Stimulating demand needs to accompany reform: economist

Published: 27/11/2008 05:00



VietNamNet Bridge – Dr Le Dang Doanh, a senior economist and member of the Vietnam Development Studies Institute, said that as economic growth is currently slowing down and production is becoming stagnant, it is necessary to take measures to stimulate demand.

The consumer price index (CPI) has decreased continuously in the last two months

The consumer price index (CPI) has decreased continuously in the last two months, contrary to the rule that prices always go up at the end of the year.

The CPI decreases prove to be consistent with the world’s price decreases and bountiful domestic crops. A recession occurs only when there is a minus economic growth rate for two consecutive quarters, and deflation occurs only when there are minus CPI increases for a whole year.

Nevertheless, for a nation which sees its population increase by 1mil people a year like Vietnam, the economic growth rate must be 4% at least to ensure enough cooking and livelihoods for people. Therefore, when economic growth slows down and production becomes stagnant, the stimulation of demand becomes necessary.

The government is now trying to stimulate demand. What do you think the plan should emphasise?

The worrying thing now is the sharp decrease of economic growth and exports. A considerable number of small- and medium-size enterprises have been dying slowly. A lot of automobile manufacturers are working one day only a week. A lot of trade villages have been paralysed.

The demand stimulus plan needs to aim to settle production stagnation, not aim at increasing the CPI. The first subject that the demand stimulus should aim at is the farmer, but it is not easy to do that, as Vietnamese farmers have just suffered heavily. In order to maintain production, the state should assist them by providing capital, minimising fees and charges, giving plant varieties and support in irrigation. The state should also freeze and extend debts for farmers as it has been doing with businesses.

I think it is also necessary to resume credit for real estate projects which are nearly completed, but it is not necessary to stimulate consumer credit. We should learn a lesson from the US, where people can borrow money at low cost and push up consumption, leading to crisis.

So, it is clear about the subjects for the demand stimulus plan. However, do you think that the demand stimulus plan will succeed if the way of stimulating remains the same?

The stimulation of demand in investment and construction as suggested by the Ministry of Planning and Investment may cause capital loss. Therefore, we should focus on effective construction works which can create money after they are operational. The demand stimulus needs to go together with reform. Investment information needs to be made public. Until the ‘ask-and-grant’ mechanism exists, the demand stimulus plan will not be effective due to high investment costs.

The most important thing for small- and medium-size enterprises is that the state can help them reduce ‘underground costs’. This will bring higher efficiency than providing capital. A recent survey showed that cutting administrative procedures by 40% would help reduce expenses by VND13-30tril. I think just a half of the sum would be enough to help businessmen ‘wake up’.

Do you think that in the current conditions, it would be useless if we only stimulate production, as there is no demand?

The state plays a very important role in helping businesses seek markets, reduce costs and heighten their competitiveness. Businesses themselves, I think, also need to restructure commodities, join forces with each other, accept lower sale prices to share difficulties with customers for the benefit of both.

When economic growth slows down, other countries always slash taxes in order to help people overcome difficulties. Do you think that Vietnam should reconsider the real estate tax and personal income tax?

I strongly recommend exempting taxes for people in natural calamity areas.

In the immediate time, Vietnam should have an upright social security policy, as the number of unemployed will increase. In China, economic groups have to reserve sums of money to help eliminate hunger and reduce poverty. Vietnam should follow the model. Regarding tax collection, I think the state should tax when people become well off and have accumulated things. We cannot delay the time for the personal income tax law’s implementation, but we can re-calculate the family rebates.

(Source: Tuoi tre)

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