Vietnamese government role in economic management during crises

If the management role of the state in the economy are overlooked, the application of the economic stimulus packages according to the theories of Keynes would be very difficult and expen

'' UPPSALA UNIVERSITY (SWEDEN) &

I ABSTRACT

Title: Vietnamese Government's role in economic management during crises

Level: Final assignment for Master Program in Public Management

Authors: THU NGUYEN TAI

Viet Nam Supervisor: Dr HUNG NGUYEN MANH

Sweden Supervisor: Prof Dr LARS-TORSTEN ERIKSSON

Date when the thesis is presented: 2011 -May

Aim: The study has objective to identify the connection between state mechanism and

ways to resolve crisis, from which apply to Vietnam in order to enhance effectiveness

of preventing and overcoming crisis

Method: After collecting data from sccondar\ sources, the writer use the method of

statistics, data analyzing, comparing, etc to make clear the research problem Four countries is chosen to analyzed, in which 2 countries apply market-based socialist economy, one applies free market-based econom> and one applies developed state, which are: US .Japan, China and Vietnam

Result & Conclusions: Effect of Keynes theor> in saving economy from crisis is not

denied; and one of the most important factors for demand stimulus package accordino

to Keynes theor>' to reach success is the role of State in econom\ According to analysis, the economy that appreciates the role of State in managemeni will be eas> to put policies of Kcwnes theor>' into realit\ to get good results Such Slates will have lower density of economic stimulus package (compared to Governmental spendins) compared to States with the economy appreciating the role of market

Such analysis will give the fact that ahhough economic models have their own weaknesses and strengths, patient following market econom\ according to socialist orientation is the right wa) Howe\er, in term of pre\enting economic crisis prevention, apart from focusing on sustainable de\elopment \'iet Nam must focus on harmonizing the management of the State and the role of market manipulation This is the best alternati\e to raise the role of Vietnamese State in preventing economic crisis

Suggestions for future research: Within the limits of the thesis, research the

relationship bciween the opening of the econom\ in the state models and its

1

future, the thesis can find out the policy of the problems in preventing and controlling economic crisis

Contribution of the thesis: The conclusions of the thesis showed the importance

of harmonizing the management of the State and the role of market manipulation in preventing and controlling economic crisis If the management role of the state in the economy are overlooked, the application of the economic stimulus packages according to the theories of Keynes would be very difficult and expensive when the economic crisis happened

Key words: Role of Keynesian theory, the relationship between the state model

and method of handling the crisis, economic stimulus package

INTRODUCTION 4 CHAPTER I : THEORY ON CRISIS AND CRISIS PREVENTION 8

1.1 What is economic crisis ? j

1.2 Keynes' theory on crisis and crisis prevention (

1.3 Market economy models in the world K

1.3.1 Feature of free market economy

1.3.2 Features of social market economy

1.3.3 Economic institution of developed government model

1.4 Government' role in crisis and measure to overcome crisis I

CHAPTER 2 : GOVERNMENT'S POLICIES IN CRISIS 13

2.1 Policy of US Government 1

2.2 Policy of Japanese Government

1-2.3 Policy of Chinese Government I

2.4 Policy of Vietnamese Governineiil 1

CHAPTER 3 : THE ROLE OF STATE AND METHOD TO SOLVE CRISIS 22

3.1 The role of the State in crisis 2!

3.2 Relation between the role of the State and method to treat crisis 2

CHAPTER 4 : IMISING THE ROLE OF STATE IN MANAGING TO PREVEP

CRISIS IN VIET NAM i3

Table 2.1: Structure of US' stimulus package

Table 2.2: Structure of Japan's stimulus package

Table 2.3: Structure of China' stimulus package

Table 2.4: Summary of Vietnam's stimulus package number

Tabic 2.5: Effectiveness of demand stimulus policies

Table 2.6: Policy on cutting basic interest rate and reality of 2008 saving-lending intere rate

Table 2.7: Structure of Vietnam's stimulus package number 1

Table 2.8: Scale of national budge expense in comparison with Vietnam's GDP and son Asian countries

Tabic 3.1: Relation between state regime and features of economic stimulus packages

Table 3.2: Comparison of some governments' stimulus packages

Table 3.3: Percentage comparison of economic stimulus packages

Table 3.4: Comparison of some countries' demand stimulus packages' component

Figure 3.1: Relation between government's role and economic stimulus package

Figure 3.2: Structure of US' demand stimulus package

iMgure 3.3: Structure of Japan' demand stimulus packages

Figure 3.4: Structure of China' demand stimulus packages

Figure 3.3: Structure of Vietnam's demand stimulus packages

MBS Mortgage Backed Securities CDS Credit Default Swap

GDP Gross Domestic Product

CPI Consumer Price Index

FED Federal Reserve System

VAT Value Added Tax

lARP Troubled Asset Relief Program ODA Official Development Assistant FDI Foreign Direct hiveslment

CPI Consumer Price Index

CIT Corporate Income Tax

L Background to the study:

The issue of economic crisis is always a hotly debatable one because of it substanti influence on the whole society

The economic crisis since late 2008 has given adverse impact on global economy, leadir

the world economy to the most ever serious recession since World War II

This economic depress has its roots in real estate and the subprime lending crisis in the L and Wall Street financial institutions have institutionalized the lending in the form of re estate bonds to issue to foreign countries The kinds of bond are Mortgage Back( Securities - MBS and Credit Default Swap - C D S which lead to the situation that in US 22,000 billion of US real estate value, over USD 12,000 billion is debt able in which US 4,000 billion is bad debt' It is estimated that he tolal of CDS is approximately US 35,000 billion and around USD 54,600 all over the world" The other countries al: imitate the US to sell MBS in the financial markets Il is this latent reason, along wilh tl bankruptcy of Lehman Brothers Bank and then of AIG as well as hundreds of banks th has trigger the crisis, affecting a series of countries

It is realiable that from the Greal Depression in the 1930s to the economic crisis in 200; many things need to be considered Although countries' financial crises are basicall similar and collaboration of goxernments is essential lo pre\enl global crisis'', il is simih

to the Cireal Depress in the 1930s, there are many differences in measures and policies I deal with crisis of each Go\enimenl

In the Great Depression, in spile of all countries' acknowledgement of coordination' necessity to overcome crisis, the) also intenlionalK found interest for their own countrie

by laking ad\ antage of other's losses

Moreover, in this period, each countr)' measures were different and because they did nc have good eooperalion to deal with common economic problems, all countries ha\e I incur disastrous losses in the Greal Depression

The reasons were not identified clearh'

' '^Vietnam ccononn recovers from L'S tlnancial crisis'^" VNEconomy 6 October 2008

" International Swap and Derivatives Association.2008 "Summaries of Market survey results"

' John 2009, pp 7

The UK Prime Minister at that time, Ramsay MacDonald assumed that the problei originated from capitalism

