According to the International Monetary Fund (IMF) and Dr. Le Xuan Nghia, Vice Chairman of the National Council for Financial Supervision, with annual growth rate of 6-8 percent in recent years, Vietnam’s growth has exceeded its growth potential. The country’s potential growth in 2008 is only 3.85 percent, according to IMF.
Why Vietnam’s growth potential is so low? Dr. Nghia questioned and he answered by himself: because the economy contracts many diseases.
Dr. Nguyen Quang Thai, Secretary General of the Vietnam Economic Sciences Association, points out five major imbalances of the economy:
1) Imbalance between savings and investment: savings is less than 40 percent of GDP but investment is over 40 percent of GDP resulted in debts of both the state-owned and private sectors. This also causes overspending and trade deficit, which are very high.
2) Imbalance in budget income and spending: budget spending is huge, with over 40 percent of annual GDP.
3) Imbalance in import-export: export revenue rises quickly but Vietnam’s trade deficit is high. To promote export, Vietnam has to increase import, causing imbalance in the economy. EPC (Engineering, Procurement and Construction) projects are considered to make higher trade deficit. Up to 50 percent of foreign-invested firms report prolonged losses but keep expanding investment is a problem.
4) Goods-money imbalance: many projects enjoy credit assistance but they produce goods of low quality, with high production cost. The PPI (producer price index) increases more quickly than the CPI (consumer price index) is also a matter.
5) Imbalance of the entire re-production process.
Dr. Nguyen Dinh Cung, Vice chief of the Central Institute for Economic Management, said that the current thought, mechanism, tools and the method on economic management are no longer appropriate. They cannot help solve weakness of the economy but even make the weakness more serious.
Vietnam is in urgent need to comprehensively restructure its economy to break the current sluggishness of the old system, said Dr. Thai.
Economists emphasize that restructuring the economy is the vital issue of Vietnam at present, when the cost of growth and the pressure of inflation are rising.
Where to start?
Restructuring the economy has been discussed by Vietnamese policy makers and experts for a very long time but the restructuring process, which is scheduled to start in 2012, seems to not being taken shape yet.
Where should Vietnam start is still a question without answer, because those who compile the restructuring plan do not have the decision-making right.
“Where does renovation start from? From the beginning”, senior economist, Dr. Vo Dai Luoc, former head of the World Economic and Politic Institute, joked.
“The beginning,” according to Dr. Luoc, does not mean to break the current system to build a brand new one but build the new on the old foundation.
However, economic advisors still wonder whether Vietnam has unified awareness on economic restructuring.
Former Politburo member, Phan Dien, said that to perform economic restructuring, it is a must to understand the current situation, to predict which will come next and analyze reasons, including the question about the influence of interest groups.
According to Dr. Nguyen Dinh Cung, restructuring the economy is basically the change of institution, mechanics, the tools to distribute, manage and use national resources, particularly investment capital, in order to raise the effectiveness of the use of resources and productivity.
For Vietnam, restructuring the economy is very urgent, economists said. However, this urgent requirement is not acknowledged by everybody, especially interest groups, which are holding the greatest and decisive power in the restructuring process, said senior economist Pham Chi Lan. The restructuring process must be the process of renovation for the common interest, not for several interest groups.
Could the political system overcome that resistance to perform the restructuring process?
Phuong Loan
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