Economic Restructuring- A Way Out in Crisis Time

According to Professor Vo Thanh Thu, member of the VCCI Advisory Council for International Trade Policy, arbitrator of the Vietnam International Arbitration Centre, the world economic crisis does not leave much effect on Vietnam’s economy. With economic growth of 5.2 percent in 2009, 6.78 percent in 2010, and 5.89 percent in 2011, Vietnam was among five countries with the highest growth rates in the world. Vietnam was less affected by the crisis mainly because it had an immediate and rapid response to mitigate the recession, with the stimulus package worth over VND14 trillion, plus a series of appropriate response policies, especially the Government’s Resolution 30 that supported the business community and lifted people out of recession.

 

However, Prof Vo Thanh Thu said Vietnam’s economic growth contains potentially unsustainable factors that may lead to a decrease in long-term effective development. Worryingly, the growth was primarily driven by investments from 2003 to 2011. Investment contributed 52.7 percent to GDP growth, while the contribution of the general productivity factor was only 28.2 percent (this index was 35-40 percent in other ASEAN countries and 60-75 percent in developed countries). The worst problem was that public investment accounted for a majority, stepping into areas where private investments could do well and seizing investment opportunities of the private sector, thus putting a stop to economic development. According to statistics, Vietnam witnessed a total of 7,611 businesses declare dissolution and 46,361 enterprises end operations in 2011. In the first four months of 2012, as many as 2,915 enterprises were dissolved and 14,820 companies ceased operations. Notably, Ho Chi Minh City saw over 5,012 businesses send notices of operational suspension to tax authorities, an increase of 4.6 times over the same period in 2011. The main reasons were lower demand on both domestic and foreign markets and rising input costs in the midst of very narrow access to bank loans. According to statistics, bad debts of commercial banks in the city reached VND36,924 billion as of May 2012.

 

To cope with the crisis outbreak, according to Dr Pham Van Chat, a rapporteur of the Ministry of Industry and Trade on international economic integration programme and a VIAC arbitrator, one urgent requirement for Vietnam's next strategy is to carry out economic restructuring. In practice, countries quickly getting out of crisis have flourishing domestic markets. Countries with strong domestic market-based economies can overcome the crisis faster than other countries, even though they face big economic shocks both inside and outside, rather than countries with big foreign investments.

 

Therefore, Vietnam’s economic restructuring process must consist of three major contents, with a special focus on restructuring of manufacturing and service industries associated with economic zones and developing support industries. The country must shift its growth model driven by extensive development to the model driven by intensive development, and focus on quality, efficiency and sustainability. In addition, it needs to firmly switch from growth mainly based on increased capital investment, resource exploitation and low-paid labour employment to growth primarily based on scientific and technological application and high-quality human resources. This process requires much time, for businesses in particular and the economy in general, to accumulate capital, develop human resources, and ensure factors of sustainable and in-depth development.

Dr Le Tham Duong said the most important issue of economic restructuring is to take solutions to enhance capital productivity and absorption of the economy. To do this, Vietnam necessarily focuses on restructuring Vietnamese businesses, especially State-owned enterprises (SOEs). It must thoroughly review all SOEs and resolutely terminate loss-making ones.

 

In addition, Vietnam needs to restructure investment. Dr Pham Van Chat analysed that Vietnam has established strategically important commodities like apparels, footwear, seafood, furniture, and electrical and electronic appliances. But Vietnam has not invested in supporting industries; thus, it depends heavily on foreign inputs and is vulnerable to global price fluctuation. As a result, its products can hardly compete with rivals from China, South Korea, Taiwan, Malaysia and other nations. As for agricultural products, one of its strengths, Vietnam lacks specific downstream processing programmes and plans to enhance the value of its products. So, Vietnam needs investment for the production of raw materials and supporting industries. Mr Chat stressed, “Without proper investment for technological innovation and agricultural planning, Vietnam cannot restructure its economy effectively. This must be seen as the key to restructure the economy for sustainable growth.”