An Overview of the Global Financial Crisis

Presented by Ta Quang Ngoc, Ph.D, M.A., and B.A., in Communications and Socioeconomic Researches

• Professor Paul Krugman, the author of New Free Trade Theory, awarded the Nobel Economics Prize by the Royal Swedish Academy of Sciences, said that free trade is not always a good policy for nations. • He sharply criticised the US economic policies under president G.W. Bush • In 2005, he predicted the property crisis in the US and believed the US economic crisis could still last until 2010. • The US and the whole world are facing the worst ever financial crisis which can compare with the Great Depression in 1923-1929 which former FED chairman Alan Greenspan rated as one that could happen only once in a century. Since its foundation as the USA, the country has experienced many recessions with the first in 1819, then in 1832, 1857, 1883, 1893, 1907 and 1920. • In October 1929 the Wall Street collapsed and rocketed the US and many other countries’ economies.

• Now the world’s witnessing the worst ever economic crisis happening in most powerful country where many economic theories were born and many economists were awarded the Nobel Economic Prizes. • This forces people to reconsider basic economic theories relating to free trade in which perhaps the most important relationship between the self-regulating rule of the market and the regulating role of governments. The following are two examples of market self-regulating trends. • When the 1929 recession occurred US Secretary of the Treasury Andrew Mellon asked the president to let enterprises do business at a loss and go bankrupt during the recession cycle and the economy would become healthy. • In the 1980s, US president Ronald Reagan and UK PM Margaret Thatcher encouraged the free trade theory in the two powerful economies, pursuing the policy of weak government, strong market.’

• The IMF and WB , according to American Economist Joseph E. Stiglitz, a 2002 Nobel Economic Laureate, became missionaries through them views on free market were imposed on poor countries that needed donor loans. • The crisis this time originates from the easy conditions of American banks in the recent 10 years,
– Granting large amounts of loans to home buyers under sub-standard contracts that created a bubble-economy. – When the market cooled down, millions of borrowers were unable to make payments of both principal and interest and banks and investors in turn became insolvent.

• The US financial crisis takes places in a global context was described vividly by Alvin Toffer in his book “The Third Wave’. By placing in a systematic relationship billions of people, the market gives rise to a world in which no person has the independent control of his fate, no individual, no nation, no culture can do so.” • The Third Wave will produce the first “transmarket civilisation” in history. • What is problematic is the role of the market in our lives and the future of the civilisation itself. So, for the first time in history, international organisations and countries have coordinated actions to deal with the crisis. • The US president on Oct. 3, 08 signed the Emergency Stabilisation Act of 2008 as a bailout of the US economic system worth $700 billion.

• The FED on Oct. 9, 08 cut base rates by 0.5 to 1%, the lowest level in 50 years. On Oct 10, finance ministers and central bank governors from the group of 7 industrialised nations proposed the five point plan for cooperation to deal with the crisis. • The ASEAM summit, opened in Beijing on Oct. 24, 08 with the participation of 43 countries, discussed the crisis. • ASEAN countries and China, Japan and Korea (ASEAN +3) agreed to form a common foreign exchange fund worth $80 billion to protect the currencies of these countries. • Finance Ministers and Central Bank governors from the ASEAN +3 met in Manila Philippines in Nov. 08 and a summit of these countries will be held in Bangkok in Dec. 08 to discuss cooperation to cope with the crisis. • In short, 2009 will see many difficulties facing the

Vietnam’s rapid response to the Global Financial Crisis

Status of Vietnam’s Economy
• Vietnam's economy grew by 8.5% last year, but the target for this year and next has been scaled back to about 6.5% as the economy has been battered by a widening trade deficit and double-digit inflation. • According to IMF, Vietnam's economic growth will drop to five per cent next year while the government grapples with a large current-account deficit and weak banking and corporate sectors. • Vietnam has announced a stimulus plan worth more than $1 billion to avoid recession as the global economic crisis bites into its export-led economy • Prime Minister Nguyen Tan Dung approved a number of measures to boost production, investment and consumer spending at a monthly cabinet meeting Tuesday • Dung said the stimulus would fund public works projects, including a large irrigation canal in the northern Red River delta, and help finance rice storage depots for about one million tons of grain in major farming areas.