The German argued that the crisis had il polilical root and resulted from big \\i

compensation

The French claimed that the UK's irresponsible monetar> policy and the US

"unemployment exportation" policy were reasons'^

The economic idea dominating in this period is the Theor\^ on self-adjusting economy claiming that supply will automatically generate demand, market mechanism will stabili: all aspect of capitalist economy, no need to government's inter\ention in economy ai freely floating, competing, producing and trading econom> should be encouraged It w this idea that cause economic crisis 1929-1933 to be more serious

In the financial crisis 2008, each country had its own policies beside the cooperation handling crisis

Besides the clear identification of reason, the fact that countries and go\emments to( timely and wise actions as well as the applicalion of Keynes lheor> in handling crisis wc conducive to the more stable condition oflhe global eeonom\

Ob\iousl_\ there is a connection between cach ct)untr\'s features which affected the measures to deal with crisis and the idenlification of this connection will help people understand the nature of those measures, from which enhances effecti\eness in prevenlii and handling crisis

2 Reason of the study and objective of the study

In general, the writer realize that there is a close relation beUveen state's role ar governments' current measure to crisis

Therefore 1 choose to do research on: Victnatncse Governtnent's role in econom

mana^etnerit during crises

The stud\ has objeclixe to idenlif> the connection bciween slate mechanism and ways i resolve crisis, from which apply to Vielnam in order to enhance effectiveness ( pre\'cnling and o\ ereoming crisis

3 Situation of research

' John 2009, pp 10

Relating to the issue of economic crisis, a lot of researches have been done under differen aspects Vietnam's government and Ministries also have special documents an< conferences on this issue

The researches have various objective of study and draw many remarkable conclusions Within the scope of this study, I recommend the following conclusions:

- Vietnam's demand stimulus policy is essential but it has not completely achieved the aii

of demand stimulus packages-in the study 'The problems of the demand stimulus packag number one - lesson for Vielnam\s demand stimulus package" written by Vo Thi Thu Anh (2010) focuses on the effectiveness of the demand stimulus package number one Th writer points out 10 limitations in demand stimulus package and proposes lesson f( Vietnam's demand stimulus

- Many countries such as US UK, China and Vietnam are implementing econom stimulus package which tend lo eorreel the mistake and do not tend to stimulus accordir

lo the Keynes theory, which is shown in the research ''Vietnam's current polic\ to prc\ei crisis Research number 1: Demand stimulus policy" Writer Ngu\en Due Ihanh ar other aulhors (2008) demand stimulus packages research on the feasibility of measures i mobili/e capital for demand stimulus policy and measure according to components of tl economy

- Keynes lheor>- is the most important theor>' in pre\enling depression Writer Nguye Hoang Bao, Ho Hoai Anh, Doan Kim Thanh (2008) in the stud> "Ke>nes theor arguments and pre\enlion of economic crisis in Vietnam" have analyzed Keynes' theor arguments aboul this ihcor> and propose theoretical suggestion to stimulus demand Vietnam

- State role in the market-based eeonom>- is shown in man> economic theorii (Neoclassical economies, Keynes, New liberlarianism ) and in the smd> "Role of stale the market-based econom> in some modern and conlemporar>- economic theories ai applicalion to Vietnam", author Pham Thi Hong Diep (2008) asserts that the govemme

in the market-based socialist econom> o( X^ieinam has an important role in anii-cris

policies

- In the study "Global Economic Crisis and Developing Countries: Impact and Response'

of Duncan Green, Richard King, and May Miller-Dawkins (2010), the authors do researcl

on crisis' impact on Vietnam and some Asean countries in terms of work, social stabilit> food, etc and forecast potential elements which might affect the recovery such as economic structure, government role, etc

According to the writers, researches on the relation between state mechanism - role c

government and way to handle crisis have not been done before Therefore I would lik

to do a research on the issue of economic crisis in Vietnam

4 Research tasks

In order lo achieve that goal, the study has the following specific tasks:

- Systematizing theoretical questions aboul economic crisis, measures lo deal will economic crisis in the world, theory on state role in the economy

- Analyzing policies to overcome crisis and effectiveness of economic stimulus policy ii Vietnam, China, US and Japan

- Analyzing, commenting and make assessment oflhe relation belween State mechanism

- government role and policies preventing crisis of those countries

- Proposing some solutions to enhance the effecti\eness of prevent and deal with crisis ii Vielnain

5 Research Questions:

The study aims to find out answers for the follow ing questions:

- Does State mechanism affect measures to deal w ith crisis?

- llow to enhance the role of Vietnamese Go\emment in crisis period?

6 Object and scope of the study

Objects and scope of the study is the role of government in some economic mode

in Vietnam China, US and Japan, these govemmenls' policies in crisis and stud\ tht relation between oo\crnmcnr role - policies to prc\ent crisis The scope propose:

comments on state mechanism, role of the state within the issues related to economic crisis

7 Methodology

After collecting data from secondary sources, the writer use the method of statistics, date analyzing, comparing, etc to make clear the research problem Four countries is chosen t» analyzed, in which 2 countries apply market-based socialist economy, one applies frcf market-based economy and one applies developed state, which are: US, Japan, China an( Vietnam

8 Design of Study :

The Study is divided in lo four chapters:

Introduction

Chapter 1: Theory on crisis and crisis prevention

Chapter 2: Governments' policies in crisis

Chapter 3: Stale role and measures to handle crisis

Chapter 4: Enhancing role of state in preventing and overcoming crisis in Vietnam Conclusion

Reference

CHAPTER 1 : THEORY ON CRISIS AND CRISIS PRE\ ENTIOI>

1.1 H'hat is economic crisis ?

Economic crisis is the the downturn of economic actixities of a countr> or globs

econoniN, brouglit on bs a financial crisis and is likeh happens uhen the econom; experiences sudden downturn

ihe possible signals of economic crisis is the falling CiDP in 2 continuous quarters or i

the whole year, a drying up of liquidity, rising falling price due to inflation or deflat.or out How inu of foroiun currenc), etc

1.2 Keynes' theory on crisis and crisis prevention

John Maynard Keynes (J.M.Keynes) is the proponent of "visible hand" theor> whicl" mentions the necessity of Government intervention into the econom\ With its adjustment the government can prevent or limit the likelihood of economic crisis and even when th* economy reveals the signals of crisis, the government can implement policies to recove the economy

According to Keynes^ theory, with the Aggregate demand model: Y - C ^ 1 + G + NX ii which Y is the total demand quantity on a product of an economy C is consumption, I i: investment, G is government spending, NX is net export

According to this model, in order lo handle crisis, it is essential to increase Y b^ increasing variables in the aggregate demand, however, when crisis happens, the variable:

C, I, NX will not increase automatically, they needs the inter\enlion oflhe govemmen through macro policies Demand stimulus in Keynes' model is lo stimulus 3 factors o aggregate demand: consumption, investment, government spending

