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 time donor countries should consider reducing their help

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Male Number of posts : 657
Registration date : 2011-01-31

PostSubject: time donor countries should consider reducing their help   Sat Jun 25, 2011 4:32 am

In 2011, 4 billion is needed to pay interests on the foreign debt of the government. This is about 12% of the government budget. More and more, lenders to the Vietnamese government would have to take future earnings and the ability of the government to collect taxes as important considerations for future loans. Sovereign borrowers tend to have an edge over private sector borrowings in this regard, and one wonders whether this is a moral hazard in the international financial system? If the foreign reserves of the Vietnamese government falls below the 4 billion needed annually to pay interests, then what could happen? Government foreign reserves are on a downward trend since the financial crisis started in Vietnam in 2008, before the global financial crisis started. What would be the regional implications if Vietnam becomes Southeast Asiaís Iceland, or Greece?

There is now a drive to cut the budget deficit by cutting down on government spending. The reduction as planned is however a mere 0.5% reduction over 2010. More must be done and government and party leaders must set personal examples as well as let their offices take the lead. Vietnamese people were very impressed when a foreign head of government traveled via a budget airline out from Hanoi several years ago. In contrast, while on state visits, Vietnamese leaders often bring with them large delegations in a specially chartered plane of the national airlines. Travelling with less style would help. Other examples of wastage abounds.

What the government needs is to institutionalize macro controls and prevent over-spending. Overall there should be a cap on the deficit that no government is allowed to change or exceed without 80% approval by the National Assembly, and the State President should also be allowed to scrutinize the governmentís budget more carefully and be given the authority to request the government to make compulsory changes mandated by law. The State President should also be allowed to veto budget deficits if he still felt that the 80% approval in the National Assembly was not in the interests of the nation. Compulsory savings from the annual government budget should become a regular practice.

Sector-specific controls could also be instituted. For instance, while the areas of defence, health care, and education need not be subjected to strong caps, the budgets of the other ministries and of the state-owned enterprises should be tightly controlled and be put on a road map to steadily decrease their budgets over the next 5 years, until the financial situation has improved tremendously. If the state-owned businesses, unless they are of strategic importance for the security of the country, cannot survive without government budget infusions, then they should fold up.

Paradoxically, this is also the time donor countries should consider reducing their help, albeit gradually, so that the government would be forced to make tough choices about their budget and to make sure Vietnam live within its means. With the present state of finances, Vietnamís growth story is unsustainable and could unravel.

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