Ktetaichinh’s Blog

March 17, 2009

Domestic investment a must amidst global crisis 031709

VNBusinessNews – As the global financial crunch is having a direct impact on export-driven economies, it is time for countries to focus on domestic investment, suggested experts at a workshop in Hanoi on March 17.

The workshop was jointly hosted by the Economic Research Institute for ASEAN and East Asia (ERIA) and the Central Institute for Economic Management (CIEM).

Difficulties lying ahead

Dr Vo Tri Thanh, a CIEM official, said that Vietnam is facing numerous difficulties in 2009, including the macro-level instability of finance and international payment
as well as declining exports. The national economy which is slowing down as a result of tight macro-economic management policy is also bearing the brunt of the global economic crisis. The economy is expected to grow just 4-5% if the Government’s stimulus measures are put in place. In addition, the inflation rate is estimated to rise to between 6-9% and the trade deficit will make up 7-10 percent of the total GDP.

“The loosening of macro-economic policy and the implementation of the stimulus package is necessary, but it has an impact on growth, employment, inflation and macro-economic stability,” said Dr Thanh.

Chinese experience

Academician Zhang Yunling, director of the international research department under the Chinese Academy of Social Sciences, shared the view that the global financial turbulence which originated from the US has made a direct and indirect impact on many countries in the world.

He affirmed that China is experiencing an economic slowdown rather than a crisis because its economy is still developing and expected to achieve a GDP growth rate of 7-8% this year. For China, he said the global crisis mostly affects its exports.

In his opinion, Vietnam, Singapore and Taiwan (China) would continue to achieve economic growth thanks to their stimulus packages and investment support policies.

There is still light at the end of the tunnel and the US remains the leading economy in the post-crisis period, said the expert.

However, he suggested that economy be restructured to reduce its reliance on external elements. According to him, the Chinese Government has changed its thinking by pouring more investment into domestic consumption rather than exports. He cited an increase in salaries and social welfare as immediate solutions.

Financial stability

Takeshi Hachimura, chief advisor to the Japan International Cooperation Agency, said that in the current context of the crisis, there is a growing trend of avoiding international transactions. Many governments have adopted measures to ride out the financial storm by stepping up the provision of capital for businesses.

He said it is necessary to stabilise the financial sector, reasoning that liquidity is very important to financial and monetary organisations as it helps build up market confidence.

He also underlined the need to keep a close watch on risk management. He said the collapse of the US financial system demonstrates that it is necessary to have risk management plans prepared by partners.

We should take precautions against cumbersome macro-economic management policies, otherwise market liquidity is not created, the Japanese expert said. (VOV)

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