Experts pinpoint weaknesses behind economic instability

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SaigonTimes English - 27 month(s) ago 11 readings

HANOI – Multiple internal shortcomings causing macro-economic instability were once again mentioned at the policy dialogue seminar: towards a policy framework for Vietnam’s economy in mid- and long-term held in Hanoi on Wednesday.

Experts pinpoint weaknesses behind economic instability

By Tu Hoang - The Saigon Times Daily

HANOI – Multiple internal shortcomings causing macro-economic instability were once again mentioned at the policy dialogue seminar: towards a policy framework for Vietnam’s economy in mid- and long-term held in Hanoi on Wednesday.

Nguyen Duc Thanh of the Hanoi National University stressed the mistakes of the monetary policy in 2007 caused inflation to shoot up in 2008, and the spillover effects were still felt now.

“The worst concern is such mistakes are prolonged. Policymakers are confused and the economy has to suffer,” he said.

Thanh noted the instability of the banking system is getting worse with rising bad debts, low asset values, alarming liquidity, sky-high lending rates and lowered deposit rates. All of these issues show that the banking system has failed to fulfill its role as a financial intermediary.

Nguyen Thi Kim Thanh, director of the Banking Strategy Institute, said the central bank found itself stuck in a dilemma with many targets to achieve. The central State Bank of Vietnam has many difficulties operating the monetary policy, while having to curb inflation and stabilize the monetary market, said the director.

In the middle term, when the financial market and the bond market develop, the burden of the monetary policy will be relieved. However, the capital pressure will remain high until 2015, sparking a need to expand credit.

She proposed the central bank continue to tighten credit from now to 2014, because once the credit is loosened, people will invest in efficient sectors, making it hard to tame inflation.

Former trade minister Truong Dinh Tuyen said the establishment of an independent central bank is worth considering. Without this model, the nation will always be struggling with the impossible trinity of fixed exchange rates, free capital flows and monetary independence.

Thanh of the Hanoi National University said the gap of 10% between saving and investment is another cause of macro-economic instability in Vietnam.

The economic growth model focuses on promoting investment but investment quality is going downhill. The State-owned enterprises make dispersed and inefficient investment with huge resources in hands.

The model to develop the economy in width requires boosting investment, which has widened the gap between saving and investment, Thanh explained. The gap is often evened out by foreign capital sources, but as the foreign resources dwindle, domestic capital is used instead, causing inflation and instability.

Former minister Tuyen shared Thanh’s view, saying the fact that the majority of investment capital was allocated to inefficient State firms resulted in the vicious cycle of inflation.

He stressed these weaknesses had been pointed out before, but it was hard to overcome them.

Meanwhile, chief economic expert of the World Bank Deepak Mishra said though tax collection makes great contribution to the State budget revenue, Vietnam has to fulfill debt obligations in the coming time, which will likely lead to the State budget deficit.

If the State budget deficit continued to stay high, it would be difficult to stabilize the macro-economy, said the expert.

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