Vietnam Will Struggle to Meet 2012 Economic Growth Target
Vietnam will struggle to meet its 2012 growth target without pumping money into the economy, according to economists including an adviser to Prime Minister Nguyen Tan Dung.
Vietnam’s economy needs to grow 6.5 percent in the fourth quarter in order to meet the government’s full-year growth target of 5.2 percent, the prime minister told lawmakers at the National Assembly in Hanoi yesterday. Vietnam’s 2012 economic growth may reach 5 percent to 5.2 percent, Nguyen Van Giau, chairman of the assembly’s economic committee, told lawmakers.
“I see a very small chance for it,” Le Dang Doanh, a former senior economist at the Ministry of Planning and Investment who has been an adviser to Dung, said yesterday about fourth-quarter growth reaching that level. “In the current situation where exports are slow and domestic consumption is limited, the government may do as it has often done to boost growth, which is increase money supply through infrastructure spending and higher credit growth. That’s not sustainable.”
Vietnam’s economy is set to expand at its lowest rate in 13 years after rising bad debt levels at banks curbed lending while investment and consumer spending growth slowed. This year’s expansion would be the fifth straight year of sub-7 percent growth, the longest streak since reforms opened the country’s economy in 1986. In yesterday’s address, Dung apologized for the government’s mistakes in managing state-owned firms.
“The tasks for the last months of the year are onerous,” Dung said in the address. Reaching the full-year growth target “requires synchronous solutions from the political system, government regulatory agencies, and the business community.”
Last year, the National Assembly approved an economic growth target of 6 percent to 6.5 percent for 2012. The government and businesses need to “actively prepare conditions for higher growth in 2013,” Dung told lawmakers in his address yesterday.
The Prime Minister proposed an economic growth target of 5.5 percent in 2013 for approval by the National Assembly. Vietnam’s trade deficit may reach $1 billion by the end of 2012, while the country’s balance of payments surplus may exceed $8 billion, Dung told the legislature yesterday.
The economy will probably grow at about 5 percent annually to 2015, as the country’s fragile banking system acts as a drag on the economy, according to Matt Hildebrandt, an economist at JPMorgan Chase & Co.
The level of bad debt at some lenders may be “much higher” than they have reported, central bank Governor Nguyen Van Binh said in April. Non-performing loans may have accounted for 8.82 percent of banks’ outstanding debt as of the end of June, Giau, the head of the National Assembly’s Economic Committee, told legislators in Hanoi yesterday.
“If they get 5 percent it would be a pretty good outcome,” Jonathan Pincus, an economist in Ho Chi Minh City with the Harvard Kennedy School’s Vietnam program, said yesterday. “Growth could tick up a little as the government spends a bit more of its cash on hand and fulfills its plans toward the end of the year, which is typically what happens, but I wouldn’t expect a huge shift in either direction.”
The slowdown in economic growth has hurt stocks, with the benchmark VN Index (VNINDEX), Asia’s worst performer in 2011, down 19 percent since its peak this year on May 8. The index gained 0.2 percent to 397.71 at close in Ho Chi Minh City today.
Yields on five-year government bonds have fallen 225 basis points since the start of 2012, to 10.30 percent, as inflation decelerated and lenders sought the relative safety of state- backed debt.
Dung said the country will complete the basic restructuring of weak banks by the end of next year, and that Vietnam would study the establishment of a debt-management agency in 2013. He approved a plan in March that would allow the finance ministry to buy collateralized non-performing assets from commercial banks to strengthen their balance sheets.
“You have to get the banks moving again for the economy to start growing again which means solving these problems not just delaying and talking about them,” said Adam McCarty, chief economist at Mekong Economics in Hanoi. “The problem is the banking sector is moribund and not issuing enough credit and loans because they haven’t resolved these debt issues.”
Dung’s comments about the government’s shortcomings come one week after the General Secretary of the Communist Party, Nguyen Phu Trong, apologized to the nation for mistakes made by the Politburo and the Secretariat, including failing to prevent corruption and “deterioration among some party members.”
“I seriously recognize my great political responsibilities as head of the government and sincerely admit mistakes to the National Assembly, the Party, and the people for shortcomings and weaknesses of the government in management and regulation, particularly in checking and monitoring operations of state- owned conglomerates and corporations,” Dung said during the National Assembly address yesterday.
He cited Vietnam Shipbuilding Industry Group and Vietnam National Shipping Lines as examples of inefficient state-run companies that had “caused losses, resulting in severe consequences, and greatly impacted the prestige and role of the state economic sector.”
To contact the editor responsible for this story: John Brinsley at email@example.com