ADB country director: Viet Nam not need to worry about middle-income trap

Mr. Ayumi Konishi, ADB Country Director for Vietnam.

PANO - “In the absence of information regarding the operation of the state-owned enterprises, the general corporations can be operated for the interest of smaller groups of people”, said ADB country director Ayumi Konishi in an exclusive interview with People’s Army Newspaper.

- Currently, Viet Nam is working on its economic development strategy for the 2011-2020 period. In your opinions, what issues this strategy should focus on?

Mr. Ayumi Konishi: As Viet Nam is becoming a middle income country - and we certainly would like to congratulate the Government and people of Viet Nam for that - a key challenge is to establish a clear vision for the country's further development in order to achieve the goal of becoming an industrialized nation by 2020.

There may be five key issues that the strategy need to address. The first is the often debated issue: how to continue with Doi Moi, or the country's economic reform process? What should be the role of the Government or how to transform the Government from the direct provider of goods and services to the promoter and regulator of economic activities by the private sector? The roadmap for further reforms in the state-owned enterprise need to be the integral part of the overall strategy, particularly to enhance their efficiency and corporate governance. How to further reform the Government institutions? And in this overall context, the role of the private sector and how the Government intends to further support the role of the private sector can be elaborated.

 But then, we are also concerned about another fundamental issue - on what Viet Nam will live in the year 2020, or the year 2030, or the year 2050? With the changing global and regional economic context, it is still unclear how Viet Nam intends to industrialize its economy, and move upwards on the technological value chain.

In what industry? What Viet Nam should produce and what should be imported and exported?

In which industry, does Viet Nam need to "compete"? For what products and how, Viet Nam can be integrated in the global and regional value chains? Which part of the county should specialized in what? We are afraid that after abandoning the "centrally planned" model, there does not seem to be clear industrial policies with good coordination. There is no point in all provinces to produce the same products and compete. Viet Nam should also be selective in choosing the areas in which the country should invest in, and develop related industries.

The third part of the "vision" must be that relate to the people. How Viet Nam's human resources can be developed to respond to the changing needs of the economy and the society? How to ensure that Viet Nam's continuing growth will benefit all the people of Viet Nam? How to ensure inclusiveness of Viet Nam's development while raising people to support Viet Nam's continuing process.

The fourth area needs to deal with environmental sustainability of the country. There is a global debate on how to respond to the climate change and Viet Nam being one of the countries to be most badly affected by the adverse impact of the sea level rise, how the country would respond to the challenges particularly in the near term is an issue which has to be clarified in the next 10 year strategy. Since it is actually not easy to incorporate measures to ensure environmental sustainability in a country's development strategy because of it is in fact very costly - at least in the short run - there should be an explicit discussion on the country's determination to accord high priority to the medium to long-term sustainability while starting investment in necessary measures at an early stage.

Lastly, there should be some discussion on some of the key infrastructure development strategies as they do require a large amount of resources and there should be a realistic assessment of what can be done and what should not be pursued at this stage.

- After gaining impressive achievements over the last decades, progress in poverty reduction seemed slow in recent years. In addition, the income gaps become wider and wider. As one of the key development partners of Viet Nam, what is ADB's view on this issue?

Mr. Ayumi Konishi: Despite very difficult economic situation in 2009, Viet Nam has succeeded in continuing to reduce poverty last year, thanks to the Government's particular efforts/policies targeted the welfare of the poor. Yet, the global economic crisis in 2008-2009 prevailed some of the key weaknesses in Viet Nam's socioeconomic systems. We often remark that for Viet Nam, "economic stimulus package" in fact was a "social protection package" because in the absence of effective social protection measures, Viet Nam actually did not have much choice other than focusing on achieving a reasonable rate of economic growth last year to absorb some 1.6-1.7 million new entrants to the labor market. It was also noted that the crisis this time prevailed a number of key social weaknesses including the gender disparity (women were affected more by the global economic crisis because many of factory workers or migrant workers are women). So in moving forward, establishing a number of social safety net mechanisms will certainly be a key. It would also be very important to develop education and health systems to be affordable yet with high quality.

