The Asian Development Bank (ADB) is optimistic about Vietnam’s economy and fully supports the Vietnamese Government’s stance of making macro-economy stabilisation the leading priority in macro-economy management in 2010.
ADB Country Director for Viet Nam Ayumi Konishi made the statement while granting an interview to Vietnam News Agency’s e-newspaper Vietnam Plus on 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's economy in the first quarter of this year as well as your prediction for the coming quarters? In your opinion, what are most challenging concerns that Vietnam are facing?
Mr Ayumi Konishi: Thanks to the formulation and implementation of a number of economic stimulus measures in late 2008-early 2009, Vietnam's economic recovery started in the second quarter 2009. But from the fourth quarter 2009 to the first quarter 2010, economic growth slowed and we know some of the statistics disappointed people. But we are actually rather optimistic about the current economic situation. Narrowing down of the difference between the black market exchange rate and the official exchange rate for Vietnamese dong, as well as the international and domestic gold prices, for example is a very positive improvement. FDI disbursement is increasing. As the Government has shifted its macroeconomic policy towards stability in late 2009, we can also welcome the slowing down in the growth figure. There was also a long Tet holiday this year. While we strongly urge the Government to keep close eye 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 in trade deficit as such is a problem because the increased FDI would also result in the increase in imports of equipment, and in order to export manufactured goods, Vietnam needs to import raw materials or intermediary inputs because supporting industries have not been well developed.
The most challenging concern in the short term is to ensure macroeconomic stability, particularly in removing people's concerns on further weakening of the Vietnamese currency, dong, and for that, it will be essential to keep inflation under control. It would be important to accelerate administrative reforms as they would improve efficiency and the absorptive capacity of Vietnamese economy. For medium to long term, developing a sound Socio Economic Development Strategy for 2011-2020, and the Socio Economic Development Plan 2011-2015 through good public consultation with a good vision, would be a key, as the transparency and availability of data and information would enhance people's confidence in the country's growth prospects.
- The Vietnamese government has trying its best to control consumer price increases after recent adjustments on power and petrol prices. Do you think this is the right measure? From your calculation, what can you say about Vietnam's CPI this year? Will the country be able to keep it an one-digit number?
Mr Ayumi Konishi: In the Asian Development Outlook 2010, which was launched this morning, we are projecting this year's "period average" inflation to be at 10 percent and in 2011 at 8 percent. These numbers reflect our assumption that Vietnam will continue with monetary tightening and fiscal consolidation by according "stability" the highest priority in its macroeconomic management. This means, on year-on-year basis, we will see very high inflation rates for the coming months, and it is important for the Government to closely monitor the situation and undertake necessary measures.
We are however not overly "alarmed" at the situation, as the current inflation is mostly seen in the increase in food prices and food takes up a large part of Vietnam's consumer price index basket.
While we appreciate the Government's efforts to remove people's concern on inflation by controlling power and oil prices, we are concerned that the subsidies cannot be sustainable for a long time. It should be well understood by Vietnamese public that the higher power and oil prices reflect the increase in global commodity prices as well as the devaluation of Vietnamese dong.
We appreciate that the Prime Minister's Resolution No. 18 issued on 6 April this year did not include any measures that will substantially distort the functioning of the market economy, instead focused more on fiscal consolidation and monetary tightening, as well as efforts of many line agencies to improve efficiency. Use of orthodox policy measures and accelerating reforms to improve the efficiency of the economy are fully supported as policies in the right direction.
- One of the most important measures to have stable macro economy is to carry out appropriate monetary and fiscal policies. What are your comments on the two policies that Vietnam has been implementing so far? Do you think the ongoing monetary policy will help the government to put a lid on inflation?
Mr Ayumi Konishi: The Government has been repeatedly noting that macroeconomic stability is the first priority in this year's macroeconomic management and we fully support the Government's position in this regard. To that extent, we do not necessarily want the Government to be obsessed with the growth target of 6.5 percent, but we appreciate that it would be possible and desirable to maintain this level of growth while maintaining macroeconomic stability. In terms of policies, monetary tightening has started on 25 November 2009 and with removal of the cap in lending rates, we appreciate that monetary tightening is happening without announcing further increase in the base rate from 8 percent. We also appreciate that the basic fiscal stance is towards consolidation with efforts to reduce fiscal deficit both through expenditure rationalization and revenue mobilization.