The important research of Keynes in preventing crisis is in 1932 when he wrote the boot

"General theory on employment, interest rate and money", it was not until the beginnin;

of 1936 was it published and he assumed that "this theor> helps prc\cnl downturn, lead: the economy recover quickly, creating a more balance and stable capital system"^

According to Keynes, a recession results from the situation in which the econom\ ha: abundant production capacitx, supply surplus causes price lo reduce in all markets consumers are not encouraged to consumer, which leads to the lower demand quantity ir comparison with suppK quantit) After all, the econom> gets stuck in crisis and unable tc overcome Therefore, in order to sohe the problem, an adequate!}- big demand quantit\ is required

On the other hand, according to Keynes, while the households, corporate tend to save monc\ and consumers less than their income, government is the onh unil ha\ ing ability tc consume all or even more ihen ils income In the normal economy, financial intermediaries will help transfer money lo corporate to invest, bul in the crisis period, because of low profit, the corporate might not want to invest

• Luong Thai Bao: '^Keynes and measure to overcome crisis

Because of these 2 basic arguments, Keynes suggests the basic measure to prevent crisis i stimulus the demand on the basis of transferring buying abilit> from private, household:

to government to increase demand, helping the economy to get over from crisis

1.3 Market economy models in the worI(f*

The market-based economy is the popular economy model in most countries in the worl

It might be divided into the 3 following types:

- Free market economy

- Social market economy

- Developed state economy

1.3.1 Feature of free market economy

- Has a freer market mechanism than olher economies In this market economy, ih economic relations are solved Ihrough market, state intervention is limited

Therefore, all problems and failures oflhe economy mainly originates from breakdown or incomprehensive oflhe market

- In this model, the labor market has high fiexibility and rules on labor market ten

to protect the capitalists rather than the emploxees

1.3.2 Features of social market economy

- Social market economy is derivatives of free market econom> Bul its content, fact, is the reasonable combination between social, economic and polilical aspects

- It considers markets as necessary condition, not sufficient condition and conside law, stale, ethnic, etc no less important than economic, financial policies This model appreciates government "stimulus role in inter\ention and social welfare

1.3.3 Economic institution of developed government model

- The main function oflhe government in this model is to impulse long-term

economic growth and development Therefore, the go\emmeni has to implcmen

*' Hoang Ngoc Hoa '^Market-based economy institution model and the market-based socialist economy in

Vietnam"

industrialization and re-industrialization based on knowledge to adapt the quick change of market requirements to create competitive advantage to enhance

competitiveness

- The government does not only care about rule of the market economy but also instructs, directs, adjusts the direction and content of the economic activities to fulfill government' development function

1.4 Government' role in crisis and measure to overcome crisis

Government and market are the two close entities in the market economy According to Keynes, the government's intervention in crisis is essential to overcome crisis

Although the government always has to respect operating regime of the market, Adam Smith's ^invisible hand" theory can also lead to market to operale effectixely when the asymmetric information is handled well When crisis happens, almost all the markets are asymmetric information market and the governmenl\s inler\ention is not merely in sectors refused by private or attractive sector, it is in all sector all o\er the counlr>'

Hence, how can the government do to deal wilh crisis?

Obviously, depending on cach nation's economic situation, public response and polilical context, its own government will ha\e different choices showing it priorities However, according to demand stimulus theor) of Keynes, the solution groups include:

-*- Implementing high salar\* policx lo restructure sectors for the purpose of focusing on the highest productivity sector, prohibiting or discouraging the low produclivit}' and high cost sector

+ Increasing government spending (along with adjusting monetar> polic\: reducing interest rale), from which gi\e companies condition lo in\est hire more workers, increase output for the purpose of expanding market Government invests in project producing necessary goods

+ In the period of crisis, companies do not want to in\est but keep cash or buy short-term securities to make profit, rhercforc on one hand, goxcrnmcnl should impose tax on

income before investment ol^ companies and go\emment uses that sum ot money to

expand market and cause companies to sohe

+ Trade protection: in this period, each nation tries to encourage export to boost growth, therefore, to some extent trade protection will help domestic companies produce and not cut labor

Those solutions will be adopted in the form of 2 main policies: monetar\ policy (to adjust money supply in the economy) and fiscal policy (including lax policy, government spending impulse policies and demand stimulus policies, etc)

However, in consideration of Keynes' limitation pointed out by Classic Economy or Austrian school Neoclassical Economics such as: demand stimulus policy might generate interest group related to government, policies need lo much power abuse, etc all governments need to consider when implementing the policies:

+ When choosing demand stimulus measures, measure that can generate the highest multiplier (k) must be prioritized, which means those measures ha\e lo boost maximum consumption

+ Implementing in short-term until the economy is stable, government's inter\ enlion must

be stopped, if continued it might be barrier against natural selection of market economy + Demand stimulus is lo lead the econom\ to ils normal orbit, regard of nation and companies' competitiveness enhancement issue Compelitixeness is the issue needs paid high attention even before or after economic crisis Il must not onh implement within the orbit but also comply with competitiveness The opinion of changing technologx to enhance competitixeness in crisis is opposite to Kexnes as importing machines to change technology will increase import and reduce multiplier (k) in the economy

In addition, according lo many economists' opinion such as Laxvrenee Summers the solution lo deal xvilh crisis through the demand stimulus package must assure al least 3 criteria: timely (the measures must hax'e prompt effect, increasing economic spending promptly), right object (the objects will consume and consume almost all of their the demand stinnilus quantity) and short-term (implement demand stimulus in short-iemi to improxe effectiveness of demand stimulus package and haxe no effect on long-lenn budget)

Aceordinu lo the analvsis on measures to handle crisis in 4 countries including US Japan, China and Vietnam, it can be seen that the main idea is Keynes' theorx by government's

' Nguyen Hoang Iiao el al "Kc\ncs's theor\ arguments and prc\ention of X'ietnam economic crisis"

' l i u r e n c e Summers : economic professor, fomier principal o^Har^ard, economic counselor for LS president Obama

intervention through increasing aggregate demand (by government spending, encouraging consumption, investment, etc) which is economic stimulus packages

Although there are many ways to deal with crisis using Keynes^ theor> and government' role is undeniable, in fact, not all countries totally agree with Keynes' solutions

Consequently, does state nature affect the implementation of solution according to Keynes' theory to different extents?

