Feb 23, 2013

Vietnam - Time for VN to take it back: WB chief

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There is some real progress in maintaining macroeconomic stability, but without a consistency in prioritizing policy orientation for stabilization, the country can easily go back to the same economic cycle destabilizing its economy in the past years, Victoria Kwakwa, country director of the World Bank in Vietnam, told Tuoi Tre in an exclusive interview.

>> Slow progress makes VN less attractive: WB chief

You have mentioned progress in macro stability. Do you think Vietnam’s economy has moved past this phase of instability?

This is the longest period that you have had continued stability where inflation has gone down, and the exchange rate has become more stable with increasing national foreign reservesin the last 4-5 years.

However, given all of these good signs, this is still the case that needs to be consolidated.

If you throw caution to the wind, and think ‘Oh yeah, all of last year, the economy was achieving stability’ and you go backwards on policy, then you could very quickly revert to the cycle you had before.

So again, my answer is, Vietnam has maintained stability for a long time, but it needs to continue. It could still be easily lost.

There are indications that you are breaking out of the cycle. But unless the policy orientation that prioritized stabilization is maintained, you can easily go back to the same cycle.

Speaking of stabilization policies, Vietnam paid a hefty price in 2012 with about 100,000 enterprises going went bankrupt. Do you think it’s a price worth paying?

I think when people look into the situation, everything is blamed on the stabilization goal and those anti-inflationary policies that followed, but you also must admit that there are structural elements of what we’ve seen in a sense that the growth model is a very inefficient one which was prone to lead the country into macro economic instability
So, once you try to redress these inefficiencies, then you have problems in the realty sectors because you are growing on a wrong growth model. My sense is that when you look into it more carefully, you realize we are going the wrong way to begin with, so when you try to correct the system, you are bound to have problems.

What I mean by growing in the wrong way is that if you look at the growth of credit in the last 3-4 years, then your economic growth has been fuelled by pumping out massive credit growth.

I haven’t seen countries where you have annual credit constantly growing at 30 percent or more; Vietnam’s credit to GDP ratio is about 120 percent. It’s abnormal for a country like this.

So you try to bring down instability, it takes away the props, the things fueling growth and you see the collapse. I’m trying to say, it might look on the surface like this is the cost when trying to address instability, but the core problem is that Vietnam’s growth is not sustainable anyway.

So you are saying that whether we try to curb inflation or not, this collapse will happen sooner or later?

Yes. This is what people don’t pay enough attention to. I mean, you can’t grow your economy on rapid credit growth forever. It has to stop at some point.

Much of this collapse has taken place in the private sector. Should they take some responsibility as well, or is it merely the government’s fault?

The government can help not just through credit. They can help orient efficiency improvement, invest in new technology and do business in environmentally friendly ways.

What I understand is that a lot of firms don’t have updated technology and clearly are not the most efficient in their economic activities.

So the focus should shift from just providing credit to providing industry and the private sector the means to upgrade their technology. Some of these can be accessed by financing, but it has to be done in a sustainable way, and over time this will make it much more efficient and productive.

The private sector also has a role. It should not wait to have access to credit, but it should look to organize itself: how am I doing my business?, what am I doing wrong?, can I set up my business in the most efficient way?, where are the leaks?

Everybody needs to be asking questions. There is room for the private sector to support the public sector. Both have to agree that the way the economy has been growing is not the right way and everybody is going to focus more on efficiency and productivity improvement.

Together we can rebuild the right form of private sector investment and create enterprises that are sustainable and based on productivity.

Do you agree that the challenges in the economy are an eye-opening experience and from now on both the public and private sectors will change the way they conduct economic activities?

I hope so.

I think if you look at even the discourse around the social economic development plan and strategy preparation, the government has made it clear that we need a new growth model.

Hopefully there is recognition from the private sector as well.

Vietnam is getting more integrated in the global context. You have to be able to increasingly meet international standards.

This is the time for enterprises to put themselves on a solid footing to be able to compete when the economy is even more open. As a result, enterprises need to think forward: what is it that will help me to compete with imports from Myanmar, Thailand, the EU, Transpacific Partnership Agreement countries, etc.

So everything that is happening to Vietnam is difficult, but in a sense, it could also be very good for Vietnam because it provides the opportunity for the country to get ready and compete on a stronger basis when all these new trade agreements come into place. So, you need global standards.

It’s about greater productivity and efficiency to allow you to compete in a global economy. As Vietnam has become a middle income country, you are looking to be more of a global player.

The targets Vietnam has set for 2013 include GDP growth of about 5.5% and a consumer price index of around 8%. What do you think about these goals?

My preference is not to focus so much on 2013, but instead on stressing the message of structural change and making fundamental changes. That might not produce growth immediately, but once you’ve done it, it will position you for more rapid growth in the medium and long term.

I’d focus less on the short term. Of course I understand short term is still important.
What do I think about those rates? I think with some efficiency improvement, it will gradually contribute to growth recovery.

Another thing is that Vietnam is trade dependent and has big trading partners like the US, Europe, Japan, and so on. And in the US, if the fiscal cliff is resolved appropriately, then this will support growth.

If that happens, that is good for Vietnam as well, and the same goes for Europe.

But even here in Vietnam, you have a big domestic market. What happens in agriculture and manufacturing is going to be important. So, a 6% GDP growth rate could be achievable if the government continues to support industries and enterprises to become more efficient and create more space for the private sector to work and to save time and effort to do what it needs to do.


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