Content
I. Introduction 3
1. Challenges and policies 4
2. Prospects 8
II. Conclusion 9
References 9
I. Introduction
Vietnam’s recent economic performance has been marred by large swings in economic and financial conditions. This column argues that the inability to respond quickly to changing conditions, the pro-growth bias of the State Bank of Vietnam, as well as a 'stop and go' policy style partly explain this. It adds that inefficient state-owned enterprises and weaknesses in the banking system need to be addressed expeditiously.
1. Challenges and policies
Facing cyclical and structural challenges that are arguably as significant as any moment since the 1997 Asian financial crisis, Vietnam’s real GDP growth has markedly decelerated in recent times. From an annualised performance of 6.8% in 2010, it fell to 5.9% in 2011 falling further to 4.4% in the beginning of 2012. Whilst GDP growth rebounded to 5.4% in the third quarter of 2012, it remains below trend.
Sluggish growth has been persistent over the last five years, trending slowly downward during this period. This was partly the result of a cyclical downturn, caused partly by the stabilisation measures implemented in 2010-11 and the slow pace in structural reforms which have been held back by poor policy coordination and a slow, consensus-seeking decision-making approach. State-owned enterprises in Vietnam remain inefficient and corrupt, and systemic risks emanating from debt-ridden banks remain high while public investments are non-productive and pose a drag on growth. The real estate sector has also stagnated and the overall macro picture is one of consistent gloom, despite efforts to stabilise the economy last year moderately succeeding in containing inflation and narrowing the trade deficit.
The problems Vietnam faces are not unique, being characteristic of an economy undergoing the transition from a command to market economy; however, in recent years Vietnam...