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Vietnam Will Struggle to Meet 2012 Growth Target

Bloomberg article today regarding Vietnam’s growth policy and possible shortcoming:
The full year target was 5.2% national growth, but will probably fall short unless the 4th quarter brings 6.5% growth itself.
“In the current situation where exports are slow and domestic consumption is limited, the government may do as it has often done to boost growth, which is increase money supply through infrastructure spending and higher credit growth. That’s not sustainable.”
The overall attitude of the article is negative at best and most economists it quotes are skeptical. Too much fiscal policy could result in unhealthy long term deficits, and  too much monetary policy could run risks of inflation. So how can the government help the economy reach its goal? The consensus is that the heart of the issues lie in the fragility of the banking system.
“The problem is the banking sector is moribund and not issuing enough credit and loans because they haven’t resolved these debt issues.”A plan in progress would “allow the finance ministry to buy collateralized non-performing assets from commercial banks to strengthen their balance sheets.”
“Growth could tick up a little as the government spends a bit more of its cash on hand and fulfills its plans toward the end of the year, which is typically what happens, but I wouldn’t expect a huge shift in either direction.”
It will be interesting to see how the governments reacts to 4th quarter performance and whether or not internal problems will be addressed.


  1. If the banking system is holding back growth, well, that could be. If so, why has monetary policy worked in the past? Does Vietnam now face the aftermath of a [domestic] surge of bad debt that banks have been forced to write down, so that they now lack capital [“undercapitalized”] and so can’t increase their lending? Or is the country facing the “zero lower bound” (ZLB) due to a “depression”? Tease out whether / how the article’s claims make sense!
    And why allow to go unchallenged the quote from a Vietnamese economist that fiscal policy is monetary policy? Now it could represent both if it’s financed by “printing” money rather than borrowing and/or taxing.
    • tran tran

      One clarification, Vietnam is not facing the “zero lower bound” (ZLB). It’s true that Vietnam’s government has poured large amounts of stimulus money into its economy since 2008-09 global financial crisis. More recently, the Vietnam’s government has cut interest rates several times to help borrowers refinance debts. At the moment the discount rate is 8%, base rate is 9%.

      There have been a great number of debates going on among Vietnamese economists and government officials regarding the bad debt issue.

      Back in June, the Central Bank proposed a plan to create an asset-management company with capital of $4.8 billion. A possible way to do this is the Central Bank would issue nearly $4.8 billion to buy back bad debts, collect the debts and then withdraw $4.8 billion from the economy.

      Many Vietnamese financial experts opposed to the idea. They thought the Central Bank was reporting a inaccurate, lower bad debt ratio, partly because of the complicated and controversial methods to measure bad debts. Some experts do not want the government to aid the banks, since the whole crisis was caused by banks and therefore banks should “clean the mess”. If a bank cannot pay off its own debt, it should go bankrupt. The Vietnamese government is also leaning towards “too big to fail”. In the summer, it managed to protect the largest banks while merged small banks together or let small banks out of the market. Moreover, the issuance of $4.8 billion would cause huge inflation if the debt-management agency couldn’t do its job.

      Some experts, on the other hand, do not oppose to the idea of creating the asset-management company but propose a few features, such as lowering the required capital (i.e. do not buy the debt at cost, but rather <50% of cost -> banks bear the discount loss but can transfer the debt to the company) or authorizing debts instead of buying debts (i.e. when the company fails to collect debts, debts are returned to banks).

      Until now the proposal is still under study. Final decision will be made in 2013. At the moment, the focus is shifted to gold prices and the U.S. presidential election (sounds strange enough but it’s true).

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