In a recent interview, IMF representative in Vietnam Il Houng Lee said that the country might take 18 years to catch up with Indonesia, 34 years with Thailand and 197 years with Singapore.
After 20 years of Doi Moi, it’s time to raise the question: “When will Vietnam catch up with countries in the region and how?” Following is the text of an interview where IMF head in Vietnam IL Houng Lee addresses the particular circumstances that put Vietnam in its current position.
Vietnam’s per capita income in 2005 was over US$600 ($552 according to the IMF). Some Vietnamese researchers reckoned that if richer ASEAN members were to suddenly ‘freeze’, Vietnam would take around five years to catch up with Indonesia and the Philippines, 20 years with Thailand, 24 years with Malaysia, 38 years with Brunei and 40 years with Singapore. What is your opinion?
The above analysis is noteworthy and it could reflect the real disparity in development between economies.
If we were based on the supposition that all the above-mentioned countries could maintain their average growth rate of the past 10 years, the time that Vietnam needs to catch up with them would be longer.
For example, Vietnam might take 18 years to catch up with Indonesia, 34 with Thailand, and 197 with Singapore. The gap with Singapore is so great because this country’s development speed was very fast for the past 10 years.
Vietnam is lagging behind other countries in the region and the world? This is considered a great challenge. How do you feel about this?
In my point of view, in the long run the important issue for Vietnam is that it must improve human resources, raise the savings rate and improve management. Those require discipline, thrift and honesty. The danger for unsustainable development will be higher if the government pursues policies to promote growth without the above three factors.
Some experts have said that there is a large informal economy in Vietnam and the country’s real GDP will not be $52bil in 2005, as estimated, but $75bil, or nearly equal to the Philippines. Is the real gap between Vietnam and other countries being narrowed?
Economists sometimes compare the income of nations by using the “equivalent purchasing power rate” rather than the real rate. Simply put, the equivalent rate includes the price of assets and the prices of non-commercial goods, often lower than those in the countries with low income.
When we use this rate, the disparity in average per capita income between Vietnam and other countries drops. For example, it reduces from 2.1 to 1.5 with Indonesia, from 28.8 to 8.2 with Brunei, and from 43.9 to 9.3 with Singapore.
Then in which position does Vietnam really belong in the regional economy? And when and how will the country catch up?
Vietnam currently ranks seventh among the 10 ASEAN members in terms of income and economic development. Vietnam has certain advantages, in workforce, productivity and social structure. For those reasons I think Vietnam could develop quickly in the mid-term. However, to really join the top group, Vietnam needs to have the three factors that I mentioned before.
Does Vietnam need more international funding to catch up with other countries?
Aid is only effective in the countries where basic conditions for development are available and where only capital is lacking. Foreign aid has had quite an effective impact on development, reducing hunger and poverty in some Asian economies, especially in Vietnam.
But global aid sources are limited and I can point out some reasons why Vietnam should, and should not, receive more aid. Based on GDP, Vietnam receives aid from international donors at the medium level compared to countries with low income in Asia, except for four biggest recipients (Bhutan, Cambodia, Laos and Mongolia).
The current aid is suitable and Vietnam could seek more of it’s own revenues by exporting crude oil, which accounts for 7% of GDP. This may be a reason to reduce ODA. Moreover, Vietnam has begun to join the international capital market, which shows the country’s ability to obtain commercial loans.
Nevertheless, Vietnam could be said to use aid more effectively than other countries. Thus, in terms of effectiveness, Vietnam should receive more aid. In addition, the country has high demand for infrastructure investment, and spending in infrastructure will exceed the country’s ability for commercial loans. So Vietnam needs to continue receiving aid from the community of donors in the coming years.
Vietnam aims to double its 2000 GDP by 2010 and become and industrialized country by 2020. Is that feasible?
A target is a good impetus, but I’m more interested in ensuring the conditions to help sustainable and equal development in the medium term. Which position Vietnam will attain in the next 10 to 20 years is not as important as this.
Source: VietnamNet, 16/3/2006
