Wednesday, October 24, 2012

Beats Communism

But, then, what doesn't.  Vietnam slowly crawls up the ladder, amidst problems that sound familiar;

Vietnam’s economic performance has been marred by large swings in economic and financial conditions. The inability to respond quickly to changing conditions, the pro-growth bias of the State Bank of Vietnam, as well as a 'stop and go' policy style highlighted by the tightening and loosening of countercyclical policies in quick succession partly explain this. Further, the problems facing Vietnam are symptomatic of deeper underlying issues. Inefficient state-owned enterprises and weaknesses in the banking system need to be addressed expeditiously with measures such as strengthening corporate governance, enforcing stricter standards for recognising bad loans, and equitising state banks. Fortunately, total external debt levels are low and most external debt is concessional. However, some risks remain – contingent liabilities from state-owned enterprises and the financial sector are not captured under public and publicly-guaranteed debt statistics and pose some risks to fiscal sustainability.
Despite these challenges, Vietnam remains attractive to investors given its burgeoning middle class and favourable demographics. In the medium-to-long term however, productivity gains must begin to make up for the weaker growth that will come from a dwindling demographic dividend (McKinsey 2012)3. But first, the country must get the basics right, chief among which is maintaining macroeconomic stability. For Vietnam to encourage a stable, sustainable macroeconomic environment, it should implement structural reforms and not prematurely relax fiscal and monetary policy to protect growth at all costs.
Now that the country is no longer a pawn in the Cold War, can't hurt either.

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