Economist Denies Vietnam Facing Economic Crisis

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

[Xinhua "Interview" by Huang Haimin, Bui Minh Long: "Vietnam Not Facing Economic Crisis: Economist by Huang Haimin, Bui Minh Long"]

HANOI, June 12 (Xinhua) – “Vietnam is now at the top of difficulty, but saying that Vietnam is facing an economic crisis is irrational,” said a senior economist with the Vietnam Institute of Economics in an exclusive interview with Xinhua recently.

This year, the world is facing both recession and inflation, and Vietnam is in bigger difficulty, but Vietnam will not encounter a financial crisis as Thailand did in 1997 because conditions of the two countries are much different, said Tran Dinh Thien, deputy head of the institute.

First, unlike in Thailand, it is more difficult in Vietnam to take foreign capital out of the country because Vietnam does not liberalize capital accounts, he said.

Second, Vietnam’s economy is growing very well on good growth conditions, Thien said. The economic growth of Vietnam stood at 7 per cent in the first five months of this year. Bigger foreign direct investment in the first five months has proved investors’ strong confidence in the country’s investment and business environment, he added.

Third, Vietnam’s foreign debt rate is in line with international standards, facing no risks now, he said.

Fourth, Vietnam can regulate prices of such essential products as coal, cement and electricity because Vietnam, a transitional economy, still has many state-owned enterprises and economic groups which help the state take command of the situation, said Thien.

However, Vietnam is facing a high inflation rate and big trade deficit, he said. The country’s consumer price index (CPI), or inflation rate, stood at 15.96 per cent in the first five months, and 12.63 per cent in 2007. Its trade deficit was 14.4bn US dollars in the first five months of this year, surpassing the figure for the whole year of 2007.

The soaring inflation could be attributed to many reasons, both objective and subjective, internal and external ones, he said, stressing that Vietnam has experienced a long period of high growth based on strong investment, resulting in bigger money circulation.

Last year, Vietnam’s credit growth stood at 53.8 per cent, compared with 26 to 28 per cent in previous years. State spending accounted for up to 38 per cent of gross domestic product, and foreign capital in the form of foreign direct and indirect capital, official development assistance, overseas remittances and tourists ‘ spending was huge, he said, noting that the foreign direct investment alone stood at more than 20bn dollars.

Other factors driving inflation up include global price hike of such products as fuels, steel, food and fertilizers, many of which Vietnam has to import, higher domestic prices of foodstuffs due to occurrence of natural disasters and animal diseases, Vietnam’s weak fiscal and financial policies, rumours, and strong speculation trends, he said.

After joining the World Trade Organization, Vietnam has seen remarkable growth in imports, and less remarkable growth in exports partly because competitiveness of local products is still low, which has brought about currency balance-related problems, Thien said.

Vietnam can overcome the difficulty if it defines the reasons clearly, has long-term views, and draws lessons from foreign countries, he said, stating that “China has good experience in absorbing foreign capital without making foreign exchange and interest rates change too much.”

“The first important measure (to curb inflation) now is to have actions that foster trust of investors and the society. For example, cut down public spending effectively. Tell people about both good points and bad points of a policy,” he said.

The second measure is to tighten monetary policy to ensure that investors still access loans but their investment is actually effective, not rampant. Vietnam should “flexibly use two important tools – interest rate and foreign exchange rate – to curb inflation and reduce trade deficit.”

The third measure is effectively preventing speculation. “It is necessary to prioritize fight against speculation because speculation easily takes place in time of inflation,” he noted.

“I think when trust is recovered, inflation is curbed, and price hike is controlled, Vietnam’s economy will develop well…If the inflation rate is kept at 20 to 22 per cent by the end of this year, it is a victory. Trust will be recovered,” he said.

Originally published by Xinhua news agency, Beijing, in English 1524 12 Jun 08.

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