VietNamNet Bridge – Although the Government has made many efforts to restructure the economy, all of them are still half-done, Vo Tri Thanh, vice president of the Central Institute for Economic Management, talked to The Saigon Times Daily.
In your opinion, what is the key point in the recent macroeconomic policies?
Since Resolution 11 was introduced in 2011, policies have changed course, but the consistent goal remains macroeconomic stabilization. In addition, reform has kicked off. Such moves are prompted by the fact that the economy has become vulnerable due to structural shortcomings. First, the growth model mainly relies on credit and investment with high transaction costs and many distorted markets. Second, the macroeconomic foundation is insecure, with high inflation, wide fluctuations, large trade and budget deficits, rising public debt and small forex reserves… Now, macroeconomic polices are tightened. The economy in a good mood suddenly feels lost and displeased, but that is the cost of restructuring.
What have been achieved regarding the goal of macroeconomic stabilization?
A couple of things have been achieved for the sake of macroeconomic stability. For example, inflation has fallen rapidly, currently at some 7% per year. Trade surplus has been obtained. Foreign reserves have markedly risen, although they are not yet large… However, the economy is still caught in the situation of abundant cash versus insufficient capital. This situation may continue in quite some time.
Since the second quarter of 2012, Vietnam’s economy has been recovering its growth, albeit at a very slow pace. The Government is dealing with two contradictory goals: curbing inflation and stimulating economic growth.
The way prices of some items like fuels are handled is also said to be for the goal of macroeconomic stabilization?
The Government in recent moves demonstrates its determination to stabilize the macro-economy, but I think, in case of another price shock, the way of management should be changed. The art of management is to gradually follow the market mechanism and to provide transparent explanations in the context of the fragile macro-economy. For instance, the determination of the central bank is to keep the exchange rate stable, and they have succeeded, reflecting the determination to stabilize the macro-economy.
As for inflation, if it is not restrained below 10% this year, all policies will fail. Nevertheless, how high would inflation be kept at, 6% or 8%, to satisfy the desire to recover the economy? The latest evaluations of international financial organizations like HSBC all say that inflation will be 7-8% this year. As such, they believe Vietnam is still striving for stability, but they also warn that our policies are not suitable to growth.
What is your comment on the efforts of economic reform recently announced?
Currently, we have four wishes that are hard to fulfill, namely macroeconomic stabilization, economic recovery, social security and restructuring of both the economy and the political system, including amendments to the Constitution.
Everyone has such wishes. Stable economy and low inflation offer chances for interest rate cuts.
At present, deposit rates can hardly dip further, but lending rates still have room to go down. The Government should send a clear message about its determination to stabilize the macro-economy, while managing in a flexible way. Ministries should urgently carry out Resolution 02 of the Government.
Currently, the plans for economic restructuring, restructuring of Vinashin and Vinalines and establishment of the national asset management company remain on paper. Besides, we will continue to follow the ASEAN economic integration road map, negotiating with other partners such as the EU and Russia. Integration will help allocate resources more efficiently because it will create a pressure from inside.
But, frankly, everything is half-done. Some have been done much, some have been done little, some have laid down principles, but all of them are unfinished.