Business Beat
World Bank predicts SARS impact will be softDespite uncertain external factors, the economic outlook for Viet Nam continues to be favourable and gross domestic product GDP is expected to grow by around 7 per cent this year, according to Taking Stock, a World Bank review of Viet Nam’s economy. The report says the negative impact of SARS, which caused a 55 per cent decrease in foreign tourist arrivals in April and May, could trim GDP growth by between 0.2 and 0.4 percentage points this year. "Although substantial, this is a much less severe slowdown than had previously been feared," the report says.
GDP growth is currently driven by domestic consumption and investment, as well as a strong export performance. Retail sales were 10 per cent higher in the first five months of 2003, compared to the same period last year. Capital accumulation by the private sector has been increasing steadily and in HCM City, private enterprises accounted for a larger share of total investment than State-owned enterprises and official credit combined.
Taking Stock says exports contribution to GDP reached 48 per cent in 2002 and manufactured and processed products now account for almost half of sales abroad. The value of exports registered 31 per cent growth in the first five months of this year and virtually all this growth was due to increased sales in the US, which has become Viet Nam’s second most important market after the EU. Although the trade deficit is widening, reaching US$2.1 billion after the first five months, the report says this trend does not appear to be a source of concern because most of the imports are being used to expand economic activity.
SOEs books need review
The argument over who should own State-owned enterprises SOEs is not as important as how to make them more effective. The effectiveness of these SOEs depends a great deal on the executives who run them. If the performance of SOEs was used to rate the efficiency of managers and determine their salaries, these people would have more incentive to strive for better results. They should also be able to decide the value of staff salaries in order to motivate them.
People might argue some SOEs directors would resort to falsified reporting in order to dress up their bookkeeping but that’s where independent auditing comes in. Annual auditing of SOEs should be mandatory and a set of criteria could be used for non-profit SOEs or public utility companies. It is unacceptable that most SOEs do not submit financial reports and get away with it because the mechanism to monitor SOEs is ineffective. There should be administrative sanctions for lack of compliance.
After SOEs are accurately assessed, directors of SOEs that consistently display poor performance should be sacked and those with excellent records should be awarded with higher salaries.
VN bucks world rate trend
While interest rates elsewhere have been cut to low levels, dong interest rates have increased as the cost of using money gets more and more expensive. Consumer loans and short-term loans increased by 0.1 and 0.05 percentage points a month. Although deposit rates remain unchanged, banks use diversified vehicles to mobilise cash and offer higher returns.
It is clear that credit growth is higher than deposit growth, a reverse trend compared to recent years. For the first five months of this year, deposits grew by 10 per cent while loans grew by 12.7 per cent.
Banks are also committed to finance bigger and longer-term projects, and more and more businesses were set up. Most importantly, banks realise that this year the consumer price index will be higher than last year and they want to cash in on that situation.
Forecasts for the remaining months of the year predict interest rates will rise as the economy is expected to maintain its development steam. The only way for banks to operate efficiently in such a situation is to encourage more people to open savings accounts and discourage the use of cash in society.
VNN
