Vietnam needs to address fundamental problems
Prices of petrol, electricity and some inputs for production have increased, causing a concern that inflation could come back. What is your opinion?
I would not like to speculate whether it is going to be 10 or 8 per cent. The general point is that there are underlying inflation pressures which could come up to the surface and lead to some upward inflation numbers. I think the biggest takeaway for the policymakers is that this is not a time to say now inflation is fine, we could loosen monetary policy because these pressures could come back very quickly. I think we recognise that there are some factors that could spike inflation.
If inflation comes back, it will significantly affect enterprises’ inventories which are considered the main reason for mounting bad debts. How should this problem be tackled?
It depends on where inflation is coming from. That may make the inventory level worse or may not have that much impact because if you have high inventory that means people are not buying and demand is low. If you have high prices, again, overall people might demand less but people might even shift between different things so demand for something might increase and for another might decrease.
Clearly this is a very important issue and if you look at what is happening, the resolution of it will also depend on the resolution of banking and financial issues.
In a nutshell, it is not easy. Tough decisions need to be made but they need to be made on the basis of solid evidence and data. Different parts of the government need to be acting together. It is not just the job of the State Bank yet the State Bank will have to lead. But you need other parts of the government coming in as well, supporting and doing their roles.
In the current context, do you think the State Bank should lower interest rates more quickly?
Whether you cut interest rates or not is just a short term issue. What policymakers really need to be focusing on are the fundamental sources of economic inefficiency. Cutting interest rates or increasing credit is easy to do and it may give you a little more growth in the short term. But in the long term your problem is not resolved.
The sources of inefficiency are related to the state enterprise sector, to public investment and to solving the issues in the banking sector. If these are not addressed then even if you cut interest rate now and you manage the 6 per cent growth, you will still have problems next year. Vietnam will still not have the basis for sustained long term growth.
The government is concerned about growth and that is an important thing to be concerned about but the real question is: do you want to get 6 per cent now and hover at 4 and 5 per cent and have a challenge in the coming years, or do you want to take the decision now and solve the inefficiency in the economy, so that in the future this country can grow faster.
When Vietnam’s growth is lower than its potential, will it see risks of foreign investors withdrawing their capital?
If investors have a good environment, the macro context is stable, they will come. If the macroeconomy is so unstable, they would not be able to plan their investment. For me, this is a critical juncture for Vietnam. You can loosen monetary policy and go back to your old growth model which is totally inefficient and it guarantees that you will get stuck.
The State Bank has increased the credit growth ceiling for some banks. What do you think about this move?
The credit growth is way below the credit target that the State Bank set. So there is room. The important thing is that they have been discriminating and they are doing that not for everybody, but for the banks that could use the productive investment and where the risks are limited. By increasing the credit, you do not want to add to the non-performing loans.
That is why the weaker banks are limited on their ability to grow their credit. It would not be too much risk because they are differentiating between the quality banks and the non-quality banks and those that can handle more of the risk.