CHAPTER 2 : GOVERNMENT'S POLICIES IN CRISIS

The writer classifies government's policies inlo the objects that receive benefit from policies and view on demand stimulus criteria according to Keynes' Iheorx'

The writer chooses 4 countries to analyze, in which 2 countries pursue the social market economy, one pursues free market eeonoiny and one pursues developed slate model Analyses xvill focus on Vielnam for the purpose of proposing solutions to overcome

crisis for this country US, Japan and China will be analyzed some main and brief points

2.1 Policy of US Government

The US government has carried out 2 actions lo prevent economic crisis:

a Stabilizing financial market

With the particular reason from the national financial sxstem, US government has taken action to rescue the tlnancial market such as: equitx purchase program xalued USD 700 billion made in October 2008 to bux shares of manx US banks In March 2009, pour USD

750 billion into Fannie va Freddie Mae, spend USD 300 billion to bux long-term bonds

b Stitnulating detnand

US government implement 2 demand stimulus packages, the first one in Februarx' 13

2008 after the crisis signal in 2007, valued USD 152 billion ihrough Economic Demand Stimulus Act 2008 The second one in Januarx 2009 valued USD 787 billion

The first demand stimulus package focus on 2 solution groups: the first is to encourage people's consumption by assisting low income people and children such as repay personal income tax, subsidize for children under 17 xears old ($300^ child), assist those xvho get

trouble from subprime lending The second group is to support companies' investment cost such as give tax treatment for companies, allow quick depreciation

The second package focuses on the 2 solution groups to increase government spending (making up 2/3 value of the demand stimulus package) and reduce tax The particular solutions are as follows"

- Assisting companies to create job for 2.5 million workers by lending companies tax about $ 3000 for each newly hired employee, removing tax on profit from capital for small and medium enterprises

- Assisting citizens: house owners, reducing tax for individual, households and increasing unemployment insurance

- Investing in public work such as hospital, roads

Table 2,1: Structure of US' demand stimulus package

Unit: USD Order

102 billion

90 billion

58 billion 47.3 billion

787 billion

Proportion of demand stimulus package

30.2

18

14

13 11.4

7.4

6 100%

(Source: Boris Sobolev Obama: Change to come)

We ean reali/e that American Government has used the advices of Kexnes theorx and two stimulus packages to stabilize total demand; hoxxever xvhile Keynes theorx just focuses on raising total demand then American Government has tbcused more on the collapse of

financial system xvhen spending a considerable amount of money to cope xxiih this

problem,

2.2 Policy of Japanese Government

In 8/2008 Japanese Goxernment has gixen demand stimulus package of 7, 2 thousand

billion Yen equivalent to 81 billion USD On 12/12 2008 Japan has declared nexv plan to stinnilale economy xvith the value of 26, 9 thousand billion Yen equivalent to 302 billion USD

Japanese policies are as foUoxvs:

Support small and medium-sized enterprises

Individual support : 12000 Yen/person

Tax exemption for labors, house buyer xvith difficulties due to economic recession \

Support directly to households

Money supply to financial system

Tax exemption of roads

Melhods to encourage enterprise to employ and use labors

Together xvith demand stimulus package, Japan also proposes policy to save financial market xvith 10 thousand billion Yen (equivalent to about 112 billion USD) for the market

of forex and banking

Table 2.2 : Japanese demand stimulus package structure^

8,3 11,1 16,7

15,3

100%

(Source: China daily: Japan unveils stitnulus package)

We can see that Japan also has the similarity xvith the US xxhen using demand stimulus policy together xvith saving financial market In the detail of demand stimulus policx

implementation, Japanese Government also follows Kexnes theorx', out of xvhich:

Solutions to stimulate consumption of people: including individual support (the

elderly) of 12 thousand Yen (il is considers lo be failed due lo polilical purpose); direct support to households, tax exemption for labor, support lo buy house

Solutions to stimulate spending lo invest in enierprises: encourage enierprises to employ and use labors, support small and medium-sized enierprises xia supporting credit capital

2.3 Policy of Chinese Government

Chinese Government has approved economic stimulus package x\ ith the \ alue ot 586 billion USD (4000 billion Yuan) on 9.11.2009 after industrial gro\xih of China reduced from 16% in 6.2009 to 8.2% in 10, xvhich xvas the loxvesl xx iihin 7 past years and export

in 10.2009 just slightly increases 19.2% compared to the same term

Chinese economic policy before global recession in 2008 is: to maintain groxxlh and

hinder infiate I loxxever xvhen Chinese economy gets trouble, Chinese Government has transferred to the policy of stable economic dexelopmenl

** The writer extracts the data of the first demand stimulus package of 7200 billion Xen to consider due to the limitation of information of the second demand stimulus package of Japanese Government

Chinese stimulus package occupies about 12.7% GDP ( according to adjusted GDP in 2008) xvhich xvill be implemented xvithin 2 years xvith three groups of demand stimulus methods

People-oriented consumption stimulus:

Chinese Government considers the demand from 800 million rural people is one of factors that actively use domestic products and increase real demand for the economy; it is the demand stimulus method to create high effect then the Government has basic policies to improve people's living standards via increasing social welfares, constructing

distinguishing support programs for farmers; encourage spending by reducing tax;

spending for rural area occupies 700 billion Yuan

Stimulus to invest in enterprise :

Encourage the banks to lend small and medium-sized enterprises; tax exemption for such enterprises; implement financial melhods such as loosening credit, loxvering basic interest Besides, with regard to export enterprises China also has private polcies such as

increasing import and export lax refunding for textile, electronic sectors; encourage

enterprises that uses many labors

We can realize that China is also very clear xvhen orienting the target into small and

medium-sized enterprises which have about 4.3 million enterprises, 95% export activities which contributes 60% total CJDP, 50% lax income, 68% export source and solve 75% new jobs each year

This policy has reached three criteria of Keyness, especially the norm of right object

Solution via investment spending of Government:

Chinese Government focuses on spending lo support natural calamity (earthquake in Tu Xuyen province - this item occupies 1000 billion Yuan, equal lo 25% tolal demand

stimulus package), to invest infrastructure especially traffic infrastructure According to statistical data, spending to dexelop infraslruclure is 1500 billion Yuan, occupxing 38% lotal demand stimulus package

Besides, Chinese Government also has many policies to increase spending to invet in

education xvhich focuses on vocational Iraining

Table 2.3 : Chinese demand stimulus package structure

Adjust consequence of natural

calamity in Tu Xuyen province

Housing for rural area

Raise capacity for rural area

(Source; Report of Zhang Ping al Conference on national dexelopmenl and innovation of China)

We can see that, in spite of following the principle of demand stimulus of Ke>-nes the real amount of money is not much Chinese Government has spent most of money to save natural calamity (25%), infrastructure investment (38%) (mainly to develop highxvay system - this investment not meet the fast criteria), investment in rural area to improve development difference (9%) And it seems that Chinese Government has combined wilh many other problems (not merely to save economy urgently) via stimulus package of 4000 billion Yuan

2.4 Policy of Vietnamese Government

Crisis reality in Viet Nam and influences of crisis

Viet Nam does not receive internal impacts from banking system as other nations in the world due to uneomprehensive integration and participation into MBS and CDS like the

