Vietnam’s economic policy appears to be bringing about a recovery in growth.
With monetary and fiscal tools, the Vietnamese economy performed well in the first half of 2012 while Asian economic growth was slow and European and American economies worsened by the day.
Vietnam’s economy appears to have weathered the worst and entered into a positive development trend. GDP rose 4 percent in the first quarter of 2012 and 4.66 percent in the second quarter. Overall, GDP growth for the first six months of 2012 was 4.38 percent, while inflation was the lowest in three years at about 3 percent. Inflation had begun to slow in July 2011 and continued to decrease during the first half of this year. The Consumer Price Index increased by 2.52 percent in June. Standard & Poor’s Credit Ratings raised its rating of Vietnam from negative to stable, saying that the government successfully took measures to tighten its finances.
Like India and China, Vietnam was forced to cut interest rates aggressively and accepted slower growth to contain inflation and stimulate the domestic economy. Vietnam Dong-denominated interest rates have dropped significantly, interest loan rates in the agricultural, export and industrial sectors remain stable at 12-13 percent a year, and annual interest rates in other businesses range between 14-17.5 percent. The exchange rate is basically stable; the foreign currency liquidity system has been improved; there is an abundant supply of foreign currency from rising exports; the balance of international payments surplus is quite large; and foreign reserves are improved.
The Business Development Index has begun to show positive signs. The number of businesses winding up decreased 10 percent in May; the inventory decreased from 34.9 percent in March to 32.1 percent in April and to 29.4 percent in May.
In the first six months of 2012, the total export turnover of Vietnam reached more than $53.1 billion, a 22.2 percent increase from the same period the previous year.
“The result achieved in the first six months shows that the economic prospects in the last six months have grown better,” Prime Minister Nguyen Tan Dung was quoted as saying in a meeting in July in Hanoi.
Economists also say there is good reason to believe that the Vietnamese economy is in recovery, not at a standstill like in 2011. To support the economy, Dung has made a number of decisions praised by economists.
Though the growth of the economy has been low during the past 3 years, Vietnam will continue to prioritize taming inflation and macroeconomic stabilization. According to the prime minister, this policy focus will continue beyond 2012 into the coming years. This will be the basis for maintaining growth and stable development as well.
The prime minister is also pursuing the proactive, flexible and effective regulation of monetary policy in accordance with macro-economic balance and exchange rates stabilization. He has also pointed out the inevitability of handling bad debt; expeditiousness of restructuring debt and weak commercial banks; regulating interest rates; and quickly unfreezing capital flows for enterprises.
The prime minister is also seeking solutions for production support, including increasing credit; disbursing all allocated funds; and prioritizing credit for agriculture and rural development, export manufacturing and supporting industries.
Weakness and a lack of transparency in the management of state-owned enterprises in Vietnam previously gave rise to the scandals at Vinashin, the country’s biggest shipbuilder, and Vinalines, a shipping company ― two “pillars” of Vietnam’s economic development. Minister of Planning and Investment Bui Quang Vinh said that the violations of Vinashin and Vinalines have been treated seriously and people should not let their misdeeds negate all the efforts of state-owned enterprises.
According to a Ministry of Finance report, in 2010, only 20 percent of state-owned enterprises suffered losses or broke even ― the other 80 percent made a profit.
The core problem for Vietnam in alleviating the “burden of SOE” is strengthened sanctions that force enterprises to make information public and undergo an annual audit. The Ministry of Planning and Investment said that the ministry is coordinating with other ministries and departments to amend the Decree 132/2005/ND-CP for further clarification of the rights and obligations of the state capital investment owners and submit it to the government for consideration in early July.
Dung’s role in creating positive signals in the economy has been recognized by international experts. The quality of macroeconomic management in Vietnam has been greatly improved by Resolution 11, which tightened credit and reduced the deficit. The implementation of Resolution 11 has been overseen by Dung from 2011 to present.
The Vietnamese economy has stabilized. These developments have increased investors’ confidence in the Vietnamese market. Dung is acknowledged as the first modern politician of Vietnam by foreign investors and economic experts. He has followed Lee Kuan Yew who modernized Singapore and is expected to do the same thing for Vietnam.
By Lee Moon-shik
The writer is director at Kindmatic Co. Ltd. ― Ed.
