reformed; State-funded capital will be prioritised for key economic sectors.

 

In reality, to drive the economy out of the current difficult situation (indeed, still in a more difficult situation), the economic restructuring is crucially given priority (aiming to change growth pattern). But, to bring the restructuring process to life, it is vital to stabilise the economy to restore market confidence and social confidence.

 

Moreover, the Government focuses on implementing six groups of major measures: Curbing inflation, stabilising macro economy by means of tightened fiscal and monetary policies; gradually restructuring the economy in association with changing growth pattern based on efficiency and competitiveness enhancement; effectively strengthening and promoting foreign affairs and international cooperation to boost the efficiency of integration; improving socioeconomic development planning and forecasting; enhancing the effectiveness and efficiency of State management and strengthening corruption prevention; and bolstering information activities.

 

In the coming time, the Government will concentrate on three key contents of economic restructuring: investment restructuring, with the centre being public investment restructuring; corporate restructuring, with State-owned enterprises in the spotlight; and financial system restructuring, with commercial banking system in the limelight.