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Turning negatives into positives   2009-10-31 - VIR

Despite the economic downturn, Vietnam has fortified its economy in 2009 through effective economic stimulus measures and is looking at some ambitious socio-economic targets for 2010.

Many enterprises have prospered during the global economic downturn, while many regional competitors have struggled

Many enterprises have prospered during the global economic downturn, while many regional competitors have struggled
This year was tipped to be a tough one for Vietnam’s economy amid global financial turmoil. However, the situation is not so bad as many of the pundits have predicted.

Addressing the 12th National Assembly’s sixth session opened last week in Hanoi, Prime Minster Nguyen Tan Dung said: “Economic growth has been maintained. Local enterprises have escaped the worst situation.”

According to a government report on socio-economic development for 2009 and tasks for 2010 delivered at the session, Vietnam’s gross domestic product (GDP) is projected to grow 5.2 per cent in 2009, being considered the highest in the South East Asian region.

An Asia Development Bank report released in September estimated Indonesia would attain a 4.3 per cent growth rate this year, Malaysia minus 3.1 per cent, the Philippines 1.6 per cent, Thailand minus 3.2 per cent and Singapore minus 5 per cent.

In 2009, Vietnam’s industrial production is project to growth 7.2 per cent, construction 11.3 per cent, service 6.5 per cent and agriculture 2.8 per cent, according to the government report. The consumer price index (CPI) is expected to rise 7 per cent for the whole year.

A National Assembly’s Economic Committee investigation report said that the country’s macro economy had been stabilised. Despite the economic downturn, state budget revenues will still increase by VND750 billion ($42.6 million) as compared to the initial target. The budget deficit is to equal to 6.9 per cent of GDP, lower than the 7 per cent estimated in the resolution adopted by the National Assembly in the last session.

“Social welfare has been ensured, with effective policies supporting the poor and farmers. The rate of poor households has been reduced to 11 per cent against the National Assembly’s initial target of 12 per cent and some 1.51 million people have been employed in 2009,” the report stated.

In December 2008, the government issued Resolution 30/2008/ND-CP, with five groups of imperative measures, including a VND145 trillion ($8.238 billion) economic stimulus package to curb economic downturn and secure social welfare.

“The stimulus package has been effectively implemented. It is the most important propellant for the country to curb the economic downturn and lift the country out of the most difficult situation caused by the world’s financial crisis,” said the Economic Committee chairman Ha Van Hien.

He said thanks to the interest-subsidised programme associated with the stimulus package, “many enterprises’ costs for paying lending rates for bank loans in 2009 are equal to half of those in 2008”.
“This has greatly benefited enterprises,” he said.

The Economic Committee estimated that Ho Chi Minh City-based enterprises had been able to save 36.6 per cent of borrowing costs thanks to the programme, while the ratio was 30 per cent in Thua Thien-Hue. Around 48 per cent of enterprises in Danang could lower their export prices due to cheaper loans.

However, the committee has expressed concerns over some major indicators. “Government debts are rising, from 36.5 per cent of GDP in 2008 to an expected 40 per cent in 2009 and will likely touch 44 per cent. Without drastic measures to reduce budget deficits, it is likely that government debts will reach a critical limit,” said the committee report.

It also indicated the rising trend of foreign direct investment (FDI) into the property market, reaching 36.8 per cent of total registered FDI in Vietnam in 2008 compared to the 25 per cent level in 2007. In the first six months of this year, the ratio already hit 60 per cent. “This means not quite a lot of jobs have been generated,” Hien said, adding that the trend would not help much in restructuring the economy drastically and boosting exports.

Heading into 2010

Citing forecasts that the world’s economy will witness positive changes in 2010, Prime Minister Nguyen Tan Dung said Vietnam would attempt to attain a higher economic growth next year while still curbing high inflation risks, ensuring social and political stability and improving people’s lives.

