Looking at the supply side

Economist Pham Chi Lan talked with the Thoi Bao Kinh Doanh newspaper (Business Times) about shifting the focus of economic growth from State-owned enterprises to the private sector

According to some experts, the Government should pay more attention to supply side rather than the demand side of the economy. How do you respond to that?

The Government’s priority given to the demand side has been vividly reflected in the Government’s policy to pump more money into society and investment.

As a result, the ICOR ratio (Incremental Capital Output) has been pushed to a high level, making the use of our money less efficient.

In the future, it’s true that the Government should pay more attention to the supply side, especially in the present context where the economy is developing slowly and unsteadily.

That also means improving the business environment, especially for those in the manufacturing, professional services and agriculture sectors. That also means accelerating the equitisation and reformation of state-owned enterprises and their divestment in non-core businesses.

The National Assembly approved the decision to extend the budget deficit ceiling to 5.3 per cent of GDP. Is this contrary to paying more attention to the supply side of the economy?

To be honest, this goes against the reforms we’re striving to achieve. The issuance of more government bonds is not in line with focusing on the supply side and could affect our goals to grow in a sustainable manner.

What are the consequences of lifting the budget deficit ceiling?

Obviously this means public debt increases. Policymakers have been trying to ensure that public debt stays within reasonable limits but it’s still rising.

Also, to calculate public debt in Viet Nam, we do not count the debts incurred by State-owned enterprises and localities. Including these two components means our public debt could well surpass 100 per cent. That is an alarming level.

What’s your assessment of the economic outlook for 2014?

This depends heavily on economic reform. If we continue focusing on short-term goals, for example pumping more funds and hope into the public sector to be the engine of growth, then we will continue to experience problems.

Economic reform means making sure the public sector can be an effective enabler of growth, using state-owned enterprises, state investment and government-owned commercial banks as supportive levers of the private sector. They have to use funds effectively.

To do this, we have to put effective monitoring systems in place, transferring investment from the public sector to the private sector. We must have policies to boost the development of the private sector. We can’t repeat our mistakes and continue struggling for years to come.

Integral to this is taking money out of non-core investments by State-owned enterprises.

A large part of reforming public investment involves reforming State-owned companies. How can we do both?

These are closely-related: reform of State-owned enterprises and public investment. State-owned enterprises absorb a significant amount of public funds and they can initiate many ideas for public investment, which can be seen in many localities.

State-owned enterprises benefit from these projects. If the Government and the National Assembly still want to boost growth, that means we need investment, but if that continues to come largely from the Government, then we won’t be able to cut down on public investment.

How can we apply market rules?

This means requiring State-owned enterprises to focus on profit-raising and economic returns, and following the rules of the market. For now, state-owned enterprises are placing heavy debts on society.

We can see that from Vinashin. These debts don’t disappear. The company only bears part of the debt and the rest will be paid for by society. This is a toxic and malignant problem and it comes from their privileged position in the economy. — VNS

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