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Measures considered to curb trade deficit
Senior economists have argued for reduced investment in State-owned firms and strong development of supporting industries as key measures to help reduce the nation's rising trade deficit.
At a two-day conference in HCM City ending yesterday, Bui Truong Giang and Pham Sy An of theViet Nam Economics Institute highlighted the challenges involved in controlling the trade deficit.
In the first eight months of 2010, Viet Nam's exports were worth US$43.4 billion, while its import turnover was $52 billion, causing the trade deficit to register a year-on-year increase of 34.4 per cent.
"This figure is much higher than recorded in previous years except 2008," said Giang.
This meant that the Government's goal of keeping the trade deficit to less than 20 per cent of the total export value was hard to realise, he said.
Giang also noted that trade deficit was a long-term problem.
He said the deficit had been a regular feature of the economy over the last 10 years, but it had become "more serious" after Viet Nam's entry into the World Trade Organisation (WTO).
"These changes have created an unstable situation as well as high risks for the economy," he said.
An agreed with Giang, adding that the long-term, an increasing trade deficit could drain the central bank's foreign currency reserves and weaken its ability to intervene in the foreign exchange market.
"The serious trade deficit would also increase the economy's debt accumulation with outside economies and bring the domestic economy closer to a debt crisis," he said.
"Around the world, it has been seen that an economy with fixed forex policies and big trade deficits are more prone to face monetary crises," Giang said.
In the long-term, an increasing trade deficit could destabilise foreign currency markets and compromise the independence of the nation's monetary policy as it would be forced to focus on ways to keep the forex rate within set targets, he said.
The current trade deficit could not be settled immediately, and it needed to be tackled with specific strategies and several focused measures, he added.
Long-term measures
Giang and An suggested some long-term measures which they hoped would help reduce the trade deficit in coming years.
The Government should reduce investments in State-owned enterprises (SOEs), while further accelerating SOE equitisation to ensure that they operate according to market principles. In other words, SOEs must be treated on par with other firms.
The Government should also do away with protection and preferential treatment for SOEs involved in production and trade of essential goods.
These support policies would benefit protected enterprises and essential goods producers but harm enterprises that use their products by increasing production costs, and this would in turn affect the overall competitiveness of domestic products, the economists argued.
The Government should have a clear and comprehensive strategy to effectively develop the supporting industry in order to reduce the import of accessories, they said.
Development of infrastructure and the labour force, further administrative reforms and a flexible foreign exchange rate policy were necessary tasks for reducing the national trade deficit and protecting foreign currency reserves, the economists added.
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