ASEAN Economic Bulletin12Vol. 26, No. 1, April 2009
bubbles. The Ho Chi Minh City Stock Exchangewas one of the worst performers in the world in2008, losing 66 per cent of its value. Prices for commercial and residential properties were alsodown by as much as half in the major urbanmarkets. In a cruel twist of fate, the global creditcrunch struck just as Vietnam appeared to beemerging from its domestically generated financialinstability.Growth is almost certain to slow further in 2009as the global recession weakens export demandand inward investment, both of which are likely tocontract in real terms. The government hasattempted to stimulate the economy by loweringinterest rates and injecting liquidity into thebanking system, and also plans to increase publicinvestment and provide loan guarantees for small-and medium-scale enterprises (SMEs). Theseremedies are unlikely to succeed in stimulatinggrowth, and may in fact contribute to a renewedbout of price inflation and a widening of the tradedeficit.High-profile requests for assistance from largestate-owned enterprises (SOEs) have focusedattention on the government’s state-ledindustrialization strategy.
The debate over the roleof the conglomerates is likely to grow moreintense over the coming year. While someinfluential leaders of the Communist Party see theconglomerates as a vital tool in the fight againstinflation and in the provision of basic necessitieslike food and power, others argue that the SOEshave leveraged their privileged access to statecredit and land to build corporate empires gearedmore to money making than social progress.Despite tight control over the media, the role of the state conglomerates is debated openly in thenewspapers, on the Internet, and even on state-runtelevision.The main argument of this paper is that as asmall, relatively open economy with a fixedexchange rate, Vietnam’s options in the face of aglobal recession are rather limited. However, thegovernment could ease the pain of the inevitableslowdown by redirecting public spending awayfrom capital-intensive, import-using investmentsand towards labour-intensive projects that do notadd to the trade deficit. The government will haveto go beyond public investment in infrastructureand impose discipline on large SOEs if it is toachieve these objectives.The rest of this paper consists of three sections.Section II reviews the likely impact of the globalrecession on Vietnam, and suggests a set of policies to reduce the negative effects of slower export growth, falling export prices and areduction in foreign direct investment (FDI). Thepaper then turns to the specific problems facingthe large SOEs, and argues that more rigorousdisclosure requirements and separation betweenfinancial and industrial interests are needed toensure that public investment is directed towardsprojects that create jobs, profits and foreignexchange. The final section concludes.
II.The Impact of Global Recession onVietnam
It is now clear that the global credit crunch hasdeveloped into a recession that is likely to be, inthe words of IMF Chief Economist Olivier Blanchard, “the worst crisis in sixty years.”
As asmall, export-oriented economy, Vietnamesegrowth will suffer from a recession that isoccurring simultaneously in North America,Europe, and Japan.The global crisis will affect Vietnam’smacroeconomy in five ways. First, demand for some Vietnamese exports will weaken. To dateVietnam’s export performance has remainedremarkably strong, but by the end of 2008 exportsvalues had already begun to contract. As shown inFigure 1, Vietnamese trade data indicate thatexports fell by 7 per cent in November, largely asa result of lower oil prices. Prices of other commodities produced in Vietnam are also falling(Figure 2). Anecdotal evidence suggests thatorders for manufactured exports includinggarments, footwear, and furniture are droppingquickly, and seafood producers are also under pressure.
According to the Ho Chi Minh Citybranch of the Vietnam General Conferation of Labor, 30,000 jobs have already been lost in thecity in these industries.
With exports equal to