[Vnbiz] Setting economic priorities

[Tran Dinh Hoanh]

Dear CACC,

Now that some optimism has come back to the scene -- inflation is down,
trade deficit is down, stock is up -- we can have a little breathing room to
ask ourselves "What are our priorities?"

Everyone has been saying "Inflation control is top priority."   Fine.  But
we need to keep in mind that inflation is only the outward symptom of a
disease; inflation is not the disease itself.  The problem that everyone has
seen so far is that the Vietnam economy is not resilient enough to absorb
sudden shocks.  Even if inflation is brought down substantially in the next
couple of months, the problem is still not solved if we do increase the
economy's resilience.

Right now we are still in the emergency management mode--trying to get the
galloping inflation down; but we should start thinking about post-emergency
intermediate goal for the economy.  What is that goal?   I would think the
goal should simply be "Making the economy more resilient for it to be able
to absorb surprise shocks."

We never know what kind of shock is coming our way:  If there is a war
between Israel/US and Iran, that wold send oil price high sky and produce
tsunamis around the world.  Weird weather from global warming can bring
surprise food crisis.  A major terrorist attack in a major financial center
of the world may send shock waves throughout the globe.  There may be other
kinds of shock we are not thinking of.   The point is:  The current crisis
shows that Vietnam's economy is too susceptible to shocks and not resilient
enough to absorb shocks.  We need to bring more resilience into the system
by strengthening the system significantly.

1.  We need to have trade surplus (instead of trade deficit).
2.  We need to have fiscal surplus (or at least fiscal balance), not
deficit.
3.  We need to remove as much price control and subsidies as we can, because
these things distort the economy, usually weaken it and always burden the
government and, therefore, make the government less efficient.
4.  We need more economic efficiency in the economy:  Free competition, less
monopoly, more transparency, better governance, more efficient legal and
administrative procedures.  These are long-term objectives.

While doing these, we need to maintain social stability by making sure that
the poor population don't fall further behind.

With these objectives in mind, the immediate steps should be (1) continuing
to reduce government spending (2) continuing to discourage import and
encouraging export--using both taxation and favorable exchange rate, (3) as
the inflation pressure goes down, gradually lifting some price control,
starting with gasoline, and using the addition inflation pressure from this
lifting to generate a favorable exchange rate for export, (4) continuing
monetary control, but relaxing it gradually as inflation goes down,
to revive some industries such as real estate and construction.  (Note:  If
we can have fiscal surplus and trade surplus, there is much less need to
tighten monetary policy).

The SBV needs to rethink about setting the official exchange rate too far
from the free market rate.  I am not sure exactly what we expect to achieve
from the current official exchange rate other than all kinds of headache and
complexity in international trade.  Most of what the SBV may wish to achieve
may be done though taxation, with much less headache.

For the poor (who get hit horribly by food price), I have proposed an
intensive micro-finance system of the Grameen Bank model, using Worldbank
loans and international development assistance (so we don't just simply
print more money or increase budget spending, which will make inflation
worse).  (Please note the current food price control appears to do nothing
to help the poor).
Whatever we do, please note that our goal is not simply to control
inflation, our real goal is to make the economy streonger and healthier so
that it can absorb surprise shocks, which may come anytime in this day and
age.

Have a great day!

Hoanh

-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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