The Asian Development Bank (ADB) isoptimistic about Vietnam’s economy and fully supports the VietnameseGovernment’s stance of making macro-economy stabilisation the leadingpriority in macro-economy management in 2010.
ADB Country Director for Viet Nam Ayumi Konishi made the statement whilegranting an interview to Vietnam News Agency’s e-newspaper Vietnam Pluson April 13 after the ADB announcing the Asian Development Outlook 2010(ADO) the same day.
The following is the full text of the interview:
- Could you possibly give your judgment regarding Vietnam'seconomy in the first quarter of this year as well as your prediction forthe coming quarters? In your opinion, what are most challenging concernsthat Vietnam are facing?
Mr Ayumi Konishi: Thanks to the formulation and implementation of a number ofeconomic stimulus measures in late 2008-early 2009, Vietnam's economicrecovery started in the second quarter 2009. But from the fourth quarter2009 to the first quarter 2010, economic growth slowed and we know someof the statistics disappointed people. But we are actually ratheroptimistic about the current economic situation. Narrowing down of thedifference between the black market exchange rate and the officialexchange rate for Vietnamese dong, as well as the international anddomestic gold prices, for example is a very positive improvement. FDIdisbursement is increasing. As the Government has shifted itsmacroeconomic policy towards stability in late 2009, we can also welcomethe slowing down in the growth figure. There was also a long Tetholiday this year. While we strongly urge the Government to keep closeeye on inflation, we are not alarmed at the current situation as the"core" inflation numbers appear to be still rather stable, while the"asset bubble" can be a problem. We also do not think the increase intrade deficit as such is a problem because the increased FDI would alsoresult in the increase in imports of equipment, and in order to exportmanufactured goods, Vietnam needs to import raw materials orintermediary inputs because supporting industries have not been welldeveloped.
The most challenging concern in the short term is to ensuremacroeconomic stability, particularly in removing people's concerns on further weakening of the Vietnamese currency, dong, and for that, itwill be essential to keep inflation under control. It would be importantto accelerate administrative reforms as they would improve efficiencyand the absorptive capacity of Vietnamese economy. For medium to longterm, developing a sound Socio Economic Development Strategy for2011-2020, and the Socio Economic Development Plan 2011-2015 throughgood public consultation with a good vision, would be a key, as thetransparency and availability of data and information would enhancepeople's confidence in the country's growth prospects.
- The Vietnamese government has trying its best to control consumerprice increases after recent adjustments on power and petrol prices. Doyou think this is the right measure? From your calculation, what can yousay about Vietnam's CPI this year? Will the country be able to keep itan one-digit number?
Mr Ayumi Konishi: In the Asian Development Outlook 2010, which was launched thismorning, we are projecting this year's "period average" inflation to be at 10 percent and in 2011 at 8 percent. These numbers reflect ourassumption that Vietnam will continue with monetary tightening and fiscal consolidation by according "stability" the highest priority inits macroeconomic management. This means, on year-on-year basis, we willsee very high inflation rates for the coming months, and it isimportant for the Government to closely monitor the situation andundertake necessary measures.
We are however not overly "alarmed" at the situation, as the currentinflation is mostly seen in the increase in food prices and food takesup a large part of Vietnam's consumer price index basket.
While we appreciate the Government's efforts to remove people's concernon inflation by controlling power and oil prices, we are concerned that the subsidies cannot be sustainable for a long time. Itshould be well understood by Vietnamese public that the higher power andoil prices reflect the increase in global commodity prices as well asthe devaluation of Vietnamese dong.
We appreciate that the Prime Minister's Resolution No. 18 issued on 6April this year did not include any measures that will substantially distort the functioning of the market economy, instead focused more onfiscal consolidation and monetary tightening, as well as efforts of manyline agencies to improve efficiency. Use of orthodox policy measuresand accelerating reforms to improve the efficiency of the economy arefully supported as policies in the right direction.
- One of the most important measures to have stable macro economy is tocarry out appropriate monetary and fiscal policies. What are yourcomments on the two policies that Vietnam has been implementing so far?Do you think the ongoing monetary policy will help the government to puta lid on inflation?
Mr Ayumi Konishi: The Government has been repeatedly noting that macroeconomicstability is the first priority in this year's macroeconomic managementand we fully support the Government's position in this regard. To that extent, we do not necessarily want theGovernment to be obsessed with the growth target of 6.5 percent, but weappreciate that it would be possible and desirable to maintain thislevel of growth while maintaining macroeconomic stability. In terms ofpolicies, monetary tightening has started on 25 November 2009 and with removal of the cap in lending rates, we appreciate that monetarytightening is happening without announcing further increase in the baserate from 8 percent. We also appreciate that the basic fiscal stance istowards consolidation with efforts to reduce fiscal deficit both throughexpenditure rationalization and revenue mobilization.
