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Look at quality of growth
At a time of global crisis, many experts and institutions still pin high hopes on Vietnam’s positive growth this year. The Saigon Times Daily speaks with economist Pham Chi Lan about the growth of Vietnam’s economy during the first months of the year and looking forward. Excerpts.
Economists and economic institutions have forecast positive growth for Vietnam, at around 5%. What is your opinion given the current economic slowdown?
The Central Institute for Economic Management has three scenarios for the Vietnamese economy with an emphasis on the middle scenario, which is lower than the GDP growth rate of 5% forecast by the Government. Others may predict higher growth but the National Assembly indicated agreement with the Government figure of 5%.
However, I am still worried. Of course we want high GDP growth, but the question is at what price? Over the past few years, Vietnam has made huge investments to obtain a high growth. Last year for example, Vietnam had to invest capital worth 40% of GDP to grow at 6.5%. Other countries, like Japan and Korea, grew 7-8% with investment at 20-30% of GDP when they were in their developing stage. Why do we need to invest up to 40% of GDP to obtain a medium growth rate? Our growth is based heavily on capital injection.
In addition, if we analyze the total productivity factor, we see that our economic growth for the most parts is reliant on cheap labor and capital injection, rather than technology factors. If we continue to depend on these two factors, we will not have a highly-educated labor force and cannot be competitive.
The gap between Vietnam’s development and its regional rivals is still wide, concerning GDP per capita. In reality, our growth is very modest compared with these countries. We should not look at the growth rate, but rather at the quality we create from that growth. Growth quality is very low, and until we correct that we will not go any further.
Unemployment is another index that concerns me. It is very important, but we have not talked enough about it.
The stock market has gone up. Some say that the capital poured into the market recently was from the stimulus package. How risky is that?
The cause of the global crisis was from the financial sector, which created virtual growth. The real economy did not develop much. So the virtual growth has had a negative impact on other important sectors such as automobile, steel, and so on.
The Government said the stimulus package is for small and medium enterprises which have contributed to export growth, not for the stock market. The stock market cannot help enterprises improve their business. The market has gone up mostly by speculation, and this is again virtual growth. This is a risk.
Professor Paul Krugman recently said Vietnamese businesses should look back to the domestic market. Is this feasible, given the high coverage of foreign products?
When local enterprises look back, they will see that a lot of foreign products have flooded the local market. Chinese products are rampant. So I think it will be very hard for them to do this. However, I hope they can understand that export alone cannot help them all the time and they need to capitalize on the local market. But don’t reduce the quality of products, just keep the prices competitive.
Do we need to restructure the economy?
Yes, we do. Just like other countries, we cannot avoid the crisis. However, because our economic structure is weak, the impact is greater than on strong economies. The International Monetary Fund said that Vietnam is one of 26 economies which are most vulnerable to the crisis. We are vulnerable because we are weak internally. We have to look at that.
Vietnam’s economy right now is very labor-intensive. In the early stages of development, we can accept it, but should not rely on this. Let’s look at developed economies in Asia, such as Hong Kong and South Korea. They also started from outsourcing and processing, and about 5-7 years later they moved to the next stage of developing supporting industries. And then when their labor cost got higher, they moved these jobs to other less developed countries and changed to advanced industries. Vietnam has to learn from them.
What would be the best solution for Vietnam?
At the moment, many countries are thinking about how to recover their economies and how to develop after the crisis is over.
Most importantly, Vietnam has to improve its education system and its technology development. These are two priorities. With education, Vietnam has to develop different programs for different groups of people, depending on their background and capacity. Regarding technology, whenever we need, we always resort to import. This is not good for the long run. We have to look at the future and learn from lessons of the past. We have talked a lot about this, but nothing has been really done.
Vietnam must also reform its regulations to better supervise the economy. Professor Krugman said any country that has a good social safety net (security system) is less impacted. So the Government, in my opinion, has to pay great attention to social development in order to have sustainable economic development.
VietNamNet, SGT
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