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Reining in the effects of the world’s financial crisis on VN   2008-12-08 - Viet Nam News

Dr Tran Du Lich, Director of the HCM City Economics Institute spoke to the Thoi bao Ngan hang (Banking Times) about what the country should do to overcome the impacts of global economic turmoil.

At this point we can say that the Government’s measures to curb inflation have been initially successful. How do you respond to the recently approved National Assembly target of a 15 per cent inflation rate for 2009?

The world economic situation became "hot" with oil, food.

I don’t think the inflation rate for next year will surpass 15 per cent.

The world economic situation became "hot" with oil, food and metal cost increases in 2008 while the sluggishness of the financial market has made many major economies enter into recession.

Luckily, Viet Nam has been successful in curbing the inflation rate thanks to eight measures adopted by the Government in the early part of the year.

Now in the context of global economic downturn I think the Government should make efforts to limit its impacts on the Vietnamese economy.

Can you envisage the country’s economic scenario for 2009?

With the world economy in recession, certainly a drop in prices will occur as people stop spending. In this case, Viet Nam will face export difficulties. If we want to maintain production levels it is imperative to switch from an export oriented production mindset to more domestic oriented consumption.

In my opinion, whatever situation that may happen we must see growth in gross domestic product (GDP) to more than 6 per cent. Otherwise social problems will result, particularly a rise in unemployment.

About 1 million young people enter the labour market in Viet Nam every year. If the GDP is below 6 per cent, there is limited opportunity for people to find jobs.

In my opinion it is important to harmonise the GDP rate with the inflation control policy.

We all know that instability in the financial market will impact the commodity market and lead to global economic crisis.

During an economic recession people’s purchasing power will be reduced, particularly their spending on food and other commodities.

The consumer price index (CPI) in Viet Nam for October was – 0.19 per cent and the figure for November was – 0.76 per cent.

With negative CPI recorded over the last two months it is time for the Government to think of measures to increase purchasing power and expand the credit system.

Monetary policy is an important tool for tightening money circulation when inflation occurs. Will you please further elaborate on the monetary policies for curbing inflation and encouraging economic growth?

I highly appreciate the Government’s decision to apply a flexible monetary policy, particularly related to credit.

I don’t think the existing policy on public investment, which is focused mainly on state-owned enterprises, has brought about the expected results.

In my opinion, if in 2008 one of the Government’s top priorities at the macro level was to restructure monetary policy, for 2009 the priority should be to restructure investment with suitable investment projects that help to address the urgent needs of citizens and the nation’s socio-economic development.

The second point I want to mention here is the effective use of cash flow. I suggest that the Government not mobilise capital resources through the issuance of government bonds to in turn lend to state-owned enterprises for projects. State-owned enterprises should be permitted to issue their own bonds in order to mobilise money to finance their projects. This is a good way to ensure high performance and efficiency within the enterprises.

How do you comment on the necessity of a close linkage between monetary and fiscal policies?

I have raised this issue with the Ministry of Finance and asked for an explanation of its role in managing the country’s cash flow.

The country can be compared to an enterprise – it needs to have a financial director.

According to a report by the Central Financial Board (CFB), thousands of billions of dong are lying idle in the state treasury while many projects are forced to borrow money at high interest rates. If the country’s cash flow were well managed, I don’t think this type of thing would happen as has been reported by the CFB.

In other words, all enterprises must have a chief financial officer (CFO). For Viet Nam, the Ministry of Finance is the national CFO.

In the context of the global financial crisis, what should Viet Nam do to limit its impacts?

In my opinion, we should have two scenarios.

The first one is to be proactive – to curb inflation.

The second one is to have a plan in place in the event of deflation.

A 6 per cent growth in the GDP is essential for both scenarios. This is a benchmark to solve any social problem that may occur.

Whether we experience inflation or deflation, the following four tools are required: monetary policy, fiscal policy, a thrifty spending policy and a good foreign exchange and trade policy.

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