In the run-up to the lunar new year, Minister of Planning and Investment Bui Quang Vinh spoke with VIR’s Ngoc Linh about Vietnam’s economic development.
At the latest National Assembly meeting and in other conferences, you have consistently said that there should be a renewal in our economic institutions for further growth. Where should this start?
It is time to renew economic institutions based on the principles of a market economy. The regulatory role of the state and the government will then be identified. This approach has been recognised for a long time and reiterated recently in the prime minister’s new year message.
The question for us is where to start? I think firstly we have to review our economy. First of all, we must consider how our economy is developing, or how the market is working, what differences we have compared with other market economies and what obstacles are hindering us from higher growth.
I can say there are many things that do not follow market economy principles. We just did things based on what we thought was necessary. People say a socialist-oriented market economy is a new model and we have to proceed by trial and error, but I don’t think so. The market economy is a basic human construct, and today it is far different from what it was many years ago. It’s not as bad as we used to say.
We have not yet applied market economy principles in many sectors. For example, we have supported farmers by removing agricultural irrigation fees. We think it’s good and farmers are also very happy. But this is not necessarily the right thing in a market economy and we will see consequences, because the farmers don’t think they have to save water and agricultural irrigation companies don’t have money to maintain and upgrade the irrigation system. Instead of collecting money from farmers for irrigation services, agriculture irrigation companies have to ask for money from the tiny state budget. I am afraid that in the next five or ten years, our irrigation system will severely downgrade and we will finally lose much more than we gain. The farmers will have to bear the consequences. This example can explain a lot about the efficiency of a true market economy. That’s why we have to build a real market economy, and it’s only by running it, that we can apportion our strength in the right places and make it efficient.
Secondly, we have to review our decentralisation policy. Despite being the right approach, decentralisation must be controlled. We have to define what can be decentralised and what can’t. Properly reviewing the decentralisation policy will help us manage our natural resources and budget more efficiently.
Thirdly, we have to develop a strong capital market. An economy relying too much on the banking system is unhealthy and exposed to many potential risks. It is problematic that banks raise short-term funds to finance long-term projects. Businesses will face very high risks and produce low efficiency if their capital mainly comes from bank loans rather than the stock market.
Those are among critical issues that need to be addressed in institutional reforms. Once we have adequate market factors in place, our economy will perform more healthily and efficiently. Again, it’s high time for us to reform institutions more drastically. The drives of previous reforms are no longer strong enough, thus we have to identify the new ones, which should be institutional reforms. This is vital for the country, particularly at this time.
As human resources – the most valuable sources for national development – have been used wastefully, how do you think we can tackle this problem to promote rapid growth?
Undoubtedly our most valuable asset is human resources, because natural resources will run out over the time. What can we resort to in our economic development in the next some decades if these natural resources run out? Certainly human resources will be the answer. The global reality has shown nations possessing poor natural resources are often more developed than the others, with South Korea and Japan being typical examples of the former.
Vietnam has abundant human resources. Vietnamese people are no less smarter and dynamic than other nations in the world. So the question here is why the country does not have many economic development landmarks to be proud of. I am always concerned about how to liberalise and mobilise the brainpower of Vietnamese people for national development. In his new year message, Prime Minister Nguyen Tan Dung has underlined democracy, which can be translated into encouraging and facilitating the population’s creativity and contribution to national development. It is vital for our country to develop.
What do you think about the middle-income trap that Vietnam may face?
There are warnings about the middle-income trap for Vietnam. They are right as reality shows many countries have got stuck in the vicious cirle after turning into a middle-income status without making the necessary breathroughs due to the lack of proper policies and mechanisms. Vietnam may face the same situation. The country has turned into a low middle-income nation while revealing many weaknesses. Without breakthroughs, our economy will not only overcome the middle-income trap, but also lag behind other nations. For example, in the next 10-15 years, Myanmar will possibly leave Vietnam behind if we do not create the breakthroughs, although the former is currently less developed than the latter.
Vietnam needs to reform more drastically, particularly in term of institutional reforms, to create new momentums for its new development period.
There are controversial ideas about the contribution of foreign direct investment (FDI) to Vietnam’s development. What are your comments?
Some people have expressed concerns that we grant too many incentives to foreign investors and the FDI sector is taking over the domestic market. This is partly correct, but generally I do not share this view. We should not descriminate between foreign and domestic enterprises, despite some certain differences between them. Without FDI, we could not have such high economic growth in recent years and we also could not change our economic structure and gain such high export growth.
Every company has been granted incentives so far, not only foreign-invested companies. I can say that incentives for domestic companies are no less than those for foreign companies. In some cases, foreign companies enjoy more incentives, but they are special cases. We have to give them more incentives to ensure they will stay long-term in Vietnam and contribute significantly to the economy. I think we still have to grant incentives to foreign investors.
What about domestic companies?
Of course, we will also grant incentives to domestic companies. But domestic businesses have to view the increase of FDI as a great opportunity for them to change and enhance competitiveness. They must grow themselves to create well-known Vietnamese brands like Trung Nguyen Coffee. Every company is treated equally under the law. This is a competitive market and Vietnam is becoming increasingly integrated into the global economy. Therefore, domestic companies need to stand on their own feet rather than relying on the protection of the state. The increase of FDI is a chance for them to access new technology and management skills, and this is motivation for them to grow.
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