US and European countries, however just like other nations, influence of intemational marker, especially from American market has impacted on financial and currency market

of Viet Nam

Such impact has made economic groxvth rate slow At the beginning oflhe year 2008, growth rale of GUP expected to be 8.5 - 9%, hoxvever in 2008, GDP of Viet Nam just increases 6,23 % and in 2009 il increases 5,32% , which is the lowest level within 10 recent years

The crisis has impacted on Vietnamese export inlo the US xxhich is one oflhe biggest market of many Vietnamese products such as textile, leather shoes, seafood cuiTcnlly, American market occupies aboul 21-22% Vietnamese export tumoxer ( data in 2008) Besides, the next export markets of Viel Nam are l^U and Japan which arc also impacted then export turnover of such nations also reduces

Crisis also impacts on capital market of Viel Nam; security market also reduces strongly; foreign investors oecupx' aboul 20% capital which are ready to x\ithdraxv capital then capital mobilization from foreign banks is more difficult then capital of domestic

enterprises is also narroxved doxvn, and interest is increased highly

ODA and FDI are also reduced because foreign enterprises or goxernments get ditficullies

in their oxvn nations

Under the impacts of global financial crisis, right al the first quarter of 2008, Vietnamese Government has quickly given many solutions to prevent

Policy of Vietnamese Government

On 11/12/08, the Government has promulgated Resolution No 30 2008 NQ-CP on 12 solutions to prexent recession, maintain economic growth rate and ensure social security, including 8 solutions lo promote the rale of Governmental spending

On 13/01/09 financial ministry had promulgated Circular no 03/2009TT-BTC on

reducing 30% CIT in quarter 4/2008 and in 2009 tor enterprises w ith charier capital of not more than 10 billion dong or enierprises with contract labors of above three months of quarter 4/2008 not more than 300 people Besides, the Goxernment also implements other methods such as loosening currencx' poliex' (reducing interest; increasing monex supplx via reducing compulsorx slore rate ); adjusting exchange rate of VND'USD to stimulate export

We can synthesize policies of Viet Nam Government via the tblloxving table:

Financial policy

Currency policy

Social policy

Reduce 30% CIT

Extend 9 more months for paid tax in 2009

Refund 90% VAT for exported products

From 1.2008 to 1.2009, Viet Nam State's Bank has reduced basic interest rate 6 times lower, from 14% to 7%

Compulsory store reduces 1% for VND and 2% for foreign currency

Expand exchange rate fluctuation of VND/USD to 2% in 11.2008,

to 3% in 3.2009 and then lo 5%

Support 4% interest rate for credit items issued within 8 months maximum from 1.2.2009 lo 31.12.2009

Unemployment insurance since 1.1.2009

Support loans w ilhoul interest tor enierprises to pay salary, insurance and unemplovment benefit for labors

Then with regard to Viet Nam we have the following conclusions:

Viet Nam has used three groups of demand stimulus:

People-oriented consumption stimulus:

With this melhod Vietnamese Government has divided clearly two groups of method applied to two different groups of object: the poor and the whole people in general

- Policy for the poor:

This is fragile object when economic crisis happens Risks of such object are salan debt, salar\' reduction and unempknment

The outstanding polic)' for this group of object is uncmplo>ment benefit

Until 1.1.2009 unemployment benefit is officially implemented and one \ear later, when labors and go\ernment contribute enough 1% salar> within at least 12 months then

spelldin^ items from unemplo\ nient benefit can promote its own effect

According to a study on the effect of demand stimulus policies then unemplo\ment

benefit is to create a maximum demand on one dollar of stimulated demand

On the other hand, this polie> has helped Vietnamese Go\ emment to create equal factor, ensure social securitN then create stable psycholog\ for people

With rcard to de\ eloped nations, the sNstem of unemplo>menl benetit is considered as a tool of iuitomatie absorption for the cconom> it means that when the econom> develops strongiN and unempkn nient rate reduces, funded cash flow is higher than spent cash fiow then it will reduce total demand

On the contrarv, when the econom> gets recession, the unemploxed receives mone> from budget then it can reduce their difficulties and picN cnl total demiind from fast reducing

'" "unemployment benefit skips the chance to change" Sai Gon Marketmg 12 I 2009

Table 2.5 : Stimulated effect of demand stimulus policies'' Fiscal Stimulus

Unemployment benefit

Exemption of budget income for the States

Tax refund for once

Increase tax credit for family with children

Adjust minimum tax level

Reduce tax

Elastic tax for small enterprises

Reduce tax for dividend and interest on

capital

Reduce property tax

Demand on one stimulated dollar

- Policy for the whole people:

Vietnamese Government has implemented the policy of elastic individual income lax (to the end of 5.2009) This is the private policy which is implemented by financial ministr\'; although the system of individual income tax of Viet Nam is not completed and elastic tax

is noi Ihe direct form of consumption stimulus, this policy has crealed positive

psychological effect and people can increase spending

Vietnamese Govemmenl has applied Ihe policy of delayed income tax from securities This policy has impacted on securities investors, at the same time it is also the solution for stimulating capital market

Besides, the policy to reduce VAT for 19 groups of products from 1/2/2009 to 31/12/2009

is also a Governmental method lo encourage consumption

Stimulate lo invest in enterprise

Vietnamese Government has spent most of stimulus package for in\eslmenl in enterprise; according to statistics via table then supporting interest rale for credit loans occupies 17.000 billion, implementing tax reduction policy: 28.000 billion and increasing debt balance of credit guarantee for enterprise occupies 17.000 billion

Such policies are implemented \ ia reducing tax by many forms lor enterprise, at the same time encourage enterprises to implemenl new invested projects, increase emplo\ ment of workers via supporting interest rate

Basic rate is lowered wheo the ecooomic don-ntum Deposit rate and Lendise rate have Tallen

( Source : Report on market study of Habubank securities in 2009)

When currency policies are done, investment channel for depositing in 2008 was not

attractive any more then people and enterprises have implemenied olher replaced

investment channels

When basic interest reduces (6 limes of adjusted reduction), interest for lending (for

people) and investment lending (for enterprise) in Viet Nam have also reduced This will support people to spend more, enterprise will be encouraged to expand production and recruit more labors

Policy lo support ¥% interest rate:

This policy is less applied by nations due to the worr}' of infiate and direct interference into exchange rale

Such solution has well implemented two principles of'Tast and short term" although the supporting 2% interest rale in the second stimulus package has made this solution lasted one more year The principle of right object in this solution has not shown the right spirit

of Lawrence Summers - right spending and spending all demand stimulus quanlit) If the loans come to the enterprises that really need capital and use man\' labors then it can reach high effect, "but if enterprises, especially big enterprises wilh capital deficit that use old debt reversion for loans wilh high interest to enJo\ lower interest then the profit of such solution is to save but not stimulate demand"

Fituwcialpolicy: reduce tax and extend the lime to pay tax for enterprises This is a useful melhod which can help enterprise to maintain or expand production However, this policy has reduced income for State's budget which can impact on other spending of

Government On the olher hand, supporting without selection for all enierprises can make effect of such policy reduced

