Vietnam—Gearing Up for the Next Transformation Part 2 of 2
By Christine Lagarde, Managing Director, IMF
A strong policy recipe
So with this in mind, let me highlight four new ingredients that can be added to the recipe.
First—safeguard macroeconomic stability. This means, for example, making greater use of exchange rate flexibility to soften the impact of external shocks and help build external reserves.
It also means creating a new monetary policy regime for a rising, more sophisticated economy. That could eventually include using inflation as a nominal anchor for monetary policy.
Second—generate higher government income by broadening the base for revenue collection. This means, for instance, reducing tax exemptions and introducing a property tax. These measures would help reduce public debt5—currently at about 60 percent of GDP—and would help create more fiscal room for maneuver.
A fuller public purse is needed to boost critical infrastructure investment—in roads, bridges, and urban transport—while protecting spending on health and education.
Third—step up bank reforms by fully addressing the legacy of non-performing loans. More comprehensive legal reforms are needed to resolve bad loans, combined with a strengthening of capital in viable banks.
By bolstering bank balance sheets, policymakers can help support higher-quality credit growth—which leads to safer and more sustainable economic growth over the medium term.
Fourth—promote growth that is stronger, more inclusive, and more sustainable. In other words, increase the size of the bowl to accommodate a larger serving of Phở—with everyone sharing the benefits.
One way to accomplish this is to accelerate the restructuring of state-owned enterprises—through governance reform, divestment of non-core activities, and increased private participation in ownership. This would help boost overall labor productivity and potential growth.
It is worth remembering that productivity in foreign-invested companies is five times higher than in state-owned enterprises and domestic private firms. This helps explain why foreign-invested firms account for 70 per cent of total exports—and it shows the huge scope for improvement.
Another way to boost growth and living standards over the long term is to encourage greater technological innovation and learning. This requires more investment in research and development—where Vietnam is spending significantly less than its peers.
Greater efforts are also needed in education. To be clear: Vietnam can be proud of the fact that it ranks well above most developed countries in basic science, math, and reading skills.6 But expanding vocational training, for example, will be key to address skills mismatches. This would also help reduce Vietnam’s relatively high youth unemployment rate.7
Likewise, Vietnam can be proud of its track record in reducing its poverty rate—from almost 60 percent in 1993 to 13.5 percent8 today. This a remarkable accomplishment by any standard. But disparities persist between urban and rural areas, within cities and rural areas, and across regions9.
Reducing poverty and income inequality requires better infrastructure and greater access to education and health care. In fact, IMF studies have shown that countries that have managed to limit excessive income inequality have enjoyed both faster and more sustainable growth.
Let me highlight another achievement that Vietnam can be proud of: its relatively low gender gaps, which have supported growth and development. But as Vietnam moves further up the income ladder, it will be important to empower women even more—by bringing more women into the formal workforce, and by improving access to higher education10.
3. Your Next Transformation
So what can you do about all this? How can you become a powerful ingredient in this recipe for economic transformation?
Start by transforming yourself and your environment. What do I mean by that?
Think of the incredible technological progress we are seeing right now—in robotics, genetic engineering, 3-D printing, quantum computing, and artificial intelligence. Earlier this week, for example, the world champion of Go, the ancient board game, lost a five-game match to a computer that uses a process called “deep learning”.
Yours is a world in which individuals, companies, and institutions are measured by their creativity and innovation. It is essential to have a good grasp of math, engineering, finance, and of course economics. But I would also encourage you to embrace a diversity of experiences—including in literature, arts, and languages.
Consider using the entire range of your skills to create products and services that resonate here at home and abroad. Smartphone apps, social media, e-commerce, and software and game development: these are only some of the sectors where Vietnamese entrepreneurs are unleashing their creative energy. You can make your mark, too.
You will also have a chance to create sustainable ventures that are firmly grounded in mutual trust and strong ethical behavior. New research11 shows that unethical behavior can become endemic in any industry that is highly competitive. But there are long-term gains from doing the right thing. You can help set the right standard for yourself and your community.
Connect with the world
At the same time, your community is looking to you for leadership on one of the most pressing global issues—climate change. Vietnam is exposed to climate risks because of its population density and geography. It is also home to large and rapidly growing urban centers.
In fact, we are likely to see a massive further increase in urbanization in many emerging and developing economies over the next 15 years. This could require global infrastructure investment of up to $90 trillion.12
Just think about the risk if this investment is done in the wrong way—for example, if it locks in carbon-intensive energy and transportation structures in these mega-cities. This could radically affect the quality of life on the planet—for all of us.
On this and other issues, you have the opportunity to become global citizens. Connect with your friends, your colleagues, and your peers around the world to raise awareness.
Connect with the International Monetary Fund! Many of you will know that the IMF has a world-class expertise in fiscal, monetary, and financial policies. But we also focus on what we call macro-critical issues such climate change, gender, and inequality.
I encourage you to consider joining the IMF—to help us address the needs of our 188 member countries with research, policy advice, and hands-on technical assistance. Help us promote the global public good of economic and financial stability—which has been the Fund’s raison d'être for more than 70 years.
Let me conclude.
Here in this room, I see future policymakers and business leaders. I see a generation that will have a unique opportunity to lead Vietnam’s next transformation. What an exciting prospect! But also, what a great responsibility!
What do you do when you contemplate your future? On Tết holidays, many students—including some of you—come to Văn Miếu, the Temple of Literature, where calligraphists write wishes in beautiful Hán characters.
My wish for this year—and the next 30 years—is that you succeed in putting together a strong recipe for transformation—for yourself, for Vietnam, for the world.
Thank you—Cảm ơn
1 Nên thầy nên thợ bởi có học.
2 IMF Regional Economic Outlook. Asia and Pacific: Stabilizing and Outperforming Other Regions, April 2015
3 Forthcoming report: China and the CLMV: Integration, Evolution, and Implications.
4 The Peterson Institute, WP 16-2 The Economic Effects of the Trans-Pacific Partnership: New Estimates, January 2016.
5 In 2015 public debt was at about 60 percent of GDP, up from about 40 percent in 2008.
6 Latest OECD Programme for International Student Assessment (PISA) survey of 15-year olds.
7 Youth unemployment rate: 7¼ percent, compared to 2½ percent overall.
8 2014 data, latest available figures.
9 For example, two thirds of those who belong to Vietnam’s ethnic minority groups are poor and often live in hard-to-reach areas.
10 For instance, only 40 percent of PhD graduates are female.
11 Rotterdam School of Management, Erasmus University: Research paper by Desmet, P.T.M., Hoogervorst, N. & Dijke, M.H. van: “Prophets vs. profits: How market competition influences leaders’ disciplining behavior of ethical transgressions.”
12 Global Commission on the Economy and Climate (GCEC), 2014, Better Growth, Better Climate: The New Climate Economy Report (Washington); Blog by Nicholas Stern.