Yet, we are concerned that the intention of the Government may not havebeen most effectively communicated to the market as people tends tothink that the country's borrowing plan, for example, sends aconflicting signal, and the State Bank of Vietnam has not effectivelymade its policy direction known through further increase in the baserate. We therefore regret that although the Government in fact arepursuing right policies on both monetary and fiscal sides, they are notnecessarily well communicated in the absence of clear "signals." Itwould be particularly important for both monetary and fiscal authoritiesto clarify their policy directions through "actions" rather than words.
- A number of experts have recently mentioned a possible restructure ofthe economy for sustainable development. What is your comment regardingthis issue? If you think it's time for Vietnam to restructure, whatmodel the country should follow?
Mr Ayumi Konishi: By using the term "restructure," often different people are takingabout different things. So we should be careful in discussing therestructuring of the economy while I believe it is easy for people toagree on the need to "accelerate" reforms. As Vietnam is becoming amiddle income country, it is clear that the country will face many newsets of issues that need to be dealt with carefully and effectively.Decentralization should continue while the reforms of state-ownedenterprises need to be accelerated and the efforts to reduce procedural and regulatory inefficiencies. Vietnam should focus onimproving efficiency of its economy, in order to be an effectiveb partof regional and global value chains. Vietnam should transform itself tochange its development to be "knowledge-led" and in order to enhanceVietnam's "value-added," moving to a higher stage in the "technologicalladder" though human resource development would also be a key. At thesame time, we certainly hope Vietnam to continue pursue its "inclusivegrowth strategy" while also ensuring environmental sustainability.
Probably all these things do not necessarily require "restructuring" ofthe economy but through acceleration of a number of efforts in improvingefficiency of the country's economic systems, I think Vietnam will infact reform itself that may be seen as "restructuring" when we look backthe achievement of Vietnam in the future.
I do not necessarily believe there is a single model Vietnam shouldfollow. Learning from both positive and negative lessons in manycountries and then adopt and adapt the good efforts made in othercountries to make sure that they fit with the ground realities ofVietnam should be the way to go. Having said that though, Vietnam should accelerate its reforms focusing on stability and efficiency./.
ADB Country Director for Viet Nam Ayumi Konishi made the statement whilegranting an interview to Vietnam News Agency’s e-newspaper Vietnam Pluson April 13 after the ADB announcing the Asian Development Outlook 2010(ADO) the same day.
The following is the full text of the interview:
- Could you possibly give your judgment regarding Vietnam'seconomy in the first quarter of this year as well as your prediction forthe coming quarters? In your opinion, what are most challenging concernsthat Vietnam are facing?
Mr Ayumi Konishi: Thanks to the formulation and implementation of a number ofeconomic stimulus measures in late 2008-early 2009, Vietnam's economicrecovery started in the second quarter 2009. But from the fourth quarter2009 to the first quarter 2010, economic growth slowed and we know someof the statistics disappointed people. But we are actually ratheroptimistic about the current economic situation. Narrowing down of thedifference between the black market exchange rate and the officialexchange rate for Vietnamese dong, as well as the international anddomestic gold prices, for example is a very positive improvement. FDIdisbursement is increasing. As the Government has shifted itsmacroeconomic policy towards stability in late 2009, we can also welcomethe slowing down in the growth figure. There was also a long Tetholiday this year. While we strongly urge the Government to keep closeeye on inflation, we are not alarmed at the current situation as the"core" inflation numbers appear to be still rather stable, while the"asset bubble" can be a problem. We also do not think the increase intrade deficit as such is a problem because the increased FDI would alsoresult in the increase in imports of equipment, and in order to exportmanufactured goods, Vietnam needs to import raw materials orintermediary inputs because supporting industries have not been welldeveloped.
The most challenging concern in the short term is to ensuremacroeconomic stability, particularly in removing people's concerns on further weakening of the Vietnamese currency, dong, and for that, itwill be essential to keep inflation under control. It would be importantto accelerate administrative reforms as they would improve efficiencyand the absorptive capacity of Vietnamese economy. For medium to longterm, developing a sound Socio Economic Development Strategy for2011-2020, and the Socio Economic Development Plan 2011-2015 throughgood public consultation with a good vision, would be a key, as thetransparency and availability of data and information would enhancepeople's confidence in the country's growth prospects.
