TIỂU LUẬN KIH TẾ VĨ MÔ

Topic: CHƯƠNG 4
1. Introduction:
 Concepts:
 Deficit spending (From Wikipedia): is the amount by which spending
exceeds revenue over a particular period of time, also called simply deficit,
or budget deficit; the opposite of budget surplus. The term may be applied
to the budget of a government, private company, or individual.
 Economic growth can be defined as the increase in the inflation-
adjusted market value of the goods and services produced by
an economy over time. It is conventionally measured as the percent rate of
increase in real gross domestic product, or real GDP.
 A liquidity trap is a situation, described in Keynesian economics, in which,
"after the rate of interest has fallen to a certain level, liquidity preference may
become virtually absolute in the sense that almost everyone prefers
holding cash rather than holding a debt which yields so low a rate of interest."
 In 2008 the world has fallen into a financial crisis the worst since the Great Depression of
1929 – 1933. The crisis started with the below standard real estate lending crisis
in the U.S., but its profound reason is the international imbalance of the pillars
of the world and the internal affairs of the US and European banking systems.
The crisis in the United States spread and pushed the world economy to fall
into the global recession.America, Europe and Japan turn into recession.
 For Vietnam's economy: An open economy depends heavily on
other economies and depends heavily on direct foreign investment so falling
into the crisis is inevitable. 2007, growth rate of Vietnam was 8.46%, in 2008
decreased to 6.31%. In particular, in the country of production, low investment,
consumption with signs of slowing down, unemployment rapidly increasing...
Before the situation, Government must take measures to settle. One is the stimulus
and must cope with the increased inflation situation, two is doing nothing but
the wait will be very long and the recovery may not happen. And the stimulus
policy is rapidly and appropriately appreciated in the moment.
2. VIETNAM DEMAND POLICY 2009:

 The stimulus is to promote government net spending (also known as public

consumption), thereby increasing the total demand, stimulating economic
growth.
2.1. Introducing the Vietnam's demand policy 2009:
 In 2009, the Government of Viet Nam has implemented the stimulus method
through a 4% interest rate support policy for businesses, exemption,
reduction and tax-loss programs, guarantees for enterprises, commercial
banks... 12/5/2009, the Ministry of Planning and Investment officially
announced of the stimulus package valued at 143,000 billion of government
(equivalent to US $8 billion), Then grew to 160,000 billion (equivalent to US
$9 billion). Accordingly, the equivalent of US $8 billion is divided into 8 parts
with different values. Specific parts of this package of bridges include:
  Interest rate support for credit loans is approximately VND 17,000 billion.
 Temporary withdrawal of capital construction investment is estimated at
VND 3,400 billion.
 In advance of the state budget to carry out some urgent projects of
approximately 37,200 billion VND.
 Transfer of capital investment plan from 2008 to 2009 about 30,200 billion
VND.
 Additional government bonds were issued
about VND 20,000 billion.
 Implementation of the tax reduction policy of
about 28,000 billion VND.
 Other bridge expenditures aimed at preventing economic decline, ensuring
that social security is around VND 7,200 billion.
2.2. Impact of the policy on demand for the year
2009:
2.2.1. Positive effects
 Investment and consumer demand solutions are carried out in a short time;
These new policies are issued. However, it is possible to realize that the
implementation of the stimulus policy solution has resulted in many positive
outcomes.
 One, the increased economic growth (from 3.14% in quarter I increased to
6.9% in the quarter IV in 2009, estimated that the whole year was 5.32%).
 Two, thanks to the impact of the stimulus packages, in each industry, each
sector has a clear transformation. GDP Industrial Area and construction in
2009 increased by 5.4%; The service area rose 6.5% over the pre-crisis
period.
 Three, the total imports of goods in 2009 reached US $68.8
billion, down 14.7% over the year 2008. In which foreign-invested
enterprises reached US $24.87 billion, 36.1% of the total import turnover of
the country, reduced by 10.8% over the year 2008, the enterprise sector
100% of the domestic capital reached about US $43.96 billion, accounting
for 63.9%, reducing 16.8% compared to 2008. The total turnover of goods in
2009 reaches about 56.6 billion Usdby 87.6% compared to the plan. The
export of a foreign invested sector retains an important position. Foreign-
invested enterprises engaged in exporting most of the major commodities
and occupied high proportion in the export of many items, especially the
group of goods processing industry.
 Four, the balance and macroeconomic indicators, such as revenues
spending budget, currencies, credit, the international balance of payment is
relatively stable. Inflation index (consumer price index) at a low level.
Inflation dropped from 19.9% in 2008 to 6.5% in 2009. Price index Apr.2009
compared to Dec. 2008 only increased by 1.68%, along with a reduced
interest rate and 4% annual interest rate added favorably to help businesses
 reduce difficulties, restore production, and support the stable and secure
development of systems of credit institutions.
 Five, directly contributing to increase investment activities to develop
economic and social infrastructure, maintain economic growth, create the
foundation and the motivation of social development both current, as well as
the future.
Six, many businesses receive the timely support of the "demand package" has added the
opportunity to retain and expand production, thereby contributing to reduce unemployment
pressure and ensure social stability, continue towards poverty reduction, especially ethnic
minority, mountainous areas , deep, remote areas; Support people to welcome joyful tet;
Support people to overcome disaster, disease... The policies that support credit interest
loans for investment of machinery, equipment for agricultural production, rural housing
construction, social housing, housing for the poor, student dormitories are being actively
deployed according to the goals set out.

