State of Vietnamese Economy

The trade deficit which in the last three years reached $45 billion has had a negative impact not only on the international balance of payments, but also on the macro balances of our economy. The target to "rein in this wild horse" at 20 percent this year is absolutely necessary.

Managers have approached this target from two directions: promoting exports and restricting imports. The Ministry of Industry and Commerce forecast that the increase in exports this year will not be 6 percent as planned by the National Assembly but rather 7 percent, so the export goal should be $60.777 billion (the 2009 figure was adjusted to $56.801 billion). By keeping the trade deficit at the threshold of 20 percent, this year's import "quota" will be $72.932 billion, and the import turnover will be $12.155 billion, which means a decrease of $719 million compared to the import turnover in 2009.

Export-Import Growth
According to the January 2010 estimate announced by the General Department of Statistics, although the absolute level of trade deficit decreased sharply compared to the last four months of 2009, the scale of trade deficit was still above the goal because while exports increased vigorously, imports increased even more.

Specifically, while export turnover was estimated at $4.9 billion, an increase of 28.1 percent compared to the same period in 2009, imports reached $6.2 billion, an increase of 86.6 percent. Therefore the import surplus was $1.3 billion, and the trade deficit was 26.53 percent, higher than the target limit of 20 percent.

Obviously, in theory, this is just a "warm up," and perhaps there is time to adjust, but actually there are grounds to assume that there will be a strong increase in imports, while exports will grow at a much slower rate. Therefore it is possible to be unable to achieve the target of reining in the trade deficit.

An increase in both exports and imports will resonate because of two factors, the increase of quantity and the increase in prices, but the factors for the basket of imported products are much more significant than for the basket of exports.

In particular, the estimates of export and import of products for which statistical data on quantity and value are available - nine export products and 11 imported products - showed that in January, total imports increased 95.82 percent, and that 41.1 percent was due to increases in price and 54.5 percent was because of an increase in quantity. The price factor caused a 45.24 percent increase in exports, and although actual export value increased only 37.43 percent, quantity decreased 7.81 percent because a considerable amount of crude oil was reserved for the "first-born" of the petrochemical industry in our country.

IMF Forecast
Certainly in the future "made in Vietnam" petrochemical products will replace some products we have had to import for a long time, but it is obvious that the import segment of the economy in general will grow much more than exports.

This judgment is based on the price trends which are very different for various product groups on the world market, as well as their unequal correlation in the two baskets of export and imported products. In fact, whether world prices decrease or increase, prices of manufactured and processed products will change less than prices of raw materials. In the present period, according to an International Monetary Fund (IMF) forecast, instead of the decrease of 31 percent in 2009, world prices of raw materials will increase about 16 percent this year, while the estimates for manufactured and processed products are -9.1 percent and +3.1 percent respectively.

Affect of World Pricing
Given the conditions of world pricing, the structures of the two baskets of export and import products in our economy are sensitive. There are two reasons for this. First, on the average in the last three years, the basket of imported products was nearly 22.5 percent more than the basket of export products. Second, in such correlation, the group of raw and unprocessed materials and fuel accounted for 65 percent of the basket of imported products, while the group of raw and semi-processed products accounted for only about 46 percent of the basket of export products. Therefore, the affect of world pricing on the basket of imported products is 1.7 times greater than on the basket of export products.

Because of structural differences, the basket of imported products shrunk much more than the basket of export products (13.68 percent versus 9.39 percent) during global economic recession in 2009. This year the basket of imported products will expand much more than the basket of exports.

For this reason, instead of decreasing in the chilled conditions of 2009, the trade deficit will increase this year when world prices heat up again according to the familiar scenario of the past years. However, to restrict imports in order to restrain the trade deficit, we cannot avoid restructuring the economy, but that would take a long time.