At the same time, the Government's efforts for revenue mobilization should target those with money better. In this regard, we do hope to see improvements in tax implementation to first make sure that those who should be paying taxes will pay. It would be important to improve the quality of life in rural areas and also ensure availability of opportunities for people.

 - Many have warned Viet Nam of the middle-income trap, do you see such an issue in Viet Nam?

Mr. Ayumi Konishi: As Viet Nam is becoming a middle income country, the key development challenges that face Viet Nam are also changing. They include the issue of "inclusiveness" or "environmental sustainability." By referring to the word "middle-income country trap," what is being referred to is an issue of whether the Government and people of Viet Nam can appropriately recognize the change in the nature of the challenges facing the country, and to come up with necessary measure to address them. Those who fail to address such new set of challenges are considered to have been "caught" by the "middle-income country trap." So it is a matter of how clearly Viet Nam can recognize the changing nature of its development challenges and then, establish a clear vision towards its own future, develop necessary strategies and implement them. It is true that there are many countries that were caught by the "middle income country trap" but particularly in Asia, there are so many countries that were able to proceed from the middle income status to become industrialized nations, and as long as Viet Nam is clear about its challenges, I do not think Viet Nam need to worry about getting caught by the middle-income country trap.

 - What do you think about restructuring Viet Nam's economy, on the development trends of the state-owned groups and general corporations?

Mr. Ayumi Konishi: In responding to the adverse impact of the global economic crisis, we appreciate that in Viet Nam, state-owned enterprises have played an important role in keeping their employees, but there have been further worsening of their efficiencies. While the discussion on the state-owned enterprise reform often focus on the issue of "ownership," i.e., the progress in the "equalization" process, we actually believe what is most important is to ensure sound corporate governance and their operational efficiency. We are certainly concerned about the level corporate governance of the state-owned enterprises in Viet Nam, transparency of their operations, and interference among the groups of companies. All those poor practices of corporate governance that are not even disclosed to the public only result in huge public welfare loss as well as their inefficiencies. Some of the poorly managed state-owned enterprises are the drain of precious budgetary resources of the country, and financial institutions that are linked to large general corporations are often facing illogical decision making which adversely affect their financial risks.

So regardless of the ownership - or in fact, if we are to take the position that the ultimate owners of the state-owned enterprises are the people of Viet Nam, then efforts should be made to improve their corporate governance and operational efficiency, without necessarily talking about the issue of equalization. With the improved corporate governance and profitability, then they will also achieve higher values as companies and if the Government's decision is to sell any of them, improved value of the enterprises will result in larger returns from their sales. In the absence of information regarding the operation of the state-owned enterprises, the general corporations can be operated for the interest of smaller group of people.

- In your opinion, what are the short-term challenges of Viet Nam's economy? How should Viet Nam respond to the inflation in this year?

Mr. Ayumi Konishi: The most urgent challenge for Viet Nam is to ensure its macroeconomic stability through signaling of the Government policies towards fiscal consolidation and monetary tightening. While we also believe that the growth target of 6.5% this year is appropriate and achievable, we are afraid that the mention of the growth target of 6.5% with the single digit inflation may be confusing the market as the Government's choices for possibly conflicting policy options between growth and anti-inflationary efforts are not very clear.

In terms of actual policies, we welcome the Prime Minister's Decision 18 issued on 6 April particularly because Prime Minister is suggesting not to start undertaking "unorthodox" policy measures to control inflation at this stage.

While we believe the Government should keep close eye on inflation, we do not believe the situation is alarming, and under the circumstances, any unorthodox measures to control inflation is not warranged. What is important at this stage is to accelerate economic reforms while consolidating fiscal position both by being selective in expenditure and actively work on revenue enhancement measures, and tighten monetary policy and clearly communicate to the market the sentiment of the market participants.

- Thank you very much!

Bao Trung