Effective remedy for national economy

Mr Khoan granted an exclusive interview to VOVOnline, shedding light on Vietnam’s economic achievements in 2011 and challenges in 2012. Following are excerpts from the interview.

VOV: Vietnam surmounted difficulties in 2011 to maintain relatively high economic growth despite the global economic downturn. What were the economic achievements that impressed you most?

Mr Khoan: If the national economy is regarded as a human body, we have found its acute and chronic illnesses as well as remedies for them. Spiralling inflation was considered the acute illness, and to treat it the Government issued Resolution 11 in February to rein in inflation and stabilize the macro economy. To treat the chronic disease of the national economy, the 11th National Party Congress decided to restructure the economy and renovate the growth model. The third conference of the Party Central Committee later stressed the need to restructure public investments, State-owned enterprises, primarily economic groups and corporations, and the banking and financial system.  

Any economy needs to grow, but the crux of the matter is how it grows. High growth means nothing if it causes high inflation, overspending, and environmental pollution, and widens the gap between rich and poor.

VOV: What still worries you?

Mr Khoan:  How to treat the illness effectively is a major concern. We have gained initial results from reining in inflation and stabilizing the macroeconomy, and more time is needed to prove that current anti-inflation measures taken by the government will pay off in the end. Only a prescription for the chronic illness has been made up and, I think we should get down to working on treatment immediately in 2012.

The National Party Congress pointed out that during the treatment period, it is necessary to renovate and finalise institutions, improve infrastructure and train human resources. I am interested in training high quality human resources. However, not much has been done in this field. Tertiary education is part of the whole education system. How can tertiary education be improved if problems in primary and secondary education are not addressed completely?

I share with many educators the view that we first need to agree on the philosophy of education, then identify learning and teaching methods, recompile textbooks and retrain teachers. Management is considered a key issue for tertiary education.

VOV: Many enterprises cry out that Resolution 11 also causes difficulties for businesses? Is this true?

Mr Khoan: Like the human body, the economy suffers losses during the reshuffling process. Those who lived in the subsidy period several decades ago can understand this. At that time, my wife and I planned to use our money we had saved for years to buy a bicycle. Suddenly, salary reform was initiated and all of our savings was just enough to buy a dozen eggs. We had to accept this naked truth…. The root cause of high inflation lies in the large amount of cash in circulation. Now controlling inflation means axing overspending, and consequently everybody suffers pain.

Seafood exports bring large volumes of foreign currency to the country

VOV: Are there any differences in carrying out the salary reform several decades ago and Resolution 11 at present?

Mr Khoan: We have learnt lessons from that period. In the 1980s we had to invite specialists from the former Soviet Union to help us with salary reform. Regrettably, they could not provide much help because the concept of inflation only existed in the capitalist world.

At that time we did not have foreign currency reserves and up to 70-80 percent of the State budget were foreign debts. Now we have foreign currency reserves and the most important thing is to stabilize major balances between money and commodities, production and consumption, budget collection and spending, and import and export. I do hope we will maintain stability.

VOV: What about foreign trade last year? What impressed you most?

Mr Khoan: 2011 was a successful year for our exports thanks to the comparative advantage of price. In addition, import surplus was kept at 10 percent of exports compared to around 20 percent in the previous years.

Notably, foreign direct investment declined considerably – a move that raises a question about the restructuring of investment mechanisms to meet the requirements of the new growth model and national industrialization process. 

The fact is that weaknesses in the investment mechanism have put Vietnam at a big disadvantage in attracting foreign businesses. To name some, human resources remain poor and not cheap, improved infrastructure has not lived up to investors’ expectations, and administrative procedures are still cumbersome in some places. In addition, Vietnam has not attracted many high technology projects, production has mostly relied on manufacturing contracts, and not so many giants have invested in Vietnam.

Following news on the mass media, I have found that there is a common phenomenon of turning a blind eye to foreign investment. This ideology should be avoided because Vietnam is a developing economy and it needs foreign capital, technology and markets. In the current integration process, it is not efficient if a country produces everything itself. FDI is a valuable source of capital for Vietnam. It is worth remembering that there is fierce competition amongst foreign investors and Vietnam is just one of their choices.

VOV: What are the causes of these problems?

Mr Khoan: Perhaps we are not satisfied with several FDI projects, partly due to our choice and management. But there is no denying that FDI brings about Vietnam’s major long-term interests, and we should not dismiss it.

We have to accept the concept of “little supply, much demand.” After Vietnam joined the World Trade Organisation in 2007, the country attracted a strong influx of foreign investment. I wonder who will invest in our country if we do not welcome them in the context of national economic difficulty.

VOV: How can we make the most of development opportunities?

Mr Khoan: Vietnam is part of the world and it greatly relies on the global economy. Last year, the support industry of Japan and Thailand was seriously affected by natural disasters. Japan is now seeking partners for developing its support industry and Vietnam is one choice. This is a good chance that we should seize to generate jobs and develop the local economy.

If we develop the support industry for the domestic market only, products will be expensive due to small production scale. Everything will be different if we participate in the global production and distribution chain. Russia, for example, a market of hundreds of millions of consumers, will cut import taxes when it becomes a WTO member. This offers a good chance for Vietnamese products to penetrate this huge market.

VOV: Can you give any advice to Vietnamese businesses given the current situation?

Mr Khoan: It is hard to hear the phrase “turning challenges into opportunities”. We need to save ourselves before it is too late. While waiting for something bright to happen, businesses need to rearrange their production phases, including management, to optimize their operation. The Government is trying to reduce public investments, restructure SOEs and apply the public-private partnership model. It is also planning to reduce tax, extend the deadlines for tax payment, and prioritise credits for agriculture, the support industry, exports and housing projects for low income earners. Businesses should make use of all possible opportunities.