Four scenarios for national economy

Published: 08/04/2009 05:00



As soon as the first quarter of the year finished, economists expressed their optimism that the national economy would recover this year. Dr Le Dang Doanh, senior economist, talked about this.

Dr Le Dang Doanh

I think that the national economy has been recovering partially. For example, the construction industry, which was dormant in January 2008, has become prosperous again as construction material prices have decreased, while policies on social housing are being carried out.

The production fields which make essential commodities and sell products in the domestic market, including cookingstuffs and pharmaceuticals, have also seen recovery.

In general, the national economy is still facing a lot of difficulties due to the sharp falls of exports, in terms of both quantity and export prices.

We cannot consume all $9bil worth of apparel products in the domestic market, while Vietnamese consumers cannot drink all 1mil tonnes of coffee. We are targeting the domestic market, but the domestic market cannot totally replace export markets. Meanwhile, among the 12 export items in the ‘club of export items with turnover of over $1bil’, only rice has seen export increases, while other export items all have seen sharp decreases.

What scenario do you think the national economy will follow?

In theory, there are four scenarios for the recovery of Vietnam’s economy. First, the economy will recover under the V-letter shape, i.e. it goes down and then goes up immediately.

Second, the economy will recover under the U-letter shape, i.e. it goes down and then stays at the bottom for a longer period (1 year), and then recovers.

The third scenario is the W-letter shape: The economy goes down, then goes up, and then goes down and goes up again.

The worst scenario is the L-letter shape: The economy goes down and then stays down for a long time in a bad situation, and it is unclear when it will recover.

Of the four scenarios, I hope that the V-letter shape scenario will happen. Vietnam’s economy remains an agriculture economy, which provides essential products, needed for all people.

The agriculture economy itself is the foundation for the hope that Vietnam’s economy will obtain a 4-5% economic growth rate this year, while other economies in the world are expecting 0% growth.

What would you say about the demand stimulus package which is being implemented?

We have the $6bil demand stimulus package which was announced in December 2008. However, only the $1bil interest rate subsidy (which is hoped to help disburse VND650,000bil worth of credit) has been announced in detail, while the other $5bil sum (tax exemptions and other preferences) has not been made public in detail.

What we can see in the economy stimulus package is the absence of comprehensive measures which can help restructure businesses and turn business bankruptcy into ‘creative devastation’, and help businesses make heavier investment in technology, labour force. The package also does not include measures specifically designed for agriculture, rural areas and farmers.

The national economy has not recovered completely, while the stock market has seen the VN Index increase significantly. Is there any paradox here?

As far as I know, foreign investors are still cautious about securities investments, not only in Vietnam’s stock market, but in other markets as well. Stock markets have become quite different from before the economic crisis. Developed markets have tightened management of banks, securities companies, investment funds, and derivatives as well.

As for Vietnam’s stock market, I can see three problems. First, we still don’t have a perfect legal framework for its operation, while the laws have not been respected. For example, a lot of listed companies have been late in making public audited finance reports. Second, while insider trading activities in foreign countries are punished heavily, they are treated lightly in Vietnam. Third, it is necessary to build up the legal framework in accordance with international practice in the new conditions.

The falling stock market and economic difficulties have slowed the equitisation process down. How will this in turn impact the stock market?

I think that we should not put high hopes on the high capital surplus in equitisation obtained in 2006-2007. It is necessary to push up equitisation in the current period with two purposes. First, making state-owned enterprises healthy, and second, providing high-quality commodities for the stock market.

In the current conditions, it is difficult to attract foreign investors, not only because they do not have money, but also because of the exchange rate fluctuations, which have made profit lower. For example, as the South Korean won has lost 40% of its value, South Koreans are finding it hard to locate capital to make investments in securities, or fulfill foreign direct investment commitments.


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