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Day 3-2-VN Long-term Dev Policies-E

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Day 3-2-VN Long-term Dev Policies-E Powered By Docstoc
					 Vietnam’s Short-term Stabilization
and Long-term Development Policies
  Review of Vietnam’s Macroeconomy 2001-07
                          2001   2002    2003    2004    2005    2006    2007

Increase in money
                          25.5   17.6    24.9    29.5    29.7    33.6    39.0
supply (M2, %)
Increase in credit ( %)   21.5   22.2    28.4    41.6    31.7    25.4    36.0

Total investment (%
                          31.2   33.2    35.4    35.6    38.9    41.0    41.2
GDP)
Budget deficit (% GDP) - 4.7     - 4.5   - 3.3   - 4.3   - 4.9   - 5.0   - 5.0

CPI (%)                   0.8     4.0     3.0    9.4     8.4     6.7     12.6


Trade deficit (USD bil.) 0.48    -1.05   -2.58   -3.85   -2.44   -2.78   -14.1
                        External or internal causes?
               CPI, % change on a year earlier (2007-08)

                                                                                                                                                Vietnam
20%



15%



10%
                                                                                                                      China                   Indonesia
                                                                                                                                             Philippines
                                                                                                                                             Thailand
5%



0%
                                                                                                Nov-07
                                                            Jul-07
      Jan-07




                                                   Jun-07




                                                                                                                  Jan-08
               Feb-07




                                          May-07




                                                                                                                           Feb-08
                        Mar-07




                                                                                       Oct-07



                                                                                                         Dec-07




                                                                                                                                    Mar-08
                                 Apr-07




                                                                     Aug-07

                                                                              Sep-07




                                                                                                                                             Apr-08
                                                 External or internal causes?
                                                  M2, GDP growth rate (2004-2007)

                            Vietnam                                    China                            Thailand
                            200                              200                          200
Growth Index (2004 = 100)




                            180                              180                          180


                            160                              160                          160


                            140                              140                          140


                            120                              120                          120


                            100                              100                          100
                                  1        2        3              1     2        3             1       2            3


                                      Source: IMF, International Financial Statistics, Economist Intelligent Unit.
            Short-run or long run?

• Vietnamese government gives priority to short-run
  policies to stabilize macroeconomic issues.
• Yet, short run problems originated from long run
  policy and strategy:
   – Inflation
   – Trade deficit
   – Budget deficit
• This is an opportunity for Vietnam to implement
  comprehensive structural and institutional reforms
              Is right policy enough?
• Message from the PM (30/3/2008): “Cut public
  investment and current expenditure of agencies using
  government budget, strickly control SOEs’ investment,
  minimize budget deficit ratio”

Policy                                  2007        2008
Public investment (% GDP)               21%           ?
Current expenditure (% budget)          56%      down 10%
SOE investment (% total investment)     14%           ?
Budget deficit (% GDP)                   7%           ?
      Is the situation really improved?
• Inflation:
   – Tuổi Trẻ news: “inflation and trade deficit both down”
     said: “in June, CPI drops, only increases 2.14%”
   – Saigon Tiếp Thị quoted from the SBV Governor:
     “according to GSO, CPI drops quickly, to 2,14%”
   – Sài Gòn Giải Phóng online wrote: “…the good thing is
     that inflation drops. June 2008, increase in CPI
     estimated at 2.2% (while in May it was 3.99%)”
• 1H CPI: 18.44% (compared to 5.2% of 1H 2007)
• Prices of necessities inflated: food prices increase
  59.4%, food stuff 21.8%
    Is the situation really improved?

• 1H/2008 trade deficit was nearly US$15 billion
  or 40% GDP of the first 6 months, higher than
  trade deficit in 2007
• First 5 months, real exports unchanged, real
  imports increased 20%
• Official XR is 10-15% lower than the XR of
  inter-bank and black markets
• Operation of commercial banks and firms
  disrupted (esp. exporters)
A profound and comprehensive transformation
• Vietnam is a developing country
   – From (backward) agricultural to (modern) industrialized econmy
   – From a rural to an urbanized economy(?)
   – From a low to a middle income country.
• Vietnam is a transition economy
   – From a centralized economy to a market economy.
   – From a state-owned and collective system to one with diversified
     ownership.
   – From state monopoly to more competitive market
   – From closed society to more open one
   – Democratization of socio-economic life
   – Building up civil society
• Vietnam is a small and intergrating country
    The critical conditions for high growth
•   A high rate of savings and efficient investment
•   A well educated population at all levels
•   An outward orientation
•   A stable macro-economic environment
•   A stable political environment for investment
Still early days
Vietnam: East Asia or South East Asia?

                                                           Growth Pattern of Vietnam
                                                     and some other countries in the region
                                  25,000

                                                CHINA (1990)         INDONESIA (1974)                     Taiwan
GDP (PPP $US, fixed price 2000)




                                  20,000        KOREA (1963)         MALAYSIA (1955)

                                                PHILIPINNES (1955)   TAIWAN (1963)                       S. Korea
                                                THAILAND (1970)      VIETNAM (1994)
                                  15,000



                                  10,000                                                  Thailand       Malaysia
                                                     China
                                                                                          Indonesia
                                   5,000                                                               Philipinnes

                                      0
                                           1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
                                                                        Number of years

				
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posted:3/14/2010
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