Jan 9, 2013

Vietnam - Food for thought in the New Year

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VietNamNet Bridge – On the occasion of the New Year 2013, some veteran economic experts share with VIR their recommendations to solve burning economic issues.

"The commercial banking system needs to be strengthened"

Tran Du Lich Member of the National Financial and Monetary Policy Advisory Council.

Vietnam’s economy is recovering, but very slowly. Challenges still exist. In 2013, the overall economy will still stagnate, with GDP growth rate slightly higher than in 2012 at around 5.5 per cent. The markets may not perk up, investment will be hard to increase and purchasing power will grow slowly.

As the underlying cause of inflation is the problematic economic structure, monetary and fiscal policies should not be loosened as inflation still needs to be restrained. The consumer price index will remain on a growing trend similar to 2012.

In summary, in 2013, the government must continue to implement monetary and fiscal policies aimed at macroeconomic stabilisation and support the market to recover growth. Bad debts remain a top concern, hence the commercial banking system needs to be strengthened. State intervention should be limited, and the market will adjust itself.

"Take immediate measures to resolve credit freeze"

Le Dang Doanh Economic expert.

Vietnam’s economy is experiencing a credit freeze which threatens the vitality of any economy. In just one year this “disease” could push the economy into depression which requires a lot of time and finance to recover.

This is somewhat reflected in 2012, when the economy fell into stagnation. Thousands of enterprises dissolved or ceased operation. To avoid further severe economic consequences, in 2013 the government should consider credit freeze as a burning issue and take immediate measures to resolve it.

The government’s first priority should be [giving a helping hand to] small and medium enterprises being capable to run and having good markets. This will not only create jobs for a lot of workers, but also help them improve their income, thereby restoring demands in the economy.

"One loosened, another tightened" 

Vu Dinh Anh Economic expert.

There emerges the situation of “one loosened, another tightened” in the execution of policies. The preferential tax policy is likely to be approved by the government to continue in 2013.

The Ministry of Finance has also proposed corporate income tax reduction. The proposals mirror the increased supports from the government. However, there exist policies of opposite direction, which offset the positive effects of such supports.

"Interest rates should be further reduced"

Pham Do Chi Economic expert.

The uncertainty in the banking system will be a major threat to the economy, as the picture for medium-term lending market looks very gloomy with huge public and private debts. Real estate-related debt is estimated at over VND1 million billion ($48 billion).

To help enterprises maintain their production and business activities and development, the government should take more measures to stimulate consumers’ purchasing power and devise mechanisms that allow easy access to loans for businesses. The purchasing power could be stimulated by reducing personal income tax, increasing social welfare and supporting low-income people.

At the same time, as farmers are a big consumer force, they need to be assisted in terms of technology, capital, and connectivity with sellers. Furthermore, the banking and financial system needs to be reformed. Interest rates should be further reduced to help businesses access capital more easily. This would also result in less savings and more spending and direct investment into the economy.

Besides, the government should give out consistent policy messages regarding predictable interest rates and inflation rates which help guide economic activities among the economy.

"Credit needs to be triggered"

Vo Tri Thanh Deputy Director of the Central Institute for Economic Management.

The government needs to show investors and companies that the “game” for 2013 has really begun, which means there are no more conflicts in terms of policies and messages in order to restore market confidence.

In the coming year, credit needs to be triggered, but that could be a challenge as it would take three to six months to complete the legal framework for tackling non-performing loans. Therefore, banks’ liquidity may be weak in the first half of 2013. Hope lies in public spending and monetary policy support.

The government should possibly amend Directive 1792/CT-TTg on strengthening the management of public investment towards prioritising spending financed by government bonds.
"Solving temporary problems to be considered carefully"

Tran Dinh Thien Director of Vietnam Institute of Economics.

We have been paying special attention to economic growth for many years and many pro-growth policies have therefore been designed.

It can be said that the current situation is stemmed from the structural and institutional issues. Therefore, solving temporary problems must be considered carefully in accordance with their connection to the underlying causes.

Source: VIR

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