Heavy Tasks for the Government

In its recent Asian Development Outlook 2012, ADB lowered Vietnam’s growth forecast to 5.7 per cent for 2013. However, in the light of global economic decline, Vietnam was no exception and the lowering was acceptable. ADB also recognised the Government of Vietnam’s strong message on inflation curbing and macroeconomic stability. And, in practice, Vietnam has initially reaped the fruits from its right policies and decisions, said Mr Tomoyuki Kimura.

 

Our revised GDP growth forecast of 5.1 per cent for Vietnam in 2012 is quite similar to that recently announced by the General Statistics Office (GSO-under the Ministry of Planning and Investment). This indicates that ADB always has a special interest for emerging economies in the region like Vietnam. On the other hand, the similar figure in economic growth evaluation in 2012 also shows that the Vietnamese Government has had a very serious look at the economic situation and makes accurate, grounded data, not running after the achievement as previously. That is an important point, to assess objective work that adheres to international practices and principles that both ADB and other international financial supervision institutions are looking forward to when working with local authorities.

 

Besides, looking at a broader level, inflation which the Vietnamese Government is much concerned about decreased towards the end of the year, even faster than predicted. This was also very important for the State Bank of Vietnam to adopt rate cut solutions as well as a series of business support packages like capital access and reduction of related tariffs.

 

It is considered a key point of any economy of in the world. When the health of the banking system is uncertain, it will lead to a series of unexpected problems for the macro-economy. In the immediate term, although the State Bank of Vietnam has taken deep intervention measures for the banking sector such as mergers and acquisitions, and capital supply, this does not seem to be radical solutions in the long run. What the Vietnamese Government needs to do next is to have a comprehensive and systematic bank restructuring strategy, not only situation-based solutions. Specifically, before the overheating growth of the banking sector, characterised by the presence of too many new banks which show poor performance after a period of time, it is not highly feasible to take the guise of mergers. It is necessary to improve the management and administration capacity of weak banks, tighten the establishment of new banks, reduce the number of banks, and focus on quality improvement. It is also important that macroeconomic governance as well as fiscal policy accurately identify the true nature of trends, and anticipate growth scenarios to avoid the entire banking system bogging down too deeply in the real estate field, causing stagnation of capital flows and loss of resources.

 

In practice, the restructuring of the banking system is a very heavy, difficult task that requires a lot of time to be completed. Hence, this reform must be comprehensively carried out in all aspects of the finance - banking sector, including SOE and capital market reforms.

 

Through lending and technical assistance programmes, ADB has been supporting the Government of Vietnam to resolve the backlog of financial sector infrastructure and enhance institutional capacity, rule of law, and regulatory framework. Particularly, ADB is now providing technical assistance to help the Government design a financial sector reform programme. Reforms in this programme will be deployed in the view that the restructuring of the monetary market is the key to address macroeconomic imbalances. This programme also supports the Government to increase capital market capacity through the government bond market, as well as support capacity-building for regulatory and monitoring agencies.

 

Apparently, the Vietnamese Government did not use this economic tool effectively in the past time. The arrhythmic administration and management leads to a series of spreading, inefficient investment projects and failures in non-core investments. Therefore, the task of the Government of Vietnam is to improve the effectiveness of public investment projects which are being, and will be, deployed in Vietnam. In the long term, a thorough economic restructuring is required for macroeconomic stability, especially the public sector also needed to be taken into account. The safeguard of the banking system must be given priority as well, but it is noted that bank capital should not be channelled too much into public investment, but into other key economic areas.

 

Although the world economy is still potentially uncertain and the Vietnamese macro-economy still faces numerous difficulties, in my point of view, the Vietnamese economy and market still catch the strong fancy of foreign investors, especially in the merger and acquisition (M&A) field. Vietnam has this opportunity because, in its economic restructuring strategy, the privatisation process will expand opportunities for foreign and private investors to take part in infrastructure investment in Vietnam, especially under the public-private partnership (PPP) model. In Southeast Asia, according to ADB's forecasts, by the end of 2020, the completion of synchronous infrastructure connections among Greater Mekong Sub-region (GSM) countries will have created more favourable conditions for investors. Accordingly, nine road corridors connecting from east to west and north to south among GSM countries, and telecom infrastructure will be established to bring more investors in the region to Vietnam.