Dang Van Thanh

The 8^th session of the 11^th National Assembly defined the main tasks for economic development in 2006, which is to obtain a high and sustainable growth rate to make the national economy stronger, more effective and competitive. In 2005, the national economy maintained a positive growth rate with GDP increasing by 8.4 percent. The National Assembly set an objective for economic growth in 2006 to reach 8 percent or higher. However, it said particular attention must be paid to the quality of growth, sustainable development, healthy competition, and positive international integration.

In 2005, Vietnam’s economy faced with numerous obstacles. Drought spread nationwide, causing serious losses. The bird flu recurred and its development was unpredictable. Prices of oil, petrol, raw materials and essential goods increased suddenly and remained at a high level, badly affecting the productive and competitive strength of businesses and the economy, people’s lives and many social aspects. Fierce competition in investment funds and markets occurred among ASEAN countries, and in the whole of Asia and the world, generating many trade barriers and preventing Vietnam from exporting its products. Instable and sensitive areas in the world negatively impacted on the expansion of Vietnam’s economic and cultural relations with other countries. However, Vietnam, with great efforts and the creativity of the whole Party, people, and business people, attained almost all major economic tasks and targets set by the National Assembly and surpassed some indicators of 2004. The GDP growth rate was the highest for the past five years (the annual growth rate in the 2001-2005 period was 7.5 percent). GDP per capita reached US$640, up by 1.5 times against 2001. Total social investment was estimated at 36.8 percent of GDP against 36.5 percent as planned; foreign direct investment reached a higher level of US$5.8 billion; and ODA reached US$3.74 billion. Total State budget revenue positively increased against 2004 and surpassed the target. Vietnam completed many millennium goals before schedule, including poverty reduction, education development, mother and childcare, life expectancy, comprehensive human development, business capacity and job generation, and providing people with increased choice in socio-economic life. These achievements resulted from the Party’s guidelines for national renewal, the combined strength of the great national unity, and the Government policies to promote internal resources, mobilise external resources and make the most of any advantages and potential for further national development.

In order to implement effective measures for economic development in 2006, we should see clearly the weaknesses and shortcomings of the economy in 2005 as follows:

- Although the economic growth rate was high, it was of low quality and ineffective, and did not meet the national economic potential and development demands. We failed to fully and effectively make the most of economic opportunities and use favourable factors. Capital and labour remained two major contributors to economic growth. Meanwhile, less intellectual, scientific and technological efforts were invested in goods and services. Social labour productivity was not high. The national economy still lacked supportive services and industries, particularly high-quality and high-tech industries. Financial, monetary, capital, labour, science and technology markets were still at a primitive stage, and the real estate market was bogged down with many underground activities.

- A suitable strategy to logically and effectively tap and use the country’s natural resources is lacking. We failed to take the initiative to improve sustainable energy development and security strategy. Vietnam has tapped and exported more crude oil, while importing oil and petrol in a passive manner under the impact of changing world prices. Electricity shortage caused losses for the economy. Early decisions must be made to effectively resolve this problem.

- Although positive changes were seen in investment activities, they did not meet objective demands and their potential was not fully tapped. Investment activities were not very effective, while investors and managers still failed to strictly comply with investment procedures and rules. Unfocused and imbalanced investment was common. Management of investment in construction projects was weak, leading to corruption and siphoning of public funds. Some investment projects did not conform to the economic development strategy. Although some bad debts in capital construction were resolved, real bad debts in some localities were much bigger than reported, causing numerous difficulties to relevant sectors and levels.

- The distribution and use of resources and allocation of economic interests were not really a motivation to boost labour productivity, logically use and save natural resources, property, capital, and labour, and did not make economic management, State governance and social management more efficient and effective. Waste of resources and budgets was common, and the "give and take" mechanism was maintained in diverse forms, which created an environment and opportunities for red tape, corruption and abuse of power. Part of the nation’s revenue was either distributed in an egalitarianism manner or not transparently distributed on a clear way, creating chances for self-seeking people to follow their own interests.

- Efforts have been made to overcome unhealthy practices in financial, monetary and credit systems, but the efforts were not affective. Some important and sensitive indicators to stabilise the macro-economy were not fulfilled. Low balance of payment, rapidly increased import surplus, bad debts suffered by commercial banks, and new bad debts added to pending bad debts in capital construction are common. Domestic revenue only accounted for 50 percent of total State budget revenues, the national reserve was weak, and potentially negative factors in prices and exchange rates might cause negative effects on production, people’s lives and many economic aspects.