A package of measures applied to combat the economic slowdown and cushion the impact of the global financial crisis • Measures outlined by PM at a gov meeting last week included:
– Revving up stagnant domestic production and exports – Fuelling weakening consumption power, – Applying flexible monetary and financial policies – Ensuring social security, – Care for the poor and speeding up administrative reforms

Overview of Vietnam’s Economy
• Vietnam’s economy has been bogged down in difficulties since early this year • Many economic sectors are slowing down • Causing production stagnancy • Economic growth has slowed from 8.8% last year to 6.5% in the third quarter of this year • The market’s consumption power has declined since the start of the year. According to Nielson Global Online Consumer Survey, a global ealding company, showing that Vietnam’s confidence declined nine points to 97 points during last four months. • In 2009, the gov expects the growth to be from 6. to 6.5%
– Due to ramping inflation

• The main causes were rigid monetary policies and public investment ineffectiveness

Actions Taken by MoF & Central Bank
• Draw up proposals on tax cuts, • Tax exemption • Delay of tax levies for enterprises • Further rate cuts and assistance • Funds

Focus on State-funded Projects
• Facilitating important state-funded projects • Disbursement of capital from gov bonds for medical and education sectors and housing for the poor • Expanding productions and export markets of the state economic sector
– Would held stir up domestic demand

Corporate Income tax cut
• Bringing the corporate income tax dwon from 18 to 25% • Cutting corporate income tax by 30% for small & medium sized enterprises • Postponing the implementation of the personal income Tax Law to July 2009 • Reducing the basic interest rate from 11 to 10%

• Officials from international agencies including the World Bank, EuroCham, AmCham, AusCham…all agreed that Vietnam is facing the toughest-ever challenges and worsening business outlook. • “Vietnam has faced the toughest-ever challenges such as high inflation, hefty trade deficit, fluctuations in forex rates and the slumping stock market,” Martin Rama, the World Bank’s Country Director in Vietnam told the Vietnam Business Forum held Dec 1 on threshold of the Consultative Groups of Donors’ Meeting. • Speaking about the global gloomy outlook, Thomas O’Dore, chairman of the American Chamber of Commerce (AmCham) said Vietnam’s economy will be facing with similar problems as exports, which account for more than half of its GDP value, are declining due to shrinking purchasing power in the U.S., EU and Japan. • The U.S. buys up to 26% of Vietnam’s exports, EU purchased 19% and Japan imports 16%, Thomas O’Dore said. • Vietnam should boost productivity and cut production costs,

Future Landscape of Vietnam’s Economy

• Meanwhile, the Japan Bank for International Cooperation (JBIC)’s Chief Representative Matsuda Noriyasu said that cheap laborforce no longer is teeth of Vietnam, and Japanese companies are concerned over underdeveloped infrastructure networks. • Out of surveyed 620 Japanese firms, 78% of them complained about road systems, 60% about power supply, and 45% about seaport situation. • A recent survey by the Secretariat of the Vietnam Business Forum also showed that numbers of local firms complained about bad quality of the business climate soared to 30%, up from 5.3% in 2007. • Officials at the VBF proposed the government of Vietnam further boost reforms in infrastructure developments, intellectual property rights, courts systems, efficiency of the public administration and high-quality human resources. • However, Trence Francis Mahony, an official for the equity market team said that Vietnam is better at dealing with impacts of the global crisis than other Asian nations in 1997. • “Vietnam has its own strengths and not much impacted from the current crisis, and it has long-, and medium-term outlooks, shrunk investments will be traded off,” he said.

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