Policy making on “euphoric effect”
VietNamNet Bridge - According to economic experts, the current recession though not being recognized by any official document, comes to people everywhere. Some even said that we are falling into the "euphoric effect," even in the policymaking process.
Dr. Le Dang Doanh: "Both judged and be judge" institution
The major problem of the Vietnamese economy at present, as the Americans say is “Elephant in the room.” One of the "elephants" in Vietnam is the SOE "elephant." This "elephant" now owes the debts of up to VND1,334,000 trillion ($66.7 billion).
The next is the bankruptcy of private enterprises and bad debts of the estate firms. And the "causes of the causes" are the institution.
About the prospects for 2013, I do not share the optimistic forecast. I think the economic situation will remain difficult. Besides the improvement in the short-term, how will the long-term fundamental problems to be solved?
How to handle the $67 billion debts? In such as the situation of the banking system and bad debts, whether the asset management company with VND500 billion of capital can resolve the debts of VND500 trillion, and for how long?
Now we have the "great" mechanism of issuing special bonds, then the state bank will buy back the bonds to clean the books. But after five years, if it is not resolved, the bank will have to sell the bonds. This technique to clean the books is great, but it only works in the short term, not long term.
... And finally, the cause of causes, is the institutional issue. If it is not solved, are these problems settled?
Dr. Le Xuan Nghia: Falling into the "euphoric effect"
There are some major issues to consider, but first and foremost is the bad debts.
We should not use the word handling NPLs (non-performing loans) anymore, but credit ice breaking or restoring aggregate demand.
The U.S. had to pay a lot but it took five years, until the first quarter of 2013 to make the credit ice start melting. Vietnam has a very simple expectation: if the interest rate reduces, the credit ice can melt. This concept is unacceptable.
We need to look at the overall, as research of the model of the VAMC asset management company, and using other solutions such as direct recapitalization from the central bank, or use the state budget to solve debts of the SOE sector, encouraging foreign investment in Vietnam’s debt market, selling state-owned enterprises to have money to deal with NPLs etc. .. In summary, solving NPLs needs real money, money from the budget or printing more money, not the 3rd way.
Secondly, it is the foreign investment in Vietnam. After joining the WTO, our growth decreased, inflation doubled compared to previous cycles. This suggests that we have fallen into an effect that Americans call the "euphoric effect," or getting rich too easy.
It's like some people in Vietnam who acquired some plots of land through the relations with the government and become tycoons.
Likewise, our government thanks to direct foreign investment in offices and land rent, etc... which helped strengthening the domestic market, to make Vietnam get rich too easy. And so we fall into the "euphoric effect" within the policymaking process.
If reviewing the strategy of the Party Congress and the resolutions of the National Assembly of the last term, we will see that all of the targets are set based on the "euphoria syndrome." That is the mindset of the emerging bourgeoisie. That is illusory, subjective, and setting out a strategic way but applying different tactics, with poor discipline of the policy.
I think that the impact of FDI is very important. It seems that the two waves of foreign investment helped pull the Vietnam’s economy up.
In 1997, we were in the crisis and seemingly foreign elements pulled us up. With this crisis, I feel that the FDI factor in 2012, 2013 is working to pull us up.
We need to study about this phenomenon and to assess the real value of FDI in Vietnam, to know whether the key objectives of foreign investment has been achieved and what should we do to attract, and effectively use foreign investment.
Dr. Vu Viet Ngoan: “We need to analyze the back side, or in other words -- the cost we have to pay for the policies that are being implemented, focusing on two issues, exchange rate policy and monetary policy.”
Currently the exchange rate policy is making positive results: increasing macroeconomic stability, contributing to control inflation and to increase the value of the Vietnam dong, etc... However, we must bear certain costs for this policy.
First, we must apply the high interest rates for the Vietnam dong, affecting domestic production and enterprises. Second, it affects exports of domestic companies.
Third, when the interest rates of the Vietnam dong is high, stable exchange rate will lead to the change of foreign currency structure, the currency structure. For example, the people, the credit institutions, commercial banks can sell foreign currency to take the Vietnam dong to lend. This type of short-term investment does not encourage policy objectives.
We need to calculate the cost we have to pay to know the benefits and the costs to determine whether we should continue implementing the exchange rate stabilization policy or not. And if we continue, what should we do to reduce side effects.
The second problem is the implementation of monetary policy towards harmonization of the goals of controlling inflation and gaining reasonable economic growth. Focusing much on short-term inflation control will lead to consequences affecting growth, production and imbalance of supply and demand for goods, causing deflation due to lack of goods.
Therefore it is necessary to study the costs and benefits of the policies to control inflation to determine whether to continue that policy or relax it to some extent.
Dr. Vo Dai Luoc: Serious situation, under normal solutions
We need real assessment to have correct solutions. Inflation in the first three months of this year going down and it is considered a success. But the government actually did not have to do anything to reduce inflation, which is mainly due to the decrease of total supply and total demand.
…Or the bad debt solutions. Many people doubt whether the establishment of the VAMC asset management company can handle bad debts. Because in fact, to handle bad debts like Indonesia in 1998 it took 50 percent of GDP and a number of commercial banks, credit institutions went bankrupt. It looks like we do not want to pay for it and whether can we handle it?
After analyzing all solutions, we can see that the situation is serious but the solutions are even below normal levels.
The current recession is not recognized in any official document but people everywhere are talking about. If we don’t truly identify the actual situation, the solutions will not fit.