- The high import surplus requires us to conduct a careful analysis and factor in the overall relations with the external economy and foreign investment attraction. The increasing import surplus focused on domestic businesses, which exported raw materials, minerals and products through a second contractor. Many products were exported through an intermediary at low prices. Vietnam achieved an export surplus with the US and the EU but maintained an import surplus with Asian countries.

In 2006, Vietnam is in a better position as the result of investment and socio-economic development and its improved position in the region and world. Vietnam is known to the world as a dynamically developing economy with stabilise society and political environment. The national renewal process and finalisation of the legal system will ensure the country complies with international commitments and practices.

Proceeding from achievements in 2005 and the realisation of the 2001-2010 socio-economic development strategy on accelerating the industrialisation and modernisation process with a socialist orientation and building a foundation to make Vietnam an industrialised country by 2020, the National Assembly set the following targets for 2006: GDP growth rate of 8 percent; agro-forestry and fishery growth rate of 3.8 percent; industry and construction growth rate of 10.2 percent; service growth rate of 8 percent; total export turnover growth rate of 16.4 percent; and total social development investment capital in GDP of 38.6 percent.

In order to successfully realise the 2006 economic tasks, sustain a high economic growth rate and increase the quality of growth, we should focus on the following major measures:

First: Clearly defining key tasks as a springboard for each sector and take positive and specific measures to create a favourable environment for development. Concentrate resources and efforts to complete on-going programmes and projects, and realise key tasks, which began in 2006 with detailed schedules.

In agriculture, we should focus on completing key irrigation schemes, restructuring seeds and crops, combining concentrated raw material areas with processing plants, and taking the initiative to prevent natural calamities and epidemics among livestock and aquaculture. We should review and restructure protective, specialised and commercial forests to work out a long-term orientation for effective and sustainable planting, protection and exploitation. Careful investigations and assessments should be made to develop traditional handicrafts to meet current market needs. Incentive policies should be developed and realised to encourage small and medium-sized rural businesses.

In industry, we should establish and develop strategic and supporting high-tech industries such as energy including electricity, oil and gas, software, precision engineering, petro-chemistry, motor, ship building, metallurgy, processing and bio industries. We should invest more intelligence in products and reduce the proportion of sub-contracting and assembling products while increasing the proportion of our own products. With the current development speed, in the coming years, electricity will not meet the growing needs of production and consumption. So, we must take measures to mobilize different resources for electricity production in diverse forms, timely resolve any problems between electricity producers and suppliers and review and adjust the sale of electricity in order to encourage foreign investors and domestic economic organisations to invest in electricity production. We must clearly identify and balance funds to accelerate the construction of the Dung Quat Oil Refinery and the Ca Mau Gas, Power and Fertilizer plant.

We should strongly develop service industries related to the industrialisation and modernisation process, particularly professional services, to meet the needs of businesses and people, including consultancy on management, legal matters, investment, science and technology, information and marketing, and financial services such as capital, finance lease, property pricing, tax declare and calculation, accountancy and auditing. We should adopt more specific incentive policies to develop domestic businesses and attract foreign businesses to needed services and improve service quality to meet advanced standards.

Second, encouraging and make the most of the potential of the private economy and foreign investment, establish a healthy cooperative and competitive environment, quickly erase monopolies and discrimination against the private economy in laws, policies and law enforcement. We should take the initiative to prepare mechanisms, by-law guiding documents and other conditions to ensure the implementation of the Investment Law, Enterprise Law, Bidding Law and other economic laws immediately after they come into force. Particular attention should be paid to rules and regulations to create favourable opportunities for investors in business registration, appraisal of investment projects, and provide space for businesses and their use of State privileges. Apply a roadmap to change the preferential treatment to investors from the pre-investment to post-investment period as soon as possible. Encourage and support investment projects and businesses to accelerate economic restructuring and sustainable development.

Responsible agencies and organisations should review and make inventory of existing businesses, encourage and protect their productive activities to comply with laws, and prevent and give strict penalties to fraudulent and illegal businesses. For State-owned enterprises, we should strictly realise regulations on accounting, auditing and statistical work to clarify financial matters and property to accelerate their re-organisation, equitisation and development process. We should renew their organisation and management methods, make clear and realise the responsibility of State ownership in enterprises according to the Enterprise Law, and promote their right to mastery and self-responsibility to make their businesses more effective. State-owned forestry enterprises should be restructured to make them more workable and protect the land and forests.

