One-on-One: UNDP Senior Country Economist Jonathan Pincus
Viet Nam has all of the elements needed to achieve rapid growth for many years. Viet Nam has a large, young and literate workforce, has maintained a high rate of investment and has put in place an increasingly favourable institutional environment. Growth should continue to be rapid for some time to come.
1. What are your comments on Viet Nam’s orientation of accelerated economic growth in the next 5-year plan (setting a target of achieving a growth rate of over 8 percent per year)? Do you think this target is too ambitious?
Viet Nam has all of the elements needed to achieve rapid growth for many years. Viet Nam has a large, young and literate workforce, has maintained a high rate of investment and has put in place an increasingly favourable institutional environment. Growth should continue to be rapid for some time to come. The ultimate source of economic growth is the movement of people from low to higher productivity jobs. That certainly means more people working in new factories using better technology. This is happening quickly, but still involves only a small share of the workforce. Increasing productivity also occurs when farmers to grow higher value added crops and producing more each day worked. The development of new services is also an important source of productivity growth. The new SEDP will drive this process forward over the next five years. The plan calls for strategic investments in public goods and the development of an institutional framework for private sector growth.
2. One of important objectives which Viet Nam is pursuing is fast and sustainable economic growth. What issues do you think Viet Nam should pay attention to in order to achieve this objective?
As Viet Nam modernizes the economy, more attention will need to be paid to the country’s technological capabilities. Viet Nam will increasingly diversify from traditional exports such as agricultural products, garments and shoes, to higher value added commodities. But in order to achieve this, Viet Nam will need better linkages between universities, research institutes, foreign companies and national companies. The universities will need to upgrade their curricula and engage directly in cutting edge research. The government will need to give companies more incentives to engage in research and development.
Another risk is financial instability. Viet Nam has made great progress in financial sector reform. But the pace of change will need to accelerate to make sure that the banking sector and other providers of financial services operate in a transparent and accountable manner. Failure to adhere to international standards of auditing, reporting, capital adequacy and risk management would increase the likelihood of an economically damaging financial crisis.
3. Could you tell us, from the perspective of a Senior Country Economist of UNDP, constraints/uncertainties of Viet Nam’s economic development in the past and in the future? What lessons learned can Viet Nam draw from the countries which have had over-heated economic development over the last two decades like China?
It is important to view Viet Nam’s economic situation in its appropriate context. As one of the fastest growing economies in the world, Viet Nam can take great pride in its achievements over the past twenty years. UNDP has joined the Viet Nam Academy of Social Sciences and the Swedish International Development Cooperation Agency (SIDA) in the ‘Twenty Year Review of Doi Moi’, which has tried to view current trends in historical perspective. One of the main conclusions of the review has been that doi moi has consisted of a fundamental shift in the relationship between the state and economy, and the state and society. Doi moi has opened up space for individuals and companies to compete and work to their potential. This process has created tremendous economic and social dynamism in Viet Nam, and we expect the country to go from strength the strength.
I personally believe that conditions in Viet Nam and China are so different that comparisons are not necessarily useful. China is such a big country that the challenges facing the Chinese are very different from Viet Nam’s challenges. Moreover, China began its own reform process with a much larger industrial sector. Let us not forget that while China was investing in its industries Viet Nam was fighting for national survival and unification.
My personal view is that Viet Nam’s economic future will largely be determined by three factors: science, democracy and the rule of law. Viet Nam has great potential in science and technology. We have grown accustomed to young Vietnamese winning mathematics prizes at international competitions, and earning advanced degrees in the world’s top universities. But these people often find that conditions at home are not conducive to world class research. Upgrading of the nation’s universities and research institutes is urgently needed. With regards to democracy and the rule of law, Viet Nam’s rapid integration into the world economy will mean that Vietnamese companies and the government will increasingly asked to achieve international standards of transparency and accountability. Legal reform will provide the institutional framework for competitive and fast growing industries.
4. A consistent goal of the Vietnamese Party and Government is that economic growth must be accompanied by social equity and progress, and that the focus of the future economic development must be closely linked with poverty reduction. What are your comments on this goal/orientation?
Viet Nam is a world leader in poverty reduction. This in part reflects the country’s great success in achieving economic growth, since growth creates the jobs that make poverty reduction possible. But it also reflects the longstanding commitment of the government to the education and health of all of the Vietnamese people. Literacy rates are very high, even in comparison with other Asian countries, and the government has invested heavily in providing clean water and sanitation even in very remote areas. This helps reduce the incidence of disease and is particularly important for the old and very young.
The new SEDP plays close attention to the issues of social equity and inclusion. The United Nations will work closely with the Government on these issues over the next five years. We will assist the Government in its social audit of the SEDP, which will assess progress towards social inclusion and equity, including poverty reduction and access to quality services.
The United Nations view is that two issues will increase in importance during this plan period. The first is the financing of basic services like health and education. The Government has moved towards socialization of the costs of services, which has brought extra resources into health and education. But it is important that user fees do not exclude the poor, or mean that the poor receive services of lower quality. The second issue is migration. As the economy diversifies, more people will move in search of new opportunities. It is important that when individuals and households move they are still able to get access to health and education services and that they do not bear extra costs such more expensive housing, electricity, water and administrative fees. Migration is good for the economy, since it helps match jobs with the workers to do the jobs. We expect that more rather than fewer people will migrate in the years to come.
5. Viet Nam is moving its economic reform strongly towards a market economy, deeper integration into the global economy and official accession to WTO by the end of 2006. What development opportunities and challenges do you think the Vietnamese economy will be facing when gaining WTO membership?
WTO will provide Viet Nam with access to the world’s largest foreign markets. This is very important for a small economy. But as a latecomer to WTO Viet Nam will be asked to open its markets more quickly, and with fewer restrictions, than countries that joined WTO when it was first established. The main challenge from our perspective is the need to develop all of the supporting institutions necessary to for international integration in a very short period of time.
For example, financial institutions such as banks, insurance companies and leasing companies will have to compete head to head with foreign companies that have more capital, expertise and better technology. The State Bank of Viet Nam will have to develop regulatory and supervisory structures to ensure that these financial firms do not take on too much risk and that they are run in a transparent and accountable manner. Legal system development is needed to create the institutions needed in a more complex and modern economy. Corporations will need to adopt international standards of financial disclosure and accounting.
Viet Nam’s tremendous export performance demonstrates that the country has no reason to fear international competition. WTO accession will open new opportunities. But it will also mean that the pace of institutional change will have to speed up to meet the demands of a modern economy.