HA NOI — Viet Nam is in danger of falling into the middle-income trap, which will result in diminished growth, economic experts said.
Homi Kharas, from the Brookings Institution in the US, said Viet Nam could enter the danger zone within a decade if long-term solutions were not implemented.
Kharas said Viet Nam's growth was heavily dependent on credit and the presence of large economic groups, which would work to hinder future growth.
In 2007 and 2008, credit expansion and increases in world food and energy prices resulted in inflation. To curb rising prices, the Vietnamese Government raised interest rates, which resulted in higher costs for enterprises and domestic banks, Kharas said.
However, credit loosening to foster growth would repeat the story and even harm the country's long-term sustainable development, he added.
To leap over the middle-income trap, Kharas suggested the Government give priority to crisis avoidance, productivity gains and governance improvement.
He added that Viet Nam should also pay special attention to asset bubble management and better micromanagement. Meanwhile, to raise productivity, he said the country should have in place an export-led growth strategy, while upgrading its transport infrastructure and work force skills.
According to the World Bank, low-income countries have a Gross National Income (GNI) per capita of US$975 or less; lower middle-income countries, $976-$3,855; upper middle-income, $3.856-$11,905; and high income, $11,906 or more.
According to the World Bank, Viet Nam in 2008 had a GNI per capita of $890, making it a low-income nation.
Since then, there has been no official report on Viet Nam's annual GNI per capita.
However, at the end of 2009, the WB approved a loan of $500 million for a public investment reform programme, which is sourced from the bank's International Bank for Reconstruction and Development.
The IRBD is designed to reduce poverty in middle-income and creditworthy poorer nations.
The bank's press release quoted Jim Adams, vice president for the East Asia&Pacific region, as saying: "This is a significant milestone for Viet Nam – a country which has moved from the category of ‘highly indebted poor country' to middle-income status in less than seven years."
Economist Do Hoai Nam, from the Viet Nam Academy of Social Sciences, said though Viet Nam was no longer in the list of poor countries, its achievements were not sustainable.
He said infrastructure in urban and rural areas was not well-developed, the economy was weak in specialisation and competitiveness, the number of skilled workers was too small and its science and technology standards were low compared to other countries in the region.
Solutions
Justin Yifu Lin, the World Bank's senior vice president and chief economist, said that for developing countries to become developed ones they had to promote their competitive advantages.
Nam said Viet Nam should develop its ocean and coastal economy, key economic and free trade areas and industrial zones in terms of specialisation and modern technology.
He said the country should focus on restructuring its economy and transforming models of growth.
It is necessary to reform the allocation of social resources for development and improve the efficiency of State investment and the State-owned economic sector, Nam said. He also said there should be greater private-sector investment.
The relations between the market and the State in allocating resources for catch-up strategies should be well-handled, he added.
He also said comprehensive infrastructure was needed for exploiting and promoting resources for fast and economically sustainable development.
Meanwhile, Vo Dai Luoc, former director of the Ha Noi-based Institute for World Economy, said it was crucial for Viet Nam to find a way to transform into a developed country.
He said experience had shown that the secret to this was in appropriate regulations. For this to happen, there needs to be a breakthrough in the way development is approached at decision-making level, Luoc said.
Truong Dinh Tuyen, former Minister of Trade (now the ministry of Industrial and Trade), said it was time to create an institutional foundation to help the country bust out of the trap.
Victoria Kwakwa, director of World Bank Viet Nam, said the country was facing new development challenges. — VNS
