Vietnam needs to prepare ahead of AEC formation: expert

Hanoi (VNA) – Vietnam needs to take measures to protect itself including aligning its economic institutions with other ASEAN nations in order to avoid the risk of economic crisis when the ASEAN Economic Community (AEC) is officially formed, according to a leading economist.

During an interview granted to Vietnam News Agency correspondents, Dr. Nguyen Chi Hieu, a financial and banking expert, stressed that as the country has not yet become a true market economy, the gap in economic institutions will be an obstacle for absorbing the flows of capital and other financial resources.

When the common market is formed, Vietnam will have to open the door to facilitate the circulation of capital among the bloc’s member nations.

Apart from attracting new credit sources from foreign direct investment (FDI), the country will also be the destination of payments from trade, exports and service and tourism activities.

These will actively impact on all the country’s economic and financial activities, bringing benefits to the Government, business community and people, Hieu said.

However, Vietnam will also have to deal with challenges because its economy’s ability to absorb capital remains limited.

Foreign investors and banks are concerned about investing in Vietnam due to credit risks, bad debt and the slow restructuring of the economy, Hieu said.

He cited the example of Mexico which fell into crisis due to the outflows of foreign investment after the country was unable to absorb the flow of foreign capital.

Hieu also forecast competition in the regional banking sector will increase and put pressure on domestic trade banks that operate on a small scale with a shortage of modern services and weak administrative capacity. They are likely to lose domestic market share.

He added that however, Vietnam is yet to become a lucrative market for regional banks because the average annual GDP per capita stands at 2,000 USD. Foreign banks are also hesitant to provide Vietnamese businesses with loans because they are worried about bad debt.

Hieu underlined the need for Vietnamese banks to accelerate their restructuring and expand user-friendly products and services. They should also study and introduce more derivatives products in periodic foreign currency transactions, thus both creating flexibility and ensuring interest and increased consumer confidence.-VNA