Thursday, 01 September 2011 20:24
Vietnam has made significant progress in its development journey. However, the progress has resulted in new challenges such a macroeconomic instability, a dearth of infrastructure and a move towards a more knowledge-based economy.
When thinking about the Vietnamese economy’s outlook, my ears resound with the voice of late President Ho Chi Minh, the nation’s father-figure, who read the Declaration of Independence in Ba Dinh Square on September 2, 1945:
“A people who have courageously opposed French domination for more than eighty years, a people who have fought side by side with the Allies against the fascists during these last years, such a people must be free and independent.
For these reasons, we, members of the Provisional Government of the Democratic Republic of Vietnam, solemnly declare to the world that Vietnam has the right to be a free and independent country, and in fact it is so already. The entire Vietnamese people are determined to mobilise all their physical and mental strength, to sacrifice their lives and property in order to safeguard their independence and liberty.”
The Vietnamese people won a glorious victory of national unification in the protracted resistance war against foreign aggressors for 30 years, experiencing ups and downs during the development cause of the economy.
In 2010, Vietnam became a (low) medium-income country with its status being promoted further in the region and in the world, targeting to basically become an industrialised and modernised country by 2020.
The world: “Spectre” of new economic crisis
We are living in the era of globalisation, the prosperity of each nation depends very much on fast-changing international situation.
Vietnam joined ASEAN in 1995 to link the country’s advantages with the region’s so that the national economy grew fast and sustainably. But only after two years, in 1997, the regional crisis caused negative impacts on Vietnamese economy, reducing the country’s annual economic growth rate from 8.2 per cent during 1991-1997 to 6 per cent during 1998-2004.
When our national economy recovered with the yearly growth rate of 8.5 per cent during 2005-2007, the world’s economic crisis impacts have sent the rate down to 6 per cent between 2008 and now.
In 2010, the world’s economy rehabilitated with many quite optimistic forecasts. However, from the beginning of 2011, the “spectre” of new economic crisis has appeared with more obvious signs.
Public debt has emerged as a problem in the international arena. The world’s leading economy, the United States, has just experienced fears of bankruptcy, causing domino impacts on many other economies. In the latest moment, both the Republican and the Democratic Parties reached the common voice to the solution of raising the US’ federal debt ceiling. Even worse, Standard & Poor’s downgraded the US’ AAA credit rating for the first time by one level to AA+ while keeping the outlook at “negative”.
Besides the US, pubic debt is a thorny problem of many countries worldwide. The Business Week has listed 10 countries with the rate of public debt/GDP at risk level in 2010, namely, Iceland 310 per cent, Japan 227 per cent, Greece 124 per cent, Italy 120.1 per cent, the US 99.3 per cent, India 88.9 per cent, Portugal 84.6 per cent, Germany 84.5 per cent, Ireland 82.9 per cent and France 82.6 per cent.
The EU along with the International Monetary Fund (IMF) provided two urgent bailout packages for Greece and urgently organised meetings to find out solutions to “domino effects” of the public debt crisis.
The oil crisis is threatening the world’s economic growth. Oil price fluctuations in 2011 can be considered as an oil crisis linked to political uncertainties in the Middle East and the North Africa. Oil prices reached over $100 per barrel sometimes. Many people forecast that oil prices could increase by $40-50 per barrel if political turmoil in the region prolongs.
Gold prices hit new records due to world economic fears. The prices surpassed $1,900 per ounce sometimes and are fluctuating between $1,740-1,760 per ounce. Worries about escalating prices, monetary fluctuations and stock market ups and downs have made gold as an important investment channel.
The world securities market is also down in the mouth. In the beginning of August 2011, financial investors sold off shares to shift to gold, resulting in a loss of $2,500 billion in the global capital market, a reduction equivalent to August 2008.
The Food and Agriculture Organization (FAO) has called countries to provide urgent relief for tens of millions of people who have fallen into famine. Millions of people have died of hunger in many African countries due to poor crops and escalating food prices.
It is said that in order to escape from the current downtrend, every nation must make full use of its internal strength while every government must take bold solutions to stimulate economic growth, rather than relying heavily on external assistance.
Vietnam: Challenges and opportunities
In early 2011, the Communist Party of Vietnam announced the 2011-2020 socio-economic strategy and the 2011-2015 plan with ambitious targets.
However, the high inflation during the first seven months is a great challenge. July’s consumer price index (CPI) rose 1.17 per cent on-month, making the CPI in seven months to surge 14.61 per cent against December 2010 and 22.16 per cent on-year, causing interest rate fever and devaluations of the Vietnamese dong. Many businesses have been facing mounting hardships, even forcing them to close their factories.
High inflation in 2008 came in as a large amount of money was pumped into the market to buy back more than $9 billion. This year, higher inflation is partly attributed to increasing world prices. However, it is largely due to slow response of the government, defending Vinashin at any cost, besides chronic problems such as ineffective public investment, wasteful and inefficient operations of state-owned enterprises.
Meanwhile, the property market is gloomy. By the end of June 2011, total outstanding loans of real estate firms stood at over VND222 trillion, or $11 billion, accounting for more than 10 per cent of the national GDP. Of which, there were many overdue loans with annual interest rate of 24-25 per cent plus overdue interest rate, pushing a lot of the debtors to the wall. Although many property businesses have had to “sell off” their products via sales promotion and discounts, but there have not been any positive signs yet.
