"Vietnam's economy is like a heavy vehicle on a bumpy road slowly entering the future," said the Vietnam Annual Economic Report 2013, a publication of the Vietnam Centre for Economic and Policy Research (VEPR) affiliated to the University of Economics under the Vietnam National University of Hanoi.
The authors said this year’s report was conducted as Vietnam’s economy has more room for policies, as inflation is relatively low. However, economic problems are most concerning. According to experts, the weakened business system, weak policies and ineffective policy-conduit environment distorted expectations and impeded economic recovery.
Opportunities missed
The authors presented two scenarios for Vietnam’s macro-economic outlook in 2013, featuring a similar growth rate as in 2012 and continued sideways movement.
Specifically, GDP growth was forecast at 5.04 percent in the low scenario and at 5.35 percent in the high scenario (usng the new GDP computing method, based on fixed prices in 2010). Inflation was expected to be relatively stable in 2013, ranging from 4.95 percent to 6.64 percent.
However, Economist Le Dang Doanh suggested the authors perform a more in-depth research on EU debts and solutions. “Lessons from debt crisis in developed countries seem to be distant, but they are practical lessons that Vietnam needs to focus on," he stressed.
Besides, the report did not cover one of the burning problems of the Vietnam's economy, the debt of VND1,334 trillion incurred by State-run enterprises, he noted.
The report also made optimistic forecasts, but Doanh did not show his support because the debt of State-owned enterprises remained an issue and the resolution to it is not easy.
Agreeing with the above viewpoints, Dr Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management (CIEM), however thought the forecasts remained “very safe.” “Macro impact is based on not only the demand side but also the supply side, poverty reduction stories, not only the budget issue but also the credit issue," he recommended.
Besides, the report pointed out that Vietnam has not fully leveraged the integration process in its 6th year since entering the World Trade Organisation - WTO (2008-2013).
But, the country’s growth dipped to an average of 5.8 percent a year during that time, compared to 7.8 percent a year prior to the WTO participation (2002-2007). Its average inflation in the post-WTO entry period rose to 11.5 percent, while the figure was only 7.35 percent in the earlier period.
“It is clear that the Vietnam's economy has left behind rapid growth opportunities associated with missed economic reform,” said the report.
Dr Thanh emphasised that the "trap" of WTO trade liberalisation is the purely static advantage comparison of low-paid labour, while ignoring the rise of the China’s economy as well as the shift of global production networks in the East Asian region, including ASEAN and Vietnam.
New model orientations
The authors stressed that in the past five years, global financial crisis and economic slowdown as well as domestic economic instability has left Vietnam facing tremendous challenges and an intense reform requirement.
Many policies and programmes have been adopted, especially economic restructuring programmes and growth paradigm shift from width to depth. But time goes by and doubts increase over the realisation of urgent reform ideas.
Besides, the report mentioned a number of short and medium-term problems posed to Vietnam, including bad debt settlement in the financial system and business sector revival. Recovering the real estate market with a new face and a new business philosophy in order to support the recovery of financial and credit system is also an urgent need.
In addition, long-term problems need to be mentioned and addressed through specific steps at this time, like improving the business environment, restoring public and investor confidence, reducing administrative orders and State interventions in economic activities, reforming land relations and agricultural market structure.
Dr Vu Viet Ngoan, Chairman of the National Financial Supervisory Commission (NFSC), appreciated the report findings, adding that the report’s topics were close to real situations facing Vietnam.
He said that the authors wrote that Vietnam’s economic prospects are more dependent on exports, or relying more on external sources. They recommend policies for exports because Vietnam’s export power has been in the hands of foreign direct investment sector.
Dr Ngoan was very much impressed with the authors’ judgement that Vietnam is in the lower part of the global value chain and world economic slowdown is challenging the transfer of technology and that stabilised exchange rate policy also raised more difficulties for export activities.
"In short, economic restructuring is going on a bumpy road and influenced by internal and external factors. Personally, I also agree with the report’s view that policy regulation must harmoniously combine short-term and long-term solutions," he noted.
Finally, a point hotly debated is that Vietnam should seriously review its existing economic model and soon orient a new model. “If we continue to avoid admitting a new model for economic development together with suitable support mechanisms, the reform will not have actual targets and Vietnam will miss the opportunities to reach the future on the smooth road,” said the authors.
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