Yet, we are concerned that the intention of the Government may not have been most effectively communicated to the market as people tends to think that the country's borrowing plan, for example, sends a conflicting signal, and the State Bank of Vietnam has not effectively made its policy direction known through further increase in the base rate. We therefore regret that although the Government in fact are pursuing right policies on both monetary and fiscal sides, they are not necessarily well communicated in the absence of clear "signals." It would be particularly important for both monetary and fiscal authorities to clarify their policy directions through "actions" rather than words.
- A number of experts have recently mentioned a possible restructure of the economy for sustainable development. What is your comment regarding this issue? If you think it's time for Vietnam to restructure, what model the country should follow?
Mr Ayumi Konishi: By using the term "restructure," often different people are taking about different things. So we should be careful in discussing the restructuring of the economy while I believe it is easy for people to agree on the need to "accelerate" reforms. As Vietnam is becoming a middle income country, it is clear that the country will face many new sets of issues that need to be dealt with carefully and effectively. Decentralization should continue while the reforms of state-owned enterprises need to be accelerated and the efforts to reduce procedural and regulatory inefficiencies. Vietnam should focus on improving efficiency of its economy, in order to be an effectiveb part of regional and global value chains. Vietnam should transform itself to change its development to be "knowledge-led" and in order to enhance Vietnam's "value-added," moving to a higher stage in the "technological ladder" though human resource development would also be a key. At the same time, we certainly hope Vietnam to continue pursue its "inclusive growth strategy" while also ensuring environmental sustainability.
Probably all these things do not necessarily require "restructuring" of the economy but through acceleration of a number of efforts in improving efficiency of the country's economic systems, I think Vietnam will in fact reform itself that may be seen as "restructuring" when we look back the achievement of Vietnam in the future.
I do not necessarily believe there is a single model Vietnam should follow. Learning from both positive and negative lessons in many countries and then adopt and adapt the good efforts made in other countries to make sure that they fit with the ground realities of Vietnam 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 while granting an interview to Vietnam News Agency’s e-newspaper Vietnam Plus on 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's economy in the first quarter of this year as well as your prediction for the coming quarters? In your opinion, what are most challenging concerns that Vietnam are facing?
Mr Ayumi Konishi: Thanks to the formulation and implementation of a number of economic stimulus measures in late 2008-early 2009, Vietnam's economic recovery started in the second quarter 2009. But from the fourth quarter 2009 to the first quarter 2010, economic growth slowed and we know some of the statistics disappointed people. But we are actually rather optimistic about the current economic situation. Narrowing down of the difference between the black market exchange rate and the official exchange rate for Vietnamese dong, as well as the international and domestic gold prices, for example is a very positive improvement. FDI disbursement is increasing. As the Government has shifted its macroeconomic policy towards stability in late 2009, we can also welcome the slowing down in the growth figure. There was also a long Tet holiday this year. While we strongly urge the Government to keep close eye 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 in trade deficit as such is a problem because the increased FDI would also result in the increase in imports of equipment, and in order to export manufactured goods, Vietnam needs to import raw materials or intermediary inputs because supporting industries have not been well developed.
The most challenging concern in the short term is to ensure macroeconomic stability, particularly in removing people's concerns on further weakening of the Vietnamese currency, dong, and for that, it will be essential to keep inflation under control. It would be important to accelerate administrative reforms as they would improve efficiency and the absorptive capacity of Vietnamese economy. For medium to long term, developing a sound Socio Economic Development Strategy for 2011-2020, and the Socio Economic Development Plan 2011-2015 through good public consultation with a good vision, would be a key, as the transparency and availability of data and information would enhance people's confidence in the country's growth prospects.
- The Vietnamese government has trying its best to control consumer price increases after recent adjustments on power and petrol prices. Do you think this is the right measure? From your calculation, what can you say about Vietnam's CPI this year? Will the country be able to keep it an one-digit number?
