Local experts call for stability, not growth

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Vietnam's trade imbalance has moved into the "red alert" phase, and the economy needs to focus more on stability than high growth, economists warn.

They say failure to address the problem would render national development unsustainable.

While the nation's economy has grown rapidly in recent years, its structure was "fragile" and unhealthy from a long-term development point of view, as it has been experiencing budget and trade deficits for some time now.

Vu Thanh Tu Anh, research director at the Fulbright School in Ho Chi Minh City said Vietnam's trade deficit widened from US$5.6 billion in 2007 to $9 billion last year even after it boosted exports.

"The trade imbalance has lasted 20 years and we are now in red alert," said Anh.

Tran Hoang Ngan, deputy rector of the HCMC University of Economics, said the budget deficit accounted for 8 percent of Vietnam's GDP in comparison with 5 percent that is considered the "red alert" danger level.

Vietnam's balance of payment has been in a deficit for several years now, meaning the country spends far more than it earns, the experts said.

Anh said inflows from remittances and FDI were not sufficient to cover the ballooning deficit.

The trade imbalance has also affected the issuance of bonds by the government to foreign investors who are asking for higher returns, he added.

The economists said the budgetary deficit and trade imbalance has increased inflation and interest rates, causing macroeconomic instability even as the nation stands on the brink of economic recovery.

Vietnam is facing step inflation as it targets high economic growth in the economy this year. The government is targeting a 6.5 percent growth rate, while attempting to curb inflation at 7 percent. However, attaining this growth will not be possible without having inflation soar further, the economists said.

Tran Dinh Thien, acting head of Vietnam Institute of Economics, said Vietnam should focus on stable development rather than high economic growth while its structure was still "soft".

Thien said the "soft" development resulted from high expansion in investments and credits but low efficiencies, especially in the State sector.

Vietnam is a "˜champion' of high incremental capital output ratio or ICOR as it invests $6-7 for a dollar gain in GDP, while comparable figures for China, Japan and Taiwan are $4, $3.2 and $2.7 respectively, he said.

Anh from the Fulbright School said the government should create more opportunities for the private sector and reduce investments in the state sector which accounted for 43.6 percent of the country's total investment in a year, but their contribution to the national GDP is half that of the private sector, including foreign businesses.

Asian Development Bank country director for Vietnam Ayumi Konishi also said Vietnam should not "rush" ahead and should focus instead on economic stability and efficiency.

The director said last week improving the efficiency of its economic system was an important task now in order for Vietnam to deepen its integration into the regional and global value chain.

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