New economic status comes with middle-income trap

TN News

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Vietnam is to be commended for its rapid and proactive response to the recent global downturn.

A year ago, Vietnam was considered to be one of the countries in the world most exposed to the effects of the global financial crisis, due to its strong reliance on external finance and export markets to sustain its fast rate of economic growth. Over the past year the government has implemented measures to stimulate economic activity during the crisis and mitigate its impact on the most vulnerable segments of the population, and today Vietnam is again emerging as one of the strongest economies in the region.

However, as we come out of the crisis it is important not to lose sight of the challenges that remain. Vietnam now stands at the threshold of achieving middle-income country (MIC) status, which will bring both challenges and opportunities. We believe Vietnam could be a star MIC performer, but to do so it will need to plan now to avoid the “middle income trap” and ensure that further development is inclusive, equitable and environmentally sustainable.

Jesper Morch, UN Resident Coordinator a.i.

External competitiveness

In an international environment in which growth of the world economy is expected to remain slow for some time, Vietnam needs to bolster its external competitiveness. It is important, therefore, that the government introduces measures to improve the business environment, and that it carefully manages its exchange rate policy against the US dollar and other major currencies. Greater attention also has to be paid to the quality of Vietnamese products and business practices.

More decent jobs

Among the most critical of longterm challenges facing Vietnam are the need to generate decent jobs for the many young people entering the labor market every year, and the need to continue moving up the international value-added chain and technology ladder. Investment policies, for instance, need to be refined so as to prioritize quality over quantity, and should seek to maximize the spill-over effects typically associated with FDI in areas such as technology accumulation and the development of skills.

Creating more decent jobs and adding greater local value to Vietnamese products will require resolute efforts to expand the provision and quality of higher, technical and vocational education so as to upgrade Vietnam’s human resource base.

Social protection

Despite the steadily decreasing overall rate of poverty in the country, not all population groups have benefited equally. Public social services such as health, education, water and sanitation are not universally accessible to all Vietnamese with comparable levels of quality throughout the country, and the economic crisis has had an impact on many people’s livelihoods. The slowdown in business activity over the past 12 months has lead to a significant reduction in working hours and, therefore, in household earnings. Women in particular are working more, and, for longer hours, to support their families, with consequences for the care and supervision of children.

It is important, therefore, that the government strengthen social safety nets and social protection systems to help people, especially those who are most vulnerable.

Full industrialization

The next SEDS and five-year Socio-Economic Development Plan (2011-2015) will define Vietnam’s performance as a middle-income country and its path to full industrialization. In addition to the challenges already mentioned, a successful journey through middle-income status will require a more robust response to corruption and strengthened national capacity to cope with the major global challenge of climate change.

The UN will continue working to help Vietnam address these challenges, and take advantage of the opportunities created by its imminent MIC status. 2010 will be an important transitional year but with continued international support, and with government commitment to inclusive and equitable growth, the prospects for a successful journey through the MIC stage are strong.

By Jesper Morch*

* The writer is UN Resident Coordinator a.i.

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