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Created Date: 7/7/2013 5:12:00 PM

Economic reality bites into society

[6 April 2013] - Several years of economic trouble, with a weak outlook for improvement, have made life increasingly difficult for many Vietnamese.In the piercing cold at sunset, cho nguoi - the labourers market - next to Hanoi National University was in full swing. Hundreds of people were squatting, standing or even lying on the ground. As darkness approached everyone was still waiting and hoping for work.

[6 April 2013] - Several years of economic trouble, with a weak outlook for improvement, have made life increasingly difficult for many Vietnamese.

In the piercing cold at sunset, cho nguoi - the labourers market - next to Hanoi National University was in full swing. Hundreds of people were squatting, standing or even lying on the ground. As darkness approached everyone was still waiting and hoping for work.

Nguyen Van Hoi was among them. The 35-year-old coiled himself for warmth inside a thin coat, waiting for someone to choose him from the crowd. He wanted to earn some cash as he had been unhired since the morning.

After arriving from northern Bac Giang province to Hanoi two years ago, Hoi quit eating breakfasts. "I have to save money. The price for a loaf has doubled from VND5,000 to VND10,000 ($0.24-0.48), while my family's income depends on my hands," he said, showing rough, calloused hands.

His sole labour tools include a shovel and two bamboo baskets loaded on a rusty bike.

Standing next to him was Pham Bich Van, a blue-collar worker from Hanoi's Bac Thang Long Industrial Park. The 28-year-old woman would catch a bus to come back to her "nest" meagerly furnished with a wardrobe, a gas cooker and a wooden box containing her belongings.

"I have to catch buses to save money," said Van who earns VND2.5 million ($120.1) monthly. "My familiar food is tomatoes and tofu, which are cheap. I don't dare to spend much as I have to monthly send money to my home in Thai Nguyen province," said Van who earns VND2.5 million ($120.1) monthly."

In Vietnam, it is easy to find such people like Hoi and Van struggling to keep their life afloat amid economic woes, though the government recently reported that Vietnam's average per capita income has grown from $145 in 1992 to $1,500 in 2012.

Quality or quantity?

Pham Hong Chuong, an economic expert from Hanoi National Economics University, said at a conference on Vietnam's macroeconomy in early February, 2013 that the government appeared to be pursuing a new economic growth model, in which quality would be focused much more than quantity featured by growth figures.

Growth figures considered to be rather high over the past five years, he said, failed to reflect a better life for many people.

"The numbers of poor people, especially those in big urban areas, are increasing, but their opportunities in access to high quality education and health services or to good jobs remain limited," Chuong said.

The United Nations Development Programme in Vietnam calculated that only 15.2 per cent of Vietnam's total public investment was currently spent on social services and 7.7 per cent on governance, compared to 77.1 per cent for economic growth-related purposes.

Since 2006 the government and localities have found ways to reach their economic growth targets, which are mostly double digits. As a result, all resources had been mobilised to spur growth.

Economic expert Pham The Anh said over the past decade, Vietnam witnessed an average annual growth rate of 24.9 per cent in money supply and an average annual growth rate of 19.3 per cent in public investment.

"This means the government has over-loosened its fiscal policy to reach the economic growth target of 6-7 per cent and a single-digit inflation rate," Anh said. "In other words, Vietnam has used money as an administrative measure to buy its growth."

However, the government's loosened policy did not mean all local production could absorb the giant volume of cash pumped out into the economy by the government. Local production had weakened, with 52,000 enterprises going bankrupt or stopping operations last year, according to the Ministry of Planning and Investment's statistics.

Meanwhile, the state-owned economic sector has been criticized for performing poorly, making a big dent in the state coffers. For instance, the National Steering Committee for Enterprise Renovation and Development in mid January, 2013 reported that local state-run groups and corporations' total debt within 2012 mounted to over VND1.334.9 trillion ($64.18 billion), equivalent to 47 per cent of Vietnam's gross domestic product (GDP) last year. Meanwhile, their total profit of was VND127.51 trillion ($6.13 billion) only, down 5 per cent on-year.

"Groups and corporations' poor performance is also responsible to high inflation and low growth," Chuong said.

Danger of decline

According to the university's economic experts, Vietnam's economy had over the past five years been undergoing a decline, with a vicious cycle, in which the government's target to curb inflation in 2008 was shifted to fight against economic decline in 2009, with some growth recovery in 2010. Still, the government has since 2011 placed its prime priority on taming inflation and stabilising the macroeconomy.

"At present, the economy is facing a decline. More exactly the economy is falling into a stagflation, meaning that the inflation rate has always been far higher than the growth rate," said economic expert Tran Tho Dat.
"While the growth remains unstable, high inflation is aggravating people's life."

Statistics from the General Statistics Office showed that Vietnam's macro-achievements, featured by inflation and growth indexes, had worsened in the 2007-2012 period as compared to the 2001-2006 period.

The average inflation and growth rates were 12.6 and 6.2 per cent, respectively, in the 2007-2012 period. Previously, the respective rates were 4.9 and 7.6 per cent in the 2001-2006.

Deepak Mishra, World Bank chief economist in Vietnam, said monetary policies seemed to loosen in Vietnam in 2013 when the government wanted the economic growth and inflation rates of 5.5 and about 6 per cent, respectively.

He said while money supply had increased [by 20 per cent in 2012] and interest rates had declined, the liquidity had improved over the past few months. Therefore high inflation might resurge if the government loosened fiscal and monetary policies too prematurely.

"The real inflation rate or the basic inflation of Vietnam stays high at around 11 per cent, a huge challenge as it will drag down the nation's competitiveness and making people's life more difficult," Mishra said.

The World Bank and the Government Inspectorate in February-March, 2012 conducted a survey over 2,600 citizens, asking them to identify three most serious issues for Vietnam at present. Some 44 per cent of total responses selected cost of living while 21 per cent chose income and 15 per cent chose jobs.

"There are good reasons to believe that Vietnamese citizens are increasingly worried about the quality of growth and not just its quantity," Mishra said.

The government has targeted to rein in inflation and stabilise macroeconomy for 2013 as top priorities, for fear of possible inflation resurgence.

But according to the GSO, some 30 provinces and cities nationwide have yet to increase prices of drugs and medical services. Moreover, the price of power is expected to increase 7 per cent this year. This will surely push prices of oil, coal and other goods in the market in 2013.

This also means the life of poor people like Hoi and Van will continue being under great pressures and can only hope that the government's macroeconomic policies would provide some relief.

Instinctively, the sole solution they can take today is to minimize their spending to support themselves and not become a burden to their families.

(Vietnam Investment Review)

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