Policy to encourage export support:

Viclnamese export has big mechanism in GDP ( occupying 77% GDP in 2007) which had stronu reduction in 2()()8 and 2009: Go\ernment has implemented one more solution for enterprises which is to refuiKl tax temporarily 90% for exported products

According to Keynes, niethods to encourage export should focus on sectors \\ ith the

highest domestic rate (such as seafood ) to have the highest total demand''(according to

the following lormula of Ke>nes k = 1/[(1 - c) + {e - m)] ) Although Vietnamese

Government has not indicated this Governmental agencies also implement methods to

i : - v a Ttij Thuy Anh "Problems of the first demand stimukis package - experiences for demand stimulus polic) in Vict Nam" • ,,• vi

" Ngu>en Hoang Hao.ct al "Keynes theory, arguments and prevent economic recession in Viet Nam

encourage export support such as support to look for new export market especially

export of seafood and agricultural products

Besides, some other methods to help enterprises reduce labor dismissal such as: reducing contribution of enterprise in social insurance, unemployment benefit to reduce labor cost for enterprise

Solutions to stimulate investment spending oflhe Government

Vietnamese economic stimulus package focuses on the method to stimulate Governmental investment spending such as deposit of Staters budget for urgent project: 37.100 billion Such policy is implemented for : •

Spending lo invest in rural infrastructure: this policy can reach 3 criteria: fast

(Government gives priority to invest in small projects, especially rural traffic and system

of agricultural irrigation to quickly implement and fulfill), right object ( support t o '

improve competitiveness of agricultural products) and short term (projects will be finished after a year of implementation)

Together with this policy, Government supplemented one solution to buy agricultural store for national store, at the same time, reach the target of Governmental spending and promote rural labor market

Spending for education: applied methods such as increasing infraslRiclure for schools, especially difficult areas, raising salary for teachers, increasing scholarship

This policy will help enlerprisc to ensure the time of economic stimulus and ensure long term personnel vision

Table 2.7 : Structure of Vietnamese first demand stimulus package

Support interest rate for credit loan

Temporarily withdraw capital for

basic construction in\ cstmcnt

Deposit State's budget to

implement some urgent projects

Transfer capital from 2008 to 2009

Issue Governmental bond

Implement the policy to reduce ta.\

Increase debt balance for credit

guarantee lor enterprise

Other items of demand stimulus to

ensure social security

Total

Plan

17.000 billion 3.400 billion 37.200 billion

30.200 billion 20.000 billion

28.000 billion 17.000 billion 7.200 billion

160.000 billion

Density in demand stimulus package (%)

10,7

2,1

23.2

18.9 12,5

17.5 10,6

21.89

1995

12,18 16,42 15,76 14,39 14,68 22,07 18,17 16,1 15,35

23,85

2000

16,29 17,71 18,91 15.41 15.83 22,89 19.27 18.84 17.33

23.36

2006

19,2 15,83 23,6 15,9 20.07 24.92 17.31 15.8 16.38

27.79

(Source: Report of ADB in 2007)

We can realize that Vietnamese budget spending is about 30% GDP, which is two times higher than Singapore and the highest within 10 nations in statistics

Stimulus package spending occupied 10% GDP (the first stimulus package) will make budget decifit of Viet Nam more complex and lose balance in economy

According to experiences from economic recession in 1930s indicated by H.W.Amdt in

the book so-called "' economic lesson of 1930s" which was published in 1944 then "the

recession had made lolal national income from lax reduce at the lime when the authority must spend more to save unemploN nient and olher objects Although budget decifit will happen, nations still try lo maintain their own income and reduce spending lo the lowest level to balance budget"'^ then we can sec that losing balance in economy via losing

budget is really a trouble

CHAPTER 3 : THE ROLE OF STATE AND METHOD TO

SOLVE CRISIS

3.1 The role of the State in crisis

In Keynes theoiy, the role of the State in sohing crisis is very important which cannot be

denied

The role of the State is mentioned in two aspects: positi\e participation of the Government and Governmental spending

a Positive participation of the Government

Unlike the viewpoint in uhich the role of the State just hinders the process of natural purification of technology, management capacity, production and allocation scale of invisible hand; market econom> just keeps enterprises with effective trading: realit) of two crisis (economic recession in 1930s and economic crisis in 2008) has proved that: when the economy loses balance, active and positive interference of the State in economic

"John 2009, p24

management and steering is very necessary The State with special power can interfere quickly and effectively into capital market by financial and currency policies, help enierprises via reducing, supporting tax, interest rate, interfering into export import scale

by policies to support export, commercial barriers, interfering imo people's life by policy

to create jobs, investing in infrastructure, public services Especially, Government can use policies to stabilize psychology oflhe whole nation in crisis period

b Governmental spending

Governmental spending can promote or hinder economic growlh rale which is the argumental topic of many policy definers Naturally, in crisis Governmental spending to create demand for the economy is very necessary which can help to provide important public commodity such as infrastructure and education In case of right spending, then the impact of governmental spending on lolal demand will be high and effect to creale demand for the economv will be higher

However, ^1he increase of Governmental spending can transfer resource structure from effective production area lo weaker public area'\ ''^Besides, formalii)n of sake groups or misusing authority from governmental spending ean appear in case of not good controlling Governmental spending can make pressure of budget deficit increased Government must use domestic and foreign loans (via issuing bonds) lo support this spending

3.2 Relation between the role oflhe State and method to treat crisis

To see more clearly the relation belween the managemeni oflhe Stale and melhod to sohe crisis, the writer will anal\/e according lo three following orientations:

- Learn to know the relation between managemeni oflhe Stale and qualil\ of economic stinnilus package

Leani lo know the relation between the management of the State and scale of economic stimulus package

- Learn lo know the relation between the managemeni of the Stale and sstructure of economic slinnilus package

'^ Center for economic and policy study.2009 "poIic\ lo prevent recession in \'iet Nam: the first study: demand stimulus package"

a Learn to know the relation between management of the State and quality of economic stimulus package

In the figure to consider the management of the State and quality of demand stimulus package, the writer just analyzed relations with the following limit:

Figure 3.1 : Study the relation between the role of State and economic stimulus

package

QUALITY OF ECONOMIC STIMULUS F>ACKAGE

The relation between Slate 's model and management oflhe State:

The writer just considers the market economy model: which model appreciates the role of market and which model appreciates the role of the State In other words, il is the interference of the Slate - market of each considered state's model

Relation between State \s model and Keynes iheoty:

The writer considers the following aspect: which state's model uses Ke\nes lheor> in

which level: hiuh-averai'e-low-nol used

Relation bet^veen Keynes theory and qualily of demand stimulus package:

The writer considers the following aspect: qualit>' of demand stimulus package for which target: increase total demand-stabilize society-save financial instilution-de\ elop long term

THE CASE O F THE US:

