Economic scenario for 2012

CA - In the face of economic slowdown, many people have suggested another stimulus package to resolve immediate difficulties.

Economic expert Dr Vu Dinh Anh made an in-depth analysis of the global economic context and its impact on the national economy in 2012 in an exclusive interview granted to VOVOnline.   

VOV: In 2012 Vietnam will speed up economic restructuring, primarily targeting State-owned enterprises and banks. How will it affect the national economy?

Dr Anh: Like two sides of the same coin, good restructuring will help scale down investment and support inflation control efforts, and vice versa. Several countries have bumped capital into the restructuring process while some central banks apply a loose financial policy by cutting interest rates to stimulate credit growth. However, if these scenarios are put in place in Vietnam, they will not bring down inflation, as they do not address the root cause of inflation.

In 2011 economic slowdown accompanied by high inflation took its toll on all production sectors. The crux of the matter is to formulate policies in a way that supports businesses. If a loose policy is introduced, the 2009 economic scenario will likely be repeated this year.

VOV: What worries you most?

Dr Anh: Looking back on 2011, Vietnam’s credit growth fell significantly from 20 percent at the beginning of the year to 17 percent midyear and 12 percent by the year’s end. Never before has our credit growth been so low. Even in 1998 when Vietnam bore the brunt of the Asian financial crisis, credit growth was kept at 16.4 percent.

Vietnam has never been affected by declining demand-pull inflation, and therefore the 2011 credit level was the indirect consequence of implementing a tight monetary policy.

It is worth mentioning that when inflation skyrocketed in 2008, domestic demand for consumption and investment kept rising. The 2011 situation was different.

VOV: Could you further elaborate on your stance?   

Dr Anh: In the last three months of 2008 the government’s measures resulted in de-inflation which pulled the consumer price index for the whole year down to 19.89 percent. The situation was similar in late 2011, but the overall scenario in 2011 was different from 2009. In 2009 inflation was kept at 15 percent and the economy grew 6-7 percent while the corresponding figures of 2011 were 18.13 percent and 5.89 percent.

The 2012 context is similar to 2009’s. Major global economies are in recession and Vietnam has just experienced a year of high inflation (2011). Many people have thought of introducing another stimulus package. However, I wonder how we can use this package effectively if the 2009 stimulus package has not yet been evaluated.

The situation in 2009 was totally different in the way that the global economic crisis originated from the US in 2008. The 2011 global economic slowdown stemmed from Europe, and both had their own ways to resolve economic difficulties.

The price of oil is also another issue of major concern. It edged up to US$147/barrel in early 2008 but fell dramatically to US$40 by the year’s end and US$30 in early 2009. Despite the current economic downturn, oil prices are hovering around US$100/barrel. There was no sign of war in 2008-09, but escalating tensions in Iran and Syria could turn into wars at any time.

The situation in 2008-09 appears to recur in 2011-12, but its true nature is different. Regrettably, Vietnam should have evaluated the 2009 stimulus package to introduce appropriate solutions for 2012.

VOV: What about fluctuations in the exchange rate? Did they affect import-export activities in 2011?

Dr Anh: There was a shock in February when the rate margin was increased by 9 percent. The ensuing adjustments were made little by little, each holding for some 30-45 days.

Since February 2011 the domestic currency (Vietnam Dong) has been depreciated by around 10 percent against the US dollar.

In 2011 exports rose sharply mostly thanks to the comparative advantage of the price. High exports drove up imports, but import figures were not much affected by the exchange rate. Such fluctuations in the exchange rate mainly benefitted exports.

VOV: What do you think of inflation in 2012?

Dr Anh: It is hard to argue that the inflation rate in 2012 will be kept at a one digit figure. This depends a lot on the government’s determination to go ahead with its current tight monetary policy, because there are signs of loosening the monetary policy when inflation has been brought under control.

VOV: Thank you.