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.

Gates, Buffett bid to open rich Indians’ wallets

AFP, New Delhi: Two of the world’s richest men, software pioneer Bill Gates and investor Warren Buffett, are set to visit India this week to persuade the country’s super-wealthy to part with more of their cash.
The pair made headlines last year when they said they would seek to get fellow billionaires to commit half of their wealth to good causes as part of the ‘Giving Pledge’. So far, 59 rich Americans have taken the pledge.
But while charitable giving is widespread in countries such as the United States, it is less well established in developing nations such as India and China, where Gates and Buffett went in September on a similar mission.
The former, in an open letter in the Times of India newspaper, said he and Buffett plan to sit down with some of India’s affluent business leaders ‘to talk about our own enthusiasm for philanthropy and the impact it can have’.
‘We come not as preachers, but more like cheerleaders,’ said Gates, just a few months on from the billionaires’ high-profile China trip, where they wined and dined the country’s richest industrialists to promote charity.
Fast-growing India is home to some of Asia’s richest billionaires, making it ‘an exciting time to be having this conversation,’ added Gates.
But while there is no shortage of billionaires for Gates and Buffett to meet, it may not be the easiest of missions.
India’s booming economy — growing by nine per cent annually — has 55 billionaires with an average net worth of $4.5 billion, according to Forbes, the third-largest pool of billionaires after the United States and China.
Yet rich Indians are often criticised by local media for a reluctance to part with their cash.
In fact, India’s wealthiest social class has the lowest level of giving — just 1.6 per cent of household income compared to 1.9 per cent for the country’s middle classes, according to global consultancy Bain and Company.
A $2 billion education donation by high-tech tycoon Azim Premji late last year was a rare exception — and shone a harsh light on the patchy philanthropic track record of India’s wealthy.
Arpan Sheth, a consultant for Bain who is author of a recent overview of Indian philanthropy, said the country’s charitable potential is huge.
‘Should individuals (in India), particularly the well-off, be giving more? And can they afford to make more and larger donations? The answer to both questions is, ‘Absolutely yes’,’ he said.
Philanthropic activity has failed to keep pace with growing riches, partly, Sheth believes, because the rapid accumulation of individual wealth is still a relatively new phenomenon.
‘We have a history of scarcity and so it takes a while to build confidence that the future will be better on a sustainable basis and let go of newly earned wealth,’ Sheth told the AFP.
There is also a suspicion that charities are badly managed and so donors fear their contributions ‘won’t be put to good use or are at risk of being misappropriated,’ Sheth added.
The Bill and Melinda Gates Foundation, the charity set up by the software tycoon and his wife, was tight-lipped about the visit, citing security.
‘The visit of Bill and Melinda Gates starts Tuesday,’ said a spokesman.
He declined to give details about who they would meet but India’s Business Standard newspaper reported Gates, his wife and Buffett would hold talks with the country’s wealthy on Thursday in New Delhi.
There is no doubt that the need to help India’s teeming poor is glaring.
Some 42 per cent of Indians, or 455 million people, live on less than $1.25 a day, according to the World Bank. India’s statistics on health, infant mortality and malnutrition are worse than those for some countries in sub-Saharan Africa.
There are signs, though, that India’s billionaires are waking up to the urgent need to bridge the yawning gap between rich and poor in the country of 1.2 billion people.
India’s richest man Mukesh Ambani, who heads the country’s largest private company Reliance Industries, warned earlier this month that ‘there will be no peace’ if people are ‘discontented, deprived, unhappy and therefore angry.’

