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Integration: taking the bad with the good
Now that Viet Nam has joined the World Trade Organisation, its economy is more integrated with the rest of the world and, in turn, has been affected by the current global financial crisis.
In recent months, several thousand workers have lost their jobs while the unemployment rate jumped from 4.64 per cent in 2007 to 5.52 per cent in 2008.
Additionally, a huge amount of labourers working abroad are expected to return earlier than planned, putting pressure on the economy and society. In 2009, the Government targets the creation of 1.7 million jobs, a difficult goal during a recession.
In 2008, the GDP grew 6.23 per cent, 2.25 per cent lower than the target. This year, GDP growth is set at 6.5 per cent but many experts say that only 5 per cent would be reached. The consumption, investment and efficiency rates could be much lower than those in 2008.
Economic experts also predict that inflation could fall from over 19 per cent last year to only 5 per cent in 2009 due to income reduction, a decline in consumption, cheaper prices for global commodities and the flood of Chinese goods in the local market. That is a positive sign but experts warn the Government should take action to prevent deflation.
In 2008, Vietnamese exports increased year-on-year by nearly 30 per cent, but in August the rate began falling. In 2009, export growth is expected to be 13 per cent, the lowest level since 2003.
But it will be hard to reach the target due to a reduction in import prices and competition from other Asian exports. Last year’s high trade deficit of US$17 billion is expected to remain at the same level in 2009.
In addition, Viet Nam will face a shortage of foreign currency as remittances, indirect foreign investment and turnover from foreign tourists fall.
The year will indeed be a difficult one as the Government tries to maintain GDP growth and keep inflation at 5 per cent, create more jobs, cut the trade deficit and increase exports.
Loans to buoy exports
To prepare for the new year’s export growth target of 13 per cent, or $72 billion, the Ministry of Industry and Trade has suggested that the Government provide more loans at preferential interest rates for export enterprises.
Banks have been asked to grant more capital and simplify procedures by accepting entrepreneurs’ commodities as mortgages. Other measures could be a credit guarantee service from banks for some key export commodities such as rice and agricultural products.
The ministry has named additional goods allowed to receive lower-interest loans, including rice, footwear, plastics, bicycles and accessories, rubber, machinery, steel and iron, construction materials, handbags, suitcases, umbrellas, garments and textiles.
Additionally, import taxes for several raw materials for export production will fall and, as a result, products will be cheaper and more competitive. Some export taxes will also be eliminated.
Increasing trade promotion to promote exports will be another long-term measure. With the global economic recession, trade promotion will focus directly on export commodities and contracts.
Large, traditional and new markets will still be the focus of both the Government and enterprises but more attention will be paid to the most important segments.
The ministry has also warned all export enterprises to be careful about their export contracts. Enterprises should check the financial abilities of their partners through Vietnamese commercial offices abroad to avoid risky payments, they said.
City seeks bond funds
Preparing for 2009, HCM City plans to ask the Government to issue bonds with a total value of $1 billion for the city’s development projects.
More capital is needed to stimulate consumption and prevent recession but experts worry about the ability and effectiveness of such suggestions. They say the issuance of Government bonds at difficult times is not proper and nearly impossible. Moreover, the reduction of interest rates would not attract bond investors.
The only possibility would be that local banks could buy bonds.
Meanwhile, local residents are holding a huge amount of capital. According to figures from the banking system, the city’s banks provided loans of VND72 trillion ($4.2 billion) for the first 10 months of last year. All the money came from residents when the interest rate was at a record-high level last year.
Currently, the real-estate and stock markets, known as the most popular investment channels, haven’t been bringing about expected profits. Residents still have money but they don’t know where to invest in.
"It’s time for the city to apply the model of a public-private partnership," said lawyer Truong Trong Nghia, a member of HCM City People’s Council.
The model would allow private funds to join public infrastructure building with the Government. Private investors would work with the Government’s staff in construction and supervision and would share the profits.
The model has been successfully applied in many developed countries, but the city hasn’t paid attention because, it says, "there are no regulations."
Another solution is the establishment of joint-stock companies that would be allowed to issue shares and attract capital for construction of public infrastructure.
In 2008, new investments from the private sector fell VND31 trillion ($1.8 billion) or one fifth compared to 2007.
"It’s a good time for HCM City to create a new policy for mobilising capital from the private sector, especially during a recession," lawyer Nghia added.
VNS
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