Speaking with Saigon Investment, Dr. Vu Dinh Anh said that compared to the last recession period after 2008, the current measures being implemented to stimulate economic growth are far more comprehensive, but the stimulus policy for domestic consumption still faces many bottlenecks that need to be removed.
JOURNALIST: - Sir, in your opinion, what are the differences between the current measures to rescue the economy and those that were implemented after the 2008 global recession?
Dr. VU DINH ANH: - In the period between 2008 until 2010, Vietnam's economy was severely affected by the global economic crisis but the measures we took back then were in vast contrast to the present day measures we are implementing in the current Covid-19 pandemic scenario. This time the effort is to stimulate businesses, not to stimulate the market. We are focused on supporting businesses and saving them from further losses and possible bankruptcy.
In the current period, it is important that the State steps in and strongly intervenes to save businesses in order to save the economy and regulate the market back to normalcy. So now we are offering measures to support businesses to maintain supply, and at the same time offering measures to stimulate the market to then stimulate more domestic demand. In fact, many countries around the world are doing the same and this is the economic principle, because it is impossible to save the market or the whole economy by just stimulating the supply only.
In essence, it can be said that it is stimulating the demand but only going to the more macro parts. This means that we only loosen a little on fiscal and monetary policies, so stimulus at this time has macro-economic implications, but lacks a lot of policies and accompanying measures, which have ignored many weaknesses of the market.
The biggest bottleneck currently in the domestic demand stimulus policy is the production orientation of the economy. For a long time now, our production orientation has not been geared for the domestic market, but is mainly aimed at the export market and its demands for consumers outside of Vietnam.
This has become abundantly clear with the total import-export turnover at one point reaching about 200% of GDP. In short, Vietnam's current economy is export oriented, and not targeted for the domestic market. The domestic market is still fundamentally spontaneous, and its biggest limitation as well when we set out to apply the current stimulus policy for strengthening domestic consumption.
- Sir, what are the specific measures being implemented to strengthen growth, other than the many solutions to save the economy by sticking closely to market and shift in production?
- First, we must solve the supply problem. At present, we have a department that produces goods for export but cannot export. This department is forced to turn to the domestic market. In addition, to meet quite a lot of market needs we still have to import many components and goods. Under the current conditions, import poses serious risks. Therefore, business and production activities must be directed towards the domestic market.
Second, we must focus on our needs only. The current domestic market has characteristics that need to be identified. We must first determine what those specific needs of the domestic market are. For example, we have the same goods or groups of products but they are of different quality. In case of a resurgence of the Covid-19 pandemic once again, if demand diminishes for something then we must quickly turn the stimulus to another demand. This is based on assessment and discovery of specific needs of the domestic market.
Third, we must resolve the pricing problem. Currently, our inflation is not so high, but some kinds of goods are priced too high. Therefore, to stimulate domestic consumption, it is necessary to find the right pricing to cover the needs of the market. To do so, enterprises are being forced to innovate on production, cut costs, and lower product costs to suit the needs of consumers.
Here a series of problems are being created. For example, in the past, there was a lot of discussion about electricity pricing, so the Ministry of Industry and Trade set an appropriate electricity selling price. So we see that there are many other essential goods that all share the above problems that need to be tackled.
- Sir, decline in employment and labor income due to the impact of the Covid-19 pandemic affects the policy to stimulate domestic consumption. In your opinion, how should this problem be resolved?
- One of the current serious issues is income of an individual, or rather the solvency to stimulate domestic consumption demand. Solvency is related to many things such as employment and income, prices, and consumer credit, in which consumption must be placed in the context of employment and income of a majority of the population affected by the Covid-19 pandemic in order to propose specific solutions.
Recently, we have talked a lot about promoting the development of the consumer credit market to stimulate demand, but if we maintain the consumer credit market as before, it will be difficult to develop. Therefore, there should be ways to increase solvency for consumers, such as more flexibility in procedures, diversified types of credit products and services, and clear segment markets. Consumer credit is also a channel that can be used as a catalyst to stimulate domestic consumption at this time.
Regarding the problem of worker income being affected by the Covid-19 pandemic that has also now led to a decline in consumer spending, there needs a review of social security policies and government bailout packages. This is a necessary step towards improving consumer confidence as well as increasing solvency for people. The domestic market stimulus needs the participation of the whole system with specific and synchronous measures in place, as the domestic market is a large market with nearly 100 million people with fluctuations in consumption, income and consumer confidence, particularly in these current times of the Covid-19 pandemic.
- Thank you very much.