Stop chasing GDP targets, economists say

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Several economists are saying the government should not commit itself to any gross domestic product target, adding economic growth cannot be a forced process.

Vietnam should just follow other countries and release regular economic forecasts instead, they suggest.

Vu Quang Viet, who has worked with the United Nations Statistical Division, said GDP growth targets cannot be found in any other market economy.

The government certainly needs to look far ahead to see where the economy may be headed in order to make plans for budget spending, so it needs to have GDP projections for the long term, Viet said in an essay published in the Thoi Bao Kinh Te Saigon magazine last week.

But the forecasts should not become targets that the government is obliged to achieve, he said. "The purpose of the forecasting should be to help the government and, more importantly, the National Assembly predict and decide on budget spending."

Viet said when the government tries to push for high GDP targets, they would just fuel inflation while the quality of economic growth keeps falling.

"When GDP growth slows down, it's better to review existing policies and their impacts on producers in the economy, rather than revising targets and credit policies just to be able to achieve the targets," he said.

The Vietnamese government usually submits its annual economic plan to the National Assembly for approval around this time of the year. The legislative body will then vote on more than 20 economic targets proposed under the plan, including GDP growth and inflation.

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But with many targets being missed for several years, even members of the parliament have started to question the real value of the approved targets, according to Thoi Bao Kinh Te Saigon.

The National Assembly's Economic Committee said 10 of 24 economic targets set for the 2006-2010 period were not reached. Among the missed targets was GDP growth.

The government should avoid tying itself to too many goals, said economist Dinh Tuan Minh.

Economic growth is a key factor, but it's also a variable that is hard for the government to control, especially when the growth is increasingly less dependent on government spending and state-owned enterprises, he said.

Minh suggested the government only provides GDP projections and update them every three months, instead of aiming at GDP targets.

Two of the most important economic indices that the government should focus on are inflation and budget deficit, he said.

"If the government can control them, for instance, keeping inflation under 5 percent and budget deficit under 3 percent, foreign and local businesses will be confident of their investment"¦ Once businesses are willing to make long-term investments, economic growth will improve," he said.

Incorrect reflection

For far too long, Vietnam has been focused on economic expansion. In fact, strong economic growth is a major achievement for the nation, which managed to pull off an impressive average growth of around 8 percent from 2003 to 2007, before easing in 2008 as the global recession took hold.

However, with the adoption of a series of measures earlier this year, the government has showed it plans to put macroeconomic stability ahead of rapid growth. It is aiming at a growth target of 6 percent for this year.

The National Assembly has also approved a growth target of 6 percent to 6.5 percent for 2012.

Vu Thanh Tu Anh, research director at Fulbright Economics Teaching Program, said GDP growth has been considered the most important economic indicator in Vietnam. The problem is, when the growth in GDP is also seen by many cities and provinces as a proof of success, they tend to report higher rates than what they have actually achieved.

For instance, the official average growth rate for the whole economy in 2000-2007 was 7.7 percent per year, but data provided at the provincial level showed that none of the six geographical regions in the country posted a GDP growth lower than 9.3 percent.

"The problem of unreal and inflated GDP numbers has been prevalent for years. What is even more paradoxical is that statistics agencies and policy planners all know this but the problem has been left unsolved," Anh said.

The pursuit of high and unreal growth targets will make it hard to "make an accurate diagnosis for the economy so that the right choices of policies can be made," he said.

Economist Tran Ngoc Tho said economists and international institutions around the world are always cautious when it comes to GDP forecasting. No matter how sophisticated their methods are, they cannot always be correct, he said.

"My point is, considering what's happening around the world, it is a rare sight to see members of the National Assembly review a target set for GDP growth and vote for or against it. Those in favor would say 7 percent a year is fine while others argue the target should be revised down a bit, to 6.5 percent," Tho said.

"It's strange when the ones who argue and decide on the GDP target understand little about the models used for GDP forecasting. It's stranger still to see how the target will be of practical use later," he said.

Tho said government officials in other countries only announce GDP forecasts, instead of setting growth targets, and the markets respond immediately to every revision of those forecasts. On the contrary, GDP growth targets in Vietnam hardly have any impact on local businesses.

"Maybe it's time we went with normal conventions," Tho said.

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