Q: Some experts say that the current slowdown in the world economy has precipitated a new financial crisis. How do you view this and how will it affect Vietnam?
A: In 2008, the global economy was able to partly weather the financial crisis due to two main “weapons,” the economic dynamism in Asia, mainly in China, and very accommodating monetary policies in developed countries. These two elements are not available any longer.
In that regard, as a globalized country, Vietnam’s trade openness ratio is close to 150% (trade flows to gross domestic product), and her large current account deficit has been financed, so far, with buoyant foreign direct investment, i.e., non-debt creating flows. A deepening financial crisis coupled with a sharp drop in global GDP would be a blow to Vietnam’s economic development prospects, although Asia has shown impressive resilience so far. Asia’s growth in 2011-2012 might reach around 8% while that of developed countries will be probably barely 2.5%. It is thus crucial for Vietnam to diversify its export base both in terms of trade partners and of products with higher added value. Another priority should be given to shrinking the current account deficit while promoting domestic production of equipment and capital goods that Vietnam uses to manufacture export products to enhance self-sustaining growth.
Despite a safe position at the time being, Vietnam’s foreign debt has risen at an alarming pace. What can be said of that situation?
Although Vietnam’s foreign debt has been increasing over the last five years, the costs and structure of her debt are still favorable, I believe. The main point is the comparison between the increase in foreign debt and the net export revenues of Vietnam, i.e. the country’s debt servicing capacity.
How will things like the U.S. faltering economy or the debt crisis in the EU affect the Vietnamese economy in general and the financial and banking sector in particular?
The deteriorating creditworthiness of most Organization for Economic Cooperation and Development (OECD) countries creates a general risk aversion in global financial markets, hence affecting companies, commercial banks and countries, including Vietnam. The risk on Vietnam’s economy would come from a sharp deterioration in global growth,