 in closing there is no denying that the first stimulus package has had a
positive impact on Vietnam's economy in 2009, contributing to Vietnam's
early escape from the economic crisis
2.2.2. Negative impact:
 Besides the positive effects, Vietnam's economy still exists in many
restrictions of the first stimulus package:
 One, the objective and the policy orientation of the demand is unclear, there
is no allocation between the concept of the bridge and the stimulus or
rescue... The policies given are all set under the name of the bridge while its
actual impact is not yet sure to increase the total demand of the economy.

 Two, the interest rate support package has some potentially recognized
limitations, namely: This policy does not reach the subjects that need
support, can even support the wrong object due to the asymmetric status of
information between the State Bank with the commercial bank and between

the commercial bank with the enterprise , Leading to many businesses that
have not enjoyed goverment support policy. The impact of the interest-rate
support policy on organizations and individuals who have long-term loans on
their new investments to develop their production and business is also very
limited.
 Three, with a loan interest rate of 4% per year is quite large, beneficiaries in
many fields, economic sector, if prolonged will arise psychology in the
support of the State, reduce the competitiveness of enterprises. The 4%
interest rate support policy may create inequality, unfair competition between
businesses due to the possibility of accessibility of funds that are supported
by the interest rates of uneven businesses.
 Four, the 4% interest-rate support package can result in a decline in the
competitiveness of Vietnamese enterprises due to the cost of capital not
being calculated properly and adequately.
 Five, the stimulus package does not meet all 3 requirements: timely, right
object and just enough (short-term).Although the stimulus package was
promptly launched by the Government, the deployment situation was slow
due to the issue of administrative procedures.The slow deployment of the
stimulus package can reduce the effectiveness of the stimulus package.On
the other hand, maintaining a long-term stimulus package can undermine the
competitiveness of the economy.
3. Deficit spending Of U.S, China, Vietnam:
 The feature of US-UK stimulus package was born after a bank package of
relief.Due to the global financial crisis that started in the region of developed
countries, the enormous impact on the British-American financial markets, the
country had to choose a solution to rescue the business in heavy losses before
and hopefully mitigate its impact. After temporarily normalized the operation of the
bank block, these new countries launched their economic stimulus program. Features
of this stimulus package are aimed at stimulating domestic consumer demand,
emphasis on tax reduction (personal income tax, value added tax, deferred tax
payment for business)
 In general, the American and European economic stimulus packages aimed at
maintaining job regeneration – the market is heavily impacted by the crisis and
does affect the global society, trying to engage the individual. Direct tax support
for businesses occupies a very modest proportion of the economic stimulus
package.It is possible to call this the immediate personal consumer demand
 China ‘s type of Deficit spending is a huge program for reconstruction of the
infrastructure system.Most Deficit spending programs was estimated at US
$586 billion by the World Bank (WB) (about 12% of Chinese GDP in 2009)
aimed at building the transportation infrastructure system (where the
programs for the construction of the train lines impressed the western
countries), building the infrastructure of the country, reconstruction after the
earthquake.The remainder of this stimulus package aims at improving
technology, building construction, improving the system of health, energy
and environment.This stimulus package does not go directly to business
support, but also does not go directly into increasing inland demand, but is
aimed at spending large infrastructure projects and benefits that will quickly
move into businesses.
 The outstanding feature of Vietnam's demand pack is in two interest-rate support
packages.Vietnam's stimulus package also has similarities to Western demand
packages that support tax (according to the WB estimate the tax support package
for enterprises valued at VND 9,900 billion, twice as high as the support for
personal income tax).Although not clearly indicated, Many of Vietnam's economic
support items in the year 2009 also message on several types of infrastructures,
such as the 2010 budget interim for some projects, transferring investment
sources plan from 2008 to 2009. However, the most prominent and most significant
impact on Vietnam's economy is still the two plans to support Vietnam's interest, in
which the 17,000-billion story supports 4% for short-term interest (which,
according to the estimate when issued, will generate a 600,000 billion credit for
the economy) to attract the debate of Vietnamese economic experts. This is a
requirement for interest rate support or interest rate (WB used "interest rate
subsidy" to talk about this program).
 Vietnam's Deficit spending model also has a notable feature, which is the
government's commercial debt of US $1 billion through the release of international
bonds and then re-allocated to the State enterprise sector (DNNN). This measure
has created two implications of supporting multi-tier interest rates for DNNN
(which led to the suppression of the financial system that has led to the
psychology of the DNNN area) and creates crowding out effect on the private
sector
 The differences:
 Deficit spending model of US-UK take place after a bank system relief
package, which plans to aid America's banking sector up to $700
billion.After that, the system recently carried out the economic stimulus
package. Meanwhile, the model of the Vietnam-China group is no bank
support package.The reason is that the financial crisis does not directly
impact the bank group in Vietnam and China, the bank does not lose
losses due to secondary debts and financial investments, contributing to
economic instability, America must solve this problem first.Next, they had
to increase the domestic aggregate and create new jobs as the total
decline was the cause of the U.S. economy to weaken.
 China chooses to invest in the infrastructure as a demand strength
because the country chooses to rely on the domestic demand source to
exceed the crisis rather than choosing to rely on excessive foreign demand
to stimulate growth in the context of the world export market is

