Economy getting back on its feet

“We have in 2012 succeeded in bridling inflation and stabilising the macro-economy, despite the global economic difficulties. This reflects big efforts of the Party, the National Assembly and government in macroeconomic monitoring,”  Party General Secretary Nguyen Phu Trong declared at a year-end meeting with the Ministry of Planning and Investment (MPI).

The MPI announced the consumer price index (CPI) increased 6.81 per cent in 2012.

This rate is better than the initial target of reining in inflation at below 10 per cent. It is also lower than the 11.7 and 18.13 per cent levels in 2010 and 2011, respectively, according to MPI data.

“The low 6.81 per cent CPI rise is a big success made by the government’s tightened monetary and fiscal policies,” said General Statistics Office’s (GSO) head Do Thuc.

A contributing factor, Thuc said, was lowered development investment capital, which reduced to 29.5 per cent of gross domestic product (GDP) in 2012 from 42.7 per cent of GDP in the 2006-2010 period and 34.6 per cent of GDP in 2011.
 
The GSO also reported that GDP for 2012 grew 5.03 per cent, lower than the initial target of 6-6.5 per cent set in November, 2011. Actually, economic woes forced the government to lower the GDP growth target from 6-6.5 to 5.8, 5.5 and 5.2 per cent.

“But the 5.03 per cent growth rate is suitable in the context that the government has been focusing on inflation taming and macro-economic stabilisation,” said MPI Minister Bui Quang Vinh.

Vinh said the economy, whose GDP size was $136 billion, was recovering. In fact, this was mirrored by a GDP growth rebound, with consecutive quarterly growth of 4.64, 4.8, 5.05 and 5.44 per cent during the year. Also, Vietnam’s balance of payment saw an $8 billion surplus in 2012.

Recently the World Bank, with its calculation method, announced that after eight years of a current account deficit, Vietnam would have a current account surplus in 2012 despite a turbulent economy.

The World Bank pointed out that Vietnam’s current account surplus in 2012 would be 2.7 per cent of GDP, or $3.7 billion, and the trade surplus would be 4.7 per cent of GDP, or $3.45 billion.

Meanwhile, the MPI’s calculations showed that Vietnam enjoyed a trade surplus of $284 million in 2012 after 20 years of running in a deficit. In 2012, Vietnam’s foreign currency reserves would rise to the equivalent of 12 weeks of imports.

“Despite the current woes in the banking and the state-owned sectors, progress has been made on stabilisation and the government has remained committed to a painful but necessary readjustment with positive results – the currency has stabilised, inflation has moderated, the trade balance has improved and foreign exchange reserves have strengthened,” said Simon Andrews, IFC regional manager for
Vietnam, Cambodia, Laos, Myanmar and Thailand.

Victoria Kwakwa, the World Bank country director for Vietnam, called the government’s inflation and growth successes “impressive gains in macroeconomic stability during 2012.”

“This has been made possible by the recognition of macroeconomic stability as an important priority, by strong political commitment and resolve, which has allowed the needed bold actions,” she said.

Sanjay Kalra, resident representative of the International Monetary Fund in Vietnam, said Vietnam’s economy was better off in late 2012 than it was in 2011.

“Headline inflation has declined from over 20 per cent in August 2011 to single digits in 2012,” Kalra said. “The current account has been in surplus with strong export growth. The exchange rate has been stable in 2012 and the level of international reserves has increased. As inflation has come down, it has been possible to bring down the structure of interest rates - policy rates, deposit rates and lending rates.

“With these achievements, the authorities’ macroeconomic management credentials and credibility in the market have improved,” Kalra said.

The GSO’s Pricing Statistics Department vice head Ngo Anh Duong cited drawbacks amid achievements regarding inflation and GDP growth. For example, the government’s tightened policies led to 2012’s credit growth rate of only 5 per cent, which was very low.

“The policies mean cash-strapped enterprises have low demand for buying materials for production, and narrowed production means low growth,” he said.

Specifically, the index for industrial production for the whole 2012 climbed 4.8 per cent on-year, much lower than the initial targeted 8.5 per cent and last year’s 6.8 per cent.

The year 2012 also saw nearly 52,000 enterprises go bankrupt and simply ceased operations, the MPI reported.

However, Kalra said: “Short-term sacrifices would create the conditions for Vietnam’s larger benefits over the longer haul. We have great confidence in the Vietnamese economy. The government must not weaken its resolve to maintain macroeconomic stability.”