Mr Ayumi Konishi: In the Asian Development Outlook 2010, which was launched this morning, we are projecting this year's "period average" inflation to be at 10 percent and in 2011 at 8 percent. These numbers reflect our assumption that Vietnam will continue with monetary tightening and fiscal consolidation by according "stability" the highest priority in its macroeconomic management. This means, on year-on-year basis, we will see very high inflation rates for the coming months, and it is important for the Government to closely monitor the situation and undertake necessary measures.
We are however not overly "alarmed" at the situation, as the current inflation is mostly seen in the increase in food prices and food takes up a large part of Vietnam's consumer price index basket.
While we appreciate the Government's efforts to remove people's concern on inflation by controlling power and oil prices, we are concerned that the subsidies cannot be sustainable for a long time. It should be well understood by Vietnamese public that the higher power and oil prices reflect the increase in global commodity prices as well as the devaluation of Vietnamese dong.
We appreciate that the Prime Minister's Resolution No. 18 issued on 6 April this year did not include any measures that will substantially distort the functioning of the market economy, instead focused more on fiscal consolidation and monetary tightening, as well as efforts of many line agencies to improve efficiency. Use of orthodox policy measures and accelerating reforms to improve the efficiency of the economy are fully supported as policies in the right direction.
- One of the most important measures to have stable macro economy is to carry out appropriate monetary and fiscal policies. What are your comments on the two policies that Vietnam has been implementing so far? Do you think the ongoing monetary policy will help the government to put a lid on inflation?
Mr Ayumi Konishi: The Government has been repeatedly noting that macroeconomic stability is the first priority in this year's macroeconomic management and we fully support the Government's position in this regard. To that extent, we do not necessarily want the Government to be obsessed with the growth target of 6.5 percent, but we appreciate that it would be possible and desirable to maintain this level of growth while maintaining macroeconomic stability. In terms of policies, monetary tightening has started on 25 November 2009 and with removal of the cap in lending rates, we appreciate that monetary tightening is happening without announcing further increase in the base rate from 8 percent. We also appreciate that the basic fiscal stance is towards consolidation with efforts to reduce fiscal deficit both through expenditure rationalization and revenue mobilization.
Yet, we are concerned that the intention of the Government may not have been most effectively communicated to the market as people tends to think that the country's borrowing plan, for example, sends a conflicting signal, and the State Bank of Vietnam has not effectively made its policy direction known through further increase in the base rate. We therefore regret that although the Government in fact are pursuing right policies on both monetary and fiscal sides, they are not necessarily well communicated in the absence of clear "signals." It would be particularly important for both monetary and fiscal authorities to clarify their policy directions through "actions" rather than words.
- A number of experts have recently mentioned a possible restructure of the economy for sustainable development. What is your comment regarding this issue? If you think it's time for Vietnam to restructure, what model the country should follow?
Mr Ayumi Konishi: By using the term "restructure," often different people are taking about different things. So we should be careful in discussing the restructuring of the economy while I believe it is easy for people to agree on the need to "accelerate" reforms. As Vietnam is becoming a middle income country, it is clear that the country will face many new sets of issues that need to be dealt with carefully and effectively. Decentralization should continue while the reforms of state-owned enterprises need to be accelerated and the efforts to reduce procedural and regulatory inefficiencies. Vietnam should focus on improving efficiency of its economy, in order to be an effectiveb part of regional and global value chains. Vietnam should transform itself to change its development to be "knowledge-led" and in order to enhance Vietnam's "value-added," moving to a higher stage in the "technological ladder" though human resource development would also be a key. At the same time, we certainly hope Vietnam to continue pursue its "inclusive growth strategy" while also ensuring environmental sustainability.
Probably all these things do not necessarily require "restructuring" of the economy but through acceleration of a number of efforts in improving efficiency of the country's economic systems, I think Vietnam will in fact reform itself that may be seen as "restructuring" when we look back the achievement of Vietnam in the future.
I do not necessarily believe there is a single model Vietnam should follow. Learning from both positive and negative lessons in many countries and then adopt and adapt the good efforts made in other countries to make sure that they fit with the ground realities of Vietnam should be the way to go. Having said that though, Vietnam should accelerate its reforms focusing on stability and efficiency./.
