[Vnbiz] Vietnam's position on economic issues

Wed Jun 11 06:56:46 PDT 2008

Dear CACC,

There is something I intentionally avoid when talking about the current
inflation crisis--that is the reform of the SOEs.  People have mentioned it
often on economic reports and the National Assembly members spent time on
that issue quite intensively when they talked about inflation and other
economic problems.

It is very obvious that the efficiency (or inefficiency) of the state-owned
enterprises has much to do with the national economic efficiency and does
contribute to inflation in some form.  But SOEs efficiency is a long term
issue, it has little to do with solving the immediate inflation crisis.
That is why I intentionally keep the SOE issue out in all my writings on the
current inflation crisis.  I just don't want us to be confused
unnecessarily.

But I don't want anyone to have the impression that I don't consider the SOE
issue an important issue for the economy.  Right now, at least the
government has stopped the SOEs from wandering so far out of their core
businesses and do all kinds of investing in stock and banks and businesses
that they have no experience and knowledge in.  This is a good move.

But the important thing is a concrete strategy for SOEs, which we don't
really have right now.  For the last several years, the strategy appears to
be creating huge SOE conglomerates to compete with international firms.
This strategy has shown that it does little to make SOEs more efficient and
competitive.  We need to rethink SOEs.  That is a major issue on the table
for us.  (Please note, we (I) have talked about SOE reform as early as 1992,
and still talking today).

Have a great day!

Hoanh
___________

On Tue, Jun 10, 2008 at 7:23 PM, Tran Dinh Hoanh <tdhoanh at gmail.com> wrote:

