VN exposed to new global crisis

Bui Truong Giang

With many developed countries seeing sluggish economic growth, along with the public debt woes of European countries, another possible recession is forecasted. Bui Truong Giang, deputy director of Viet Nam Institute of Economics under the Vietnamese Academy of Social Sciences spoke about how Viet Nam should react with the possible recession.

The global economy is predicted to confront a new recession. Do you think Viet Nam should be sounded a warning about the recession possibility?

The global economy getting worse absolutely impacts Viet Nam's economic growth motivation.

At the moment, the biggest problem is public debt woes spreading over European countries caused by lending among banks. As a result, a series of banks will fail if a bank goes bankrupt, making the global investment environment more risky.

In my opinion, Vietnamese exports would be the first sector to encounter difficulties as the global demand for imports decreases due to an unstable business environment. Therefore, Viet Nam should be cautious from now until the beginning of 2012.

Furthermore, in the past few months, the unstable business environment has caused prices of several special assets such as gold and foreign currencies to fluctuate dramatically. This in turn encourages the domestic market's speculations and price manipulations.

As we have seen, the price fluctuation of gold has created a "psychological storm" in the society. The unexpected and risky investment channels increase, accompanied with informal information channels, could force the economy to fluctuate or be out of control.

Should Viet Nam use measures that the Government applied during the recession in 2008 to cope with the new recession?

The new global recession might happen with a probability of more than 50 per cent.

It's different from the recession in 2008 and the current Viet Nam's situation. Specifically, at the end of 2008, we were sprinting the length to fulfil a 2005-08 five-year plan period. Currently, we are initialising a new period (2011-15) with many different targets.

The starting of a new stage would serve as a basis for the next 10-year strategy plan (2011-20).

In 2008, the country was in an extremely hard situation, so all efforts were put in place to resist short-term damage only, causing the country to lose its consistent "flow of policies," while leaving long-term strategy plans unfinished.

Regarding 2009's stimulus package, experts have voiced their concerns over fiscal issues. As such, pumping a huge amount of money would drive the State Budget's shortage. Meanwhile, all economic sectors have not recovered yet to offset the State Budget, making the State Budget's shortfall more serious and causing public debts to rise.

The biggest challenge now for Viet Nam is that the country must both react against the new possible recession and try to keep balance with its medium- and long-term socio-economic plans as mentioned by the 11th Party Congress. Of this, annual Gross Domestic Products (GDP) was expected to grow 7 to 8 per cent and GDP per capital would reach US$3,000 by 2020.

At last, we are now carrying out a new five-year plan in a bad global business environment.

A stimulus package similar to that of 2008 would be helpful, however, it must be based on the State Budget's capability.

What is the key factor for solving the difficult situation ?

As I mentioned above, a stimulus package would help increase public investment, thereby stimulating economic growth. However, State Budget resources are limited due to social security purposed through tax incentives, breaks and extensions for enterprises and allowances for certain people.

Fortunately, there is a huge amount of idle cash from Vietnamese citizens that makes Viet Nam different with other countries whose citizens have little savings.

Consequently, it is critical to exploit the potential resources from citizens to stimulate economic growth.

With citizens and businesses together, plus supports from the Government, the new recession burden would soon be removed soon or lighter than that of 2008. — VNS