Vietnam must attach much importance to maintaining the reform momentum to strengthen the competitiveness of the economy to take advantage of opportunities when the world economy recovers. That is one of three viewpoints Mr Benedict Bingham, Chief Representative of International Monetary Fund (IMF) in Vietnam, shared with reporters on the occasion of New Year 2010.
Since late 2008, the IMF forecast that Vietnam’s economic growth in 2009 was at 5 %. This was quite close to the achievement. So, what was the ground for that figure?
In general, there are two factors that the IMF uses to make predictions. The first factor is the assumption of impacts of external economic environment on the Vietnamese economy. More specifically, we rely on global economic outlook, price prospect of Vietnam’s key exports as well as capital flow outlook. The second factor is the evaluation of how the domestic economy can grow fast without causing risks for macroeconomic stability. Vietnam’s GDP growth of 5.32 % in 2009 was quite close to the IMF prediction but the higher growth meant a higher cost paid to the macroeconomic stability as we had hoped. This was because the Government wanted to maintain high growth rate by applying a major economic stimulus programme despite the fact that the global recession in 2009 was worse than the IMF guessed in December 2008. Retrospectively, we know that the global economy shrank about 1 %, not rose 2.25 % as the IMF had forecast at first. The IMF wanted to advise the Vietnamese Government at the Consultative Group (CG) meeting in 2008 to target at lower growth than we consulted later. This ensured that Vietnam achieved a reasonable growth rate while warding off macroeconomic difficulties that it encountered in the second half of 2009.
Why are the IMF’s recommendations about macroeconomic indicators such as foreign exchange, balance of payment deficit and economic growth usually worse than those expected by the Vietnamese Government?
The IMF has tried to ensure that IMF's forecasts reflect a balanced assessment in economic outlook which is based on information the IMF has. However, several aspects are often not fully evaluated. First, any prediction has a certain degree of difference. And, uncertain forecast or more inaccurate projection is a result of economic turmoil (as we saw last year) or insufficient data and information. That is why forecasts need regular comprehensive reviews. Second, the IMF forecast is generally based on the best knowledge of the IMF about government policies. One of the functions of IMF forecasts is to deliver warnings about a particular policy direction that may cause macroeconomic problems such as pressure on international payment balance or higher inflation. If these recommendations are successful, they can suggest the government to amend policies and avoid macroeconomic difficulties.
Why did the IMF and other donors express concerns over the stimulus package in Vietnam but they recommend a continued implementation economic stimulus package in other Asian countries?
We share the same concerns with the Government. Particularly, we know that stimulus packages have worked out but they have posed a number of risks to macroeconomic stability, especially pressures on balance of international payments. That is why the IMF appreciates changes in policy direction that the Government launched in December 2009, that is, focusing on macroeconomic stability.
However, it is true that the IMF has recommended other regional countries to extend their economic stimulus programmes and this recommendation seems to be inconsistent with the advice for Vietnam. In fact, that is not the case. My own advice for Vietnam as well as all IMF member countries is to draw out suitable policies for their economic contexts. The main difference between Vietnam and other regional countries is they have relatively large foreign exchange reserves, a surplus of foreign current account balance and flexible forex policies. Meanwhile, Vietnam has a more modest forex reserve, current account deficit and inflexible forex regime. As a result, they can apply loose fiscal and monetary policies without causing economic instability.
So, in your opinion, what should Vietnam do to grasp the opportunity when the global economy revives?
I think Vietnam needs to have three priorities. The first is to complete the process of restoring macroeconomic stability that the government has started in December because the government cannot maintain momentum for economic development if it continues to struggle with pressures on foreign exchange market.
The second is to establish a rational policy framework to sustain macroeconomic stability and withstand booming cycles and collapses we have witnessed in the past 24 months. This requires a better interlock of economic targets, especially economic growth, and restrictions that the economy is facing. In addition, it is necessary to be more careful with fiscal policies and monetary conditions to ensure macroeconomic stability.
Finally, Vietnam must attach much importance to maintaining reform momentum to strengthen the competitiveness of the economy to take advantage of opportunities when the world economy recovers. This has many different aspects like upgrading infrastructure, improving public administration, legal framework and education system. Nevertheless, I would like to emphasise the need to modernise institutions responsible for managing economic policies because this is core to ensure that Vietnam will achieve its goals of becoming an emerging modern market economy at the end of this decade.
Reported by Hong Dung
Vietnamese