> Dear CACC,
>
> One small typo that may create big confusion must be corrected.
>
> In the message below, there is this sentence:  "But, the SBV's position on
> an official exchange rate that artificially keeps the USD high is going
> against my recommendation.  This hurts export and helps import."   Well, the
> word "USD" is a incorrect.  It should be "VND."  So the correct sentence
> should read:
>
> "But, the SBV's position on an official exchange rate that artificially
> keeps the VND high is going against my recommendation.  This hurts export
> and helps import."
>
> Sorry for the confusion.
>
> Have a great day!
>
> Hoanh
>
>
>   On Tue, Jun 10, 2008 at 4:38 PM, Tran Dinh Hoanh <tdhoanh at gmail.com>
> wrote:
>
>> Dear anhs Hao, Craig & All,
>>
>> I think the government has done a number of things correctly.  Things may
>> be on the way up.  If we look at the May 08 statistics that I posted here a
>> week ago, things look good, except for the huge increase in food price,
>> which obviously were created from the long lines in front of rice stores in
>> May.
>> First, I think we need to think again about exactly what we are trying to
>> achieve.  Everyone said "inflation control."  Yes, but inflation is a
>> symptom of sickness.  It is not the sickness itself.  Say, when you have
>> high fever, obviously the immediately concern is reducing the fever.  But we
>> cannot lose sight of the fact that the fever is just the outward symptom.
>> We need to find out what is the disease that creates the fever, so that
>> long-term and permanent cure can be done properly.
>>
>> Now let us repeat some of the "sickness causes" that create the inflation
>> fever:
>>
>> 1.  Oil price increase in the international market.
>> 2.  Food price increase in the international market.
>> 3.  The stock market crash.
>> 4.  Fiscal deficit.
>> 5.  Trade deficit.
>>
>>
>> The stock market crash is over (although stock price is still sliding).
>> So we can just ingore it for now.
>>
>> Oil and food price increases are outside causes.  We don't have much
>> control over them. So let's talk about them later.
>>
>> What largely in our control is fiscal deficit and trade deficit.  On
>> fiscal deficit, the government has reported that they have met (10%) the
>> budget-cut target among government agencies (including provincial
>> governments, I think).
>>
>> I hope that the government is seriously limiting import to cut out the
>> trade deficit.  But here is the problem on policy:  I have been recommending
>> allowing inflation to go its natural course (with a just bit of regulation
>> from the government) and using the inflation  pressure to aim for an
>> exchange rate favorable to export (and unfavorable to import).
>>
>> I recommend gradually moving out of energy price control and subsidy, by
>> increasing gasoline price and then other energy products prices slowly (max
>> 2% per month) until we are completely out of gasoline subsidy and price
>> control.  Then, with both gasoline subsidy cut and 10% budge cut, we may
>> completely solve the fiscal deficit.
>>
>> The inflation pressure caused by gasoline price increase may create an
>> exchange rate favorable to our export (1 USD may be 20,000 VND for
>> example),   This exchange rate may not be good for import, but that we will
>> force us to limit import to the real necessities (not car, private jet,
>> fancy cell phones and ipods, expensive perfume and cosmetics, etc.).  When
>> export is increased and import decreased, we will solve the trade deficit
>> while increasing production.  Producing more, exporting more and buying
>> less--that will strengthen the economy and will bring inflation down
>> permanently, because we solve the problem at the level of the real strength
>> (or sickness) of the economy, and not just the outward inflation fever.
>>
>> The Ministry of Finance obviously agrees with my postion that gasoline
>> subsidy and price control have to be out eventually and it is working on a
>> plan for that.  But, the SBV's position on an official exchange rate
>> that artificially keeps the USD high is going against my
>> recommendation.  This hurts export and helps import.  And I am disappointed
>> at the SBV.  May be the SBV is doing all it can to reduce inflation
>> pressure, preparing the way for MoF to start lifting gasoline price
>> control.  OK, increasing interest rate up to 16%, I can't see the logic
>> of it and can agree with it.  But the artificial exchange rate is crazy; it
>> brings a lot of damage and has zero effect on inflation control.
>>
>> I think the SBV can achieve the same result of keeping import price low by
>> cutting import tax on necessity items, while stimulating export by the free
>> market exchange rate, and avoiding the distortion of the economy by a
>> distorted exchange rate.
>>
>> About the food subsidy, I recommend to wait for several more months (5, 6
>> months) to see how things go.  If my guess is correct, the food market may
>> correct itself where it is distorted.  Craig, talks about  a bread shop cuts
>> its bread price by 1/3 recently.  That probably means that the price of
>> wheat flour was increased due to hoarding, but the hoarders have no outlet,
>> so they have to reduce the price back to normal.
>>
>> The fact that rice price was increased for a couple of months and haven't
>> gone back down (although the government have rice subsidy and rice control)
>> tells me that rice is being smuggled out of the country regularly and the
>> current price is the free market price.  It means, the government is wasting
>> its money on rice subsidy for nothing.  But this would be a good thing,
>> because it makes the lifting of subsidy and price control on rice much
>> easier--price is already free market price; when subsidy is stopped, the
>> market wouldn't even feel a pinch.
>>
>> For the stock market, my feeling is that the stock is going down just
>> because of pessimism, not because the stock price is over-valued.  As soon
>> as the info comes out that we have achieved trade balance for the month
>> (meaning, no more trade deficit for the month -- I mean the month, not the
>> the period from Jan. 1, 2008 to the present time) then the stock price will
>> start to increase slowly and steadily.
>>
>> That would be my recommendation for  now.
>>
>> Great day!
>>
>> Hoanh
>>
>>
>>
>>  On Tue, Jun 10, 2008 at 12:57 PM, Quach Manh Hao <quachhao at gmail.com>
>> wrote:
>>
>>> [ Vietnam Business Forum ]
>>>
>>>
>>> Dear anh Hoanh, Craig and friends,
>>>
>>> After all what have been seen, what should be done?
>>> Cheers,
>>> Hao
>>>  On Tue, Jun 10, 2008 at 12:34 PM, Tran Dinh Hoanh <tdhoanh at gmail.com>
>>> wrote:
>>>
>>>> [ Vietnam Business Forum ]
>>>>
>>>>
>>>>   Dear and Craig & CACC,
>>>>
>>>> Of course "dollar trading has frozen" at the official rate.  No one
>>>> trades at that rate in the market (unless some foreign tourist sell his USD
>>>> at a gold shop at the official rate, because he has no idead on what else he
>>>> can do).
>>>>
>>>> But rest assured, brother, the dollar trade is alive and well.  At the
>>>> "free market" rate, mind you.  (Note: "Free market rate" now would be more
>>>> accurately called "black market rate").  However, since the market trade is
>>>> no longer "free" and has become "black," you can't see it, Craig.  You're
>>>> not in the loop.  But if you give 100 USD to any Vietnamese friend and ask
>>>> him to sell it for you at the market price, he would be able to do it for
>>>> you.  Even if he is not in the loop, he may know a friend who may know a
>>>> friend who is in the market loop.  Please keep in mind, the entire trade was
>>>> fully open and free several days ago. It can't disappear that fast.  It just
>>>> goes underground temporarily, until the SBV turns a blind eye and allows it
>>>> to become "free" again.
>>>>
>>>> I'm still digesting your info on food price.
>>>>
>>>> Have a great day!
>>>>
>>>> Hoanh
>>>>
>>>>
>>>>
>>>> --
>>>> Tran Dinh Hoanh, Esq., LLB, JD
>>>> Washington DC
>>>>
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>>>
>>>
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>>
>>
>>
>> --
>> Tran Dinh Hoanh, Esq., LLB, JD
>> Washington DC
>>
>
>
>
> --
> Tran Dinh Hoanh, Esq., LLB, JD
> Washington DC
>

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