- The Vietnamese government has trying its best to control consumerprice increases after recent adjustments on power and petrol prices. Doyou think this is the right measure? From your calculation, what can yousay about Vietnam's CPI this year? Will the country be able to keep itan one-digit number?
Mr Ayumi Konishi: In the Asian Development Outlook 2010, which was launched thismorning, we are projecting this year's "period average" inflation to be at 10 percent and in 2011 at 8 percent. These numbers reflect ourassumption that Vietnam will continue with monetary tightening and fiscal consolidation by according "stability" the highest priority inits macroeconomic management. This means, on year-on-year basis, we willsee very high inflation rates for the coming months, and it isimportant for the Government to closely monitor the situation andundertake necessary measures.
We are however not overly "alarmed" at the situation, as the currentinflation is mostly seen in the increase in food prices and food takesup a large part of Vietnam's consumer price index basket.
While we appreciate the Government's efforts to remove people's concernon inflation by controlling power and oil prices, we are concerned that the subsidies cannot be sustainable for a long time. Itshould be well understood by Vietnamese public that the higher power andoil prices reflect the increase in global commodity prices as well asthe devaluation of Vietnamese dong.
We appreciate that the Prime Minister's Resolution No. 18 issued on 6April this year did not include any measures that will substantially distort the functioning of the market economy, instead focused more onfiscal consolidation and monetary tightening, as well as efforts of manyline agencies to improve efficiency. Use of orthodox policy measuresand accelerating reforms to improve the efficiency of the economy arefully supported as policies in the right direction.
- One of the most important measures to have stable macro economy is tocarry out appropriate monetary and fiscal policies. What are yourcomments on the two policies that Vietnam has been implementing so far?Do you think the ongoing monetary policy will help the government to puta lid on inflation?
Mr Ayumi Konishi: The Government has been repeatedly noting that macroeconomicstability is the first priority in this year's macroeconomic managementand we fully support the Government's position in this regard. To that extent, we do not necessarily want theGovernment to be obsessed with the growth target of 6.5 percent, but weappreciate that it would be possible and desirable to maintain thislevel of growth while maintaining macroeconomic stability. In terms ofpolicies, monetary tightening has started on 25 November 2009 and with removal of the cap in lending rates, we appreciate that monetarytightening is happening without announcing further increase in the baserate from 8 percent. We also appreciate that the basic fiscal stance istowards consolidation with efforts to reduce fiscal deficit both throughexpenditure rationalization and revenue mobilization.
Yet, we are concerned that the intention of the Government may not havebeen most effectively communicated to the market as people tends tothink that the country's borrowing plan, for example, sends aconflicting signal, and the State Bank of Vietnam has not effectivelymade its policy direction known through further increase in the baserate. We therefore regret that although the Government in fact arepursuing right policies on both monetary and fiscal sides, they are notnecessarily well communicated in the absence of clear "signals." Itwould be particularly important for both monetary and fiscal authoritiesto clarify their policy directions through "actions" rather than words.
- A number of experts have recently mentioned a possible restructure ofthe economy for sustainable development. What is your comment regardingthis issue? If you think it's time for Vietnam to restructure, whatmodel the country should follow?
Mr Ayumi Konishi: By using the term "restructure," often different people are takingabout different things. So we should be careful in discussing therestructuring of the economy while I believe it is easy for people toagree on the need to "accelerate" reforms. As Vietnam is becoming amiddle income country, it is clear that the country will face many newsets of issues that need to be dealt with carefully and effectively.Decentralization should continue while the reforms of state-ownedenterprises need to be accelerated and the efforts to reduce procedural and regulatory inefficiencies. Vietnam should focus onimproving efficiency of its economy, in order to be an effectiveb partof regional and global value chains. Vietnam should transform itself tochange its development to be "knowledge-led" and in order to enhanceVietnam's "value-added," moving to a higher stage in the "technologicalladder" though human resource development would also be a key. At thesame time, we certainly hope Vietnam to continue pursue its "inclusivegrowth strategy" while also ensuring environmental sustainability.
Probably all these things do not necessarily require "restructuring" ofthe economy but through acceleration of a number of efforts in improvingefficiency of the country's economic systems, I think Vietnam will infact reform itself that may be seen as "restructuring" when we look backthe achievement of Vietnam in the future.
I do not necessarily believe there is a single model Vietnam shouldfollow. Learning from both positive and negative lessons in manycountries and then adopt and adapt the good efforts made in othercountries to make sure that they fit with the ground realities ofVietnam should be the way to go. Having said that though, Vietnam should accelerate its reforms focusing on stability and efficiency./.
