Domestic and international developments are posing a lot of problems to Vietnam, although the domestic economy has signs of stability. In this situation, the Vietnam Centre for Economic and Policy Research (VEPR) under the Vietnam National University of Hanoi (VNU Hanoi) and the Australian Embassy in Hanoi recently co-organised the Launching Workshop of Vietnam Annual Economic Report 2014, themed “The Constraints to Growth.” This was an opportunity for Vietnamese and international economists to review and put forth their best suggestions for Vietnam’s reform. Slow recovery
Dr Nguyen Duc Thanh, Director of VEPR and Author of the Annual Vietnam Economic Report 2014, said although the Vietnamese economy has made a certain level of recovery, it remains below its potential and expectations. VEPR has two macroeconomic growth scenarios for Vietnam. VEPR envisages a lower growth rate than in 2013. The less optimistic scenario puts economic growth at 4.15 percent while the other projects it at 4.88 percent. The forecasts are lower than the growth of 5.42 percent in 2013.
In early April, the National Financial Supervisory Commission (NFSC) said “Vietnam’s GDP reached 4.96 percent in the first quarter of 2014, higher than the corresponding periods in the two previous years. And, the growth trend will stage in the last three quarters of 2014. As a result, Vietnam is more likely to achieve the target GDP growth of 5.8 percent in 2014.” More lately, the Asian Development Bank (ADB) forecast that Vietnam’s GDP will rise slightly to 5.6 percent in 2014.
In this report, VEPR represents seven factors with direct impacts on the Vietnamese economy: (1) macroeconomic instability and confidence erosion of economic actors in the future and administration orientation are obstacles to long-term investment; (2) low business environment quality, intellectual property infringements and corruption are tight constraints to Vietnam’s growth; (3) infrastructure, particularly transport infrastructure, is also a tight constraint. VEPR thought that energy infrastructure will be the key constraint in the medium and long term but not a tight constraint in the short term; (4) the weakness of financial intermediaries and excessive public investment will become tight constraints if the economy returns to the trajectory of high growth; (5) market failure is a tight constraint, particularly key markets like labour, education, energy and input markets; (6) insufficient workers with qualified skills and qualifications are also constraints to economic growth; and (7) the economy hardly has any creativity. VEPR attributes to State failures in protecting intellectual property and industrial secrets, lacking academic and research freedom, independent thinking, and risk tolerance.
Pros and cons in shaking hands with China
As soon as the report was published, many experts and policymakers raised questions about VEPR’s low growth forecasts for the Vietnamese economy. However, according to Dr Nguyen Duc Thanh, the forecast is based on up-to-date data, particularly growing tensions in the East Sea when China brazenly brought its Haiyang Shiyou 981 oil rig to the territorial waters and the exclusive economic zone of Vietnam, which is threatening economic cooperation between the two countries. He explained that the long dependence on an economy will bring Vietnam to a passive position regardless of China or any other nation and territory. A relation breakup will cause a negative effect on the overall state of affairs.
China, a neighbouring country with more than one billion people, has for long imported raw or unprocessed materials from Vietnam. Vietnam has not paid much attention to investing in technologies and production lines to meet requirements of other demanding markets. If this situation continues in a long time, it will result in permanent paralysis and even closure of some manufacturing industries in Vietnam. In the broader sense, some countries such as Thailand and Malaysia have focused on high-tech industrial production and they do not suffer trade deficit with China. This is a serious concern of Vietnam if it must continue to do business with China.
Giving analysis of pros and cons in trade with China, Dr Thanh said that problems in economic ties with China also provide a good opportunity for Vietnamese enterprises to quit price-based competition and shift to products of higher grade and compete in quality and brand prestige. To do these, Vietnamese enterprises are in need of government support policies. “We must to recalculate the market if we lose the Chinese segment. In the context of globalisation, Vietnam needs to accelerate negotiations to conclude trade agreements like Trans-Pacific Partnership (TPP) Agreement, the Free Trade Agreements with the EU, South Korea and the Customs Union (Russia – Belarus – Kazakhstan). This is the foundation for us to expand and diversify markets. Lower tariffs will boost imports from these markets, thus helping reduce reliance on China,” he analysed.
Cultural tourism is a big contributor to the national budget. In the coming time, Vietnam also needs to strengthen security measures to facilitate Chinese tourists to Vietnam and prevent uncivilised behaviours. Authorities also consider expanding and upgrading services to exert a pull on other markets like the EU, the US and Japan because tourists from these countries spend as 5-10 times as much as Chinese tourists.
Focus on macroeconomic stability
He noted that, in the currently difficult context, Vietnam needs to carefully consider and calculate the most optimal solutions to restore the economy, promote growth, regain the health of the business community, issue reasonable monetary policies, and control macroeconomic stability control. Macroeconomic stability remains the most fundamental premise to solve existing problems.
Expressing his concerns over negative effects of real estate market, exchange rates, bad debt, SOE reform and other factors on the health of economy, Dr Thanh said that Vietnam should gradually loosen this sensitive real estate market towards market mechanism rather than covering it with costly bailout packages as earlier, resulting in psychological expectations.
Regarding bad debt solution, according to VEPR, Vietnam needs to create a more professional debt trading market to attract more resources from domestic and international investors, rather than rely too much on Vietnam Asset Management Company (VAMC). Vietnam also needs to speed up SOE reform, with focus on capital-intensive fields like transportation and commercial industry.
Anh Phuong
Đăng ký: VietNam News