International donors last week appreciated the Vietnamese government’s measures to ensure macroeconomic stability and pledged to continue supporting the country.
However, donors said the government should take more specific actions to turn plans into reality.
During the mid-term informal Consultative Group (CG) meeting held last Friday in northern Lao Cai province’s Sapa town, donor countries and international organisation representatives said Vietnam had enough ability to overcome current challenges such as rising inflation and a widening trade deficit.
Danish ambassador Peter Lysholt Hansen said the government needed to turn these measures into specific action as soon as possible.
“The sooner the government takes specific action, the less challenge you face. The most important thing now is strengthening investors’ confidence as well as Vietnamese people to the Vietnamese government”, Hansen said.
One of the measures luring a lot of attention from international donors is monetary and fiscal policies.
According to donors, monetary and fiscal policies have had some unexpected impacts on exporters and local enterprises, which are also impacting on local banks. Hendra said domestic fiscal and monetary policy should “lean against the wind” during periods of expansion, which would leave the government in a good position to stimulate the economy during more testing times.
It is apparent now that macroeconomic policy in 2007 was pro-cyclical, meaning that fiscal and monetary policies were too loose at a time when capital inflows had already driven up the rate of investment and consumption and hence aggregate demand. The natural result was price inflation this year.
“We strongly endorse the government’s decision to prioritise the reduction in inflation over growth this year. We all know that high rates of inflation are bad for long-term growth. Tightening up fiscal and monetary policy this year is the appropriate course, even if this means trading off some growth for stability this year”, said Hendra.
International donors suggested that the monetary and fiscal policies should be more flexible, adding that it must be implemented at the same time with other measures.
Asia Development Bank country director in Vietnam Ayumi Konishi said that the government should not rely on monetary and fiscal policies for settling these challenges. “All of measures have to be implemented at the same time, that requires a great cooperation of government ministries and agencies,” said Konishi.
