Cut public spending at all costs, says academic

State firms should not be allowed to hijack the anti-inflation agenda in their pursuit of profits, he warns in an interview to Tuoi Tre.

What do you think about the effect of Resolution 11?

The government’s Resolution 11 issued early this year to cut public spending will only produce results in the next six to nine months. So investment still surged 19.6 percent in the first quarter.

Moreover, the resolution itself has some flaws in it that can be taken advantage of. State agencies and companies can change invoices for their luxury goods to predate them.

But people say since the benefits of state-owned companies are involved, public spending may not be cut much …

The resolution cannot produce results right away.

The government should taken into consideration state-owned firms’ benefits and provide clear and transparent guidelines and regulations since every group wants to benefit by boosting public spending. Otherwise the cuts may be foisted on those firms with less power whose projects may actually be more profitable.

Investment by the state sector grew 15.2 percent in Q1, while FDI growth was only 3.8 percent. What do you think about the two figures?

The latter is an economic indicator, showing that during times of economic woes, the private and foreign-invested sectors will cut investments.

The former, on the other hand, has accounted for 45 percent of total investment for many years for GDP growth and without consideration of profitability.

The lesson to be learned here is that the government should support the private sector so that investments from the state budget can be cut further.

Key national projects are often inaccessible to the private sector and are given to inefficient subsidiaries of state-owned groups.

So to reduce public spending, the country should sacrifice GDP growth for a while to filter out such inefficient firms.

In 2008 the same ambitious target to cut public spending seemed unworkable. How about this year?

The government should take drastic measures against those who want to grow at all costs and penalize them.

The inflation rate this year is reaching the 2008 rate, but Vietnam does not have as much room for maneuvering the economy as it did in 2008.

In 2008 the budget deficit, credit tightening, and businesses’ health were not as bad as they are now. Moreover, the people were more optimistic about future prospects and globally there was deflation then.

So containing inflation this year will be more challenging and the government should address the core problems of our economy: scaling down the state sector to boost efficiency and redirect public spending to healthcare, education, and infrastructures in remote areas.

The private sector should be given more room to grow and sharpen its competitive edge.

Administrative measures as we are taking now will only curb inflation in the short term which will then rise more regularly, challenging the economy over and over again. – Tuoitre

Tags: Vietnam public spending