Europe polishes response to year-long debt crisis

AFP, Brussels: Europe’s leaders put the finishing touches to their response to a year-long debt crisis this week, as financial strain in Portugal threatens a third bailout after Greece and Ireland.
Heads of state and government of the 27 European Union states meet Thursday and Friday in Brussels, with the situation in Libya, and nuclear safety issues in the wake of Japan’s quake and tsunami severely damaging a reactor, high on the agenda.
Their remaining focus will be on meeting a self-imposed deadline for a ‘comprehensive’ response to a roller-coaster euro debt crisis aimed at soothing nervous money markets.
The European Union’s economic in-tray is full.
The summit must strengthen an existing 440-billion-euro temporary rescue fund, while agreeing a change to the EU treaty rule-book to enable the creation of a 500-billion-euro permanent fund from 2013, the European Stability Mechanism.
To avoid future bailouts, eurozone nations want to deepen coordination of economic policies and create new sanctions to punish countries that exceeded debt limits.
The European Parliament will vote on Thursday on the treaty change, but a staggering 2,000-plus amendments lodged by MEPs to make sanctions against debt offenders more automatic means it may be difficult to meet the June target-date for adoption of the legislation on economic governance.
A eurozone leaders summit on March 11 saw countries most directly concerned agree to increase funding to the temporary mechanism in order to make the full 440 billion euros available to countries in trouble. Currently almost half is held back as a guarantee to keep borrowing rates down.
They also agreed to allow the fund to buy bonds directly from governments in need of finance, although only within the straitjacket of a bailout.
This left the European Central Bank unhappy. It ECB reluctantly took on the role of supporting struggling eurozone countries by buying billions of euros of their bonds on secondary markets to keep interest rates down, and wanted to hand that role to the ESM
Eurozone leaders also decided to reduce the rate of interest charged Greece on its bailout loans and lengthened the repayment period, in principle making support cheaper for all countries faced with a financial emergency.
But a row with Ireland over its low corporate tax rate meant there were no favours for Dublin — a question sure to return to the summit agenda.
More generally, leaders also set out guidelines on economic indicators to be used to benchmark eurozone nations to improve and better harmonise their economic competitiveness.
The widely varying levels of competitiveness between countries has also led to strains over adopting appropriate policies for the eurozone.
European trade unions are planning protests on Thursday to decry the biting austerity programmes imposed by governments in the wake of the debt crisis.
Ahead of the March 24-25 summit, finance ministers will use an extraordinary meeting on Monday to try to settle remaining issues.
Time is running out after a period of relative calm, with Portugal struggling after a downgrade by the influential Moody’s credit rating agency and facing a growing likelihood of early elections as the opposition opposes a new austerity programme.
Britain, the Netherlands, Sweden, Denmark, Finland, Estonia, Poland, Lithuania and Latvia, meanwhile want to prioritise a real opening-up of the EU economy, the world’s largest tariff-free area with 500 million consumers and 12 trillion euros of economic activity.
Removing restrictions, accelerating free-trade deals with India, Canada, Japan, Mercosur and the Asian nations, as well as deepening economic integration with non-EU eastern European and southern Mediterranean nations is their prescription.

British budget to focus on recovery amid cuts

AFP, London: Britain’s government unveils its annual budget Wednesday, expected to focus on nurturing economic growth in the face of deep spending cuts and tax hikes aimed at slashing the nations’ huge deficit.
Finance minister George Osborne unveils his 2011/2012 tax and spend plans amid fears that his drastic belt-tightening measures could tip Britain back into recession.
Prime minister David Cameron’s Conservative-Liberal Democrat coalition, which rose to power in May 2010, has sought to slash a record public deficit that it inherited from the previous Labour administration.
Chancellor of the Exchequer Osborne wasted no time in delivering economic pain, via an emergency budget last year amid intense concern on global markets over sky-high levels of debt in the eurozone.
Although Britain is not a member of the eurozone, much of its trade is with members of the single bloc.
‘Last year’s emergency budget was a rescue mission, bringing us back from the brink of fiscal disaster and we will stick to the course that we have set out,’ Osborne said earlier this week.
‘The mission of this year’s budget will be to move from rescue to reform, because if we want Britain to succeed in the new global economy and we want to create the high-quality jobs of the future, then we need to overcome some of the deep-rooted and long-standing weaknesses of the British economy.’
He added: ‘We have already made a strong start, with reform of education, welfare and energy; new investment in science; and setting out a clear path towards a more competitive tax system.
‘Next week’s budget will mark the next phase of our plan for growth. The foundation of that plan must be fiscal responsibility.’
Ahead of the budget, Osborne was comforted by supportive data and praise from the Organisation for Economic Cooperation and Development and Fitch Ratings over his swift action to slash state borrowing.
However, some economists remain sceptical over Osborne’s ability to focus on growth in this week’s budget.
‘We would expect that the budget will be packaged as a ‘Budget for Growth’,’ said Investec economist Philip Shaw. ‘Whether it contains any measures that make a material difference is debatable.
‘I would imagine that the government got the bad news out of the way early (last year) and would want to avoid any further tightening, especially given the extent of the clawback over the next five years.
‘I am sceptical that this will be a great reforming budget—although what the chancellor announces (regarding) a fuel stabiliser will be interesting,’ he added.
Speculation is mounting that Osborne could introduce a ‘fuel stabiliser’ measure, whereby petrol taxation would be proportionate to the level of global oil prices — which remain elevated amid Middle East unrest.
Other economists also cast doubt on whether Osborne would have enough room to get the recovery back on track.
‘With room for fiscal manoeuvre seriously constrained, any efforts aimed at stimulating economic growth will necessarily have to come from reform,’ said Howard Archer at IHS Global Insight.
Questioned about the possibility of more austerity measures, he added: ‘I think the previous budget and spending review removed the sting. He will stick to the course set out—keep with the spending cuts announced and the tax measures announced.’
Britain’s independent fiscal watchdog, the Office for Budget Responsibility, will also publish the latest official forecasts for UK economic growth and state borrowing on Wednesday.
Under last November’s predictions, the OBR forecasts gross domestic product growth of 2.1 per cent this year, 2.6 per cent in 2012 and 2.9 per cent in 2013.
Public state borrowing, meanwhile, was predicted to drop from 148.5 billion pounds in 2010, to just 18 billion pounds by 2015.
However, the UK economy shrank by a worse-than-expected 0.6 per cent in the fourth quarter of 2010.
That stoked fears that austerity measures could help push the economy back into a ‘double dip’ or second phase of recession, after a record downturn that ended in late 2009.
But recent data indicated the British economy is improving compared with the final quarter of 2010.
Manufacturing output expanded in January at the fastest annual rate for 16 years, while the nation’s trade-in-goods deficit narrowed by more than expected as exports hit a record high.

