An Overview of the An Overview of the Global Financial Global Financial

CrisisCrisis

Presented by Ta Quang Ngoc,Presented by Ta Quang Ngoc,Ph.D, M.A., and B.A., in Ph.D, M.A., and B.A., in

Communications and Socio-Communications and Socio-economic Researcheseconomic Researches

• Professor Paul Krugman, the author of New Free Trade Professor Paul Krugman, the author of New Free Trade Theory, awarded the Nobel Economics Prize by the Royal Theory, awarded the Nobel Economics Prize by the Royal Swedish Academy of Sciences, said that free trade is not Swedish Academy of Sciences, said that free trade is not always a good policy for nations.always a good policy for nations.

• He sharply criticised the US economic policies under He sharply criticised the US economic policies under president G.W. Bushpresident G.W. Bush

• In 2005, he predicted the property crisis in the US and In 2005, he predicted the property crisis in the US and believed the US economic crisis could still last until 2010.believed the US economic crisis could still last until 2010.

• The US and the whole world are facing the worst ever The US and the whole world are facing the worst ever financial crisis which can compare with the Great financial crisis which can compare with the Great Depression in 1923-1929 which former FED chairman Alan Depression in 1923-1929 which former FED chairman Alan Greenspan rated as one that could happen only once in a Greenspan rated as one that could happen only once in a century. Since its foundation as the USA, the country has century. Since its foundation as the USA, the country has experienced many recessions with the first in 1819, then in experienced many recessions with the first in 1819, then in 1832, 1857, 1883, 1893, 1907 and 1920.1832, 1857, 1883, 1893, 1907 and 1920.

• In October 1929 the Wall Street collapsed and rocketed In October 1929 the Wall Street collapsed and rocketed the US and many other countries’ economies.the US and many other countries’ economies.

• Now the world’s witnessing the worst ever economic crisis Now the world’s witnessing the worst ever economic crisis happening in most powerful country where many economic happening in most powerful country where many economic theories were born and many economists were awarded the Nobel theories were born and many economists were awarded the Nobel Economic Prizes.Economic Prizes.

• This forces people to reconsider basic economic theories relating This forces people to reconsider basic economic theories relating to free trade in which perhaps the most important relationship to free trade in which perhaps the most important relationship between the self-regulating rule of the market and the regulating between the self-regulating rule of the market and the regulating role of governments. The following are two examples of market role of governments. The following are two examples of market self-regulating trends.self-regulating trends.

• When the 1929 recession occurred US Secretary of the Treasury When the 1929 recession occurred US Secretary of the Treasury Andrew Mellon asked the president to let enterprises do business Andrew Mellon asked the president to let enterprises do business at a loss and go bankrupt during the recession cycle and the at a loss and go bankrupt during the recession cycle and the economy would become healthy. economy would become healthy.

• In the 1980s, US president Ronald Reagan and UK PM Margaret In the 1980s, US president Ronald Reagan and UK PM Margaret Thatcher encouraged the free trade theory in the two powerful Thatcher encouraged the free trade theory in the two powerful economies, pursuing the policy of weak government, strong economies, pursuing the policy of weak government, strong market.’ market.’

• The IMF and WB , according to American The IMF and WB , according to American Economist Joseph E. Stiglitz, a 2002 Nobel Economist Joseph E. Stiglitz, a 2002 Nobel Economic Laureate, became missionaries Economic Laureate, became missionaries through them views on free market were through them views on free market were imposed on poor countries that needed donor imposed on poor countries that needed donor loans.loans.

• The crisis this time originates from the easy The crisis this time originates from the easy conditions of American banks in the recent conditions of American banks in the recent 10 years,10 years,– Granting large amounts of loans to home buyers Granting large amounts of loans to home buyers

under sub-standard contracts that created a under sub-standard contracts that created a bubble-economy.bubble-economy.

– When the market cooled down, millions of When the market cooled down, millions of borrowers were unable to make payments of both borrowers were unable to make payments of both principal and interest and banks and investors in principal and interest and banks and investors in turn became insolvent.turn became insolvent.

