Dawn of new era in Vietnam

by Hai Nguyen
August 31, 2011

http://www.weeklyblitz.net/1738/dawn-of-new-era-in-vietnam

Apart from the opportunities there are also a number of economic challenges for Vietnam's new government during their five-year term.

As the supreme administrative agency, the new government cabinet would face a range of challenges. So let's take a look at these challenges and the opportunities that are also opening up for them to successfully administer the country and effectively utilise potential development.

Major challenges

The new government has a tough job ahead in this term as the economy grapples not only with high inflation but also with macro-economic imbalances, including a large budget deficit and investment exceeding the economy's capacity.

Because of these factors, national debt and public debt have approached their limits, and added to loose management in the credit sector for a number of years this has created an imbalance in the relationship between money and goods and resulted in a decline in the value of the Vietnam dong and a situation where interest rates do not reflect real value, etc. Corruption, authoritarianism and unwarranted arrangements for benefit groups create considerable difficulties for the economy and for society.

Many international consultants and international financial institutions, including the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB), have firmly suggested that Vietnam resolve corruption and create a healthy environment for investment and business.

"Corruption remains complicated, with cases from 2005 to 2009 only being uncovered and prosecuted in 2010," said Mr Le Hoang Quan, Chairman of the Ho Chi Minh City People's Committee. "A number of cases included forged documents and records and the bypassing of internal agencies' control and inspection to misappropriate money from agencies and organisations. This requires leadership at all levels to strengthen education on responsibility at work and to oversee cadres and public servants."

The economic situation in Vietnam has often been categorised as "unpredictable" due to undefined impacts from the global economy, from which many powerful economies such as the US, Western Europe, Japan and China have not overcome quickly. Unstable prices for oil and gold and a weak US dollar also raises the cost of goods and debt. Vietnam has recently joined the ranks of low- and middle-income countries, with GDP per capita standing at $1,100 to $1,200, so any external impacts will be significant.

It is generally agreed that internal factors, including a high budget deficit, widespread investment focusing on and being biased towards the State sector, loose control over investment efficiency and poor financial discipline within State groups and SOEs are the major reasons for the ongoing high inflation rate. The 2002 Budget Law and the decentralisation mechanism also made imbalances become increasingly serious. In such conditions if there is no wise way to operate and the economy will continue to experience difficulties.

Opportunities for the new government

When the new government has accurately identified the challenges and determined that the subjective reasons are the major causes, there will be an opportunity for them to make the right decisions, encourage the country as a whole to overcome the challenges and develop in a sustainable manner with high quality. The new government should make more aggressive policy decisions based on consensus from society to create significant change.

It can identify solutions to create innovative development by recognising the difficulties and shortcomings. It can resolve traffic congestion, weaknesses in technical infrastructure, the low quality of human resources at factories and agencies, and institutional reform. Many errors and weaknesses come from inaccurately designed institutional systems and inadequate economic institutions. Mistakes in policy and planning originating from these factors will also cause serious damage.

For example, local authorities are racing to build dozens of golf courses on farmland, and the land area of Tan Son Nhat Airport in Ho Chi Minh City is wrongly planned. If such things continue, the implementation of what is considered quick and "good" investment will create a waste of resources.

They will also not guarantee the sustainable development mentioned in the Prime Minister's message in early 2010. If SOE reform and corporate governance see no change, with poor management over "investments outside of their core area" in hundreds of subsidiary companies, similar cases like Vinashin will be unavoidable and facing a situation not dissimilar to Greece will not be too far away!

Another issue is a lack of cooperation. For example, to exploit bauxite, the Ministry of Industry and Trade developed plans to produce alumina at Tan Rai in Dong Nai province, based on hundreds of miles of roads to the port. But the Ministry of Transport and local authorities introduced charges for road use.

So no one has overall responsibility for the road network and even Dong Nai Provincial People's Council is seeking an urgent solution. Although the Ministry of Transport recently agreed to upgrade Provincial Road 769 to transport bauxite, Dong Nai has proposed that they deny access by Vietnam National Coal and Mineral Industries Group trucks to avoid any risk of collapsed bridges or damaged roads and ensure traffic safety.

New hydroelectricity projects have also been constructed in a number places without any regard being giving to reservoir safety. So when floods arrive, wrong management of reservoirs can create even greater flooding and damage. Many examples show that with determination in reform, the new government will be able to create new momentum for development.

Many analysts agree that seeing opportunities in challenges does not only mean that the government allows people to do business in legal sectors but also that there is a need to pursue economic policies that lead and encourage people and businesses to operate more effectively. This jump to the next level is appropriate in a new period of development.

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