Let's me close this year by some brainstorming notes. So, do not blame my English or logic. Up to the reader to filter these ideas.
The economy is all year bad.
Low GDP growth, lower inflation rate (but very high in comparison with others), tied current balance (due to lessened import activities) , and stable exchange rate with acceptable short-term foreign reserves (due to some "strange policy" - good for short term but harmful for long term). And all in all credit crunches and the everlasting song of NPL in the banking system was the king in the public media in the last half of this year.
GDP: low because of low investment (due to low private investment even though the inventory is still high --> given that fact, the new investment was much small in comparison with the one in the last year. Consumption was low as the low growth of retail sales revenue, offsetting the support from the tied current balance. Obviously, the big lesson from this year is that government spending is not a major force for growth. No one in this world believes this type of philosophy. However, at some points in 2012, so many policy makers believe that magical idea.
The final thing for all production is consumption (for storage like a bridge) or some sort of foods. But with the bubble in hand (yes, really a real - estate bubble in Vietnam at some time, a lot of people mentioned but for many reasons, this word was not repeated any more), so many consumers are affected. Once middle income segments were traps in this bubble, the chain-effects for consumption from middle income to low income (the rural area, 78% of population) faded away, causing a hard-landing in the rural area.
Inflation: from any corner of analysis, two sides, supply or demand, supported that the very low agg. demand caused this low inflation. The supply side, more or less, was significant to increase the inflation, but not strong enough to make a huge jump. High interest rate in the beginning of the year may cause some low new investment, but low demand due to "poorer-by-real-estate-trap" middle income consumers, is obviously the main thing.
Now, look at current policy! Good or Bad? Be your own thinking. For me, not enough to be good!
Nothing new. No policy for strong consumption support. No policy toward middle-income consumers. No policy to deal with the bubble of price in the real estate sector. The current policy is for: low-income welfare, trap to middle income to come to the poor income, and again, huge government spending to save the growth: the old lesson not to be learned.
The market clapped the hands? No, the market did not do that. It did due to something different: the bell rings for lasting the death of bubble. Only this bubble gone, the current policy may work. It means the price must fall further before the policy be enacted. The bubble has not gone away, the right policy in the wrong time would become the wrong policy.
(Continued for the sleepless night)
For this very new year, a lot of policy promise but sit back and carefully think, you could see that some policy is not new, just yearly repeated. They are all about supporting small firms, supporting industry, adds for low-income residents, and SOE restructuring. This year observed two components: gold market and VAMC.
More or less, non-transparent gold market may drive some distortion for distributing the economic resources. At least for the short term. However, it is all about the nominal variable: not strong enough to affect the potential for growth.
VAMC is something related to capital re-location and the speed of the recovery based on capital expansion via new investment. However, government resource is short and this is total new to this conservative time of all leaders. To get such a tool efficient, Vietnam needs more time to carefully study. Otherwise, once set up, it would become a untold death to a new surging story. As far as I understand this national AMC, put it in Vietnam Financial Market, this national AMC would not work due to: (i) No common bad debt clarification. (ii) Limited liquidity for corporate debt. (iii) Work flow for participants. (iv) Political risk for board of directors.
Clearly, it is only about how to account a loss within some periods: more than one year rather than this fiscal year. Economic resource for the long term growth is still the same, not affected. It looks like: (i) To create a better-skin balance sheet or (ii) equivalently, easing some banking requirements. In addition, moral hazard would happen if many banks do not keep their promise to accelerate their own bad debs.
I highly evaluate the promise: macro stability on top priority. It means, inflation controlling and acceptable growth. However, so much expecting for these policy above to speed up the recovery of this current economy does not seem reasonable. Market should not think much about VAMC. Market should observe the process to restructure the SOE and banking system (noted VAMC should not be a tool to restructure banking system but it is all about accounting).
What I really want to see is how to create new forces for future growth: I have seen it yet but I expect it would be back on agenda: Education, Creativity from private sector, FDI (rather than FII) into production sectors, infrastructure, and better principled government spending.
