|
Vietnam economic woes predate global downturn: Study
The global economic crisis may have contributed to the downturn in Vietnam but the country’s economy has its own severe problems, caused mainly by monetary policies, a study has found.
“The global economic crisis is hiding from our view the fact that macroeconomic problems actually emerged in Vietnam in the last quarter of 2007,” Dr. Nguyen Duc Thanh, lead researcher of the study that was released Friday, said.
“Vietnam Economy 2008” was done by Sai Gon Tiep Thi newspaper and the Center for Economic and Policy Research (CEPR) at the College of Economics, Vietnam National University, Hanoi.
Thanh, Director of the CEPR, said it was not until the fourth quarter last year that the economy started to feel the direct effects of the global crisis – like the declines in foreign investment and exports.
But the country had encountered economic difficulties much earlier, including high inflation, huge budget and current account deficits and forex rate instability, he said.
The main problem for the economy has come from monetary policies, he explained.
Dr. Pham The Anh, a member of the research team, said after monetary growth exceeded GDP growth for many years, high inflation was the inevitable consequence.
Monetary policies were not flexible or consistent enough in 2008, Anh said, pointing out that the policies at the beginning of the year kept seesawing between stabilizing prices to boosting economic growth and maintaining forex rates.
As a result, the efforts to curb inflation did not turn out as effective as expected while both businesses and commercial banks faced difficulties from the tight money policy, he said.
“We have to admit that we are playing a new game,” Thanh said. “Many policies that proved effective in the past don’t work now, simply because the [economic] environment has changed completely.”
“For many years [Vietnam] has only focused on short-term policies... But this trend needs to change. Short-term monetary and fiscal policies should only be used to stabilize the economy.
“Maintaining economic growth needs longer term policies such as promoting the market economy, carrying out administrative reforms and restricting the state sector.”
The researchers called on the government to intensify monitoring of the banking system and the property and stock markets. At the same time it should create a more transparent business environment to prevent excessive fluctuations in the financial market.
FDI a mixed blessing
In their study, the researchers also found that the huge inflows of foreign investment in the last two years brought many problems to the economy in addition to benefits like fostering growth in employment and industrial production.
The country attracted US$21.3 billion in 2007 and a massive $64 billion last year.
The researchers said the FDI inflows contributed to the high inflation. Moreover, there was an imbalance since 30 percent of the investment was in the real estate and hotel sectors, which use fewer workers than other sectors and do not contribute to exports.
The agricultural and food sector only received 3 percent of the investment and the light industry sector 13 percent.
Vietnam has attracted over $6.3 billion so far this year, a 17 percent year-on-year fall.
But Thanh said the decline gives the government a good opportunity to learn how to regulate FDI.
“Measures should be taken to encourage or limit foreign investment, depending on the sector. The inflows must benefit the economy instead of making it unstable.”
Economist Jago Penrose of the United Nations Development Program, also a member of the study team, said many studies have shown that the priorities and strategies of a government and foreign investors can be different.
In Vietnam, many foreign businesses tend to invest in low-tech and labor intensive sectors, he said. A 2007 UNDP report, for instance, said many foreign garment companies hired cheap and unskilled workers rather than raise wages. Some of the workers were illiterate and were taught just enough to read production instructions.
Penrose called for careful monitoring of foreign investment to make sure the investment is aimed at the goals set by the government.
Bottom yet to be seen
Pham Van Ha, a researcher in the study, said in 2008 Vietnam entered the contraction phase of an economic cycle which started in 2006 and peaked in the last quarter of 2007.
Growth slowed to just above 6 percent last year compared to 9.5 percent in 2007.
Ha said the contraction phase began in the first quarter last year and became more obvious the following quarter. It could have ended in the third quarter, but the global economic crisis intervened, worsening the situation.
At the end of last year economic growth slowed down further, the stock market collapsed and real estate prices dropped, he said.
“There are no signs that the economy has reached the bottom of the cycle yet.”
The CEPR research team said growth would be just 4.7 percent this year. This compares with forecasts of 4.5 percent by the Asian Development Bank and 5.5 percent by the World Bank.
The government has said it will revise this year’s economic growth target to 5 percent from an earlier 6.5 percent.
The research team said it is hard to forecast the inflation rate for this year because prices depend on both local policies and the global economy. It warned, however, there is a risk that inflation would explode at the end of the year.
There will be a foreign-currency shortage and the central bank may need to pare forex reserves, the researchers warned further.
As international loans become harder to get and the budget deficit possibly widens, it would be too ambitious for the government to pursue a large stimulus package, they said.
Prime Minister Nguyen Tan Dung on April 20 valued the economic-stimulus spending at $8 billion.
“A budget deficit is acceptable in an attempt to save the economy from crisis, but how to find the funds to cover the deficit is a big problem,” Thanh said.
thanhnien, sgtt
|