deteriorating. According to WB figures, the domestic demand source

contributed largely to China's economic support reaching dramatic growth
in the year 2009, which invested in government infrastructure projects that
played a major role in promoting growth. China’s figures show that while
employment situation continues to deteriorate in the export area and is also
bleak in the industrial area (due to some industries such as cement, iron
and steel.Aluminum signs excess power and forces the government to
intervene), new jobs are created in many areas in service area,
construction and state sector.Apparently in the year 2009, China used the
economic stimulus method towards enormous spending on infrastructure

projects to create jobs and to support growth. In a way that creates new
jobs directly through the government spending program, we find similarities
in China and the US.Meanwhile, Viet Nam's growth model is heavily
influenced by foreign aggregate demand due to heavily dependent on
exports, so Vietnam itself does not choose to increase the total domestic
demand but to choose to maintain the key factors considered by the
Government to be critical of the economy are domestic manufacturing
enterprises and export enterprises

 According to the State Bank review, the loan support interest has helped many
businesses overcome difficulties. In the last months of 2009, economic decline was

averted, the economy is retaking the momentum of growth. In addition, the decision
of the Prime Minister has provisions to support interest rates for loans arising in such
years on the period of implementation of support interest rate support has been made
public right from the time of implementation, helping businesses and producers
prepare for psychology , less shocked when interest rate support was terminated at
the end of the year 2009. However, the short-term interest support mechanism has
already been unjust and no need to add a second stimulus.
4. Conclusion:
The first stimulus package has brought about certain efficiencies such as timely support to
businesses, helping Viet Nam to escape the risk of economic recession.However, this
support package also reveals some issues such as the policy orientation of the demand is
unclear and there is no definite allocation between the concept of supply or demand, stimulus
or rescue; The stimulus package produces unhealthy competition, inequality between
businesses and can lead to a decline in Vietnamese enterprises ' competitiveness,
inflation,...From identifying the limitations of the first stimulus package, drawing lessons
learned in implementing the stimulus package for Vietnam as needed orientation and
preparation required when making the stimulus package, it is advisable to maintain the
stimulus only in the short term, closely monitor the required capital.

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