The bumpy road to greener economic pastures

Economic stability is a pre-requisite to win public confidence, Vo Tri Thanh, deputy director of the Central Institute for Economic Management, told Ha Noi Moi (New Ha Noi) newspaper.

As an economic expert, what do you think have been the strong points in Viet Nam’s macro economy in the past few years?

Since the issuance of Government Resolution 11/NQ-CP in early 2011, Viet Nam’s economic policies have made many changes toward achieving macro economic stability.

In late 2011, Viet Nam kicked off the process of economic restructuring. What has happened in the last two years helped the government to understand the bottlenecks causing slow economic growth – a key factor leading to the vulnerability of the nation’s economy and the imbalance in the macro economy.

Our growth model is basically based on the rapid increase in credit, investment, high transaction fees and the instability of the land market, the capital market, and others.

Other factors that should be mentioned are inflation, the state budget deficit and bad debt.

In such a situation, there is no other way for Viet Nam than to tighten its macro economy and speed up its policy renewal.

What has the Government done to put policy renewal in place?

The Government has been pro-active in stabilising the macro economy and in restructuring the national economy.

At present, the deposit interest rate is at the lowest level in the past few years. However, there is still room for the lending interest rate to be further reduced.

I should say that our economic restructuring process is on the right track, as the government has successfully established the Viet Nam Asset Management Company (VAMC).

In the meantime, we are on the right path with ASEAN economic integration and negotiation of various agreements, including the Tran – Pacific Partnership, the Free Trade Agreement with the European Union, the Customs Union with Russia, Belarus and Kazakhstan, along with other agreements.

What we want to do is quite a lot. But only a little has yet been accomplished. Here, I just want to mention the four key objectives we have desperately wanted to accomplish, but they are still hanging over us.

They are the stabilisation of the macro economy; rational growth rate to ensure social security; restructuring the national economy and deepening international integration.

The Government’s 2013 socio-economic assessment says that though our macro economy has achieved much progress, that progress is not steady. How do you respond to that?

We have to concede that in past years we had to cope with a “chronic problem” – an unstable economy which is coupled with a high inflation rate, imbalance between imports and exports, the state budget deficit and others.

As a result, they have weakened our capacity to resist external negative impacts.

Though in recent months, Viet Nam’s financial credibility has improved, the stability of its macro economy remains fragile.

The instability of the economy, State budget deficit, the slow treatment of bad debts and the high financial risk all have, somehow, eroded the people’s confidence.

So, it is imperative for the country to have its economy stabilised, and that has already been reflected in the Government’s administration and management performance.

To achieve the goal of stabilising the economy, since early 2013, the Government has tried to implement all measures listed in Resolution 02/NQ-CP, including cutting the interest rate, handling bad debts, tax delays – reductions or exemptions and the execution of the VND30 trillion ($1.4 billion) package to lend to low income people for buying social housing.

I have a feeling, the burden is now on monetary measures having poor co-ordination with the fiscal policy.

Do you think this is the most difficult time for Viet Nam’s economy?

It is projected that the recovery of the world economy in the next few years (maybe by 2017) will remain slow and contain quite a few unforeseeable risks.

For our economy, it is likely that it will recover in 2015. Some agencies have projected that in 2014, our economic growth rate will be 5.3-5.4 per cent, and 5.6-5.8 per cent for 2015 (the government sets the growth rate of 5.8 per cent for 2014 and 6 per cent for 2015).

Anyway, we have seen the light at the end of the tunnel. And now it is time for Viet Nam to double its efforts to restructure its economy.

At the year end meeting, the National Assembly approved the Government’s request to increase the State budget deficit ceiling for 2013 and 2014. In your opinion, what are the reasons behind the request?

It was not accidental at that full house meeting, the government asked the National Assembly to increase the State budget deficit ceiling. As in 2013, the State budget deficit was set at 4.8 per cent. However, by September the deficit was already at 5.4 per cent of the GDP.

The government also requested lawmakers to increase the State budget deficit of 4.8 per cent to 5.3 per cent of the GDP in 2014.

At the same time, the government also requested to increase the issuance of Government bonds – VND160 trillion ($7.6 billion) in the three years from 2014-16, to help address the constraint in the State budget and to complete the national infrastructures.

However, the increase in the State budget deficit and issuance of government bonds requires us to have very specific mid-term goals and high compliance in the budget rules, as well as a clear road map on the reduction of the budget deficit in the following years.

In addition, it requires a very comprehensive assessment on the impact on economic stability, inflation, public debt and co-ordination between the credit policy and the exchange rate. What’s more important, is that public investment programmes must achieve the goal of high efficiency.

What are the measures to solve the problem of bad debts?

Everyone understands that the issue of serious bad debt is the consequence of the macro policy that chased after the high growth rate at “all costs,” coupled by the loosening of financial surveillance, poor risk management and planning of quite a number of enterprises.

The VAMC is simply a tool, although its main mission for its establishment is to handle existing bad debts. However, it is not a magic wand. In my own opinion, bad debts are the high cost that the bank owners have to pay for their poor performance and weak management.

I agree that the government’s interference is necessary. But the interference level should be at a minimum! — VNS

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