What will it take to revitalise the economy and return the country to growth?
ONCE A WORLD BANK poster child and rising tiger of the Asia-Pacific, Vietnam has been economically volatile since it tried to stave off the worst effects of the global financial crisis (GFC) by releasing tranches of cheap credit to state-owned enterprises.
It has had trouble in the banking sector with the state bank having to shore up ailing banks, including the bail-out in November last year of Sacombank. Vietnam’s finance minister, Professor Doctor Vuong Dinh Hue, sees no quick fix. He believes the changes needed to restore the country’s economy to health will take a three- to five-year financial restructure.
On a recent visit to Australia, Hue was matter-of-fact about the three main reasons for the state of Vietnam’s economy.
“For a long time we relaxed our fiscal and credit policies and sustained high credit growth,” Hue says. “Second, there was a push on expenditures caused by increases in world prices and we sustained our public services rather too long. The third reason, which is very specific to Vietnam, is the psychology of the people: inflation is expected – it’s like a crowd effect. As an example, when we have an increase in petrol prices non-related prices also increase.”
Moves to counter the situation focus on a massive restructuring program involving the economy, public investment, the enterprise sector and the financial and banking sector, Hue says.
“The task of restructuring finance for the next three to five years is very important. It stems from the global economic crisis and also recently we have experienced some macro economic instabilities, so that’s why we have to accept a moderate level of growth for economic stability.”
Vietnam’s finance minister, Professor Doctor Vuong Dinh Hue.
He says there have been positive changes recently. Inflation is under control. Deposit and lending rates have not fallen and the foreign exchange market and the exchange rate remain relatively stable. But there are challenges – slower economic and credit growth, high bad debt levels and the impending threat of a return to high inflation. Businesses are in difficulties, the industrial production growth index is low and the inventory index has increased significantly.
“In the near future our targets and tasks focus on controlling inflation, stabilising macroeconomic [growth] as well as enhancing social security, promoting business and maintaining rational growth,” says Hue, who has directed all government departments to focus on tight, prudent and flexible fiscal policies.
Tax reform and reform of fees and charges will be promoted to make doing business easier and to ensure simplicity and transparency. He says the nation’s budget will be restructured to ensure it is “efficient, open, transparent and sparing of spending”.
Sovereign and government debt are also coming under Hue’s microscope, as are borrowing practices in businesses where scrutiny is in order to ensure the effective use of loans. Prices of electricity, coal, petroleum products and public services will be regulated by the state, not only with a view to controlling inflation but also, Hue says, to ensure “transparency in pricing … in order to create social consensus”.
The restructure of the stock market and insurance companies will be fast-tracked to improve their roles and position in the economy. Institutions will be supplemented or built to effectively manage the state-owned enterprises and Hue says the “drastic” process of restructuring them is planned.
"Restructuring for the next three to five years is very important. We have to accept a moderate level of growth." - Professor Doctor Vuong Dinh Hue
It’s definitely no small task, but Hue is a politician highly qualified for his role. Trained as an accountant, auditor and in finance, for more than 30 years he taught fledgling accountants as a professor at the University of Finance and Accounting, Hanoi. He followed this with a decade at the State Audit Office, five of those as chief auditor, before being plucked in 2011 to take on the role of finance minister at a time that was critical in his country.
“My 10 years with State Audit provides me with the understanding of the operation of the economy and the risks in order to focus on my public policy finance decisions,” Hue says.
“My professional accounting background helps me with quantifying the ideas in the policies – to make sure they are based on research and are also feasible in reality.” Hue now oversees a staff of 80,000, with responsibility for tax and customs, the State Securities Commission and the State Reserves. There are 1200 people in the central Department of Finance office.
In this Asian Century, Hue sees Vietnam as needing to attract more foreign investment to access new technologies and management expertise. He believes a radical spring cleaning of institutions is in order.
While inward foreign investment is a priority, aid is also key. Contributions by Australia, one of Vietnam’s major aid donors, reached almost A$139 million in 2010-2011, allocated to areas such as human resources development, infrastructure development, health and health care resource development, water management and agriculture.
Hue says the ministry hopes Australia will continue to scale up aid in “areas of mutual priority and give more autonomy to Vietnam” – meaning less commissioned aid and more direct aid. He would also like to see long-term preferential loans to Vietnam for large-scale infrastructure projects.
But while globalisation has greatly boosted Vietnam’s fortunes in the lead-up to the GFC, Hue sees interdependence between countries and the global market’s volatility impacting on his domestic market. He sees Vietnam as needing to provide a bulwark of effective forecasting so the economy can respond to external fluctuations.
“We recognise that opportunities and challenges always boost mobilisation,” Hue says. “To be able to catch opportunity, we should improve our position and strength to overcome challenges and create greater opportunities. If not, opportunities will be missing and challenges will turn into long-term difficulties.”
This article is from the May 2013 issue of INTHEBLACK magazine.