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Iconoclastic economist cites paradoxes that destabilize economy
Vietnam’s economy faces paradoxes in its development which are very difficult to explain, says economist Tran Đinh Thien. He declared that it is time to re-assess Vietnam’s ability to manage its global integration.
The acting head of the Vietnam Institute of Economics, Dr. Tran Đinh Thien, keynoted a workshop on Vietnam’s economy in the post-recession period in Hanoi on August 11. As reported by the newspaper Tien Phong, Thien declared that to achieve sustainable growth, Vietnam must rebuild its development strategy in the new, post-financial crisis context.
Thien addressed what he called ‘several paradoxes.’
First of all, though Vietnam has been growing at an average rate of seven percent per annum for the last 25 consecutive years, its growth is not considered sustainable. This judgment has surprised the world, because ordinarily five percent growth continued for ten years is regarded as ‘sustainable.’ Yet, Vietnam itself doubts that its economic development is sustainable.
Second, though Vietnam had much time to prepare for its integration into the global economy, its competitiveness has declined in the last three years since it joined WTO. Though the nation’s economy has been growing faster than many other countries, it is still falling behind, even lagging in per capita income growth. Many leaders find this hard understand – how can we grow seven percent, another country grow three percent, and yet it is Vietnam that is losing ground?
Third, in the three years since Vietnam joined the WTO, there have been many opportunities to develop the national economy. Investment capital has been flowing to Vietnam while the capital market has been opened more widely. However, to the surprise of many, the economic growth rate has slowed down, while the rate of inflation has been high.
Fourth, though Vietnam is considered a very attractive location for foreign investment, a lot of foreign investors have reported losses. “It is quite a surprise that though many complain of losses, none of them leave Vietnam,” Thien said.
A fifth paradox is that though Vietnam has injected huge sums into the economy to stimulate demand, the inflation rate has decreased. That seems to be a violation of economic laws, Thien noted, but is possible to explain. The problem is that Vietnam has only paid attention to the consumer price index (CPI). Instead, it ought to be paying attention to the price of capital and of input goods and services. Ignoring this has given rise to illusions about the stable development of the national economy.
Budget deficit has become chronic
The “chronic disease” of the national economy, what Thien calls the most serious illness seen in the last three years, is the budget deficit, “which we treat as though it doesn’t matter”. Though the National Assembly criticizes the Government for wasting money, he commented, it still continues to approve the budget estimates that assume a deficit, creating the illusion of a stable economy.
Other “diseases” also should be treated, including the overdue privatization of economic conglomerates. The diseases reflect leftover structural problems that result in macroeconomic instability.
“Over the last 25 years, we have continuously suffered a trade deficit. There’s only been one surplus year, a trifling surplus of $40 million. The trade deficit has grown hugely since we joined WTO,” Thien said. “It shows that instead of curing our diseases, we have made them more serious”.
At the same workshop, former Deputy Prime Minister Vu Khoan said Vietnam needs to evolve to adapt to the rapid pace of globalization.
Further, Khoan asserted, it is increasingly necessary to consider China’s impact on the world’s economy. Some analysts maintain that China may take over the US role in the world’s economy. It is undeniable that China is becoming a big creditor; it holds $3 billion in US and Japanese bonds.
There are implications for Vietnam. The nation has a big trade surplus with the US, but imports far more from China than it exports to that country. China has won bids to implement many power projects in Vietnam.
“How should we play this chess game,” asked Khoan. “That’s a question for the Government. If I were a big company, I’d be paying close attention.”
vietnamnet, Tien phong
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