After lean times, Greek tourism eyes crisis rebound

AFP, Athens: After two lean seasons and a year marred by austerity protests, Greek tourism operators expect a rebound in 2011 with the global economy in recovery and unrest in North Africa turning demand elsewhere.
And although visitors avoiding Egypt and Tunisia may not necessarily flock to Greece—which has troubles of its own from an unpopular economic overhaul—the extra demand is enough for the entire region, industry representatives said.
‘As an all-year destination, Spain is most likely to gain Egypt’s market, followed by Turkey,’ says Yiannis Papadakis, deputy chairman of the Hellenic association of travel and tourist agencies (Hatta).
‘But we also stand to benefit as there will be a lack of availability. Turkey is already between 80 and 85 per cent booked and will be fully booked in about two months,’ he told AFP.
Early booking data from key European target markets—Germany, Britain, France and Russia—look promising and family travel is shying away from former favourite destinations in North Africa and the Middle East that have been hit with political turmoil.
‘Bookings from Germany are up eight per cent, Britain 12 per cent and Russia by over 20 per cent while France is also seeing a two-digit rise,’ says Andreas Andreadis, head of the Panhellenic confederation of hoteliers (POX).
‘They were already rising from January before events in North Africa unfolded as these (European) countries have positive growth rates,’ he added.
‘It’s a normal rebound. This time last year we were a world news story. Now we no longer feature in negative headlines,’ Andreadis said.
Official data in January showed that foreign arrivals in Greece in the first nine months of 2010 had risen by 1.5 per cent despite the country’s economic woes and waves of frequently violent protests in Athens and Thessaloniki.
In May, three people died in an Athens bank that was firebombed during a protest.
‘Events in May were disastrous, bookings for the entire month were frozen,’ Andreadis said.
‘We still have two critical months ahead of us, so it’s still too early to say how the season will play out.’
Unions have already held a general strike this year against sweeping wage and pension cuts mandated by the EU and the International Monetary Fund after they rescued Greece from imminent bankruptcy with a 110-billion-euro ($154-billion) loan. Another seven national shutdowns were organised last year.
Some of last year’s demonstrations against measures by the Socialist government to deal with an unprecedented debt crisis specifically targeted tourism-related infrastructure including hotels, the main port of Piraeus and the Acropolis, Greece’s most emblematic monument.
At the time, the government offered to compensate travellers stranded in the country after the strikes and protests threatened to sink the season.
Residents of the popular island of Rhodes even took matters into their own hands, banning striking sailors from their harbour and dispatching flower-toting delegations to welcome incoming cruise ship passengers.
Price cuts by operators limited the damage but caused a revenue blow.
The Bank of Greece has said tourism takings were down by 7.3 per cent to 9.45 billion euros ($13.2 billion) in the period to November.
To boost flight traffic, the government this week waived fees at all state airports except Athens International Airport from April 1 to December 31.
Tourism generates about 18 per cent of Greece’s gross domestic product.
Hatta’s Papadakis said operators had been lowering their prices at the last minute for the last two years in order to elicit demand.
Hoteliers in particular saw their takings go down by 13 per cent in 2009 and a by another 7 per cent in 2010, Andreadis added.
‘A room priced at 50 euros would be reduced to 30 euros,’ Papadakis said. ‘That’s not going to happen this year’.