Viet Nam’s Macroeconomic Turbulence Causes and Challenges.

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