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Vietnam still needs to restructure investments
The Government has been trying to cut public expenses with a view to curbing inflation and restructuring investments. However, according to Dr Nguyen Duc Kien, from the National Assembly’s Economics Committee only inflation is on the wane.
The consumer price index (CPI) increase of just 0.18% in September over the previous month is a welcome surprise to most of us. What do you think about the figure?
The direct reason behind the low CPI increase in September was the low increases of food and foodstuff items. The prices of construction materials also did not increase. In September, the prices of education tuition and entertainment services increased as the new school year began on September 5, but the increases were not big.
Meanwhile, Vietnam has been successful in controlling imports. September’s trade deficit is expected to be at US$500 million, which means a considerable decrease compared to the previous months.
The Government announced eight measures to deal with the difficulties of the national economy. Which measure do you think has been the most effective, and which ones have not brought the desired effects yet?
The most outstanding measure is the flexible monetary and exchange rate policies. We are determined to keep the VND/US$ exchange rate stable at around VND17, 000/US$1. If the Government had devaluated the VND as it was advised in May 2008, the national economy would have collapsed.
We have also made the right move in restraining the credit growth, though businesses complained that this was a harsh policy. With the tightened monetary policy, inflation has receded over the last two months.
The existing problem is the fiscal policy; I mean the public investment cuts. Local authorities, ministries and branches checked their investment portfolios and then made decisions on cutting some investment items themselves, while there was no special requirement on the job.
Meanwhile, we don’t know where the capital allocated previously for the cut projects will go to, which projects we will gather strength on, and there has been no information about which public works will come online in 2008.
As such, I can say that the policy on cutting public expenses has been only half successful. Investment projects have been cut, but this has not created any changes in the economic structure.
What is your forecast for inflation in the last months of the year?
A lot of difficulties still exist. I think it is very difficult to attain GDP growth rate of 7% for this year. The figure may be 6.5-6.7%. Inflation may be at 25-27%.
Do you think that we will still have to face big difficulties in 2009?
The difficulties may be even more serious in 2009 since the US economy is now in crisis. We are anxious about the national economy in 2009. The crisis will have impacts on the financial market in 2009.
In 2008, with the tightened investment policy, total investment is estimated at 38-39% of GDP, a 5% decrease compared to 2007. As such, the national economy does not have a good impetus to grow, as our economy develops depending on capital investments.
Investment in 2007 was 44% of GDP, so we saw the high growth rates in the first and second quarters of 2008. Since investment is just 39% of GDP in 2008, we will see the growth rates decrease next year.
By the end of 2008, a lot of businesses will have to pay bank principals and interests for the loans they got in 2007, when the GDP growth rate was the highest in the last ten years. When businesses pay bank debts, they will have to get new loans with very high interest rates of 20% per annum and higher.
Meanwhile, state owned enterprises, which drive the national economy, did not make many breakthroughs in 2008.
VNN
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