Third, strongly develop markets of all types, and expand domestic and external markets. Institutions should be completed to develop markets of different types, allowing them to work in good order, and rule out all unsuitable administrative measures, which have been used to retain monopolies in investment and business. Develop and strictly implement the master plant to develop direct-related service markets, which can assist in the stabilisation of the market economy. Suitable mechanisms should be developed to control these markets. A legal framework should further be finalised to develop capital, real estate, science and technology and labour markets. Attention should be paid to developing medium and long-term capital markets and to improve the securities market. Piloting the issuance of Government and project bonds for foreign countries at favourable periods and strengthen finance leasing activities. Measures should be taken to remove the underground foreign exchange market from Vietnam to other countries and vice-versa. We should marketise scientific and technological research and application activities.

While the global monetary market experiences unpredicted changes, we should take initial and flexible measures and strengthen the State’s role in regulating the monetary, exchange rate and interest rate policies. We must accelerate reforms, restructure and renew State commercial banks by re-arranging and equitising them according to a roadmap. Efforts should be made to restructure debts, increase the safety co-efficient, create a consistent and favourable legal framework to help banks from all economic sectors be more self-control in doing business in a healthy competition, thereby better meeting the needs for bank funds and those of businesses and people. We should prepare and create favourable conditions to welcome the participation of foreign banks in our banking capital and service markets according to the committed roadmap.

Efforts should focus on removing barriers and preventing newly emerging barriers to promote the export of products, where Vietnam has an advantage and markets. We should develop new bilateral and multilateral markets for our goods and services while retaining and developing traditional markets, and protecting the domestic market with choice, conditions and a time frame.

Fourth, stabilise the macro economy in any circumstance. We should take measures to resolve or reduce unhealthy manifestations such as serious deficits in payment balances, import surplus, unbalanced investment funds and the bad debts of investment funds. Take the initiative to control and regulate credit interests in VND and US$, which are increasing at a high level. Strengthen the role of the State Bank in money circulation, inflation control, regulation of the exchange rate and interest rate and increase the purchasing power and exchange of the Vietnam Dong. Regulating measures should be flexible to define logical interest rates to encourage development investment and to not negatively affect the economy. The increase of bank interest rates cannot be controlled by negotiations and agreements between Banking Association members, but it needs an objective and full inspection and the assessment of State governance agencies about debts, particularly bad debts suffered by commercial banks. We must control and assess the impact of increasing State budget spending on growth, administrative procedures, paying debts and others, while budget revenues are not stable. Review carefully the ability to collect budget revenues according to law, and prevent smuggling, tax evasion, bad debts and tax fraudulence, particularly those relating to import tax, business income tax and individual income tax. Tax evasion, fraud in paying value added tax (VAT), and buying and selling VAT receipts to make illegal profits must be strictly punished by law. Increase revenues to increase the contingency budget and meet the needs of newly required spending. Be strict in recovering appropriated money and property and punish any law-breaking acts while using State budget and funds. Efforts should be made to retain budget overspending at the level of not more than 5 percent of GDP, but we should be concerned that in an absolute figure, an annual budget overspending of VND7,000-8,000 billion is not a small amount. Particular attention should be paid to the effective use of State budget and keeping Government and national debts at a logical level to secure national financial security.

Currently, unpredicted changes may occur in domestic and external markets. Changes in world market prices will affect the prices of many essential goods in the country immediately. So, we should make precise predictions, monitor and give strict guidance, and take strong economic and administrative measures to confront the situation and limit price surges and their domino effect in order to prevent negative impacts on production and people’s lives and secure economic stability and sustainable development. Meanwhile, we should acknowledge objective factors to correctly assess the price increase, identify the rising prices of groups of products and affected economic sectors and groups of people to restructure investment fund and the macro balance, according to the new pricing level.

Fifth, restructure and improve the quality of management and disciplines of State budget revenues and expenditure, accelerate and make the national target programmes more effective. The Vietnamese State, with its developing and transforming economy, must overspend its revenues. Spending on development investment from the State budget is very large. In 2005, State funds accounted for 52.5 percent of the total social development investment capital. In 2006, it expects to reach 55.4 percent, requiring relevant sectors and levels to take measures to retain, and develop and find new revenue sources while conducting saving and proper spending. Socialisation should be promoted to mobilise different resources for healthcare, education, training, culture, entertainment, sports and gymnastics, and public interest activities to save the State budget for rural, mountainous, border and island areas. The tax system should further be reformed to increase direct taxes while reducing indirect ones. Measures should be applied to encourage businesses to voluntarily declare and pay taxes while control measures should be strengthened against trade fraud, smuggling and tax evasion. Farmers and fishermen should be subject to the same taxes. An early review should be made for national and other programmes such as programmes 135, 134, 186 and 168 to draw experiences for the coming period.

Source: Communist Review, No. 99-2006