TỔNG QUAN KINH tế VIỆT NAM 2012 và TRIỂN VỌNG 2020 e

TỔNG QUAN KINH TẾ VIỆT NAM 2012 và TRIỂN VỌNG 2020Part I: OVERVIEW OF VIETNAM’S ECONOMY IN 2012 and PROSPECTS IN 2020 I - Important achievements of inflation control, macro-economic stab

TỔNG QUAN KINH TẾ VIỆT NAM 2012 và TRIỂN VỌNG 2020

Part I: OVERVIEW OF VIETNAM’S ECONOMY IN 2012 and

PROSPECTS IN 2020

I - Important achievements of inflation control, macro-economic stability in the difficult conditions of the world economy

1 Unpredictable context of the world economy

In 2012, the world economy continues to have large uncertainties, reflecting the trend in the economic recovery in a difficult situation In early 2012, all the international financial institutions have continuously adjusted forecast, sometimes up, sometimes down, and the results are quite different In particular, despite differences, the assessments have a common feature of showing that the year 2012 will be the most difficult year, with the lowest economic and industrial growth, the worst commerce, etc all over the world including the high-income economies, developing economies, and emerging economies such as China, India, etc

Source: The economist and WB Developing Trends in July 2012

Forecast of the world and the regional economy showed that economic growth rate in 2012 is the lowest in five years for most economies and may recover slightly in

2020, but overall, cannot return to a normal level by 2015 Compared with 2008 and

2009, the economies in the region have tended to decline in a row in 2010 and 2011 and

to the year 2012, to take steps to recover slightly in 2020

Economic slowdown in the EURO zone economies in general, not only the economies of Greece, Spain, and Italy, but also developing economies such as Germany, France, even UK have suffered from recession after two quarters of “negative growth” in

a row, etc As a result, this economic decline has had an adverse impact on the import and export, foreign direct investment FDI in this sector on countries such as China and Vietnam

2 Focus on curbing inflation successfully

In the context of the unpredictable world economic decline, Vietnam has planned to focus on the target of macro-economic stability, curb inflation and ensure a proper growth properly The Resolution No 11/2011/NQ-CP been followed by the recent Resolutions of the Meeting of the Party Central Committee (3rd Meeting of the Party

Central Committee on the restructuring of the economy and innovation of growth model); the National Assembly's Resolution on socio-economic development plan in

2012 and the Government’s Resolution No 01/2012/NQ-CP on operation in 2012; Resolution No 13/2012/NQ-CP on solving difficulties in production, business, market support, etc With the right policy and determined direction of senior leaders in the industry and localities, the inflation shown by the CPI in consecutive months have been adjusted successfully, monthly CPI has decreased steadily since August 2011, despite the slightly increasing impact during Tet holiday Inflation in August 2011 (compared with the same period) was 23% and reduced to 5% in August 2012 Although there may

be fluctuations in the monetary system, prices of agricultural products and petroleum, as well as health services, education, etc., according to preliminary forecasts of Ministry of Planning and Investment conducted in late August 2012, in Dec 20120, CPI would increase by approximately 7-8%, and the average annual CPI would increase by 8.5 to 9.5% over the same period

A root cause of this achievement is reasonable policy to regulate the money supply, ensure the quite good balance between money and goods In comparison with the increase in investment in the context of stimulus in 2009 and easy credit in 2010, the currency control in 2012 has achieved a certain result, after initial changes in 2011 Despite a tight control, when necessary, the State Bank of Vietnam has pumped money into the market through official channels (such as investment support, including government bonds, liquidity support for commercial banks through open market) and after that, used the measures to withdraw money fast That creates a large money supply (M2), but little money (especially cash) actually participating in traffic, through measures to collect money, especially cash to the State Bank of Vietnam n addition, in

2012 the money supply through credit channel also significantly reduced due to the very difficult credit activities, increasing less than 2% after 8 months, due to both the businesses (difficult consumption, many inventories) and liquidity of commercial banks (bad debts) Among the factors to decrease in inflation in 2012, about half of them are good monetary operation which has stabilized the supply-demand of goods-money In addition, in early year, the price of oil and energy, in general in the world has been quite stable In addition, price of food in the country has been stabilized, having a positive

impact on inflation reduction However, in late year, especially in the fourth quarter, many new effects reflected in increase in CPI due to increase in the price of fuel, health services, education, etc and even food For only solutions of "price stability" of some localities, they has not had much practical effects, despite good psychological effects

