|
Fulbright chief questions scale of stimulus package
Dr. Vu Thanh Tu Anh, Director of Research at the Fulbright Economics Teaching Programme (FETP) in HCM City, warns that Vietnam’s demand stimulus packages is dangerously large, and if not managed carefully, threatens a return to the ‘subsidy economy.’ He sees no imminent danger of high inflation.
The Government has proposed a lowered GDP target of five percent for 2009. Financial institutions including IMF, World Bank and ADB have given different forecasts. The Economist magazine has forecast a growth rate of only 0.3 percent this year. Do you think that five percent growth is feasible for Vietnam?
Lowering the GDP growth rate target is a right decision. However, I personally think that five percent is high.
Vietnam’s economy now much depends on the world’s economy, while the world’s economy has not shown signs of recovery. Professor Paul Krugman said here in Saigon recently that the world’s economy is still worsening, though at a slower pace. This means that the global economic downturn has just nearly bottomed out. It has yet to reach the bottom. As the result, the demand for Vietnam’s export products still keeps declining.
The General Statistics Office estimates that Vietnam’s export turnover in the first five months of the year decreased by 6.8 percent over the same period of 2008. The result is production declines and unemployment and underemployment, all things that have bad impacts on the income of consumers.
Our demand stimulus package’s is very big, some 145 trillion dong, or $ 8 billion. However, it remains unclear how the Government will fund the package, especially when the budget deficit in 2008 exceeded eight percent, according to the IMF.
Some experts warn that the improper implementation of the demand stimulus package will lead to the return of the ‘subsidy economy’ and stagflation. Do you agree these risks are real, and what do you think we need to do to prevent this?
The experts have every reason to worry about the misuse of the demand stimulus packages. The money may go to the wrong places if the budget allocation is carried out without necessary examination procedures
Moreover, the allocation of a huge sum of money in a short time while everyone has difficulties and scrambles for aid may easily lead to a subsidization and ‘ask-and-grant’ mechanism
As for the danger of a return of the high inflation, I think that it is not a worry at this moment. Demand on both the domestic and export markets has been decreasing sharply. Of course, the risk of high inflation is latent; it could break out at any time when the world’s economy recovers.
Forecasts of the GDP growth rate in 2009 (percent)
|
|
12/08 |
04/09 |
|
Government of Vietnam |
6.5 |
5.0 |
|
World Bank |
6.5 |
5.5 |
|
Asian Development Bank |
5.0 |
5.0 |
|
International Monetary Fund |
5.0 |
3.3 |
|
Economist Intelligence Unit |
3.0 |
0.3 |
There are arguments whether Vietnam’s economy has recovered or not. What is your viewpoint?
It is very difficult to be precise about the state of the national economy when we lack much important data, like the number of jobs lost every month, the number of new orders, inventory volume and others
The figures we have show an unclear picture of Vietnam’s economy. Data on investment and import-export volume show sharp decreases, but the data about consumption and industrial production values show improvement in comparison with the first quarter of 2009.
Some experts believe that the run-up in the Vietnamese stock market index and higher real estate prices are signs of the national economy’s recovery. I think that conclusion is groundless, because the companies listed on the bourse now are not typical of the whole national economy. It is the loosening of monetary policy that makes the two markets warm up. not the improvement of fundamental factors
In general, I think that Vietnam’s national economy is stabilizing step by step, but it is still too early to call it a recovery.
The budget deficit in 2009 may reach eight percent. Do you think that the level is safe?
In the context of the global economic recession, budget deficit is a difficult problem not only for Vietnam but also for many other countries.
Countries with budget surpluses like Russia, Germany, South Korea and China, or those countries which can borrow money more easily than other countries, like the US or UK, will be able to spend more than countries with heavy budget deficits like India or Vietnam.
Vietnam is a special case because although it is among the countries with the biggest budget deficit, its demand stimulus package is also among the biggest ones, 7.6 percent of GDP.
I hope the Government will very soon explain the measures it is taking to stimulate the economy, and I hope its efforts to issue bonds will succeed. It needs to account for all unexpected expenditures to give a true picture of the current situation. According to the IMF, the deficit could turn out to be as much as 10 percent of GDP. That would clearly be too high and unsustainable.
To improve the budget situation and avoid bogging down in deficit, the Government must consider carefully whether Vietnam really needs such a large-scale demand stimulus package.
The Government should ensure the efficiency of public expenses, especially the investments of state owned economic groups and general corporations. The Government also needs to gradually restructure its income sources to avoid heavy reliance on our receipts from crude oil sales, receipts that fluctuate widely according to the world market price.
VietNamNet, TP
|