The government report stated that in 2010, Vietnam’s GDP was set at VND1,931 trillion ($106 billion), posting a 6.5 per cent year-on-year growth with per capita incomes reaching $1,200. Agro-forestry and aquatic production is set to grow 2.8 per cent, industry 7 per cent and construction 7.5 per cent next year. Total export turnover is expected to increase 6 per cent and total development investment would be equal to 41 per cent of the GDP. Meanwhile, the CPI would be control around 7 per cent.

“I think Vietnam’s economic growth rate for 2010 will be 6-6.5 per cent. Though the figure is not very high, the most important thing is the quality of growth, people’s livelihoods and a stable macro economy,” said Central Institute for Economic Management (CIEM) vice head Vo Tri Thanh, pointing to the world’s ongoing economic recovery as a favour external condition.

“Over the last few months, many countries have begun to see a brighter outlook for the world’s economy,” Thanh said. He said eastern Asian countries, which were respectively responsible for 60 and 50 per cent of Vietnam’s FDI inflows and trade volumes, were aggressively implementing stimulus packages to save their economies. Additionally, those countries are planning to implement huge infrastructure projects in South East Asian countries, including Vietnam.

“These are good signs for Vietnam’s economy,” Thanh said. He also said the government’s 2010 targets would be viable, with GDP growth expected to be driven by the construction and service sectors.
“I think Vietnam’s agro-forestry and aquatic growth has been maximised ... [and] the industry has been most heavily affected by the crisis,” he explained.

However, the National Assembly’s Economic Committee vice chairman Vu Viet Ngoan suggested that the targeted CPI rise should be less than 8 per cent in 2010 rather than the proposed 7 per cent, given the possible inflation rate of close to 7 per cent this year.

“We think the more realistic forecasts that are made, the better it will be for planning. The accurate forecast of the CPI will help enterprises take an initiative in implementing their business strategies and anticipating bank lending rates,” Ngoan said.

“It will be successful if the CPI for 2010 is controlled at a rate of 1-1.5 per cent higher than that of 2009,” he said, referring to several international organisations’ forecasts of higher price levels on the world markets next year.

Reiterated priorities

As part of the attempts to boost socio-economic development, Dung said the government would order relevant ministries and agencies to revise all investment attraction and incentives, administrative procedure, tax and customs regulations to save time for enterprises and investors.

“Vietnam will continue improving its investment and business environment, boosting production and developing services,” he affirmed. “We will build and implement part of a big programme for economic restructuring and change the current economic growth model to improve the quality, effectiveness and competitiveness of Vietnam’s investment environment and the whole economy.”

Dung said at least 30 per cent of the existing regulations on administrative procedures would be totally removed and the state administrative reform programme for 2001-2010 would also be completed. While the equitisation of state-owned enterprises would be boosted, the establishment of joint stock and private companies would be encouraged.

“FDI attraction mechanisms and structures will also be revised. Priorities will be given to investors engaging in supporting industries and the sectors of processing, manufacturing, logistics and high technologies to create new exports in order to decrease input and distribution costs,” he said.

Dung said that besides boosting investment decentralisation and giving more rights to investors, priorities would also be given to projects on electricity, traffic maintenance and urban infrastructure.
“Strict measures will be taken to manage and supervise official development assistance funds, state-financed funds, government bond funds and state-owned enterprises’ investment capital to curb corruption and wastefulness,” he said.

The government said in its report that it would implement prudent financial and monetary policies to stabilise the macro economy, prevent high inflation, ensure growth targets and reduce banks’ bad debts.
“The government will take measures to monitor the monetary policy flexibly in accordance with market developments,” the report said.

The government has set a target of 1.6 million jobs created and 850,000 labourers sent to work overseas next year. The minimum salary level in enterprises will be increased to VND730,000 per month since May 1, 2010 from the existing VND650,000.

It also targets to reduce the poverty rate to below 10 per cent from the existing 11 per cent. According to the International Monetary Fund, 2010 should be a “transition” year when the government’s massive supports for the business community would need to be gradually reduced because protracted assistance might make big dents in the state’s budget.

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