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The three biggest risks for Vietnam’s public debts
The biggest risk lies in the cash flow, not in how big the debts are, according to the Deputy Director of the Central Institute for Economic Management (CIEM) Vo Tri Thanh.
The three biggest risks
The figures vary about Vietnam’s public debts: Some sources say the current public debt is 52 percent of GDP, while other sources say 56 percent of GDP. However, Thanh emphasized that the biggest risk lies in the cash flow, not in the debt size.
According to Thanh, Vietnam’s total debts have reached $41-42 billion, including $8-9 billion worth in debts incurred by the private sector, while the remaining are the government’s debts. Thanh believes that there exist three biggest risks that Vietnam is facing.
First, a considerable proportion of Vietnam’s public debts, about 30 percent, is in Japanese yen. “We well know that the yen price has been fluctuating heavily.Even though yen loans have low interest rates if the yen keeps rising in value, this will be bad news for us,,” Thanh said.
The second risk comes from the guarantee for loans (The government has guaranteed for state-owned economic groups and private run corporations to borrow commercial loans from foreign sources). Though the debtors are private businesses, if the businesses cannot pay debts, the government will have to intervene.
The third risk is that though the short term debts just account for a small proportion in the total debts, about $6-7 billion, the ratio of short term debts on foreign currency reserves has been increasing.
According to Thanh, the public debt may reach the highest peak in 2011. “If we have a good reform plan to develop the economy and a good macroeconomic policy, the foreign debt ratio, according to the International Monetary Fund (IMF), will be decreasing. “However, this will happen, if the “if” happens”.
The effect of monetary policies
Macroeconomic policies need to send clear messages to the market. However, in the eyes of businesses, especially foreign investors, they still cannot see the messages clearly.
“I met many foreign investors. Before they came to Vietnam, they heard that Vietnam was facing a lot of difficulties. But when they came, they realized that the situation was not too bad. What they can see is that the bigger the difficulties are, the more money Vietnamese people spend,” Thanh said.
“Until June, we still had advised the government to be more patient with the goal of macroeconomic stability. However, at that time, there was also another viewpoint that Vietnam needs to push up growth, and it seems that that viewpoint has gained the upper hand,” he continued.
Thanh emphasized that Vietnam needs to harmonize policies. If looking into Vietnam’s development plan, one would see fiscal policies, total investment capital and total saving, while he would not see any information about monetary policies.
“Even the National Assembly’s resolution, that was ratified at the latest session, also does not show the monetary policies,” he said
He went on to say that it is necessary to harmoniously implement fiscal policies and monetary policies which will helps reduce the pressure on the monetary policies.
What to do to restore confidence?
Discussing the challenges for the national economy in 2011, Dr. Vo Tri Thanh said that the biggest challenge will still be stabilizing the macro-economy. Vietnam needs to rely on the market rules instead of administrative orders, to stabilize the market.
“We are still very fond of high growth rate. Meanwhile, the growth relies on credit, money supply and budget spending. This will be a risk for the economic stability,” he said.
Another big challenge comes from the integration process. Vietnam has begun negotiations for the Vietnam-EU Free Trade Agreement, and at the same time we have decided to negotiate for the Trans-Pacific Partnership agreement.
CitiGroup has predicted that Vietnam will have $17-18 billion in foreign currency reserves from the current level of $14.1 billion.
The portfolio investment in 2011 is expected to be the same as this year, about $1.5-1.6 billion.
“If we can stabilize the macro-economy well, and help restore confidence in the market, Vietnam’s stock market will recover by the second quarter of the next year,” Thanh said.
Cao Nhat
vietnamnet
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