WTO entry challenges

Saturday, May 10, 2008
When Viet Nam entered into the World Trade Organisation (WTO), there were different warnings about the biggest challenges. At that time, trade minister Truong Dinh Tuyen said that the biggest challenge was retail sales, which, however, would happen in next several years.
Some experts said that the biggest challenge was labour and employment because the country would see bankruptcy of many businesses with weak efficiency and competitive capacity. However, such impact would be limited because the ratio of labour in the agriculture-forestry-seafood sector is high, and the scope of private economic sector has significantly developed. Setsuko Yamazaki, director of UNDP in Viet Nam put forward remarkable opinions, which have been becoming realistic. When being asked about the biggest challenge when Viet Nam enters into WTO, she said that "experience from other countries show that globalisation promises great awards such as accessing larger markets, more technologies and investment capital however globalisation also brings about significant risks. In my opinions, the financial sector has to face up the biggest risks. By now, Viet Nam is undergoing unexpected financial changes, which is demonstrated through inflation and price hike."

Since last year, inflation has happened in all over the world because of the increase of petroleum price, the depreciation of greenback. Inflation in almost all countries has been higher than previous years. Nevertheless, inflation in Viet Nam has been higher than other countries because of some factors. An important factor is that appraising prices of goods and services must be based on the market mechanism in line with commitments on deeper and wider integration into the world's economy. The growth of petroleum price at the end of last November pushed consumer price index in December by 2.91%, far higher than November's figure and December of previous years. Additionally, the hike of petroleum price at the end of February raised CPI in March by another 2.99% while the growth of CPI in March of previous years was negative. That has not yet mentioned other goods and services, which the government asked relevant agencies not to hike prices until June. If all things had increased as petroleum, inflation would not have been 12.63% in 2007 and 11.6% in the first four months but far higher.
Another factor is the dong/US dollar rate. With the strong inflows of US dollars into Viet Nam as in 2007 and early 2008, if the forex rate had been further revised downward in line with the depreciation of US dollars, Viet Nam would not have reported trade deficit of US$14.12 billion in 2007 and US$11.1 billion in the first four months but US$16 -17 billion and US$13 -14 billion respectively.
Additionally, if the government makes stronger monetary tightening, lending interest rates will climb to more or less than 25% and many small banks will go bankrupt, many businesses will shut down.
Particularly, over the last one-year, Viet Nam's stock market has gone ups and downs unexpectedly. Since the start of 2008, prices of shares have slashed sharply. The market capitalisation has reduced by hundreds of trillions of dongs. While reining inflation is now the top priority, monetary tightening is a necessary tool. When money is tightened, the amount of money that many investors borrow from banks to inject into the stock market will reduce, share prices will decline accordingly. When share prices are lower than mortgage prices, lifting mortgages will inevitably push down share prices. If lifting mortgages is not required to stop, share prices will further go down.
Financial risks will become dangerous if there is no foreign indirect investment management mechanism in order to direct into long-term investment, not only the stock market, the real estate market but also the forex rate and others will present unforeseeable changes.
The above issues require urgent reforms for public fiscal and financial policies, careful analysis in order to build proper policies and minimise risks. (Thanh Nien)