Vietnam needs to take outside shocks into account

Published: 30/11/2008 05:00



VietNamNet Bridge – The Vietnam Enterprise Forum, a forum for local and foreign enterprises that accompanies the Consultative Group Meeting (CG), opened this morning, December 1, in Hanoi, with the theme “Overcoming challenges of global economics”.

Acting Country Director of the World Bank in Vietnam, Martin Rama.

VietNamNet Bridge – The Vietnam Enterprise Forum, a forum for local and foreign enterprises that accompanies the Consultative Group Meeting (CG), opened this morning, December 1, in Hanoi, with the theme “Overcoming challenges of global economics”.

One of the topics for discussion at the forum is Vietnam’s social and economic situation in recent months. VietNamNet talked with acting Country Director of the World Bank in Vietnam, Martin Rama, before the forum opened.

I remember that at the mid-term CG Meeting in June, when inflation was very evident, you were still optimistic about Vietnam. How about now?

I’m still optimistic about Vietnam. At the end of 2007, a lot of foreign capital still ran into Vietnam. Investors are interested in Vietnam’s growth goals. At the time the mid-term CG Meeting took place, some said that Vietnam wasn’t taking action to tackle emerging difficulties, but actually Vietnam did and we can see certain effects of its solutions.

The current question is: What will happen? Many people seem to be pessimistic about challenges and difficulties. We have certain concerns about challenges that Vietnam has to face, but we have never been overly concerned about the situation in Vietnam.

This year, the world economy is quite different, creating some pressure, and so some say that Vietnam should review its goal of growth, which may only reach 5%. Even optimistic people have said that Vietnam should adjust its growth target. We are researching this number.

Although the domestic situation is becoming better than in recent months, Vietnam still needs to take the global economy’s problems into consideration. Like other economies, Vietnam cannot avoid impacts.

You emphasised cautiousness, and you can see the Vietnamese government’s cautiousness in adjusting the growth target of 2009 from 7% to 6.5%. Do you think this cautiousness is necessary and why?

At this moment, stability is the priority. The experience of countries with an average per capita income is that there could be a big crisis. They do not have complicated and strong enough financial systems to generate capital; because of this they are vulnerable to impacts from the global economy. So the potential cost of a crisis is very big.

The government made the right decision when it considered the prevention of a crisis as the top priority, even though the possibility of crisis in Vietnam is very low. It is important that the government exerts efforts to realise its goal. It is necessary to balance spending because in the current situation, Vietnam’s savings are around 30% of GDP, while investment is about 45% of GDP.

In your opinion, what is the meaning of Vietnam’s determination to not allow inflation again in 2009, and the consideration of inflation control as a top priority in ensuring the ground for growth after gaining stability?

About the control of inflation, the experiences from 2007 and 2008 show Vietnam’s sensitivity to the world market. What happened with the rice price in March, April and May clearly reflects this.

Looking at monetary inflation, the consumer price index for things such as commodities and transportation in Vietnam increased, but not very quickly. There are still certain positive aspects. Monetary inflation seems to be going down. Of course, whenever prices are still high, inflation is unavoidable.

The thing that I want to emphasise is giving priority to stability, controlling monetary inflation and balancing budget spending is correct.

One of the consequences of inflation, that many people mentioned, is that there will be the massive bankruptcy of small- and medium-sized enterprises, around 20%, especially in late 2008 or early 2009. What is your opinion about this issue?

I think sometimes the word “bankruptcy” is not accurately understood, especially as bankruptcy in Vietnam is a difficult thing. There may be bankrupt enterprises, but the number will not be massive. Compared to other countries in the region, Vietnam’s small- and medium-sized enterprises are at a lower level.

Meanwhile, the nature of the difficulties are changing. The biggest difficulty mentioned is that enterprises have to pay high interest rates – particularly those that have connections to rural construction and development – and they do not have enough money to pay banks. But commercial interest rates are decreasing. We do not see a risk of massive bankruptcy.

Why does the WB worry about the investment of state-owned enterprises and groups in the finance and banking sector?

We continue to have concerns about state-owned enterprises and groups’ investments in the finance sector. Actually, if they have opportunities, everybody should diversify business opportunities under appropriate market mechanisms. But at this moment, the real estate bubble is too big and state-owned enterprises and groups are all jumping in. Why didn’t they jump into this area before?

The first big problem is the real estate bubble. The second thing that we worry about is financial and banking control related to investment in this field. Many crises in countries that have average incomes, including those in Asia, have relations to big groups which hold commercial and financial interests.

We are talking with the government about solutions to check the management of investment capital of state-owned groups.

Interviewer: Xuan Linh

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