State 's model: the model of free market economic institution (American economic based on theor\ of new freedom)

model-Managemeni of the Stale: appreciate the role of market; interference of the Stale is limited

Applyittg Keynes theory:

American Government still follows Keynes theory but focused more on saving financial institutions, preventing financial market from collapse

The writer does not consider structure of demand stimulus package of 152 billion (the first

time) and 787 billion (the second time) of American Government but the relation between

the values of stimulus packages compared to method to stabilize financial market of the

US of nearly 1500 billion (the program to save assets of problem wilh 700 billion and support Fannie and Freddie Mac with 750 billion USD while according to Keynes theor\ then solution to solve crisis just focuses on raising lotal demand to realize the low level to apply Keynes theory

THE CASE OF JAPAN:

Stale 's model: developed state's model

Managetnent oflhe State: appreciate the role of market however State still steers, instructs and manipulates economic activities lo promote long term economic development

Applying Keynes theory:

Just like the case oflhe US, cquixalent lo demand stimulus package (about 383 billion for both times) and package to support financial market (about 112 billion) then the level lo apply Keynes theory is in axerage level Moreover, in Japanese stimulus package, there is not mentioning of Governmental spending (providing public commodity-increasing consumption) as a solution with high lotal demand ( this is partially because Japanese Government does not increase spending due to public debt of the Govemmenl of nearly 200% GDP''^)

THE CASE OF CHINA:

State ^s model: market economy according to socialist orientation

Managetnent oflhe State: appreciate the role oflhe Stale

Applying Keynes theory:

Chinese Govemmenl has given solutions to solve crisis which seems lo follow closely Keynes theory bul combined with targets lo save, long term growlh inlo stimulus package Considering structure of using stimulus package of 586 billion USD ol China: supporting natural calamity occupies 25%; de\ eloping traffic infrastructure occupies 45%, removimz difference of development for rural area occupies 17, 5% If wc consider the

'" "L^i chuyvn giam phat a Nh^t" VNEconomy, 23 thang 11 2009

nature and preferential level for each method then the targets of saving and long term growth occupy the most of the package Therefore, the appliance of such theory is in average level

THE CASE OF VIET NAM:

State 's model: market economy according to socialist orientation

Managemeni oflhe Slate: according to Vietnamese State's policy: not loosen the role and management function for market economy; however not interfere deeply as the planning economy in the old model of socialist nations

Applying Keynes theory:

Vietnamese Government has given melhods to solve crisis following Keynes theor\ bul

not complelely; for instance: some policies ean be useful lo increase the effect of the

stimulus package (Keynes lheor>0 such as Government can implemenl unemployment insurance by supporting 100% for the first year without wailing contribution within 12 months to promote the tool of unemployment insurance to the maximum; however due to olher reasons, the Government has selected to implement unemplo\ ment insurance after 1 year since 1.1.2009

Vietnamese solutions include nearl\' three groups of demand stimulus: people-oriented stimulate investment for enterprise, stimulate Governmental spending and follow Ke\'nes teory such as: focus on creating the highest k, demand stimulus together with raising national competitiveness, increase Governmental spending, limit uninvested capital in enierprises '

In term of structure :

49% spending for : reducing tax (20%), social securit\ (5%) , spending via credit ( forms

to support interest rate - 24% )

51% spending for construction and urgent projects which are Governmental projects to develop infrastructure then such spending can be classified as public investment

Although wc cannot quantify accurately because concrete components do not follow Keynes theory, the appliance of Keynes theory is in high lc\cl

Then, appliance level of Keynes theor\ is high

In brief, relation between State's model and quality of economic stimulus package is as follows:

Table 3.1: Relation between State's model and economic stimulus package

economy Economic institution of developed

Keynes theory in crisis

stabilize society, develop

in long term

Increase total demand

stabilize society, develop

in long icrni

Impact level of

stabilize society

adjust consequences

of natural calamity,

long term growth

Stabilize societ)

hinder inflate

Above table is set up based on qualitative method then to assess the relation benveen State's model-the role of the State and quality of stimulus package in term of scale and quantified level of applying Keynes theory in crisis of such State's models, the writer will

go on discussing the relation between managemem of the State and scale oflhe demand stimulus package

b Learn to know the relation between the management of the State and scale of economic stimulus package:

The writer uses the quantitative melhod to consider scale of Government and scale of demand stimulus package

Scale of Government is measured by two melhods: tolal cadres of Govemmenl population and Governmental spending/GDP However, in such study the writer just uses scale of Governmental spending/GDP as representative

Scale of Governmental spending is taken al the time oflhe year 2006 - when economy is not impacted by crisis

The scale of demand stimulus package is measured b\ the value of stimulus

$13,800 billion 5,1%

Japan

$ 383 billion

$5470 billion 7,0%

China

4000 billion Yuan

31404.5 billion Yuan

12,7%

Viet Nam

160.000 billion VND

1.600.000 billion VND

10%

j

Governmental spending/CDP (1)

The value stimulus

package/GDP

of Comparison rate (2)/(l)

China has the highest scale of stimulus package compared lo scale of Government

Viel Nam has the second ranked Viel Nam scale of stimulus package compared lo scale of Government

Japan is the lowest scale of stimulus package compared to scale of Government

However, if considering the scale of economic stimulus package (including demand stimulus package and other saving methods) then il has following changes:

In term of saving financial market, the US has spent 700 billion USD for TARP, 1200 billon USD for sa\ing Fannie Mae & Freddie Mac (lo bu> guaranteed securities \'ia mortgage of Fannie Mae & iM'cddie Mac) and bu\' long term Goxenimental bond

Then tolal economic stimulus / GDP oflhe US is 18 84%

Japan: tolal economic stimulus / GDP of Japan are 9%

Table 3.3: comparison rate of economic stimulus packages

(2) 18,84%

9%

12,7%

Comparison rate (2)/(l)

95.1%

24.26%

66,1%

10% 33.56%

( 1 is the highest)

The third The fourth The first The second

Density of economic stimulus package

(1 is the highest)

The first The fourth The second The third

In briefi in term of quantitative method we can see that:

China and Viet Nam considers Keynes theory and using stimulus package in preventing crisis as the main strategy The problem lo solve crisis in China and Viet Nam is not as serious as the US

In term of density of economic stimulus package then the US has spent much more than China and Viel Nam lo solve crisis

In case of Japan, density of demand stimulus package as well as densit} of economic stimulus package is the lowest

e Learn to know the relation between the management of the State and structure

of economic stimulus package:

To compare structure of dennrnd stimulus packages, the writer has demonstrated components of demand stiumulus package as the follow ings:

