Recovery unlikely until 4th quarter, says economist

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A file photo of containers at a port in the central coastal city of Da Nang. Vietnam's economic growth slowed to 4.38 percent in the first half of 2012, the lowest rate in three years. Photo: AFP

Vietnam's economy will not recover just yet since more difficulties are likely to arise while new business opportunities have not arisen, and the corporate sector continues to be embattled, Nguyen Minh Phong, an economist at the Hanoi Socioeconomic Research Institute, tells Vietweek.

He believes things may begin to look up in the fourth quarter as consumption picks up ahead of the New Year.

Vietweek: It is thought that the economy has bottomed and now begun to recover. What do you think?

Nguyen Minh Phong: To answer the question, we should review three issues - whether all possible difficulties have arisen already, new opportunities have arisen, and hurdles to firms' production and business still exist.

As for the first issue, I think the difficulties faced by firms and the shortcomings of the economy will continue, even worsen. Regarding prospects, not many opportunities have opened up for firms to develop. Their debts have accumulated due to high interest rates, while they have had little chance to earn money; so difficulties still exist. Firms now suffer from the aftermath of the economic slowdown, including high interest rates and big financial burden. The government has only deferred taxes, not cut them, while administrative procedures are complicated. Firms have yet to get many business opportunities. Garment firms have not received many new orders from foreign partners, while rice and rubber traders are struggling to cope with lower export prices.

Most difficulties faced by firms remain. They also suffer because of the hikes in the prices of power and running water and a return of inflation due to the inflationary trend around the world and our loosened credit policy.

The government has only mapped out plans, not offered concrete measures, to rescue firms. Meanwhile, firms have not taken measures to save themselves or each other. Business associations have even left members in the lurch. Companies are not borrowing to expand business, but merely fumble with measures to overcome their difficulties.

Measures now focus only on rescuing banks.

So I think the economy will not recover now. The situation may get better in the fourth quarter, when trade and consumption are higher because of the New Year. This is expected to open up new opportunities for firms. Stimulus packages in some countries are expected to create demand, helping boost our exports. The lower interest rate is a positive factor, enabling companies to more easily access funds at lower cost.

How will the world economic situation affect Vietnam's economic recovery?

The public debt crisis in the EU, the US, and Japan has affected Vietnam in some ways. The first impact can be seen on the export sector. Obviously, because of the crisis, consumption in these markets fell, reducing exports by Vietnamese companies. It also hit jobs and firms' incomes. This also explains why we cannot yet say the economy has bottomed out.

Nguyen Minh Phong, economist at the Hanoi Socioeconomic Research Institute

The fall in the prices of crude oil, rice, and rubber has badly affected Vietnam's exports, because they are its key export items.

Second, more technical barriers have been erected in some countries to limit imports though many bilateral free trade agreements have been signed. In the first six months of this year our agricultural products worth US$200 million were rejected after failing to meet importers' technical requirements. This is very dangerous, and it may continue if we fail to overcome the barriers.

Because of the economic slowdown in other countries, FDI in Vietnam has fallen. Vietnam attracted $6 billion in the first half, compared to over $60 billion in [the whole of] 2008. Overseas Vietnamese has been affected by the economic slowdown, reducing their remittances to Vietnam. Only $2.5 billion has been remitted to Vietnam this year, compared to some $9 billion [in the whole of] last year.

Credit will be loosened in the second half of this year. This poses a threat of the return of high inflation and increasing bad debts. What do you think?

The government's direction is flexible and right. As of June 12, credit had only grown by 1.7 percent, so it should increase further. However, loans should be controlled to ensure that money goes to the right companies.

If the government attaches priority to economic growth, will it be easily achievable?

It is easy to meet the goals of boosting economic growth and controlling inflation separately. The most difficult is the government's target of both curbing inflation and ensuring stable economic development.

Firms still have a triple burden of taxes, interest rates, and tortuous regulations. They have not received support from each other or from state agencies.

Interest rates have been cut, but companies have not shown much interest in borrowing "¦

Companies used to want loans, but they stopped because of high interest rates during the past one year. The more they borrow, the bigger losses they suffer. So they do not want to borrow now.

Banks account for 90 percent of capital sources, so companies have to depend on them. Banks can force firms to accept their lending terms, which are profitable for themselves. This is seen in the large gaps between deposit and loan interest rates.

In other countries with better financial markets, big firms can be financially independent. They can also raise money through investment funds and the securities market.

To help the economy rebound quickly, companies should find ways to improve their business and production. More specifically, they should update market information in time, focus on restructure, improve corporate management, especially risk management, and strengthen cooperation with each other.

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