While the Vietnamese economy is showing signs of recovery after monetary and fiscal measures taken by the Government to support businesses, this year's targeted GDP of 6-6.5 percent would be difficult to reach, economists said at a forum held last Friday in Ho Chi Minh City. They said that this year's GDP is likely to be 4.5-5 per cent. Vo Tri Thanh, deputy head of the Central Institute for Economic Management, said there were positive signs in the first quarter of 2012, although the economy continued to face many difficulties.Businesses began importing machines and raw materials to serve production, as seen by the trade deficit increase in April, and this was likely to rise further in the coming months, he said.

According to the Ministry and Industry and Trade, the trade deficit in April was about US$400 million. Apart from signs that production was resuming, Thanh expected a series of measures supporting businesses including tax deferral, reduction and exemption and accelerated disbursement of VND180 trillion ($8.6 billion) in investment capital for business development from the state budget.

In addition, VND45 trillion ($2.16 billion) of Government bond funds in 2012 will boost demand for stockpiling products like iron, steel and cement. The economy is expected to develop from the second quarter of this year.

Le Xuan Nghia, former deputy chairman of the National Financial Supervision Committee, also agreed that there were strong signs of economic recovery. The industrial index in April was higher than in previous months, reaching nearly 12 per cent – which was the highest level last year.

While the Government would implement several relief measures including easing of credit, tax breaks and reduction in land lease costs, "enterprises must still save themselves," Nghia said. He said the Government's bailout measures could only solve "temporary problems".

There were positive signs in the world economy that boded well for the export market, Nghia said, adding that the United States, the EU and Japan – Viet Nam's main markets – were likely to increase their growth rates. "Interest rate is also forecast to continue to decrease to 13-14 per cent per year and further reduce next year when the banking system has been restructured and strengthened to increase liquidity," he said.

Many problems
Despite the efforts to present a positive picture, there were many economic problems that loom large, making this year's growth and inflation control targets very difficult to achieve, several economists pointed out at the forum. High lending rates, low liquidity, declining orders from overseas and the inefficiency of State-owned enterprises were among major problems that Viet Nam was having to grapple with this year, they said.

ACB chairman and former Minister of Planning and Investment Tran Xuan Gia said the central bank's recent move to cap lending at 15 percent for four priority areas was welcomed by the public, but it did not mean that more credit would be pumped into the economy.

He said the cap did not mean that all firms could access bank loans. If their business plans were poor and did not meet the banks' requirements, the firms would be unlikely to get credit, he added.
Besides, the latest report published by the Ministry of Finance showed that in the first four months of 2012, nearly 18,000 enterprises went bankrupt or suspended operations, 10 percent more than the same period last year.

Gia also expressed concern that Viet Nam would be unlikely to achieve its targeted GDP growth this year. He forecast this year's GDP would be 4 percent.
"GDP normally grows slowly in the first quarter and increases gradually in the following quarters. An important open question is how it bounces back on fledgling support factors," he said.

Gia said fiscal and monetary policies should be utilised to stimulate demand and prevent the economy from stagnating.

Other factors that affected growth, Gia said, were the shrinking domestic and overseas markets, which would eventually generate a large amount of commodities in stock, high production costs, and a low competitiveness for Vietnamese products.

Citing the economic circumstances in 1998-99 and 2008-09, Gia noted that the year with the highest inflation rate was not the one with the lowest GDP growth, but the following year.

Source: Vietnam News