Figure 3.2 : Components of American demand stimulus package

Figure 3,3: Components of Japanese demand stimulus package

D T a x policy

• J o b s

D Tnvironment

• Credit for S.ME

• C o n s u m e r support and other

Figure 3.4: Components of Chinese demand stimulus package

Housins for rural

and other :210 billion

a Social ^^ elfare :150 billion

o D

area:400 billion

Q Q Impro\ e the corapetiti\ eness of rural area :370 billiou

c D Infrastructure

:1500 billiou

Figure 3.5: Components of Vietnamese demand stimulus package

• I n t e r e s t r a t e support

H Infrastructure construction

O l s s u e additional bonds

(-, Tax policy

H Credit g u a r a n t e e for S M E

• Social A\ elfare

We have the following table:

Table 3.4: Compare components of demand stimulus packages of nations

We can realize that, in term of concrete component of demand stimulus package there is

no difference; nations implement policy of demand stimulus package according to the

principle lo raise total demand including: raising investment, govemmenlal spending, consumplion encouragement

Policy of demand stimulus package is orienled to the enterprise which is focused by nations, because enterprises are the contribution source for GDP, lax and ihey are also the places lo solve problems for labors

Policy of demand slimulus package \ia public in\eslment is used b\' de\eloping nations and nations of weak infrastructure Government of such nations (Viet Nam and China) expects to increase the opportunil)' for public investment in crisis to solve problem of constructing infrastructure for development

In term of other factors impacting on realization of relation between the trianagement of the State and nature of demand stimulus package:

Govemmenls of nations have difTerent choices to solve problems because:

Crisis in each nation is dijferent

'^ Credit for enterprise including supporting interest rate and lending guarantee

The US is the place of crisis where financial market has great damages at^er wrong policies of housing, securities then it must have policy to stabilize financial market China has the economy which is in the leading group of global economy, howe\er due lo slightly influenced financial system then policy is not focused on financial market but governmental spending to construct infraslruclure Japan, in spite of fast economic impact from crisis, due to limited budget and high governmental spending then has difficullies in decisions of economic stimulus

Secondly, the appliance of Keynes theory into each cose will have some difficulties

To make economic stimulus package successful then nations must solve many problems such as: support which object, how much and how long then it is a difficult problem to

- in other words, high level of market ecotiomy- then the role of State in tnanaging

economy will be low and when the econotny m crisis, it will get many difficulties in term of solutions and finance to solve: and then regardless of following any model then treatment with crisis via detnand stitmdus package oflhe Slate according to Keynes theory is the compulsory method If the Slate can hartnonize relation bet^veen the tJiarket and the role oflhe State then problem of crisis prevention will be the easiest

CHAPTER 4 : RAISING THE ROLE OF STATE IN MANAGING

TO PREVENT CRISIS IN VIET NAM

Looking back on the process to cope with crisis in Viet Nam wc can realize the positive role of the State in managing to prevent crisis Statistics of economic situation before and atkT crisis ha\ e shown that economic stimulus package of Vietnamese Go\ emment has got success

To have such results, it is thanks to the policy to harmonize the relation between the market and the role of the State in recent time -Via more than 20 years of innovation, Viet Nam has got some beginning success in formation and impro\ement of market mechanism as well as adjustment of the equivalent role of the State in the economv'"'* However, with the change in new development period, Viet Nam must have more positive changes in defining the role of the State

To raise the role of the State in preventing crisis in Viet Nam, the writer has given three following problems:

I Adjust weaknesses in economy; raise the strengths for the economy

reality has shown the reality of Vietnamese economy in 2008 which can be the consequences of many reasons such as: defects of economic structure, unsuitabilily of imporl export scale and structure, dependence on FDI and unsuitable siruclure of FDI capital and when economic crisis appears in the US il has some impacts on Viel Nam then economic weaknesses have been shown quickly Therelbre, recent economic stimulus package has reached success however it is just a part in the whole solutions that Viet Nam must do to develop the stable economy

Comprehensive and stable development solution includes:

- Implement the policy for sustainable development such as: raising social securit}*; raising domestic consumplion suitable export structure - not depend on some markets, investment in production to raise working eflect, not depend on foreign enterprises

- Implement comprehensive dexelopmenl policy such as: investment in rural infrastructure, education, supporting farmers

2 Hartnonize Stale *s interference into the tnarket

As mentioned above, Viet Nam cannot loosen the function of State management on market economy because if leUing the market freel\ impacted then the econom> will fall

in crisis And when crisis happens, il will be difficult to solve problems However, if the Slate interferes so much then it can create man> great damages tor the econom)- such as planning economy in the old model of socialist nations

IR PlHun Thj Mt>ng Di<;p "The role of state in market economy from some theories applied into Viet Nam"

The problem is to find out flexibility in state's management Applying both hands: tangible hand and intangible hand to promote market economy to develop

In term of this problem, Viet Nam must implement the following problems:

- Raising function of State management in term of economy: the State in market economy according to socialist orientation must implement macro management via tools of economy, law, administrative To do this, it must improve management machine of the State in term of economy including: improving administrative machine, administrative procedures, raising quality of cadres

- Define the lunction of the State: reality has shown that the State must join in economy but must orient and define preferential trends

- Focus on welfares problems: the Stale orients lo socialism and sustainable development It means that apart from economic target, social targets must be focused

If Viet Nam can define clearly the role of the State in market economy according lo socialist orientation including the harmony of relation between the role of the State and market and implementation of such role then il can maintain dexelopmenl and the economic strength will be ensured in crisis

3 Raising the effect to cope with crisis :

Via analysis, we can see that the usage of Ke>nes theories in crisis is compulsor> thing However, to reach the highest effect there must be concrete solutions The writer has proposed some following tasks:

Apply economic theories such as Keynes theor\- considering national background, raise maximum eflect of each melhod to solve crisis

- Consider limitations and risks of each method

- Comprehensively implement demand stimulus package w ith other solutions such

as cun-ency policy, policy to support export, investment aUraclion there must be solutions for future economic situation

- Monitor and assess demand stimulus package: demand slimulus package must be implemented wilh the large monitoring of the society lo limil negalixc things After implementation, demand slinnilus package must be assessed in term of target

" Ph.im Thj H6ng OivP- "The role of slate in market economy from some theories applied into Viet Nam"

fulfillment and influence level on economy in the future to draw experiences as well as better prepare for the next economic policy

CONCLUSION

Effect of Keynes theory in saving economy from crisis is not denied; and one oflhe most important factors for demand stimulus package according to Keynes theor>' to reach success is the role of State in economy According to analysis, the economy that appreciates the role of State in management will be easy to put policies of Kexnes theory into reality to get good results Such Stales will have lower density of economic stimulus package (compared to Governmental spending) compared to States with the economy appreciating the role of market

Such analysis will gi\c the tact that although economic models haxe their own weaknesses and strengths, patient folloxving market economy according to socialist orientation is the right xxa\ However, in term of preventing economic crisis prevention, apart from focusing on sustainable dexelopmenl Viel Nam must focus on harmoni/ing the management of the State and the role of market manipulation This is the best alternative to raise the role of Vietnamese State in preventing economic crisis

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