"Technocratic or Populist"

In 2012, the world economy went through a difficult year, with the structural issues that have not been solved by any feasible solution. The global economy grew weakly with GDP at 3.2 percent, the lowest level since 2008. Under this circumstances, even though major economies have used monetary measures such as keeping interest rates at low levels and easing money supply, confidence has declined somewhat to see the reaction policies are not fully effective or just effective in a short term or lacks long-term reliability.

 

Many countries have fallen into the "low growth” trap, a term referring to a prolonged low growth rate along with high unemployment, decreasing credit leverage of households and businesses, which lead to an increase of the risks of the collapsed banking system and the government debts and create more fiscal pressures. Therefore, the world will have to face a growth rate of around 2 percent and not much higher than expected.

 

The instability of the world economy has a significant impact on the economy of Vietnam. The Consumer Price Index (CPI) could clearly show us about this. Despite of strict administration and control of the government, the CPI always fluctuates erratically; especially, the food items have high volatility and short-time stability. Besides, no signal shows that the price of the goods, which was adjusted by the government, is more stable than those in other sectors.

 

Handling the bad debt of the banking system has not yet been solved although the government has approved the "Restructuring Credit Organizations from 2011 to 2015" project to restructure the financing mechanism of the credit institutions.

 

The VAMC has been financed by the government budget and the issuances of the government bonds and the VAMC bonds. However, in the context of the budget deficit and huge public debt, the percentage of direct funding from the government budget should be below 20 percent. Handling the bad debts can last from 7 to 10 years, which depends on the level and volume of the bad debts. This process must be done in parallel with the restructuring of state-owned enterprises, one of the causes of bad debt. In addition, the VAMC with the ownership of VND500 billion capital is hard to handle the debts of VND500,000 billion. One of many measures is to issue the special bonds to sell debt. But who will buy such bonds? The State Bank of Vietnam (SBV) is only one who again buys the bonds to clean up the books. However, what is this turned out if after 5 years this debt cannot be solved? Even some said that based on the world experiences, the handling of the bad debts will cost 50 percent of GDP (GDP of Vietnam in 2012 of about US$136 billion); but Vietnam has not deliberately assessed further consequences.

 

This term defines the process of industrialisation completed in the developing countries and turned into another process of enhancing the proportion of services in the economy. However, the concept of de-industrialisation mentioned in the report has different connotations. It defines a country not finishing industrialisation and then being impacted to not complete this process. In other words, the concept of the de-industrialisation hereby refers to the "premature death".

Intensively, the very heart of the process of the "new style" industrialisation is associated with the rise of the Chinese economy. It is said that a country with rich natural resources or lower level of industrialisation than China is intrigued by the export of natural resources and raw-processed goods to China, leading to the resources for production being moved out of the existing industries. In parallel with this process, China will export finished industrial commodities with high competitiveness to natural-resource- exporting countries. As a result, the industrial production of the exporting country is shrunk, and even underdeveloped, leaving the country engaged in exporting natural resources and commodities that have low technical content. The clearest example of the de-industrialisation phenomenon took place in Africa where in the period of 2000 to 2008, crude oil, gas, and mineral raw materials accounted for 86 percent of total export value from Africa to China.

 

Under the treaties, after ASEAN - China free trade agreement is signed, each party will carry out the Early Harvest program (EHP); it is indicated that the risk of de-industrialisation, which China will pose to the ASEAN, is relatively clear. Accordingly, Vietnam, Laos, Cambodia, Myanmar and Indonesia are the countries that are obviously affected. The fundamental cause is these countries having rich natural resources but lacking level of industrialisation, while the ACFTA has removed most barriers in trade between ASEAN and China. Intensively, not all of the ASEAN countries depend on China. Specifically, Malaysia, Thailand, and Singapore have trade relations of equality and mutual benefit with China. Exports of these countries to China are 80 percent of goods with high technical content. Along with the growth of China, more open trade these countries are, the more they benefit because these countries at a higher level than China in the chain of production of the East Asia. However, some other countries including Vietnam are facing a growing deficit with China as 50-90 percent of the exports are natural resources and raw materials.

 

It can be said that during the recent time, the Vietnamese government has been drastically directing the operation of the economy. This has brought a consistent adjustment of the macro economy. However, this appears to be true only in the short term. Some problems such as bad debts and real estate market still need a comprehensive and long-term solution.

 

Besides, a number of advantages of Vietnam’s economy have had a shift. Specifically, the demographic structure has changed; up to 2020, the "golden population" of Vietnam is predicted to drop to half the current trend.

 

The operation of the gold market of the government has faced with different opinions when the government assigned SJC to provide gold as well as sell and buy gold in the market. Many question what happens to the whole economy if other sectors such as construction could provide cement and steel while setting selling and buying price for such these commodities.

 

Therefore, in the long term, it should be recognised that the core causes are underlined by the state institutions (the cause of the cause). Accordingly, it is questioned which direction, "technocratic or populist", the government run in under the current economic context.