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Nine challenges and two breakthroughs needed for economic development in 2009
Within the context of the world financial and economic crisis and the specific situation of the Vietnamese economy of recent time, the country's economy is facing nine challenges in 2009. In order to overcome these challenges, two breakthroughs are proposed, writes Dr. Nguyen Minh Phong.
Nine challenges
Firstly, the risk of economic recession is going abreast with the risk of re-inflation. The trend of recession (though not very sure in all months) in 2009 in Vietnam is closely associated with some major agents including the global trend for reduction in prices of goods, the slower increase in GDP growth, minus growths by some world leading developed countries such as the US (-0.7%), EU (-0.15%), Germany (-0.18%).
The risk of re-inflation has yet to be totally eliminated as the domestic inflation growth is still around 8-13%, plus the trend of loosening financial-credit policies, increasing global and domestic investment and consumption demand stimulus, the risk of increasing petrol and oil prices as OPEC countries cut their production and the current prices have been asymptotical to the real costs of international crude oil exploiting and processing industry.
The second challenge has been the pressure of a decreasing total demand and increasing international protection. Due to widespread financial crisis, people in all countries, facing the global risk of income reduction and employment increase, have to reduce their spendings. Thus, total demands will be narrowed down and it is likely that many countries will increase non-tariff protection measures to protect their domestic producers.
In 2009, the pressure that Vietnam opens its market, especially opening the retail distribution market for foreign investors in implementation of its WTO commitments has increased. This, on the one hand, will cause difficulties to domestic traders due to fiercer competition from foreign rivals. However, on the other hand, it will benefit consumers as retail prices of goods on the market are likely to reduce.
The third challenge is the increasing demand for market liberalisation and also the increasing demand for State supervision and assistance. The demand for market opening, increasing competition and healthy liberalisation can not be delayed. At the same time, the current global financial crisis has also contributed to the demand to tightening supervision and increasing comprehensive support from the State in order to create all favourable conditions and ensure the highest safety for investment activities, as well as prevent the damage by global and domestic economic shocks.
The fourth challenge is the demand for stability of the legal environment while still ensuring the timeliness and flexibility in policy responses in face of market changes. Business activities require stable legal environment to reduce policy risks so that investors can feel secured to make long-term investment. However, in face of unusual changes of the domestic and international markets, it is required that policy responses must be quick, flexible and more updated to maintain general stability as well as lessen the negative impacts of policies which have be come inefficient in the new situation.
The fifth challenge is the pressure for more State budget spending while revenue collection has been reduced. The pressure for increasing State budget spending in Vietnam is quite normal as it is attached with the increasing spending demand for social welfare and investment stimulus, maintaining socio-economic stability in face of the pressure of market recession due to the current financial-economic crisis and difficulties caused by disasters and epidemics. In the meantime, in 2009, it is likely that State budget collection will reduce as revenue collection from export and import tax and foreign currency collection will reduce due to the likely reduction in exports from Vietnam. State budget collection will also reduce due to the sharp decrease in prices of crude oil exports. Domestic budget collection will also be less due to narrower business scale and decreasing corporate income tax in combination with the government's investment and consumption stimulus package.
The sixth challenge is the demands for flexible adjustments of the exchange rate while still maintaining monetary stability. When the US dollar depreciates due to crisis, the Vietnam dong will be affected. There will be two options: If Vietnam wants to maintain the stability of its official VND/US$ exchange rate, the VND will be appreciated. On the other hand, if Vietnam advocates to change its VND/US$ exchange rate along with the depreciation of the US$, the VND will face the risk of depreciation.
The seventh challenge is that all businesses and the whole economy will face the pressure of increasing thrift in production costs and restructuring their businesses and their business activities, including reducing the number of workers, employees, increasing acquisition and business mergers, increasing investment, increasing competitiveness...This will make it more tense such issues as unemployment, social welfare, investment demands and public spending.
The eighth challenge is that capital in arrears is in abundance while investment opportunities reduce. In the short term, most of the traditional investment markets in the world are facing difficulties, thus, investment opportunities for investors in the world are narrowed down seriously. International investment capital is glutted and needs to seek new suitable investment destinations. At the same time, due to the crisis, the regional and the world stock markets have been affected, therefore, the Vietnamese stock market is being less attractive to foreign investors.
The last challenge is that borrowing is easy while loan payment is difficult. It is easy to borrow loans as investment capital is stagnant in enterprises, among the people and banks, and the government's economic stimulus package. However, the situation of slow payment, or even losing payment capability, can be worsened. It should be stressed here that the difficulties will be greater for enterprises and banks, which are first of all related to the process of capital mobilisation, loan borrowing and paying.
Two breakthroughs needed in 2009
In order to solve the nine above-said challenges, ensuring the successful achievements of socio-economic development targets in 2009, it is required that direct and indirect related agencies and sectors should carry out measures in a synchronous manner, including the following two breakthroughs:
The first is a breakthrough in perception. There is no exception and immunity of bankruptcy for any enterprise in the game on the market economy playground. The role of information, forecast and supervision, safety warnings, especially safety of the banking and financial system is important and can not be disregarded in whatsoever cases and time. In addition, it is important that attention be paid to the pervasive chain-reaction impacts of economic problems on the domestic and international markets. The crisis must be nipped in the bud.
The second breakthrough is in investment. Enterprises must thoroughly consider and review their investment and business projects and activities and defining the impacts of the crisis to them so that specific measures can be worked out to solve the problems in the most effective way for them and their partners.
Enterprises are encouraged to diversify their trading activities and markets as well as related partners, improve their capacity and healthy financial situation, the quality of corporate management, the competitiveness of their products and services and have a long-term vision in economic co-operation and competition.
Dr. Nguyen Minh Phong
nhandan
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