The securities market performed negatively with five consecutive sessions going down in the second week of August. The VN-Index lost additional 16.96 points (4.2 per cent) while HNX-Index fell more than 2.5 points (3.68 per cent). The indexes of both bourses in Hanoi and Ho Chi Minh City are tending to drop and seeing no signs of recovery. Many securities companies have shut the door or cut personnel amidst many investors having shifted to the gold market.
An unprecedented phenomenon in Vietnam was that long queues of people waited in front of private gold shops to buy and sell gold in early August, concerning over further devaluations of Vietnamese dong and increasing world gold prices.
Although Vietnam’s foreign debts are now said to stay at a safe level, the government should be aware of controlling the growth of such debts, at $32.5 billion by late 2010, equivalent to 42.2 per cent of the national GDP, up $4.6 billion against 2009. Last year, Vietnam had to pay $1.67 billion back to its foreign lenders, including interests and charges worth of more than $616 million, up 30 per cent as compared with $1.29 billion in 2009.
Fitch Ratings has affirmed Vietnam’s Long-Term Foreign-Currency Issuer Default Rating (IDR) and Long-Term Local-Currency IDR at “B+” and the outlook on the ratings is stable. But, a ratings downgrade would likely occur if there is backsliding on the authorities’ tightening package and a failure to rein in inflation, risking further loss of confidence in the Vietnamese currency and intensified risks to economic stability.
Vietnamese banking system’s bad debt rate stood at 2.5 per cent by end-2010, causing concerns over the debt management capability when banks are in the race of mobilising capital by raising interest rates.
Operations of state-owned economic sector have been a problem for a long time. However, there are no suitable solutions. At the 12th National Assembly’s 8th session, many deputies proposed to inspect the entire operations of state-owned economic groups so as to avoid the Vinashin case. Vietnam Electricity (EVN) is typical for that.
The Government Inspectorate uncovered many EVN’s wrongdoings in equitisation, requesting the group to report to the prime minister on advancing more than VND756 billion ($36.52 million) raised from equitising its members for investment projects. EVN’s investments outside its core business accounted for 7.22 per cent of its total investment funds and 4.82 per cent of its equity. At a meeting with the prime minister on February 24, 2009, the government leader asked the group to focus investment capital on ensuring the nation’s power supply. The country’s sole power distributor is incurring huge loans, including VND6.6 trillion ($318.84 million) borrowed from PetroVietnam and Vinacomin and $36 million from Hiep Phuoc Power.
The low efficiency of public investment is a chronic and thorny problem. Although the Resolution 11 considers cutting public investment as an important solution to fight against high inflation, the attitude of “sympathy and concession” of leaders of ministries has not brought about results as expected.
Nevertheless, Vietnam’s economy showed some positive signs in the first seven months of 2011.
The agriculture sector had a bumper crop. Agro-forestry-fishery exports surged as compared with the same period last year.
The country’s total export earnings were estimated at $51.46 billion in the first seven months of this year, up 33.5 per cent on-year, the highest growth rate so far. The figure was forecast to reach $86 billion for the whole year. Trade deficit was $6.64 billion, reducing by $850 million, or 11.3 per cent on-year, accounting for 12.9 per cent of export turnover, much lower than the first seven months of 2010 (19.4 per cent).
The tourism sector continued to develop. In the seven-month period, 3.4 million foreign tourists arrived in Vietnam, up 17.3 per cent on-year. The country was forecast to welcome 5.8 million international arrivals this year, earning total revenues of $5.2 billion.
Although foreign direct investment (FDI) attraction in seven months was equal to 74.9 per cent of the same period last year, more than $6 billion of FDI was realised in the period, nearly reaching the figure of the corresponding period of 2010, while domestic investment capital plunged and many construction works were suspended or delayed.
The financial-monetary sector witnessed positive signs. The foreign exchange rates have been relatively stable during recent months after devaluations of the national currency. Forex reserves increased and state budget revenues exceeded the initial target.
In a bid to cope with challenges and look forwards goals of the new development strategy, Vietnam now has better internal and external advantages than the beginning of the 21st century.
The nation’s economic potentials have increased obviously. The country’s GDP was VND1,980 trillion in 2010, a four-fold increase against 2000 (VND441 trillion). Meanwhile, export-import turnover was $156.9 billion in 2010, a 5.21-fold increase against 2000, including export earnings of $72.2 billion, a 4.79-fold rise against 2000. Total social investment capital was VND830.27 trillion last year, a 5.5-time increase against 2000.
The country’s relations with other regional countries have improved. The nation, a member of international institutions such as IMF, World Bank, Asian Development Bank and World Trade Organization, has developed trade and investment relations with almost all the countries worldwide.
Vietnam’s economic outlook relies on anti-inflation results in the remaining months of 2011 via the Resolution 11. Solutions to rein in inflation linked with monetary-fiscal tightening policies must come from the across-the-board strategies. Each industry and sector must be applied with separate solutions in order to deal with difficulties, stimulate production and expand business activities. For example, for industrial production, it is necessary to provide preferential credits for businesses as additional capital will help them raise the output and export turnover.