viet nam’s macroeconomic turbulence causes and challenges
TRANSCRIPT
Viet Nam’s Macroeconomic Turbulence
Causes and Challenges
GDP growth per capita in Asia, 1960-2004
Capital inflows and macroeconomic instability
Capital inflows Asset bubble
RER apprec-iation, inflation
Wealth effects
Trade deficit widens, r rises
Credit expansion
BOOM
BUST
Bad debt, capital outflows, demand falls, public debt rises
Capital inflows
9.4
15.7 15.4
22.7
0
5
10
15
20
25
2006 2007 2006 2007
US
$ b
illio
ns
an
d %
of
GD
P
Year % of GDPUSD
The Property Bubble:Land Prices in the Southeast Region (million VND per m2)
Locality Dec. 2006 Dec. 2007 %Change
Ho Chi Minh City
Phu My – Van Phat Hung, District 7 11.0 27.0 145%
Thai Son, Nha Be District 5.5 16.0 191%
Nam Nam Saigon, Binh Chanh District 4.3 13.0 202%
Thach My Loi, District 2 16.0 26.5 66%
Gia Hoa, District 9 5.5 14.0 155%
Surrounding Provinces
Long Tho – HUD, Nhon Trach, Dong Nai 1.0 2.5 150%
Long Hau, Long An3.2
(Jun 07)6.5 103%
Chanh Nghia, Thu Dau Mot, Binh Duong 6.7 26.0 288%
Change in consumer prices
0%
5%
10%
15%
20%
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb
-08
Mar
-08
Apr
-08
Vietnam
Thailand
China Indonesia
Philippines
Money supply and GDP growth differential, 2004-2007
100
120
140
160
180
200
1 2 3
G
row
th I
ndex
(20
04 =
100
)
100
120
140
160
180
200
1 2 3
100
120
140
160
180
200
1 2 3
Vietnam China Thailand
Money supply is measured by M2 which includes cash in circulation and demand, savings, and time deposits. Source: IMF, International Financial Statistics, except for GDP growth rates in the first 6 months of 2007 which are taken from the Economist Intelligent Unit.
Current account surplus/deficit as % GDP
-10
-5
0
5
10
15
202
00
1
20
02
20
03
20
04
20
05
20
06
20
07
Vietnam
China
Thailand
Malaysia
Fiscal surplus/deficit as % GDP
-8.0
-6.0
-4.0
-2.0
0.0
2.0
2001
2002
2003
2004
2005
2006
2007
Vietnam ChinaThailand Malaysia
RMB/USD exchange rate
6
6.5
7
7.5
8
8.51/
1/03
1/4/
031/
7/03
1/10
/03
1/1/
041/
4/04
1/7/
041/
10/0
41/
1/05
1/4/
051/
7/05
1/10
/05
1/1/
061/
4/06
1/7/
061/
10/0
61/
1/07
1/4/
071/
7/07
1/10
/07
1/1/
081/
4/08
VND/USD exchange rate
15200
15400
15600
15800
16000
16200
16400
16600
16800
1700001
/01/
03
04/0
1/03
07/0
1/03
10/0
1/03
01/0
1/04
04/0
1/04
07/0
1/04
10/0
1/04
01/0
1/05
04/0
1/05
07/0
1/05
10/0
1/05
01/0
1/06
04/0
1/06
07/0
1/06
10/0
1/06
01/0
1/07
04/0
1/07
07/0
1/07
10/0
1/07
01/0
1/08
04/0
1/08
Bond spreads
50
100
150
200
250
300M
ay-0
7
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb
-08
Mar
-08
Apr
-08
May
-08
Sp
rea
ds
in b
as
is p
oin
ts
Vietnam
Phillipines
Electric app. (*)($927m)
Plastics($480m)
Suitcases & bags($388m)
Ceramics($274m)
Fruits & nuts($758m)
Motorcycles($261m)
Rubber($1286m)
Pepper & other spices($211m)
Rice($1276m)
Coffee($1217m)
Electronics($1708m)
Frozen shrimps($2123m)
Frozen fish($787m)
Coal($915m)
Oil($8265m)
Footware($3758m)
Furniture($1710m)
Garments($5469m)
0
10
20
30
40
50
60
-2 0 2 4 6 8 10 12Share in world exports, 2006 (%)
Ex
po
rt g
row
th, 2
00
3-0
6 (
%/y
ea
r)Exports: A bright spot in Vietnam’s macro- economy
Source: UN Comtrade & IMF
Note: Area = $200m of export value; (*) 2003-2005
Demand side injections
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Val
ue (b
illio
ns o
f cur
rent
Don
g) Ip / sp
G / t
E / m
X
Investment (VND trillions)
Competitiveness of FirmsCapital, Turnover and Workers in Vietnamese Enterprises in 2005 by Ownership
State Non-State Foreign Total
Employees (thousand) 2041 2982 1221 6244
Capital (Trillion Dong) 1451 705 528 2684
Turnover (Trillion Dong) 838 853 502 2159
Capital/worker* 711 236 432 430
Turnover/worker* 411 286 411 346
Turnover/Capital 0.58 1.21 0.95 0.80
Annual Growth, 2001-05:
Employees -1% 22.4% 25.7% 12.2%
Capital 15.3% 44.4% 18.5% 21.0%
Turnover 16.2% 34.5% 29.7% 24.5%
Source: 2003 and 2005 Enterprise Surveys.
