Flexible adjustments of macro economic policies

Recently, many countries in the world have plunged into serious economic recession. In your opinion, what will be the development of the global economic downturn in the coming time?

The global financial crisis and economic recession has been spreading and becoming more serious. Before EU, Japan, Hong Kong (China) plunged into recession, there had been forecasts that many developed countries would have minus growths. Especially, the economies of countries are forecast to face many difficulties in the third and fourth quarters of this year and the world economic recession will become the most serious in the fourth quarter of this year and the first quarter of 2009. After that, the situation may become a little brighter in the third or fourth quarter of next year. In general, in 2009, many developed countries will enjoy minus economic growths while economic growths by developing countries will be much slower compared to 2008.

Then, what are the impacts of the global economic recession on Vietnam’s macro economic stability?

If we look at some macro-economic indicators, the macro-economy in the recent months has been relatively improved. Inflation has been reduced gradually. Trade deficit has also been decreased. Liquidity of the domestic banking system has been getting better. Pressure onto the international balance of payment has been relieved, so has the pressure on the foreign exchange market.

Within the context of world financial crisis and economic recession, there have been both advantages and disadvantages in Vietnam’s efforts to stabilise its macro economy.

The tightening monetary policies carried out since the second quarter of 2008 has contributed to reducing inflation. At the same time, the global prices have also seen strong reduction, making it easier to deal with inflation. This has been an advantage for Vietnam in policy making, and it is also easier to have ways of dealing with growth and social issues.

However, it is clearly seen that Vietnam’s macro economy is still happening in a complicated manner. Though inflation has been curbed sharply, risks are still lying ahead.

Firstly, Vietnam has to keep a close watch over the situation to work out proper monetary policy in such a way as how to do with it, further relaxing it or further tightening it,, together with other acts of keeping prices of a certain kinds of products to the market prices and scheduled salary rise. These are the factors that make no good impacts on inflation.

Secondly, though Vietnam’s international balance of payment is currently in surplus, trade deficit is still at high level. Import turnover in recent months, as has been reduced as it is, is still high while it is more difficult to mobilise capital from foreign sources, including foreign remittances, foreign direct investment and foreign indirect investment, to make up for the trade deficit.

Thirdly, Vietnam’s capital market is developing in an unstable manner in the current context. The behaviour and acts of foreign investors on the Vietnamese market might cause certain psychological changes. Investors have had to consider restructuring their portfolio. They themselves have had difficulties. Thus, their acts might have negative impacts on Vietnam’s financial market.

In addition, the capacity of risk management of Vietnam’s banking system is still poor.

There have been opinions that Vietnam’s economy is likely to face deflation. What is your opinion?

As I have mentioned above, currently there are advantages for Vietnam to deal with inflation. There have been better and more flexible actions to help enterprises overcome difficulties and solve issues relating to growth and social welfare. However, the situation is still quite complicated in Vietnam. There needs to have an overall conception of deflation. It is important that that opinion at this period may lead to easy policy decisions or excessive policies such as excessive loosening monetary policies. This might have negative impacts on the achievements in macro-economic stability which Vietnam has had recently.

The slower price increase is partly due to Vietnam’s tightening monetary policy and partly due to global price decrease, especially petrol prices.

However, the complexity of the macro economic stability and some other elements may lead to prices increase. The improper assessment of the situation, leading to easy policies, will worsen the achievements of macro-economic stability. And this is not good at all.

In your opinion, what are the measures to manage the macro economic policy?

Firstly, there needs to have a close watch over the domestic and foreign situation which changes rapidly so as to regulate policies in a flexible manner.

Secondly, Vietnam must select a targeted policy. In the current situation, the wise solution is that Vietnam needs not to try for high growth by all means. On the contrary it should maintain a growth that ensures employment, incomes and reduces social pressure. This is more important. At the same time, efforts must be made to stabilise macro economy, including inflation, international balance of payment, banking and financial system...

The appropriate policy for the immediate period is to loosen the macro economic policy in a careful manner. This is also a good time to use monetary tools, shifting from administrative decisions to market decisions.

In addition, assistance should be given to small and medium-sized enterprises, effective projects to develop infrastructure to create impetus for growth.

Policies for social assistance are needed too, to give assistance to the right people with simple and transparent procedures.

This is also the time to continue boosting reforms in different sectors: administration, banking system, State-owned enterprises.

Vietnamese enterprises, particularly small and medium-sized enterprises (SMEs) are facing many difficulties. What is your advice for enterprises to overcome these difficulties?

The above-said macro-economic policy is also the measures to assist enterprises.

Currently, there are three groups of SMEs. For those SMEs that operate with their own capital and do not borrow loans from banks, they are also facing more difficulties due to narrowed market and lower purchasing power. However, these SMEs are more flexible, thus their adaptability is also better.

Secondly is the group of satellite enterprises whose activities are closely linked with certain big enterprises. In case, their big enterprises are continuing their operations, the linkage between the small and big enterprises is also the guarantee for consideration of capital grant for them. On the other hand, if big enterprises are facing losses or bankruptcy, their satellite enterprises should be re-structured and shift their businesses activities, maybe through merging or acquisition.

For those medium enterprises that use much loan from banks, they and their banks and their associations should together discuss for better understanding and find measures to help each other.

Enterprises are urged to learn how to live in an environment of many shocks. It might be a price shock, trade disputes or the instability of macro-economic policies. Enterprises have got to have risk preventive tools and thorough understanding of international commitments and regulations. Temporary shocks force enterprises to reduce costs while long-term shocks require them to carry out restructuring.

Furthermore, enterprises should study to find ways to increase their competitiveness so as to be able to survive and achieve growth amid difficulties.