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Ways to cut trade deficit considered
Economic experts have suggested a number of methods Viet Nam should employ to tackle its high trade deficit.
The experts were attending the workshop "International Imbalances and Unstable Financial Systems – What can we learn?" organised by the Central Institute for Economic Management and the non-profit Friedrich-Ebert – Stiftung, Viet Nam, organised in Ha Noi yesterday.
The workshop's purpose was to discuss the National Assembly Economic Committee's recommendations for the drafting of national economic development strategy 2011 – 2020.
The workshop highlighted Viet Nam's high current account deficit and its potential to become a macro economic problem with the risk of creating a financial crisis.
Viet Nam's current account deficit stood at 11.9 per cent in 2008 but was reduced to 7.8 per cent last year.
But Viet Nam's trade deficits were even more concerning, the seminar was told.
Former Central Institute for Economic Management Director Le Dang Doanh argued that the high trade deficit was not the consequence of exchange-rate policy alone but the country's economic structure.
Viet Nam had to import most of the materials it needed to produce its exports.
The institute's Director, Le Xuan Ba, and Deputy Director, Nguyen Dinh Cung, agreed saying Viet Nam needed to employ various methods to tackle the deficit.
Economics Professor at the Berlin School of Economics Dr. Hansjorg Herr said Viet Nam's current account and trade deficit together with the high proportion of unprocessed exports such as crude oil, coffee and rice was indicative of the "Dutch disease".
The disease follows an increase in the exploitation of natural resources or inflows of foreign aid and a decline in manufacturing, the backbone of any country's development.
The Economist magazine coined the phrase in 1977 to define the decline of manufacturing in the Netherlands following the discovery of natural gas in 1959.
Dr. Herr argued that while foreign direct investment had been the major source of capital for Viet Nam since the mid 1990s, policymakers could not ignore the significant increase in indirect capital investment.
FDI's potential positive impact in terms of long-term investment and technology transfer could not be expected with indirect investment, he emphasised.
And a high proportion of FDI went to the real-estate sector which did not generate much of "real growth" and might carry the potential risk of bubbles and economic instability, he warned.
FDI should have gone to manufacturing, he said.
The real estate sector ranked second for FDI last year – US$7.6 billion of the total of $21.48 billion.
Dr. Herr recommended that Viet Nam become more selective in the choice of FDI projects; use taxes to reduce imports of consumer goods and appoint a national economic committee to oversee unique and appropriate long-term industrial policies.
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