Experts call for austerity measures

HCMC – Economic experts have called for the Government to take the bitter pill in fighting inflation by taking over the job of slashing public investments rather than leaving it to local and central authorities and State corporations.

It has been months since the Government ordered local authorities and State-owned corporations to scale down public investments by shelving those foot-dragging projects as well as those deemed not urgent, but the results are still humble.

Latest figures from the Ministry of Planning and Investment show 30 ministries and central agencies, 63 provinces and cities, and 12 economic groups and state-run corporations have pledged to put off 1,387 projects worth only VND3.4 trillion.

This approach does not work, said Le Xuan Nghia, vice chairman of Vietnam’s National Financial Supervisory Committee.

Change of approach needed

Speaking at a seminar on Vietnam’s fiscal and monetary policies held by the University of Economics and Law in HCMC on Saturday, Nghia suggested the Government be more proactive in cutting public investments.

“The capital for public investments is supplied by the central Government, so the it needs to be choked off from the source,” Nghia told the seminar, adding that provincial authorities should only be allowed to manage the capital supplied by the central Government.

It is unnecessary to dispatch officials to localities across the country to check public investment projects and to dictate how to cut down ineffective investments, he remarked, referring to the Government’s recent decision to send out inspectors.

Since March 8, nine delegations of officials have been dispatch to localities and State-owned groups to monitor how public investments are being managed.

Nguyen Dang Trung, a member of the outgoing National Assembly, said the Government should set a specific public investment reduction target for each province or each industry, instead of sending out delegations to review state-funded projects.

When coming to localities, officials would have much difficulty urging a reduction in public investments, since provincial authorities would resist this to protect their own interests, according to Nghia.

Deeper cuts

Speakers at the seminar echoed Nghia’s point, saying that the amount of public investments to be cut was trivial compared to the overall spending.

Economist Pham Do Chi observed that the reduction was equivalent to only 1% of the total public investment, so “the cut should be 20 times larger.”

Similarly, Vo Tri Thanh, head of the Central Institute of Economic Management, also agreed to the ideas, saying nearly VND3.4 trillion to be saved was too small compared to the overall investment in the economy at about 40% of GDP, or more than US$40 billion.

Of the overall investment in the economy for 2010 at US$40 billion, public investments account for over 40%, equivalent to US$16-17 billion, Thanh said, adding there was much room for exercising budget cuts.

Cutting public investments is more imperative now as inefficient investment in this sector has exerted stronger pressure on the country’s inflation, which has almost hit 10% in the year to date compared to 7% targeted by the Government for the whole year.

Given the increasing Incremental Capital Output Ratio (ICOR) in the State corporate sector, Nguyen Dang Trung, a National Assembly deputy of HCMC, asked the Government to do away with preferential credits and investments in State-owned groups to improve the efficiency of this sector.

Experts also compared the high public investment in Vietnam to the regional level. The Vietnamese Government is spending one-third of the total State budget for development, they said.

Every year, Vietnam spends an amount equal to 17-20% of GDP on public investments, while other regional countries only spend less than 5%. China, for example, spent 3.5%, while Indonesia only 1.6%.

The Ministry of Planning and Investment in a recent report has pointed out that alongside the Government efforts in recent years to boost growth, public investment capital has been growing steadily, by an average of 13.9% a year.

In 2008, the Government tried to cut down public investments in an effort to curb inflation, but the pace of public investment capital in that year only paused a little before jumping again in the next year.

http://english.thesaigontimes.vn/Home/business/vietnam-economy/16577/