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The Great Recession and Developing Countries
Among the country case studies in this book, Vietnam’s experience stands out in that even before the September 2008 global financial crisis hit, the Vietnamese authorities were implementing stringent fiscal consolidation measures to cope with the effects of the global food and fuel price hikes it faced at the end of 2007. Concerns of overheating had also emerged in early 2008, owing partly to the rapid increase in the role of domestic demand in GDP growth between 2005 and 2007. (Table 12.2 is telling in this regard; it shows the importance of domestic spending on the build-up of gross domestic capital formation, inventories, and a rapid increase in imports in Vietnam’s GDP growth decomposition.) Vietnam’s fiscal consolidation, together with its reserve build-up (a result of continued high export revenues and FDI inflows) helped the country to cope with the global downturn of late 2008, relative to other developing countries, as it had adequate room to undertake a rapid countercyclical fiscal expansion. The question remains: how important have total factor productivity (TFP) increases been (especially in agriculture) to Vietnam’s growth path? In the section on growth accounting, the choice of the CobbDouglas production function assumes that the relationship between output and the capital stock is stable for the period 1986–2008. Does this mean that the structure of the technology in production in Vietnam did not change during this period? Also, it would be useful to compare the growth trends of TFP between Vietnam and its main trading partners and developing countries with similar production structures. This would shed more light on the importance of TFP to Vietnam’s growth process relative to, for example, China’s. Where the paper needs a bit more attention is in the forward-looking part, that is, in the discussion of the country’s medium-term outlook. Here, the focus should be on the need for better risk management going forward—whether it is the fiscal risks attributable to contingent liabilities of state-owned enterprises or large business houses that dominate Vietnam’s economy today, the risk of increasing job losses, or the risk of a drop in foreign demand and/or remittances. Managing these risks will not be easy, especially in a volatile global environment where the shape and speed of recovery in the advanced countries (many of which are Vietnam’s trading partners) are being hotly debated today. In forming an opinion about Vietnam’s export price outlook, one may need to look a