VietNamNet Bridge. A year ago, global economies, including Vietnam, were haunted by inflation, however, now deflation is posing a high risk in most of the global economies. Global prices across 2009 were forecast to fall an average of 20 per cent against 2008 and only to rise a modest 0.5 per cent in 2010.
New York University Professor Nouriel Roubini, who predicted the collapse of the US housing market and the global recession three years ago, said that the global recession would be U-shaped for a period of at least three years.
“The global economy is in the middle of a synchronized contraction that will push global growth into negative territory in 2009 for the first time in decades. This will be the worst financial crisis since the Great Depression and the worst global economic downturn in decades. Global trade volumes face their sharpest contractions of the postwar era, trade is expected to contract 12% in 2009 due to the severe and prolonged global demand slump, excess capacity across supply chains and the continued crunch in trade finance.
“RGE Monitor’s analysis of the data suggests that the global economic contraction is still in full swing with a very severe, a deep and protracted U-shaped recession. Last year’s economic consensus forecast of a V-shaped short and shallow recession has vanished. While the rate of economic contraction is slowing, we are still a long way away from the economic bottom and from a sustained recovery of growth”
In Asia, ASEAN, China, Japan and South Korea have made principle agreements to establish a common forex reserve fund worth $ 100 billion, aiming to protect the devaluation of their currencies against the US dollar.
Vietnam on the screen
Forecasts of Vietnam’s economic recovery still differ. The optimists argued that Vietnam’s economy would overcome the crisis and restore its growth within the year. But others gave more practical arguments that: “Despite critical government measures to prevent a repeat of the recession, Vietnam’s economy in this year’s first quarter still confronted difficulties, requiring policy-makers to give accurate forecasts and take bold steps in recovering national socio-economic growth.”
Vietnam’s export-import revenues hit the worst impacts of the global crisis in this year’s first quarter. The Ministry of Industry and Trade (MoIT) figures indicated that the nation’s export value between January and March this year had reached almost $13.5 billion, or a modest 2.42 per cent increase against last year’s first quarter. During the same period, Vietnam’s import value fell 45 per cent to $11.8 billion due to domestic production stagnation, cutting the demand for imported machinery, equipment and raw materials.
Economists fear that a positive trade balance would become fragile this year as a result of declines in non-trade foreign currency earners like tourism, labour exports and remittances.
Nominal incomes of Vietnamese people are declining. Compared to December, 2005, Vietnam’s consumer price index (CPI) in December 2008 rose 60 per cent, with prices of a number of commodities doubling, including food and foodstuff, which normally account for 70 per cent of Vietnamese low-and-medium income earners’ spending. At the same time, Vietnamese people’s incomes from salaries, bonuses and other allowances increased by merely 20-30 per cent – half of the CPI rise in the period of three years.
Economies around the world may choose two options to deal with the global recession. First, nations use stimulus packages as a priority to overcome the crisis, restore growth, resolve unemployment issues and ensure social security. Second, nations take measures to eliminate the causes of new crises.
For the first solution, as soon as Vienam’s high inflation was reined in during 2008’s fourth quarter, the Vietnamese government decided to implement new measures to deal with the global crisis’ impacts by giving priority to expanding export markets, boosting domestic demand, cutting taxes, widening exchange rate trading bands, providing loan subsidies and improving social allowances.
In the case of Vietnam, to ensure the effective use of the government stimulus package, it is high time that local enterprises raise corporate social responsibility to avoid cutting jobs, maintaining production and acting together with the government to deal with the downturn.
Meanwhile, the government should also make it a priority to ensure social security by promoting the principle of “people know, people discuss, people do and people check.” By doing so, all people will be encouraged to suggest ideas and initiatives and help the government monitor the implementation of the stimulus package.
For the second solution, the government has recently assigned the MPI to build a road map to restructure the economy in the medium and long terms, aimed at reaching sustainable economic growth as soon as the current downturn is over.
The government must urgently accelerate administration reform and enhance the capabilities, effectiveness and efficiency of governmental relevant agencies, which are considered among the major forces capable to kick-start high and sustainable economic growth in Vietnam in the long run.