“Taking off’ had been the popular description.

But a clutch of problems since — inflation, trade deficit, stock market crash — has meant the economy is firmly rooted to terra firma.

What happened?

Many major opportunities did come with WTO admission.

But instead of incorporating them into their long-term strategies, many businesses, especially state-owned ones, turned them into short-term trading opportunities to earn easy profits.

They bombarded the stock market with new share issues.

They spent the windfall on buying shares in other companies instead of investing in their own business.

Meanwhile, several state-owned business groups and corporations were scrambling to set up banks and securities companies instead of focusing on their core businesses.

This trend was fueled by foreign portfolio investors who were willing to pour money in what they considered a promising market.

The central bank ignored the abnormal growth in bank lending, while the Finance Ministry was willing to suffer budget deficits to increase public investment in ineffectual projects.

Cash flooded the real estate market, inflating prices to unprecedented levels, but the mammoth profits lured people.

As for exports, the WTO membership was expected to open the door wide for Vietnamese exports since they would no longer face protective tariffs.

The trade deficit soared to US$12.4 billion last year compared to $4.6 billion in 2006.

It’s topped $4.2 billion in just the first twomonths this year as nouveaux riches import cars costing up to $1 million.

Regrettable mistakes

Only after the situation became messy did a State Bank of Vietnam official disclose that some banks had lent up to 2.5 times their total deposit figures.

It is inexplicable that the central bank waited so long.

If it had, many people would not have with-drawn money from banks to deposit them in others that offered much higher interest.

This mass churning has greatly disturbed the market.

A paucity of accurate information has been undermining efforts to resolve economic problems as soon as they arise.

Economists have only been able to make ballpark suggestions since they do not have access to reliable statistics.

Official announcements often contradict one another, further confusing the public.

For instance, the central bank said it would cap loans against securities but the government did a U-turn; the government promised to deal with the problem of widespread use of the dollar in the economy, but then allowed foreign investors to buy securities using foreign currency; it tried to drain liquidity in the market one day but pumped in more cash the next.

Experts have argued that if the government continues to pump money into inefficient projects, its efforts to fight inflation using monetary policy will go down the drain.

The contradiction between many policies is obvious: Some aim to reduce liquidity to fight inflation, others attempt to increase it to fuel gross domestic product (GDP) growth.

Some officials recently blamed their confused policies on the changes wrought by the WTO admission.

But integration into the global economy is no justification for their allowing the free flow of foreign money into the market, which has created unnecessary pressure on monetary policy.

Neither does it justify allowing anyone with the money to establish banks and securities companies.

What must be done?

The current situation calls for a coordinated effort by various official agencies to stabilize the economy.

Was there coordination between the Planning and Investment Ministry, the Finance Ministry and the State Bank in setting out the foreign direct investment target for this year?

It is also essential that these agencies adopt a long-term view.

This will require the government to make a clear distinction between actual problems faced by enterprises, especially small- and medium-sized, and claims made by firms losing generous state subsidies.

But most important is to create confidence among the public that the government is determined to deal with issues like inflation, the real estate and stock markets, trade deficit and foreign indirect investment.

Policies can be flexible depending on the needs of the market but will have to be fundamentally consistent.

By Nguyen Van Phu (TBKTSG)