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.