• The US financial crisis takes places in a global The US financial crisis takes places in a global context was described vividly by Alvin Toffer in context was described vividly by Alvin Toffer in his book “The Third Wave’. By placing in a his book “The Third Wave’. By placing in a systematic relationship billions of people, the systematic relationship billions of people, the market gives rise to a world in which no person market gives rise to a world in which no person has the independent control of his fate, no has the independent control of his fate, no individual, no nation, no culture can do so.”individual, no nation, no culture can do so.”

• The Third Wave will produce the first “trans-The Third Wave will produce the first “trans-market civilisation” in history.market civilisation” in history.

• What is problematic is the role of the market in What is problematic is the role of the market in our lives and the future of the civilisation itself. our lives and the future of the civilisation itself. So, for the first time in history, international So, for the first time in history, international organisations and countries have coordinated organisations and countries have coordinated actions to deal with the crisis. actions to deal with the crisis.

• The US president on Oct. 3, 08 signed the The US president on Oct. 3, 08 signed the Emergency Stabilisation Act of 2008 as a bailout Emergency Stabilisation Act of 2008 as a bailout of the US economic system worth $700 billion.of the US economic system worth $700 billion.

• The FED on Oct. 9, 08 cut base rates by 0.5 to 1%, the The FED on Oct. 9, 08 cut base rates by 0.5 to 1%, the lowest level in 50 years. On Oct 10, finance ministers lowest level in 50 years. On Oct 10, finance ministers and central bank governors from the group of 7 and central bank governors from the group of 7 industrialised nations proposed the five point plan for industrialised nations proposed the five point plan for cooperation to deal with the crisis.cooperation to deal with the crisis.

• The ASEAM summit, opened in Beijing on Oct. 24, 08 The ASEAM summit, opened in Beijing on Oct. 24, 08 with the participation of 43 countries, discussed the with the participation of 43 countries, discussed the crisis.crisis.

• ASEAN countries and China, Japan and Korea (ASEAN ASEAN countries and China, Japan and Korea (ASEAN +3) agreed to form a common foreign exchange fund +3) agreed to form a common foreign exchange fund worth $80 billion to protect the currencies of these worth $80 billion to protect the currencies of these countries. countries.

• Finance Ministers and Central Bank governors from the Finance Ministers and Central Bank governors from the ASEAN +3 met in Manila Philippines in Nov. 08 and a ASEAN +3 met in Manila Philippines in Nov. 08 and a summit of these countries will be held in Bangkok in summit of these countries will be held in Bangkok in Dec. 08 to discuss cooperation to cope with the crisis.Dec. 08 to discuss cooperation to cope with the crisis.

• In short, 2009 will see many difficulties facing the world In short, 2009 will see many difficulties facing the world economy, growth rates will slow down and have a economy, growth rates will slow down and have a negative effect on the economies of all countries.negative effect on the economies of all countries.

Vietnam’s rapid Vietnam’s rapid response to the response to the Global Financial Global Financial

CrisisCrisis

Status of Vietnam’s Status of Vietnam’s EconomyEconomy

• Vietnam's economyVietnam's economy grew by 8.5% last year, but the target for grew by 8.5% last year, but the target for this year and next has been scaled back to about 6.5% as the this year and next has been scaled back to about 6.5% as the economy has been battered by a widening trade deficit and economy has been battered by a widening trade deficit and double-digit inflation. double-digit inflation.

• According to IMF, Vietnam's economic growth will drop to five per According to IMF, Vietnam's economic growth will drop to five per cent next year while the government grapples with a large cent next year while the government grapples with a large current-account deficit and weak banking and corporate sectors. current-account deficit and weak banking and corporate sectors.

