Trade deficit dip a mixed signal: experts

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The recent fall in trade deficit is not completely good news for the economy, as it shows that local production has slowed down, and that firms have not been interested in importing materials and equipment for production, experts say.

Vietnam's trade deficit was US$100 million in January compared with $269 million last December. The total shortfall was $9.5 billion in 2011, according to the General Statistics Office.

Economist Ngo Tri Long, former deputy head of the Market and Price Research Institute, said: "It is a good trend. However, a reduction in just the first month is not enough for statements that the situation for the whole year is better."

He said the combination of several factors including sluggish production, capital shortage, high production costs and lower purchasing power could "lead to economic recession."

Imports in January fell to $6.6 billion from $9.356 billion in December, said the General Statistics Office report. Compared with a year earlier, imports declined 18.7 percent.

Vietnam targets a balance-of-payments surplus of $3 billion in 2012 and enough foreign-exchange reserves to cover 12 to 15 weeks of imports by 2015, central bank Governor Nguyen Van Binh said in December.

Nguyen Van Nam, former head of the Institute for Trade Research, said the narrowed trade deficit may boost confidence in the nation's economy and the dong, which has gained this year after losing more than 7 percent of its value in 2011.

Nam said the pressure on the dong may reduce when the demand for foreign currencies to import products decreases. Overseas remittances, foreign investment and official development assistance inflows are also supporting the balance of payments position.

However, he said the trade deficit reduction may also be a bad sign for exports this year, as firms have to import material to produce goods for export. Firms were importing fewer products also because they've received fewer orders from foreign customers.

Nam also said the reduction in trade deficit is unstable because Vietnam has taken administrative measures to deal with it.

"We are using administrative measures, like import control of some products to curb the trade deficit. However, the measures are temporarily effective," he said.

For example, automobile imports could go down this quarter due to the import control policy, but would increase next quarter, if there is real demand, Nam explained.

"To lower trade deficit in a stable manner, we have to increase export value. However, we have not yet done this well," he said.

Some agricultural products such as coffee, rice and seafood have seen export growth, but mainly in volume, not added value, he said. Industrial products are in the same situation, as coal and crude oil are also exported mainly as raw materials, and garments and footwear are produced under outsourcing contracts.

"We could not keep increasing the export volume of agricultural products due to limited land for production. Our current export growth now is not stable," he said.

Vietnam's investment in increasing the added value of export products is still thin, while policies on increasing the value are unsuitable, he said. Only 20 percent of Vietnam's raw coffee and cashew nuts meet international standards, being qualified enough for export.

Deputy Minister of Industry and Trade Nguyen Thanh Bien said exports in 2012 may face some difficulties, as demand in major markets for Vietnamese products, like the EU and the US, may be lower.

The economies are facing increasing public debts and high unemployment rates. Meanwhile, many markets are using technical barriers to limit imports to protect local production, he explained. Thus, export revenues from many products, including some key items such as garment and footwear, are expected to see slower growth next year.

Nam said the government should have specific policies to support exports.

"For example, we should know why our coffee fetches prices that are lower by hundreds of dollars per ton compared with other countries. What are the difficulties that coffee producers are facing? How do we overcome the difficulties?"

He said if the government takes suitable and concrete measures, Vietnam may fulfill its goal of keeping the trade deficit at some $13 billion in 2012, or 12 percent of total export revenues.

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