Monday, December 03, 2007

Vietnam’s economy like fast motorbike: WB VN Chief Economist

Martin Rama, Chief Economist of the World Bank Vietnam, when presenting WB’s report about Vietnam’s economy, described Vietnam’s economy as a motorbike running very fast at 200 km/h.

Vietnam’s FDI implementation ratio higher than China’s

Mr Rama said that as driving at high speed, Vietnam’s national economy is facing a lot of risks, which require steady handling and a helmet.

WB Vietnam Country Director Ajay Chhibber and Mr Rama affirmed that Vietnam’s economy was strongly developing. The most encouraging factor is that the national economy is growing rapidly but stably, and every Vietnamese citizen can benefit from the high growth rate.

Mr Rama emphasised that the economic growth rate coincided with the improvement of competitiveness. Exports have been growing more rapidly than the GDP, not counting crude oil exports.

The high engaged foreign direct investment capital (FDI) of $16bil this year is seen by the chief economist as an encouraging result. This figure includes the $5bil of implemented projects. According to Mr Rama, Vietnam’s ratio of implemented FDI capital per GDP is higher than China’s.

According to WB, the trade deficit in 2007 will be higher than in 2006 as imports are growing more rapidly than exports. However, Mr Rama said that the trade deficit was not really a worrying problem, as Vietnam mainly imported equipment and machineries to serve development.

Regarding foreign debts, Mr Rama said that most of the debts were preferential loans which Vietnam did not need to pay immediately, amounting to 25% of GDP – within control.

Inflation and monetary policies

By the end of November, the inflation rate had exceeded the 10% threshold, of which food and foodstuff accounted for 43% of the CPI increase.

Mr Rama applauded the decision by the government of Vietnam not to subsidise oil and petrol any more, saying that this would show active impacts on inflation in the long term.

Regarding inflation, Mr Rama said that it was partially because of monetary policies. He said that the 40% credit growth rate proved to be overly high for a national economy with the growth rate of over 8%. He also said that the government’s policies did not suit the forex policies when it purchased too many dollars in order to maintain the exchange rate of VND16,000/US$1.

The exchange rate benefits exports, but it has led to higher inflation since Vietnam has to import many products with the world’s prices continuing to rise.

Worries about too many new financial companies

While applauding the rapid equitisation process, the WB economist expressed his concern about the fact that a lot of leading Vietnamese leading groups were rushing to diversify their business fields.

When a group makes investment in an unfamiliar field, it faces a lot of risks, and the success index is lower.

Mr Rama also warned about the risks groups face when setting up finance companies. The government should keep an eye on the finance companies. Chile experienced a crisis, originating from the fact that big groups used capital raised from the public for investments. (Tien Phong Newspaper)