VietNamNet Bridge – Speaking at the mid-year Consultative Group (CG) meeting on June 9 in Rach Gia City in Kien Giang Province, Prime Minister Nguyen Tan Dung confirmed that foreign currency reserves for 2010 may reach a safe level of 12 weeks of imports, while inflation will be restrained at 8 percent.
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PM Nguyen Tan Dung met with international delegates at the mid-term CG meeting. |
At the conference, which attracted more than 300 delegates, topics included public debt, balance of payments, the trade and budget deficits and foreign currency reserves.
Be careful with public debt
In his opening speech, the Prime Minister discussed Vietnam’s goals for 2010: a GDP growth between 6.5 and 7 percent; maintaining inflation between 7 and 8 percent; limiting budgetary overspending below 6 percent, increasing foreign currency reserves and flexibly managing the currency market; improving social welfare; speeding up hunger eradication and poverty alleviation programs; and maintaining social and political stability.
He noted that in the first five months of 2010, Vietnam’s economy has stabilized and attained a GDP growth rate of 5.9 per cent. He predicted that it will increase to 6.1 per cent for the first half of the year. Meanwhile, inflation was kept down at 4.5 per cent.
Dung maintained the Government kept the CPI index at 4.7 to 4.8 percent and continues to keep the trade deficit well under 20 percent of the country’s exports, all aiming to turn the country into an industrial and manufacturing hub by 2020.
The Prime Minister assured delegates that the Government would strive to improve market economy mechanisms and create an equal business environment for the State, private and the foreign-invested enterprises. It would also focus on rapid development of human resources, especially in the hi-tech sector, and improve infrastructure, especially in big cities.
He credited the World Bank (WB), the Asian Development Bank (ADB), the International Monetary Fund (IMF) and other donors for helping Vietnam overcome difficulties caused by the global economic crisis, helping the country maintain macroeconomic stability and lower inflation from two to one-digit figures in 2009.
Int’l donors’ advice to Vietnam
Observing that Vietnam’s budget deficit in 2009 accounted for 9% of GDP, far too high, the IMF recommended a tighter monetary policy and restrained fiscal policy to ensure sustainable fiscal policy.
"If these favorable conditions are sustained, the Government’s objectives for 2010 appear within reach. We project real GDP growth at 6.5 percent, supported by a continued recovery in private investment, consumption and non-oil export growth," remarked Benedict Bingham, resident representative of the IMF in Vietnam.
The IMF expects inflation to rise above the Government’s target of 8 percent, but also believes that food and fuel prices will stabilize.
“Donors pay attention to whether price controls are imposed by administrative order or not. I can confirm that Vietnam has integrated into the world economy, so all price control measures are appropriate to international practices, not violating our commits to the World Trade Organisation,” PM Dung added.
The IMF estimated that Vietnam’s foreign currency reserve has increased, equivalent to seven weeks of imports, but Dung claiemd it is equivalent to nine weeks of import and can reach 12 weeks of imports in 2010.
"The challenge, at this point, lies in maintaining the current macro-economic policy stance and adjusting monetary, financial and foreign exchange policies to the evolving conditions of domestic and international markets, while gradually scaling down the crisis stimulus support to the economy," noted John Hendra, Resident Coordinator of the UN in Vietnam.
Martin Rama, the WB Vietnam chief economist, observed that the Government needs transparency in information about loans, exchange rates and economic stimulus packages.
Nguyen Van Binh, State Bank of Vietnam Vice-Governor, acknowledged that some information about fundamental economic and financial parameters has been made public via the Internet, reports to the IMF as well as at the monthly press conferences. Binh confirmed that inflation will be controlled at 7-8 percent and interest rates will drop.
World Bank Country Director in Vietnam, Victoria Kwakwa, pointed out that the mid-year CG meeting was taking place at an interesting time in the country’s development, as Vietnam has just attained Medium-Income Countries (MICs) status ahead of schedule.
However, enormous challenges remained, she admitted, citing the "unfinished low-income country agenda" including ethnic minority poverty, quality of basic education and health services, and access to clean water and sanitation, especially in rural areas, and in rapidly expanding urban centers. As a middle income nation, it is important to boost higher education and create an enhanced skills base, she asserted.
"Then there are cross-cutting challenges such as climate change, strengthening governance including the fight against corruption; and building a more open society," she added. Kwakwa said the climate change challenge was particularly significant in the Mekong Delta.
"Overarching all of these issues is the need to continue Vietnam’s transition to a market economy with socialist orientation and to achieve the objective of a modern, efficient and competitive economy," she emphasized, highlighting the reform of the State-owned enterprise sector as a key task to achieve this target. She predicted the global context and environment would become more challenging in the coming years and so the pressure to succeed would be greater in all countries, including Vietnam.
Kwakwa emphasized that this year was a critical one, as Vietnam prepared its next 10-year development strategy and five-year plan.
"We will continue to find ways to make our support to Vietnam align with your objectives as effectively as possible," she concluded.
Japanese Ambassador to Vietnam Mitsuo Kasaba warned that, with limited foreign currency reserve plus trade deficit, high inflation may return, so Vietnam needs policies to stabilize macro-economics.
A representative from Australia cautioned that the economic situation is still difficult and development is not very stable, so the Vietnamese government must have clear and consistent policies in delivering messages for the market.
The Minister for Planning and Investment, Vo Hong Phuc, revealed Vietnam would invest US$350 billion in building development projects during the next five years, with "due attention to infrastructure." He added that the private sector would be mobilized to participate in these projects.
Participants were also told that Vietnam would reduce the use of ODA from 100 percent at present to about 40 percent in the future.
According to the Ministry of Finance, national debt (including foreign debts of the Government and businesses) accounted for 38.9 percent of the GDP by December 31, 2009 (around $36.5 billion). Government debt (both foreign and domestic) accounted for 41.9 percent (nearly $40 billion).
This debt consists of 41.2 percent of domestic debt and 58.8 percent of foreign debt. Of the foreign debt, 86.5 percent are middle and long-term loans with soft interest rates and long grace periods, mainly from the WB, the ADB and Japan. The Ministry characterized the current debt structure as acceptable and stable.
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