Share of Real Industrial Growth by Ownership in Vietnam
32.0%
17.7%
24.2%41.3%
43.9% 41.1%
2000/1999 2006/2005
FDI
Private
State
Source: Vietnam Statistical Yearbook 2006.
The conglomerates
PetroVietnam
Vietnam Railway Corp
Vietnam Paper Corp
Vinacomin
Vietnam Coffee Corp
Vinafood 1Vinashin
SCICVinafood 2Viet Nam Rubber Co.
VinalinesVietnam AirlinesVinatex
VinatabaVietnam Steel Corp
EVN
Vietnam Cement Corp
VinachemVNPT
GC 91sEconomic Groups
Shipbuilding, heavy industries, and sea ports
Steel plant
However, this initial success is being thwarted by reckless investments of shipyards and ports along the coast financed by heavy commercial borrowings.
As reported by Thanh Nien Newspaper in May 2008, Vinashin had debt outstanding of $3 bil and a debt-to-equity ratio of 22.
Shipyard
Port
Steel plantsShipyard
Port
Steel plantShipyard
Port
Steel plantShipyard
Port
Vietnam has the potential to become a major shipbuilder as it now occupies the 5th place in the world rankings by orderbook.
Vinashin
Country 2006 Orderbook (mil tons)
2007 Export(bil $)
S. Korea
85.6 21.5
Japan 62.7 14.1
China 48.7 8.1
Germany
4.9 3.7
Vietnam
3.0 -Source: Barry Rogliano Sales, “Shipping and
Shipbuilding Markets 2007” for ship orders and UN Comtrade database for export value.
Nam triệu, Hải PHòng
Hạ Long, Quảng Ninh
Nghi Sơn, Thanh Hóa
Hòn La, Quảng Bình
Dung Quất, Quảng Ngãi
Long Sơn, Đồng Nai
Vũng Áng, Hà Tĩnh
Cam Ranh & Vân Phong, Khánh Hòa
Soài Rạp, Tiền Giang
Cà MauCần Thơ
Steel plantShipyard
Port
Shipyard
Port
Cái Lân, Quảng Ninh
Quy Nhơn, Bình Định
Ninh Thuận
Thị Vải-Cái Mép, Bà Rịa-Vũng Tàu
Chân Mây, TT Huế
Tiên Sa, Đà NẵngChu Lai, Quảng Nam
Cửa Lò, Nghệ An
Hiệp Phước, TP.HCMLong An
Education
11
16
17
21
32
43
82
91
India
Vietnam
Indonesia
China
Malaysia
Thailand
Taiwan
South Korea
Source: Asian Development Bank, Online Development Database.
Gross Tertiary Enrollment Ratio in 2005 (%)
The Costs of Expansion: A System Under Strain
0
200
400
600
800
1000
1200
1400
1600
1990 1995 2000 2005
tho
usa
nd
s
Growth of University Activity in Vietnam
University Enrollments
Teachers
Source: Vietnam’s Statistrical Yearbooks.
Lack of University-Based Research
Source: Scientific Citation Index Expanded
Public Spending: High Investment, Low Returns
Source: World Bank, World Development Report 2006.
How progressive is social policy?
15%
15%
21%
12%
8%
24%
16%
15%
14%
4%
23%
22%
21%
29%
24%
18%
35%
45%
47%
68%
2%
1%
7%
2%
11%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Social Welfare
EducationAssistance
Health assistance
Social Insurance Pensions
Social Insurance in work
Poorest 2nd 3rd 4th Richest
Health spending as % GDP
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Vietn
amChin
a
Thaila
nd
Mala
ysia
Private
Public
Health care costs and income groups
% Unable to meet health care costsIncome Quintile
9Top quintile
12Fourth
15Third
17Second
25Bottom quintile
Poverty reduction
Viet Nam’s poverty reduction is real and a product of decollectivisation and then job creation Received wisdom: From 75% in 1988 to 16% in 2006 Recalls Indonesia’s journey from 40% in 1976 to 11%
in 1996 (and how fragile this turned out to be).Beyond the headcount rate, we don’t know enough Over-emphasis on consumption surveys at the
expense of understanding poverty dynamics Mobile people missing from VHLSS Viet Nam still lacks a decent labour force survey
Dominant interpretation is geographical, rural/urban divide Not enough attention to class formation, gender
division of labour, ethnicity and other forms of exclusion
Missing information on wage trends, access to wage work, security of work and working conditions
From headcounts to poverty dynamics
We need to move beyond ‘poverty maps’ (favoured by infrastructure planners) to poverty dynamics What causes falls into poverty: life cycle events, loss
of employment, poor health or caring for family members in poor health, natural disasters, price changes
Ascents from poverty: employment, migration, remittances, life cycle factors
Government policy: P135, HCFP, education grants, disaster assistance Geographic approach Supply driven and discretionary
Social policy is currently regressive user fees household registration system
Viet Nam’s political economy
State-owned conglomerates shielded from domestic and international competition but granted easy access to capitalPublic investment programme driven by consensus politics, geographical distribution and balance within political elitePrivate sector small scale, politically weakPublic institutions lack autonomy: universities, schools, courts, mediaHierarchical relations not consistent with democratic notions of rights and citizenship Social policy is regressiveCorruption is endemic
Challenges
Shifting from investment-led to export-led growthImposing market discipline on the conglomeratesCreating space for autonomous public institutions to develop (courts, universities, newspapers…)Moving from political to merit-based recruitment/promotion in public institutionsRedefining Vietnamese citizenship to include rights and responsibilitiesMoving from geographical targeting to progressive social policyDefeating corruption
Thank you