• Vietnam has announced a stimulus plan worth more than $1 Vietnam has announced a stimulus plan worth more than $1 billion to avoid recession as the global economic crisis bites into billion to avoid recession as the global economic crisis bites into its export-led economy its export-led economy

• Prime Minister Nguyen Tan Dung approved a number of measures Prime Minister Nguyen Tan Dung approved a number of measures to boost production, investment and consumer spending at a to boost production, investment and consumer spending at a monthly cabinet meeting Tuesday monthly cabinet meeting Tuesday

• Dung said the stimulus would fund public works projects, Dung said the stimulus would fund public works projects, including a large irrigation canal in the northern Red River delta, including a large irrigation canal in the northern Red River delta, and help finance rice storage depots for about one million tons of and help finance rice storage depots for about one million tons of grain in major farming areas.grain in major farming areas.

A package of measures applied to A package of measures applied to combat the economic slowdown combat the economic slowdown and cushion the impact of the and cushion the impact of the

global financial crisisglobal financial crisis• Measures outlined by PM at a gov Measures outlined by PM at a gov

meeting last week included:meeting last week included:– Revving up stagnant domestic Revving up stagnant domestic

production and exportsproduction and exports– Fuelling weakening consumption power,Fuelling weakening consumption power,– Applying flexible monetary and financial Applying flexible monetary and financial

policiespolicies– Ensuring social security,Ensuring social security,– Care for the poor and speeding up Care for the poor and speeding up

administrative reformsadministrative reforms

Overview of Vietnam’s Overview of Vietnam’s EconomyEconomy

• Vietnam’s economy has Vietnam’s economy has been bogged down in been bogged down in difficulties since early this difficulties since early this yearyear

• Many economic sectors Many economic sectors are slowing downare slowing down

• Causing production Causing production stagnancystagnancy

• Economic growth has Economic growth has slowed from 8.8% last year slowed from 8.8% last year to 6.5% in the third to 6.5% in the third quarter of this yearquarter of this year

• The market’s consumption The market’s consumption power has declined since the power has declined since the start of the year. According start of the year. According to Nielson Global Online to Nielson Global Online Consumer Survey, a global Consumer Survey, a global ealding company, showing ealding company, showing that Vietnam’s confidence that Vietnam’s confidence declined nine points to 97 declined nine points to 97 points during last four points during last four months.months.

• In 2009, the gov expects the In 2009, the gov expects the growth to be from 6. to 6.5%growth to be from 6. to 6.5%– Due to ramping inflationDue to ramping inflation

• The main causes were rigid The main causes were rigid monetary policies and public monetary policies and public investment ineffectivenessinvestment ineffectiveness

Actions Taken by Actions Taken by MoF & Central BankMoF & Central Bank

• Draw up proposals on tax cuts,Draw up proposals on tax cuts,• Tax exemptionTax exemption• Delay of tax levies for enterprisesDelay of tax levies for enterprises• Further rate cuts and assistanceFurther rate cuts and assistance• FundsFunds

Focus on State-funded Focus on State-funded ProjectsProjects

• Facilitating important state-funded Facilitating important state-funded projectsprojects

• Disbursement of capital from gov Disbursement of capital from gov bonds for medical and education bonds for medical and education sectors and housing for the poorsectors and housing for the poor

• Expanding productions and export Expanding productions and export markets of the state economic sectormarkets of the state economic sector– Would held stir up domestic demandWould held stir up domestic demand

Corporate Income tax cut

• Bringing the corporate income tax Bringing the corporate income tax dwon from 18 to 25%dwon from 18 to 25%

• Cutting corporate income tax by 30% Cutting corporate income tax by 30% for small & medium sized enterprisesfor small & medium sized enterprises

• Postponing the implementation of the Postponing the implementation of the personal income Tax Law to July 2009 personal income Tax Law to July 2009

• Reducing the basic interest rate from Reducing the basic interest rate from 11 to 10%11 to 10%

Future Landscape of Future Landscape of Vietnam’s EconomyVietnam’s Economy

• Officials from international agencies including the World Bank, Officials from international agencies including the World Bank, EuroCham, AmCham, AusCham…all agreed that Vietnam is facing EuroCham, AmCham, AusCham…all agreed that Vietnam is facing the toughest-ever challenges and worsening business outlook.the toughest-ever challenges and worsening business outlook.

