Growth rate of 6.5 percent considered economically feasible

Former Minister of Planning and Investment Tran Xuan Gia gave an insight into the current situation of the economy and made relevant suggestions during an interview granted to VOVNews. Here are excerpts of the interview. 

VOVNews: There were different forecasts for Vietnam’s economic growth in 2009 (the Economist Intelligence Unit at 0.3 percent and the World Bank at 4.5 percent), while the real figure was 5.32 percent. Why so?

Mr Gia: It’s a normal occurrence that different organisations have different forecasts. Looking back to 2008, the first group attributed Vietnam’s economic difficulties to the adverse impact of the global economic recession. In addition, some wanted to fulfil the 2006-2010 development target on schedule, so they focused on the figure rather than the quality of growth. In a socio-economic development plan for 2009 submitted to the National Assembly, Vietnam’s economy was even projected to grow at a rate of 7 percent. Weighing up the pros and cons, the legislature decided to lower the rate to 6.5 percent, and the target was re-adjusted to 5 percent. In fact, the economy grew by 5.32 percent.

The second group did not underestimate the adverse impact of the global financial and economic meltdown on Vietnam, but they did overestimate its impact on the growth of the national economy. I was among those who proposed a rate of 5 percent at maximum.

VOVNews: Was the 5.32 percent rate a satisfactory figure, given the difficulties in 2009?
Mr Gia: Our economy faced a slowdown rather than recession, and it began to speed up in the second quarter, but not steadily. Optimists said Vietnam has weathered the storm very quickly and painted a bright picture for the economy. Others who looked at the quality of growth had reservations, and I was one of them.

VOVNews: What is your projected rate for the national economy in 2010?
Mr Gia: “Sustainable development” means achievements recorded in the previous years serve as a foundation for growth in the following years. In fact, what we achieved in 2009 would not offer good conditions for development in 2010 – the last year of the 2006-2010 socio-economic development plan and the 2001-2010 development strategy.  

In my point of view, the foreign exchange and inflation rates are among ‘immediate’ difficulties that could cause macro-economic instability and have a direct impact on the business environment.

Although exports are expected to increase by 6 percent against 2009 to reach US$60 billion, the figure is US$2.7 billion lower than the real value obtained in 2008. A fall in exports will certainly affect the attraction of foreign investment and cause difficulty for our international payment balance.

For the first time in many years, Vietnam faced an overall balance deficit in 2009 and even for 2010, though the deficit was kept under control. Consequently, it is hard for us to stabilise the foreign exchange rate.

Although the consumer price index was kept at a low level in 2009, it would run a risk of high inflation in 2010 for the following reasons.

Firstly, the credit growth in 2009 was rather high, at nearly 38 percent, while the GDP was set at just 5.32 percent. Secondly, State spending is set to increase by 12.3 percent, and the State budget deficit remains high, making up of 6.2 percent of the GDP compared to 6.9 percent in 2009.

Thirdly, global economies applied a loose financial and monetary policy to survive the recession in 2009, and as a result, they kept inflation at bay, and deflation was even seen in some places. However, there are signs of ‘accumulated’ factors behind high inflation as a consequence of the loose policy, ineffective investment from economic stimulus packages, and high prices of materials. It is a big challenge for Vietnam, which faces the trade deficit.

Despite constant efforts, the environment is seriously degraded, hampering steady growth in both short- and long-term periods.

All in all, market developments depend on a lot of factors, especially the macro management.

VOVNews: Do you think the projected 6.5 percent GDP rate for 2010 is feasible given what you have analysed?
Mr Gia: The figure will be within reach if we surmount immediate difficulties and speed up economic restructuring in the post-slowdown period. This is a long-term issue, but we have to get to work on this immediately to achieve rapid and steady growth in the following years. This is the responsibility of not only the State, but more importantly all businesses. 

It is late if we talk about economic restructuring now. It should be done as soon as possible, in both structure and mechanism, and at the macro and micro levels.

It’s clear that we should change our thinking about growth and the growth model, which are no longer suitable at present. The quality of growth, not the figure, is the decisive factor.

VOVNews: Many experts say overcoming the weaknesses in the economy lies in the country’s great potential. What do you think about this?
Mr Gia: There is no denying that the global financial and economic downturn has taken its heavy toll on Vietnam, but it is difficult to find solutions for a rapid economic recovery if we do not take into account the root causes of our economy, including weaknesses which bar growth.

A question raised more than 10 years ago when the Asian financial crisis occurred remains fresh. If there had been no global financial and economic recession, would our economy have fallen into the difficult period? The answer is yes. An economic slowdown was not only caused by external factors, but more importantly by internal ones. Some even say if the global crisis had not occurred, our economy would have faced difficulties sooner or later. These weaknesses lie in the structure and mechanism of the economy. This explains why we could not achieve high economic growth immediately.

The fact is that our economic growth mainly relies on an increase in investment capital, but investment efficiency and labour productivity is rather low. Other weaknesses include high production costs, outdated technology, poor competitiveness, inefficient export mechanisms, poorly-developed market and snags in the macro economy.

VOVNews: Donors committed US$8 billion in official development assistance (ODA) for Vietnam in 2010. What do you think about this figure?
Mr Gia: This is a positive signal. To develop rapidly, poor countries have to borrow foreign loans, including ODA and commercial loans. The crux of the matter is how to use these loans effectively so that we will be able to pay debts later. Nobody expects that loan borrowing countries will become poorer and poorer. So I think we have to accelerate the disbursement of capital, both from the government bonds and ODA.