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Too early for too much optimism, says ADB official   2009-06-10 - TN

Ayumi Konishi, Asian Development Bank (ADB) Country Director for Viet Nam, spoke to Thanh Nien on the current economic crisis.

There are signs that the economic crisis is bottoming out in the US. What about Viet Nam?

I agree that there are some positive signs in the global economy as well as in Vietnam. But I think it is too early to be too optimistic about the situation. Improvements in the overall economic situation have been supported by strong efforts of the government through its economic stimulus program. There are, however, also increasing external vulnerabilities resulting from a large fiscal deficit which was necessary to finance the stimulus program. So I would like to caution against excessive optimism.

What do you think of the US$8 billion economic stimulus plan implemented by the Vietnamese government to spur growth amidst the global recession?

Unlike in the other countries, Vietnam has been “building up” its stimulus measures in an incremental manner. In other words, stimulus measures have been introduced little by little with examination of effectiveness and problems associated with each plan of action. It should also be noted that $8 billion actually is a combination of fiscal measures as well as “financing,” and not all of them are meant to be fully implemented this year.

In order to mitigate the adverse impacts of the global economic downturn, we do support the need to take various measures. Given that Vietnam is required to produce a huge number of new job opportunities to absorb new entrants into the labor market, it needs to achieve a “reasonable” level of growth. In implementing various measures, the government needs to be particularly aware of the increasing vulnerabilities resulting from the fiscal deficit. We support careful management of monetary policy and foreign exchange regime focusing on ensuring stability.

One of the purposes of the stimulus plan is to help farmers who are among those worst affected by the global recession. Can you comment on this?

Who the worst affected are is a difficult question since people are losing jobs in urban industrial areas as factories are reducing output in response to weak demand in export markets; and in rural areas, “underemployment” appears to be increasing as some of the urban unemployed return to their home provinces, and rural families are absorbing them.

With the fall in the prices of agricultural products such as coffee or rubber, farming communities are facing substantial cuts in their income, aggravating the situation. We do appreciate measures to support poor farmers. In this regard, employment creation in rural areas, particularly through increased investment in rural infrastructure would be effective, while people’s access to public services including education and health services needs to be maintained.

And can the domestic market help spur economic growth in the long term? Or do we need more than that?

Development of domestic markets needs to be considered not only as a short-term measure to “make up for” reduced exports but also as something Vietnam’s economy needs to pay greater attention to as a long-term measure. Given that Vietnam’s population is still very young, there will be increasing demand for various products as Vietnam is becoming a middle income country. Also, the need to reduce global economic imbalance – or the undesirableness of pursuing an “export-led” growth model is a lesson the whole world is learning from the current global economic turmoil.

While Viet Nam needs to pursue the opening up of its economy in accordance with its WTO (World Trade Organization) commitments, efforts need to be made also to explore domestic demand and respond to it. Vietnam needs a balanced strategy to keep an eye on both export and domestic markets.

Do you think that - with this crisis - a new model of economic growth will emerge in Viet Nam? If so, what would it be?

Not only in Vietnam but in many countries, there are discussions about redirecting attention to the potentials of domestic markets rather than following the “export-led” model of economic development. This does not only mean to explore the domestic consumer market but also means to “deepen” the production value chain. Policies to support the development of supporting industries in the domestic context need to be pursued while “rebalancing” of the global economy is also necessary.

Are there any reforms that can be instituted immediately in Viet Nam?

Vietnam should accelerate various economic and administrative reforms in order to restore people’s confidence in investing in Vietnam. It is essential for Vietnam to open up its economy in accordance with its WTO commitments and the reform of state owned enterprises (SOEs) needs to be accelerated. I would like to clarify here that for the SOEs, I am not necessarily talking about “equitization.” In fact, there are many measures the government can take to improve corporate governance of SOEs, and to ensure level playing field among both domestic and foreign as well as private and SOEs. Improvement in the business environment, including administrative reforms to cut red tape, and continuing efforts to fight against corruption are also very important.

In addition, I would like to emphasize the importance of information disclosure by the government. You can recall that last year in June, the Vietnamese currency came under strong pressure because of the people’s concerns of possible devaluation, and the situation was calmed down by the government announcing the level of foreign currency reserves and its determination to maintain a more or less stable foreign exchange regime. As concern about the government’s fiscal sustainability is growing, it will be useful if the government can start making its fiscal data including off-budget spending and revenues available.

What about the long-term?

In order for Vietnam to maintain a high rate of economic growth, it is essential to enhance its supply capacity. In other words, Vietnam will be in a position to “maintain” rapid economic growth to the extent its supply capacity supports it, through continuing efforts to remove supply side constraints. It will be important to focus at this stage on removing infrastructure bottlenecks, enhancing efficiencies of financial intermediation, improving the business environment and upgrading the quality of human resources through education and training.

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