HANOI – The future of Vietnam’s economy greatly depends on the right policies shaped in the current tough times, said Sanjay Kalra, senior resident representative of the International Monetary Fund (IMF) in Vietnam.
Speaking at a meeting with Vietnamese economists at the Central Institute for Economic Management (CIEM) over the weekend, Sanjay stated all the shortcomings of Vietnam’s economy had been identified, such as the banking system, State-owned enterprises and public investment.
He said: “We are all aware of these structural shortcomings… The important thing is what the policies of Vietnam for these problems are. Different policies will lead to different results. Then, which way would Vietnam go?”
This was Sanjay’s reply to the question of economist Le Dang Doanh as to what Vietnam should do to overcome the current economic situation.
Sanjay advised Vietnam should learn from what the Soviet Union and the Eastern Europe had done over two decades ago, when they promptly set up a system of necessary institutions for reform.
“They used to suffer output decline, but later these economies strongly rebounded thanks to reform. On Monday, they have got better and their resistance is stronger. This is attributed to the fact that they introduced and selected polices quickly and effectively in such an important time of crisis,” said Sanjay.
He suggested developing nations like Vietnam should carry out reform with a long-term vision for 20-30 years, instead of for a short term.
“After all, the growth of a nation is its own choice. As we (Vietnam) grow fast, inflation and troublesome bad debts are the prices to pay.”
In response to Vo Tri Thanh, vice president of CIEM, who asked if Vietnam had any hope in the gloomy economic outlook forecast by IMF, Sanjay expressed a concern.
“Vietnam’s ability to recover depends very much on the banking system. The severity of crisis in the banking systems worldwide is falling, while that in Vietnam is on the rise,” he stressed.
He remarked the situation of the local banking system had worsened compared to early this year. “Now, the bad debt ratio is two times higher than the year’s beginning. Tackling bad debts is the top priority.”
Although the central bank has raised the credit growth targets for several banks, they still cannot give out loans. This is why credit growth is a mere 2% as of now.
“Commercial banks have money but they cannot offer loans due to rising bad debts. As such, the problem of Vietnam’s banking system is different from the situation in Europe and Spain. These countries lack money for loans, while Vietnam does not dare to give out loans. The story of Vietnam is different to the world,” said Sanjay.
He said IMF and the World Bank are working with the central bank and the Ministry of Finance on the bad debt problem of Vietnam.
In addition, he said the policy room for developing countries like Vietnam to take up to ride out the tough times is very limited.
Sharing the same view, Nguyen Dinh Cung, vice president of CIEM, said: “It is now very difficult for Vietnam to select policies for regaining the growth momentum.”
He added: “The policies expected to help regain growth, like fiscal or monetary loosening, obviously only worsen the problems of Vietnam’s economy. (Adopting) such policies will lead to further economic recession, instead of growth.”
Cung said he was worried and very sad when looking at the outlook for recovery of the economy in the coming time, in the context of cloudy global economic situation as predicted by IMF.
Vo Tri Thanh concluded that Vietnam’s economy would remain uncertain until the end of 2015, and thereafter would grow at a lower rate than expected. He agreed with Sanjay that Vietnam needs a long-term institutional reform to overcome the current situation
Source: http://english.thesaigontimes.vn