High trade deficit – a worrying sign

The first surprise is that foreign direct investment (FDI) in the past seven months hit a record high of more than US$45 billion. This shows that foreign investors’ trust in the Vietnamese economy despite the recent temporary difficulties driven by a high inflation rate.

However, Dr Vo Tri Thanh, head of the international economic integration department under the Central Institute for Economic Management (CIEM), wonders if high FDI is a good sign for the national economy. He says many commitments have been cancelled due to the instability of the national economy and mounting pressure from pay rise. 

Pham Chi Lan, a senior economic specialist, says that the amount of high FDI has also raised many fears. She raises concerns about management capacity, human resources and the infrastructure in localities when they receive big investment projects. In addition, these big projects certainly have a big impact on the country’s environment.

The second surprise is that the trade deficit also hit a record high, reaching US$14.8 billion in the first six months of 2008, equivalent to the whole of 2007.

“Notably, the import of consumer goods has increased sharply and gold imports doubled last year’s figure, costing US$2.7 billion. At present, Vietnam is the second biggest gold importer in the world,” says Mr Thanh.

He is echoed by Mrs Lan, who says that the high trade deficit is a worrying sign for the national economy. 

“This is not completely caused by joining the WTO, but mostly by our subconscious desire for investment,” says Mrs Lan. “Without effective measures put in place, the high trade deficit will never narrow”.

According to Dr Thanh, the rapid development of the banking and financial markets is another surprise. Such rapid development is always coupled with growing risks, which result from Vietnam’s weak supervisory system. The State Bank of Vietnam (SBV) only focuses on handling current problems rather than building a long-term and sustainable development strategy for the banking sector.

Nguyen Kim Thanh, head of the Policy Department under the SBV says that too much FDI affects the total means of payments while poor control of capacity has forced banks to expand credits, putting even more pressure on the inflation rate.

Luckily, there have been no massive bankruptcies among State-owned businesses over the past 18 months. This means that businesses have been initially adapted to changes in the post-WTO period.

Human resources – the main obstacle to growth

Another surprise is that WTO membership has not created more jobs as initially expected. In 2007, the number of new jobs increased by just 2.3 percent compared to 2.7 percent in 2006 with most jobs being created in the retail and financial sectors.

The quality of human resources in the integration process is a hot issue. Yet, former Minister of Trade Truong Dinh Tuyen considers human resources as the biggest obstacle to Vietnam’s growth. He says while the world is changing very rapidly, high quality human resources have an irreplaceable value.

Dr Vo Tri Thanh points to the fact that weak human resources have so far barred the country from actively integrating and achieving a steady and quality growth.

Dao Quang Vinh, an official from the Ministry of Labour, Invalids and Social Affairs, says without drastic changes in the current salary mechanisms, workers with strike and the “brain drain” will continue. The large number of employees leaving State agencies recently is testimony to that.