Vietnam’s foreign minister has dismissed International Monetary Fund concerns that a lack of clarity in the government’s macro-economic policy is damaging confidence among international investors.
Vietnam’s foreign minister has dismissed International Monetary Fund concerns that a lack of clarity in the government’s macro-economic policy is damaging confidence among international investors.
The Vietnamese government has been forced into a series of rapid shifts in macro-economic policy over the last three years as it was buffeted first by a bout of high inflation, then the global slowdown and, most recently, fears about a possible currency crisis.
November in a bid to stem the downward pressure on the currency, which has been driven by concerns about Vietnam’s large trade and budget deficits.
In an annual review of Vietnam’s economic policy released on Thursday, the International Monetary Fund (IMF) paid tribute to the government for managing to ride out a number of difficult challenges but warned that “the current macroeconomic stability does not appear robust”.
The IMF said that “inadequate clarity” on government policy had “undermined market confidence” and recommended that “transparency in government intentions, based on higher quality data published timely, should be further advanced to provide market players predictability.”
However, Pham Gia Khiem, Vietnam’s foreign minister and deputy prime minister, dismissed the information contained in the IMF’s report as “inaccurate”.
“When the global crisis happened, one of the top priorities for Vietnam was to keep the stability of our macro-economic growth,” he told the Financial Times. “The second priority was to sustain transparency.”
Mr Khiem, who is also a member of the governing Communist Party’s Politburo, said the government was now focused on maintaining the dong/dollar exchange rate and that the recent turbulence “confirms that Vietnam is now a market economy”.
“I don’t see any negative signs from foreign investors,” he said. “They are not concerned.”
As in China, Vietnam’s transition from a centrally-planned economy to a market-based economy has been successful in stimulating growth and reducing poverty.
However, economists are concerned that officials’ preference for setting targets rather than generating forecasts - seen as a hangover from the days of central planning - is hampering their ability to provide a stable macro-economic environment for investors and consumers.
The IMF noted that this year the government had set goals for GDP growth, inflation, credit growth and money supply, while also targeting a stable exchange rate.
“It may be difficult to convince the market that the government can achieve all these objectives with relatively blunt policy tools,” the IMF said.
Adam McCarty, an economist at Mekong Economics in Hanoi, said that the government’s drive to target every single macro-economic variable was impossible to achieve.
“In Vietnam, it might be appropriate to target inflation and GDP growth but the rest should be a forecast,” he said.
Government officials have been criticised by both the IMF and economists for making confusing and contradictory statements about macro-economic issues, such as the direction of lending rates and Mr McCarty said that ministers needed to demonstrate more “cabinet discipline” when making such market-moving pronouncements.
But despite these concerns about process, the eventual policy outcomes are “generally very sensible”, Mr McCarty said, adding he was optimistic about the country’s growth prospects.
“The strong yen and worries about rising labour costs in China are all good for Vietnam,” he said.