Vietnam at an Economic Junction

Interview

Vietnam’s economy today is in transition. Its economic policy choices being are defined by a desire to embrace innovation as well as by the need to address a whole range of complex, structural problems. Vietnam’s current situation and prospects for the future are discussed with Vladimir Mazyrin, Director of the Centre for Vietnam and ASEAN at the Institute of the Far East of the Russian Academy of Sciences; RIAC expert.

Interview

Vietnam’s economy today is in transition. Its economic policy choices being are defined by a desire to embrace innovation as well as by the need to address a whole range of complex, structural problems. Vietnam’s current situation and prospects for the future are discussed with Vladimir Mazyrin, Director of the Centre for Vietnam and ASEAN at the Institute of the Far East of the Russian Academy of Sciences; RIAC expert.

How would you assess the current state of the Vietnamese economy? What effects has the global financial crisis had on the course of reform?

Compared to the impact that the global financial crisis has had elsewhere, the Vietnamese economy is one of the best performers. After a few years of stagnation, economic growth is back, amounting to 5.42 per cent in 2013. My estimates suggest that the downward trend that has occurred since 2008 is over, and a recovery is on the way, which is fully in line with cyclic changes that happen every 10-11 years in the market-based economy of this country.

Still, the latest global crisis has had some negative repercussions in the Socialist Republic of Vietnam that have proved to be more critical than those experienced during the 1997-1998 Asian contagion. This has happened because of the country’s closer integration into the world economy, higher level of openness and, as a result, external dependence.

An overall indicator of an economy’s openness, calculated as a ratio of GDP to trade, exceeded 150 per cent in 2013. Macroeconomic imbalances are on the rise, with some at a dangerous limit. And although there is therefore an obvious need to pursue economic restructuring, the reforms have so far been very slow.

Photo: AP Photo/Jerome Delay
Vladimir Mazyrin

What is the key challenge to economic development in Vietnam? How dangerous are the high leverage and the growing income disparities we are currently witnessing?

The key challenge lies in the exhaustion of the current model of extensive growth, and in the speedy transition to the model of intensive, innovation-based growth. High inflows of foreign capital have overheated the Vietnamese economy: domestic investment as a share of GDP (42 per cent) has outstripped savings (31 per cent). Due to aggressive borrowing, internal government debt has reached 58 per cent, while foreign debt is 43 per cent; together they exceed 100 per cent of GDP. This, together with the openness and the capitalist model of economy, has led to increasing income disparity and growing social tensions.

At the same time, the level of social inequality in Vietnam is considerably lower than, say, in Russia, so the situation in the country is far from being explosive.

Another challenge is Vietnam’s membership in the WTO. As you can see from the above analysis, in the medium term perspective (covering seven years of membership), the disadvantages of joining this organization have outweighed its advantages. Submission to the interests of the developed countries has become a heavy burden.

What is the current balance of power between reformists and conservatives in the Communist Party of Vietnam? How do they differ in their positions on economic policies?

We should first define what “reformists” and “conservatives” mean exactly for the local Communist Party and the Vietnamese leadership in general. The so-called reformists are, in effect, proponents of a neoliberal course, aimed at closer European integration; a pro-American (pro-Western) stance; privatisation of the public sector; and less macroeconomic regulation or government interference in the market. Simply put, it is exactly the course that has led to the current tensions in the Vietnamese economy.

The conservatives include supporters of a more cautious, moderate approach which was at the heart of a convergent – this is my term – or two-system economy. This was the model that prompted the phenomenal rise of the country after just 25 years of regeneration policies.

This model has huge potential, and it may offer global capitalism a way out of the current stalemate. The conservatives look up to China, aware of the reasons for its global rise, although they may also be wary of the risk of too much economic dependence.

This part of the leadership has been most consistently supportive of a strategic alliance with Russia, which they regard, together with China, to be a counterbalance to US claims to global hegemony.

What is the place of the high-tech sector in the Vietnamese economy? What is the government doing to boost it?

The high-tech sector is still rather modest in Vietnam’s economy. In 2005–2012, the share of manufacturing industries in the GDP grew a meagre 3 per cent: from 23 to 26 per cent. The country produces few sophisticated industrial goods, and mostly as part of industrial cooperation and assembly. These are largely microelectronics goods – chips, smartphones, tablets, computers and their spare parts, which in 2013 began to lead exports (24 per cent by value).

Progress is obvious but the economy is still ranked low in terms of efficiency, reflected, inter alia, in global competitiveness indexes. In the World Economic Forum’s index, Vietnam was rated 70th out of 148 in 2013–2014. One of the reasons lies in Vietnam’s technological gap, which will be difficult to overcome if the country continues to import obsolete (but inexpensive) technologies from developed countries, or accommodate environmentally hazardous production facilities relocated there from elsewhere.

Vietnamese authorities believe the way out to be connected to techno-parks and high-tech clusters in cooperation with leading high-tech companies (Intel, Microsoft, Samsung, etc.) and also in training a highly qualified workforce abroad; increasing R&D expenditures; and attracting professionals and business people, including those of Vietnamese origin, from high-tech industries (e.g., Silicon Valley in the US). Despite increasing growth in information technologies, Vietnam has not yet embarked on the innovation-based phase.

Interviewed by Ilya Ivanov, RIAC programme assistant