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Vietnam too concentrated on economic growth
Vietnam has been too concentrated on economic growth rate. It is not because of the pressure put by international organizations, but it is the “tradition” of a centralized economy which focuses on plans, targets and achievements, said World Bank Vietnam Country Director Victoria Kwakwa at the online roundtable talk organized by VietNamNet’s Vietnam Economic Forum (VEF) on November 11.
In the first part of the talk published on November 15, Benedict Bingham, Senior Resident Representative of IMF, analysed the reasons behind the depreciation of the dong. He said that the Government needs to take drastic measures to restore the public confidence.
VEF would like to introduce the second part of the talk which focuses on the story of Vietnam’s economic growth.
Viet Lam, VietNamNet Journalist: As Mr Tran Dinh Thien has said, crisis is also an opportunity identify the diseases to be treated. In 2008, such a crisis happened in the world and most countries have taken full advantage of the occasion to restructure their economies and fix the errors. At that time, Vietnam also mentioned the need to restructure its economy. So why are we still talking about the restructuring now?
Tran Dinh Thien, Head of Vietnam Economics Institute: The paradox is that since we joined WTO, there have been a lot of opportunities: investments - both foreign and domestic - have increased, ,and trade opportunities have opened, but the economic growth rate has decreased, and more uncertainties have emerged in the economy/market?.
This means that even if we are given golden opportunities, but we are not well prepared, we will not be able to take full advantage of them.
The reality in the last few years shows that it is necessary to change basic things, especially, the growth model.
As such, we need a lot of time and a lot of effort to settle long term problems. However, it seems that the national economy has been facing short term problems over the last few years, and as we focus on short term problems, we have no resources left to settle long term ones.
This explains why we are still not able to cure our diseases, though we have identified them. And now we have to, once again, talk about the economic restructuring. I think that the issue will be discussed more intensely this year, especially that a very important event is about to take place - the Communist Party’s Congress
As Mr Bingham said, we have a serious short term problem. We have to settle the problems in interest rates, exchange rate and inflation. We have to escape from the current problems, but we also have to settle long term ones, or the national economy will suffer.
Viet Lam, VietNamNet Journalist: Mr Bingham, do you think that the recent policies applied by the State Bank of Vietnam are strong enough to settle short term problems?
Senior Resident Representative of IMF Benedict Bingham: I think that the Government has taken the right moves in order to deal with the current problems. But as I said above, once we lose confidence, we will have to spend more time and efforts to restore confidence
Therefore, I hope we can see bigger efforts to be taken by the Government of Vietnam in the upcoming weeks in order to stabilize the foreign currency market and curb inflation.
I think that recent years were the good time for the Government to learn and draw lessons.
Joining WTO can be described as driving a Ferrari. It will be wonderful to drive such a car, but we may get panicked until we can learn how to drive it
I think that the Government of Vietnam can learn two important lessons.
First, in the new conditions, the commitments relating to inflation must not be changed regularly. Once investors and people have doubts about the Government’s commitments on inflation, it is very difficult to persuade them to continue keeping confidence in the local currency.
The second lesson is that with the WTO accession, Vietnam has the chance to attract big investment capital flows from the world. Therefore, it is necessary to keep strict discipline on public investment projects. Once people lose confidence on the discipline of the state’s investment, the readiness of people to inject money in the national economy will decrease.
The loosened discipline on public investments has led to a lot of problems that we can see now – the big trade deficit, weakness in the banking system and the weakness in the state owned economic sector.
I agree with Mr. Thien that if we cannot control basic macroeconomic management issues, we will not be able to concentrate on any other issues. People will not pay attention to the 5-10 development plans, if they see the bad situations for the next 2-3 months.
I agree with Mr. Thien that the optimistic signs for the national economy not only can be seen in the economic growth rates of six or seven percent this year. The encouraging thing is that some basic macroeconomic issues have been issued on National Assembly’s forum, Government’s forum and people’s forums. This will allow people to discuss and find solutions with which we can enter a new development period.
Viet Lam, VietNamNet Journalist: I think that it is very difficult to escape from the current situation until we find out the answer to the question: what is more important for Vietnam’s economy, the high economic growth rate or the growth quality.
A VietNamNet’s reader, Lan Anh, has sent a question to the World Bank Vietnam Country Director Victoria Kwakwa. It seems that donors always assess the success of economies based on their GDP growth rates; therefore, nations strive to obtain high economic growth rates at any costs, leading to many bad consequences, including the weak macroeconomic stability and problematic growth quality.
Victoria Kwakwa, the World Bank Vietnam Country Director: Thanks for your question. It is clear that high economic growth rates can help countries reduce poverty.
However, while we strive to obtain high economic growth rates, we also need to understand that the quality of growth is also very important.
In case of Vietnam, we can see that the society’s investments are very high, up to 40 percent of GDP. This means that the sum of money we have to spend to obtain a unit of growth is not small. The problem is that Vietnam still cannot make investment in an effective way. In other words, it can make investments in other sectors in order to obtain higher efficiency.
The development model Vietnam chooses is to base on the state economic sector. Therefore, the sector now uses much important resources of the national economy. However, there are many proofs showing that the resources cannot be used effectively.
The second thing that we need to pay attention to when considering the sustainability of the economic growth is the environment. If the economic growth brings bad consequences to the resources and people’s health, the growth will not be sustainable.
When we talk about sustainable development, this means that the majority of Vietnamese people can enjoy benefit from the growth.
I would like to mention two matters here. First, the small and medium enterprises in Vietnam which create most of jobs to Vietnamese people - can the enterprises have enough conditions to develop their business, employ more workers and pay the salaries high enough for Vietnamese people to live on?
Second, the agricultural sector which most Vietnamese people live on. It seems that Vietnam has been very successful in developing agriculture, and it is now a big rice, coffee, tea and seafood exporter in the world. However, farmers are still poor, i.e they still cannot enjoy many benefits from the growth.
So, the high growth rate is very important, but the sustainability of growth is even more important.
I think that Vietnam has been too concentrated on economic growth rate. It is not because of the pressure put by international organizations, but it is the “tradition” of a centralized economy which focuses on plans, targets and achievements.
I hope that in the next 5-10 year development strategies, Vietnam will focus on the quality and efficiency of growth instead of the figures in growth.
VietNamNet, VEF
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