It is better not to focus on reaching a high growth rate in one year if the essential elements are not in place to ensure sustainable growth for the following years, says Deputy Head of the Vietnam Economics Institute Prof.Dr Tran Dinh Thien.

On the occasion of the lunar New Year (Tet) Festival, Deputy Head of the Vietnam Economics Institute Prof.Dr Tran Dinh Thien talked with the media about Vietnam’s economic place and strength as well as its opportunities and necessary conditions required to boost national development in a rapid and sustainable manner.

The Vietnamese Government aims to shed its “low-income developing country” status in 2008 with GDP per capita income reaching US$950. Do you think the target is feasible?

With the current growth rate and ability to maintain a strong development in all economic sectors, Vietnam is likely to rise from its “low-income developing country” status this year. However, the target for per capita income of US$950 or US$1000 is relatively set to show the development level the country needs to surpass. If the target is reached, Vietnam will have the condition to “take off” and the quality of life will be better with people’s knowledge and consumer habits reaching a new, higher standard level.

It is possible to achieve a GDP growth rate of over 9 percent in 2008 but there are two issues of concern: Firstly, as mentioned, per capita income of US$900-1,000 is a relative level. If the value of US dollar drops, it is much easier to reach that target. Secondly, it is better not to focus on reaching a high growth rate in one year if the essential elements are not in place to ensure sustainable growth for the following years. Swapping quality and long-term sustainability for a good performance in a short time is a dangerous “achievement” disease.

How can Vietnam escape from its “low income developing country”?

In fact, this is just conventional wisdom. If the set target was achievable, Vietnam would have escaped from its “low income developing country” status. When an economy sheds its low-income status, there will be clear signs of change in the development model as a majority of people will have a higher income than the level of minimum consumption. As a result, the country will be able to increase accumulative property, enabling the national economy to boost production activities and shift to a new form of development.

Previously, our savings accounted for only 20 percent of GDP and our consumption was 80 percent; but 20 percent of savings were kept as a precaution without being used to reinvest in the economy. Now, our capital accumulation can make up 30-40 percent of GDP, thereby speeding up the national development. With the increasing resources for investment and improved education, the country will surely move forward.

At present there is a widening gap between rich and poor in both rural and urban areas. How can we bridge that gap?

Thanks to the renewal process, the living conditions and incomes of people in all regions have been improved. It means that every one has enjoyed the benefits of a high growth rate. However, the benefits have not been divided equally. Some have high incomes while others remain on low incomes, some people even continue living in poor conditions.

The issue can be analysed depending on macro-economic views and levels of development in society. Firstly, to have a high economic growth rate we must accept the growing gap between rich and poor. Income levels vary in different sectors. For example, the average income level in the telecommunication sector is higher than in the garment sector, and especially higher than in the agriculture sector. On the other hand, opportunities for different localities to attract investments are not the same, leading to income inequality. For example, the south-eastern region accounts for just one-tenth of the national population but generates nearly half of the country’s GDP. This means that the region has successfully maintained high growth rates, enabling workers to enjoy higher incomes year after year. Meanwhile north-western and north central regions contribute less and benefit less. This is a market rule and a factor that affects income levels. People in the central region are poorer than people in the north and south as their property has been swept away by natural disasters.

To achieve on high growth rate we must accept a big difference between sectors, between urban and rural areas, between mountain areas and plains, between key and non-key economic development areas. If income levels are the same as in the past we cannot be hiding high.

Secondly, how to bridge the gap without causing inequality and social conflicts is a hard nut to crack. Each country in different periods has its own specific solution. The market rule is that businesses will invest in places, which provide the best conditions and qualified workers. To bridge the wealth gap as well as cope with inequality and social disorders, the State must subsidise underdeveloped areas and poor residential areas.

Each country should avoid a huge gap between rich and poor. It’s not acceptable that 10 percent of the national population accounts for 80-90 percent of the total national revenue. This will cause social disorder, leading to waves at migration and an imbalance in socio-economic development.

What should Vietnam do to achieve a high growth rate while bridging the wealth gap?

In the current circumstances Vietnam must accept a growing gap between rich and poor, between regions and between sectors. The important thing is to keep the gap growing slowly in order not to cause social concern. Vietnam should let the market devote the allocation of resources to maintain a reasonable growth rate.

I hope that in 2008 and following years, by taking advantage of the market rule the country will be able to achieve high and stable growth rate and catch up with other countries in the region.

Source: VOV