Vietnam sees
Dong hits 2.Vietnam struggles with growing trade deficit
| Economists say that the country’s US$4.2 billion trade deficit is only being widened by the government’s slow reaction and contradictory policy-making. | |
Some officials have argued that the trade deficit is an indication that the economy is growing as the country opens its markets to foreign competitors. However, many economists say that allowing the trade gap to widen will seriously damage the local economy. Imports exceeded exports by $12.4 billion last year, a year-on-year increase of 144.7 percent. Deputy Minister of Industry and Trade Nguyen Thanh Bien raised this year’s expected trade deficit estimate from $17 billion to $20 billion. Local enterprises often focus on importing materials and machines at the beginning of each year. But many firms said that the central bank’s tightened monetary policies have made borrowing from local lenders exceedingly difficult this year. Other firms said that sky-high price hikes on petrol had forced them to halt importing. Therefore, material and equipment imports over the first two months have slowed, meaning that local producers – who have no domestic materials or machinery to rely on – have slowed production, inevitably slowing exports and worsening the deficit. Meanwhile, government measures to curb the deficit are moving slower than rush hour traffic in Ho Chi Minh City. Though the Ministry of Industry and Trade (MIT) instructed the Trade Research Institute to draw up deficit-reduction measures after the trade gap increased 178 percent over the first two months of the year, the measure’s deadline isn’t until December 31. That means the country will need to make do with at least 8 months of band-aid solutions without long term relief for the trade deficit problem. Domestic investment widens gap Some analysts have argued that the increasing number of foreign investors who import machines and materials for their business in Vietnam were to blame for the deficit. But MIT figures from last year show that foreign companies’ exports were $6.3 billion higher than their imports while local companies’ imports exceeded their exports by $18.7 billion. Former Trade Minister Truong Dinh Tuyen has suggested that ineffectual domestic investment has been a main cause of the deficit. The International Monetary Fund (IMF) said in a report that a huge amount of capital had been misused by state-owned companies last year. The IMF also said that local consumers were opting for imported products because domestic goods were of low quality. Economists are worried the deficit could be worsened by several newly-approved domestic investment projects worth a total of $70 billion. Source: TBKTSG | |