Source: Cafef.vn Factors leading to the reduction of inflation in Vietnam also include decrease in the input price of imports in the context of exchange rate stability, leading to decrease in CPI more successfully than expected However, concern about stagnation has partially relieved the pleasure of successfully curbed inflation In general, the direction of continued inflation control, and macro-economic stability is an absolutely right decision which should be maintained in the medium to long term It is forecasted that CPI may increase by 7-8% in the whole year without significant changes (8-9% for average annual increase) Although this price increase is relatively high compared to other countries in the region and the world, CPI has decreased significantly compared with

2011 and recent years in Vietnam It is warned that too much money bumped out, operation of the market price, especially food price by region, and unstable petrol price can lead to increase in inflation in 2020 and following years

Source: Chinhphu.vn

However, if fuel and food factor are ignored while controlling core inflation, it will

be still high Therefore, inflation should be curbed patiently

Graph of inflation and basic inflation in Vietnam - Source: JPMorgan.

3 Macroeconomic stability

Among the indicators of macroeconomic stability, indicators of finance, banking,

exchange rates, foreign exchange reserves, sometimes import- export, international payment balance, job, etc can be recognized

Economic growth: In addition to achievements in curbing inflation, Vietnam's economy has been growing at about 5% in the context of difficulties in the world's economy This is an appropriate growth rate to adapt to general difficulties in import and export, poor competitiveness, etc In the context of sharp decline of the world's economy, despite a certain decline, Vietnam's economy has maintained a growth rate of more than 5%, higher than the lowest level in 1999 (4.77%) affected by the East Asian financial crisis Therefore, when the global economy continues to decline and prospects weakly, it will be affected by the East Asian financial crisis Therefore, when the global economy continues to decline and the monetary, financial and social security systems can lead to macroeconomic instability, then some unpredictable disturbance of social politics

The exchange rate has remained stable after a period of strong adjustment in recent years, even too strong adjustment in early 2011

Movements in the exchange rate USD / USD

Remittance has increased sharply (up to $ 6 billion in the last 6 months), which have created favourable conditions for the State Bank of Vietnam to buy a large amount

of foreign currency and then withdraw cash in circulation using the banking measures

On the basis of the exchange rate stability, Vietnam has also enhanced currency reserves

in a stable manner In only 2012, value of purchased foreign currencies rose by almost $

10 billion Foreign exchange reserves reached the highest level in three years

Export has also grown strongly In 2012, despite the difficulties, the export growth rate has remained over 15% with export items with a great value such as computers, phones, etc By maintaining a strong participation in global value chain, export growth

of the FDI countries has been rather high (except for oil and gas), reaching 35-40% However, few local firms have not participated in the global value chain These are extreme weakness, affecting the growth rate in 2012 It is required to focus on this issue

in the medium and long term This can be solved only if the immediate economic issues are associated with restructuring in the medium and long term, especially in the three most important stages such as state-owned enterprises, public investment and the monetary financial system, etc towards a more efficient economy in the way of building

a new growth model

The stability in macro balance Accumulation rates remain at a reasonable level, with the decline in public investment and the FDI investment which have led to a sharp systematic decrease in the proportion of investments/GPD As a result, the growth rate has been reduced by about 5% appropriately, while the economies of the world have fallen sharply Current account balance has improved thanks to a stable remittance inflow while the trade deficit fell sharply Overall balance has been positive at $ 7-8 billion thanks to a positive external capital of $ 7-8 billion

However, recent changes in handling with fraud in shady bank takeover activity reflect a bad management with no improvement In particular, the budget balance in

2012 faced with many difficulties when income from export, import and tax for production and business activities as well as from land, etc has decreased sharply As at August 15th 2012, total state budget is estimated at 418 trillion VND, equivalent to 56.5%; total budget cost estimated at 534 trillion VND, accounting for 59.1% of the estimate Excessive collection like before would be negligible, causing difficulties for the central and local budget

Economic restructuring has been implemented with focus on key stages including investment, monetary banks and state-owned enterprises Investment restructuring is with focus on public investment towards gradual decrease in the proportion and efficiency improvement The implementation of 1792 Directive on public investment has been followed by the Resolution of National Assembly on stabilizing Government bond until the end of 2015 and implementation of the intention of building medium-term investment plan That activity has made industries and localities pay attention to efficient use of public investment The development of mechanism and policies of orientation and creation of favourable conditions for promoting socialization in investment activities, especially in the form of Public Private Partnership PPP has been

focused Industries and localities have also focused on improving the quality and sustainability of foreign direct investment

Restructuring the financial market with focus on restructuring of the banking system and the financial institutions has been deployed initially, but still confusing when commercial banks face with huge bad debts

In fact, the manner of “more is said than done” in "improving service quality and increase the system safety; decreasing the mobilization of investment mainly from bank credit; creating favourable conditions for businesses to raise capital investment from the capital market; strictly controlling the operation of securities companies", even

