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ADB advises VN on stimulating economy
The Government should implement the economic stimulus package more efficiently and establish a timeline for stopping the stimulus, experts said yesterday, July 23, at a conference on the subject.
The main topic at the conference was the effectiveness of the stimulus package. Experts raised concerns over the return of high inflation if the country did not take other suitable measures coupled with the package.
Nick Freeman, an expert from the Asian Development Bank, said: "Governments are continually seeking to manage their economies, using various 'normal' policy instruments.
A full-blown stimulus package tends to occur when those policy instruments are insufficient to revive a rapidly cooling economy."
However, such packages were often designed and applied hurriedly and brought about unexpected side-effects, and so should only be applied for a short period of time. Therefore, if the country was to develop its economy sustainably, it must cease the stimulus in a timely fashion, he stressed.
Freeman recognised the improvement of the domestic economy in the second quarter of the year compared to the first quarter, and stated that this meant it was likely that the worst of the recession was over.
"But a V-shape recovery is not automatic as Viet Nam could bump along for quite a while, depending on the global economy."
However, it would be difficult to know the right time to stop the stimulus effort, to ensure that the economy doesn't dip down again from ending the stimulus too early or stop it too late and cause a return of high inflation like at the end of 2007 and the beginning of 2008, he said.
Nguyen Quang Thai, Deputy Chairman cum General Secretary of the Viet Nam Economics Science Association, also warned of the increase of commodity prices by the end of the year as a consequence of foreign countries' protectionism and the rise of import prices.
The Government should use the package carefully and enterprises should find the best way based on their own situation to help themselves rather than depend too much on the package, he said.
Agreeing with Nick Freeman, Nguyen Duc Thanh, Director of the Research Centre of Economics Policy under the Ha Noi National University, said that the capital in the package must be allocated in a specific time period.
Recently, interest rates for deposits offered by commercial banks had been increased, which showed that they were short on capital as a result of massive lending since the Government-subsidised interest rate programme started, he said.
However, to succeed in preventing recession, a prerequisite was to keep interest rates at levels moderately low and stable enough to encourage investment. Therefore, when deposit interest rates were raised, the programme should not be continued, he said.
One of the measures to gain sustainable growth was to pursue a stimulus package with a reasonable scale accompanied with administrative reform to reduce unnecessary costs of enterprises and promote the power of the private sector.
The country should continue focusing on long-term economic reform, particularly on improving competitiveness, Freeman said, adding that it was time to re-evaluate priorities and past strategies, as well as try and imagine how the global economy would be mutate in the next decade.
vietnamnet, vietnamnews
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