Vietnam seeks to cure growth ‘addiction’

AFP, Hanoi: Vietnam is looking to balance its long-standing ‘addiction’ to growth with measures to stabilise the troubled economy, but its success depends on restoring public confidence, analysts say.
The moves follow months of concern from investors and economists over the Southeast Asian nation’s rising inflation, struggling currency and other economic woes that accompanied the high growth rate.
Strong action began only in February when the State Bank of Vietnam announced the country’s largest currency devaluation in years, a 9.3 per cent adjustment whose scale surprised experts.
The government then proclaimed fighting inflation to be its number one priority, raising key interest rates and setting a series of targets to help stabilise the economy.
‘I think the government’s now sending a much more clear message about giving stability a higher priority compared to growth,’ said Vu Thanh Tu Anh, research director of the Fulbright Economics Teaching Program in Ho Chi Minh City.
Authorities have directed commercial banks to keep growth in credit, or loans, to below 20 per cent this year, with the proportion lent to the ‘non-productive’ property and stocks sectors particularly restrained.
State spending is to be cut by 10 per cent, and the budget deficit reduced to below five per cent. State-owned enterprises, which comprise a key part of the economy but are known for their inefficiency, have been ordered to sell foreign exchange to the banks.
And in a bid to reduce traditional reliance on gold, the government is planning to ban unofficial trade in gold bars and has proposed hefty new fines for black market foreign exchange trading.
Benedict Bingham, country representative for the International Monetary Fund, welcomed the measures, which he said are seen as ‘a fairly decisive shift’, with growth now seemingly ‘subordinated to a focus on macro-stability’.
He said the key would now be convincing foreign exchange markets — which include Vietnamese residents who hold dollars — that the policy would be implemented in a decisive and sustained way.
‘It’s not so much a discipline issue. It’s a confidence issue.’
Observers expect the restoration of public confidence to take some time — with many citizens, such as odd-jobs worker Nguyen Van Thuong, keeping some of their savings as gold bars.
‘It’s the safest shelter,’ said 53-year-old Thuong. ‘I don’t trust Vietnamese dong.’
February’s inflation rate of 12.31 per cent year-on-year was the highest in two years and far above the rates in Vietnam’s neighbours.
The government does not want a repeat of 2008 when annual inflation hit 23 per cent, said Giang Thanh Long, vice dean at the School of Public Policy and Management in Hanoi’s National Economics University.
‘You cannot have high economic growth at the same time as high inflation,’ he said.
While economic expansion has not been discarded, the government wants more of a balance as the side-effects of growth — including rising inequality — become clearer, Long said.
In 1986, communist Vietnam began to turn away from a planned economy to embrace the free market, a policy which led to growth among the fastest in Asia.
GDP growth stood at 6.8 per cent last year and the ruling Communist Party expects it to continue at seven to eight per cent annually.
Nonetheless the expansion has led to a complicated mix of challenges, including a trade deficit estimated at $12.4 billion last year.
Citing weaknesses in the banking system, inflation and other economic risks, international ratings agencies last year lowered Vietnam’s sovereign debt ratings.
During the recent five-year congress, the Communist Party announced an overhaul of its business growth model.
The nation must ‘restructure the economy to speed up industrialisation and modernisation with fast and sustainable development,’ Communist Party leader Nong Duc Manh said.
The government’s shift to stability from an ‘addiction’ to growth is welcome, but only time will tell if authorities are ‘willing to stick to this new marching order’, said a foreign business analyst who declined to be named.
Anh, of the Fulbright Program, said the government had done a good job in publicising its plan but he was sceptical of chances for success.
‘The key thing now is implementation and... we don’t see a clear vision, a clear picture’, said Anh.