"increasing the efficiency of insurance activities; effectively control the investment funds; preventing the speculation of manipulation the market " has many weaknesses, even some manipulating group were arrested by the police Regarding this problem, both method of preparing for risks and propaganda are essential to prevent unforeseen adverse effects

Regarding this field, public finance should also be considered carefully when both regular expenditures and investments are out of the budget and divided between the central and local level, causing difficulties in investment restructuring, along with regular savings Both public investment and public spending in general have been controlled as required, making budget imbalance more serious in the context of stagnated production If public spending is not cut, it will make budget imbalance more serious

Restructuring of enterprises of all economic sectors, with focus on the economic groups, and state-owned corporations is a strategic work, but deployed slowly due to traditional thinking of the position of the State-owned enterprises By inspection, the

"improvement of capacity of the state-owned management; transparency of financial results and production and business activities contributing to the safety of the economy," are stated in the Resolution but not implemented strongly in the context of many bad debts for state-owned enterprises In 2012, "increasing access to capital of small and medium enterprises, exporters, agro-processing enterprises, producing consumer goods for people's lives, creating jobs and income for workers" has not done well

In general, along with inflation curbing, macroeconomic stabilization has achieved initial results and should be maintained in the long term, creating favourable conditions

for economic restructuring in the medium and long term, towards productivity, quality, efficiency, and competitiveness in the market Macroeconomic imbalance for many years has been a root reason for rising inflation, directly affecting people's lives adn social psychology

II - The typical development policy in banking, finance and business, and a number of weaknesses in policies and operation.

1 Public debt and bad debt:

The problem of bad debts faced by banks is partly due to inability to pay big debts

by enterprises due to economic difficulties, and partly the quality However, we can see that Vietnam's bad debt concept is different from international practice, so it is impossible to compare between them (Vietnam’s concept considers the debts which cannot be paid timely as bad debts, and international concept considers the entire loan project with unpaid debts as bad debts) Therefore, not only insufficient declaration but also this concept leads to increase in bad debt, not just at 202 thousand trillion dong (equivalent to nearly 10 billion USD) The data will also be incorrect due to the method

of “funding” by borrowers The bad debt also has a negative impact on enterprises and commercial banks, as well as security of national finance

It is required to use a variety of interventions, especially the support of the State and the activeness of the commercial banks, and coordination with the business:

- The banks use their backup tools, as well as implement the restructuring of enterprises and banks for purpose of a healthier bad debt status This problem can be treated to mitigate a bad debt situation

- For a healthier bad debt status, according to the experience of many countries, the participation of the State Bank of Vietnam, the Ministry of Finance and the various monitoring agencies is necessary to enable the State to actively support the

market The transparency of such process is the most important with the unified direction to avoid abuse

2 Enterprise stagnancy:

High bad debt status (according to official figures, at least $ 10 billion), and many inventories (20%) are just some manifestations of the state of stagnation of enterprises According to statistics updated continuously by the Ministry of Planning and Investment, about 30% of registered businesses have not worked and paid tax According to the Ministry of Planning and Investment, the current problem is decrease

in the number of new enterprises and increase in the number of ones which have to narrow, suspend or stop their production and business activity That shows that Vietnamese enterprises are facing many difficulties Moreover, in the difficult economic condition in 2012, about more 8% of registered enterprises had to stop their production

or went bankrupt (registered or unregistered) because they can not survive in the rigorous conditions in the market Prosperity of the enterprises under the Enterprise Act

1999 and all types of enterprises operating under the Enterprise Law (unified) in 2005 has been a foundation for economic development, especially when Vietnam has become

a member of the World Trade Organization WTO However, the difficulty faced by the enterprise in 2012 has been very clear

By the end of 2011, there were about 1309 State-owned enterprises, producing about 27 percent of GDP, as an important element of the entire state sector (other areas

of the state sector accounting for only 10%) However, many State-owned enterprises did business inefficiently; even large corporations had so many debts Therefore, it State-owned enterprises are required to strengthen the reform with new thinking about the position of state-owned enterprises and the public sector in general in the economy Domestic private enterprises not only stagnated in production due to lack of capital and limited domestic consumption, but also declined in exports In eight months of 2012, domestic exports fell 1.9% in value due to no control of the global production and business chain (GVA)

Despite a production growth and a sharp increase in export, the quality of business operations of FDI enterprises has been limited They even declared incorrect loss (sometime price transfer) Their application and transfer of high technology in Vietnam are limited The decrease in the CPI of Binh Duong Province has been partially due to its