• ““Vietnam has faced the toughest-ever challenges such as high Vietnam has faced the toughest-ever challenges such as high inflation, hefty trade deficit, fluctuations in forex rates and the inflation, hefty trade deficit, fluctuations in forex rates and the slumping stock market,” Martin Rama, the World Bank’s Country slumping stock market,” Martin Rama, the World Bank’s Country Director in Vietnam told the Vietnam Business Forum held Dec 1 Director in Vietnam told the Vietnam Business Forum held Dec 1 on threshold of the Consultative Groups of Donors’ Meeting.on threshold of the Consultative Groups of Donors’ Meeting.

• Speaking about the global gloomy outlook, Thomas O’Dore, Speaking about the global gloomy outlook, Thomas O’Dore, chairman of the American Chamber of Commerce (AmCham) said chairman of the American Chamber of Commerce (AmCham) said Vietnam’s economyVietnam’s economy will be facing with similar problems as will be facing with similar problems as exports, which account for more than half of its GDP value, are exports, which account for more than half of its GDP value, are declining due to shrinking purchasing power in the U.S., EU and declining due to shrinking purchasing power in the U.S., EU and Japan.Japan.

• The U.S. buys up to 26% of Vietnam’s exports, EU purchased 19% The U.S. buys up to 26% of Vietnam’s exports, EU purchased 19% and Japan imports 16%, Thomas O’Dore said.and Japan imports 16%, Thomas O’Dore said.

• Vietnam should boost productivity and cut production costs, and Vietnam should boost productivity and cut production costs, and the government of Vietnam should create favorable conditions for the government of Vietnam should create favorable conditions for exporters to borrow loans with appropriate interest rates, Alain exporters to borrow loans with appropriate interest rates, Alain Cany, chairman of EuroCham proposed.Cany, chairman of EuroCham proposed.

• Meanwhile, the Japan Bank for International Cooperation Meanwhile, the Japan Bank for International Cooperation (JBIC)’s Chief Representative Matsuda Noriyasu said that (JBIC)’s Chief Representative Matsuda Noriyasu said that cheap laborforce no longer is teeth of Vietnam, and Japanese cheap laborforce no longer is teeth of Vietnam, and Japanese companies are concerned over underdeveloped infrastructure companies are concerned over underdeveloped infrastructure networks.networks.

• Out of surveyed 620 Japanese firms, 78% of them complained Out of surveyed 620 Japanese firms, 78% of them complained about road systems, 60% about power supply, and 45% about about road systems, 60% about power supply, and 45% about seaport situation.seaport situation.

• A recent survey by the Secretariat of the Vietnam Business A recent survey by the Secretariat of the Vietnam Business Forum also showed that numbers of local firms complained Forum also showed that numbers of local firms complained about bad quality of the business climate soared to 30%, up about bad quality of the business climate soared to 30%, up from 5.3% in 2007.from 5.3% in 2007.

• Officials at the VBF proposed the government of Vietnam Officials at the VBF proposed the government of Vietnam further boost reforms in infrastructure developments, further boost reforms in infrastructure developments, intellectual property rights, courts systems, efficiency of the intellectual property rights, courts systems, efficiency of the public administration and high-quality human resources.public administration and high-quality human resources.

• However, Trence Francis Mahony, an official for the equity However, Trence Francis Mahony, an official for the equity market team said that Vietnam is better at dealing with market team said that Vietnam is better at dealing with impacts of the global crisis than other Asian nations in 1997.impacts of the global crisis than other Asian nations in 1997.

• ““Vietnam has its own strengths and not much impacted from Vietnam has its own strengths and not much impacted from the current crisis, and it has long-, and medium-term outlooks, the current crisis, and it has long-, and medium-term outlooks, shrunk investments will be traded off,” he said. shrunk investments will be traded off,” he said.