MACROECONOMIC POLICIES IN 2013.docx

Dịch vụ viết thuê luận án tiến sĩ, luận văn thạc sĩ,báo cáo thực tập, khóa luận
Sdt/zalo 0967 538 624/0886 091 915 https://lamluanvan.net/
Topic: Vietnam macroeconomic policies in 2013

TABLE OF CONTENT
I. Introduction ......................................................................................................................3
II. Implementation of macroeconomic policy in Vietnam in 2013 .....................................3
2.1 Selecting macroeconomic policies.............................................................................3
2.2 Reason why choosing these two policies...................................................................4
2.3 Implementation ..........................................................................................................5
II. Criticism of the two policies...........................................................................................6
2.1. Positive effect this macroeconomic policy ...............................................................6
2.2. Negative effect of two policies .................................................................................7
III. Conclusion.....................................................................................................................9
REFERENCE ....................................................................................................................11

I. Introduction
Experiencing a deep pressure of inflation and macroeconomic instability for many years
with the climax of more than 18% of inflation in 2011, Vietnamese Government has
adopted both effective monetary policy and fiscal policy as the macroeconomics policies.
It is suggested that inflation has negative impacts on a large number of real variables
(IMF, 2000). Price dispersion due to inflation can cause business failures (Head and
Kumar, 2005). Additionally, inflation might impede the market mechanism (Ragan,
1998). The hardest issue raised was that Vietnamese consumers had to suffer from an
increase in overall price of usual products, which affected much on their living standard.
Facing this emergency, Vietnam macroeconomics policies in 2013 combined both
expansionary monetary policy and tightened fiscal policy.
The assignment is written with the expectation of generating thorough understanding of
macroeconomics policies as well as economy conditions of Vietnam for the time being.
In order to view two policies critically, two main parts will be divided, including
implementation of macroeconomics policies in 2013 and criticism about them. It is also
essential to split each main part into small stages to be more detailed and easily
understood.
II. Implementation of macroeconomic policy in Vietnam in 2013
2.1 Selecting macroeconomic policies
Under the Resolution No. 01 and 02/2013/NQ –CP of Vietnamese Government, in the
period from 2013 to 2014, two macroeconomic policies continue to be undertaken,
namely, the expansionary monetary policy and contractionary fiscal policy. Monetary
policy is used in order to affect the money supply in the market while fiscal policy
involves Government’s expenditure (Mankiw, 2011). In detail, expansionary monetary
policy occurs when the Central Bank would like to increase money supply by purchasing
bonds from public (Keith, 2006). To influence on Government’s expenditure, tightened

fiscal policy is applied with the purpose of lowering this expenditure and prefer saving
(Ramey and Shapiro, 1998). These two policies are illustrated by the IS-LM model
(Fleming & Mundell, 1963).
2.2 Reason why choosing these two policies
It is critical to identify the reasons for Government to select macroeconomics policies as
above instead of applying one of these scenarios: combination of expansionary
(tightened) monetary policy and expansionary (tightened) fiscal policy or combination of
contractionary monetary policy and expansionary fiscal policy.
Firstly, it is complicated to mix either both “easy” fiscal policy and “easy” monetary
policy in the emergency of economics recession or “tight” fiscal and “tight” monetary
policy in the case of high inflation and unemployment (Walton & Rockoff, 1980). Thus,
even though Vietnam has experienced high inflation and unstable economy, Government
could not apply the second method in order to solve the problems in an appropriate
manner.
Secondly, the mix of expansionary fiscal policy and tight monetary policy is unhealthy
when the economy must enjoy a recovery and stability (James, 1982). Therefore, Joseph
(1983) had pointed out that the key to an improved economic situation must lie in an
effective adjustment of expansionary monetary policy and tight fiscal policy.
In detail, from 2011 to the beginning of 2013, Vietnamese Government pursued the tight
monetary policy and easy fiscal policy, which resulted in a sharp increase in interest rate.
Governor Nguyen Van Binh informed that interest rate rose from 7% in 2010 to 13% in
2011. This movement put pressure on investment and development of businesses as well
as consumption of residents and appreciation of domestic currency. However,
contractionary monetary policy had decreased inflation significantly. The most important
was that under this policy, economy of Vietnam became stagnant and production delayed
accompanied by bankruptcy of many enterprises.

To overcome this situation, Vietnamese Government was in need of adjusting
macroeconomics policies so that the measure can reflect the movements in the
instruments of policy (Albert, 1971). Objective of applying contractionary fiscal policy
and expansionary monetary policy in 2013 was that “stabilize macroeconomics” (Prime
Minister Nguyen Tan Dung). Therefore, using easy monetary policy can reflect a
decrease in interest rate and the inflation rate arising from this policy will offset by
tightened fiscal policy. Deputy Director of the Institute for Research and Economic
Management Nguyen Dinh Cung also added that the key source of inflation was from
fiscal policy, thus, it was only fiscal policy to resolve this problem while monetary policy
only lowered inflation rate in short term. In addition, the author Quach Manh Hao (2014)
concluded that high interest rate due to easy monetary policy could create a vicious circle
for the economy and is not the key solution for inflation and macroeconomic stability in
Vietnam.
With the predictions above together with current situation of Vietnam economy, selecting
these two policies seemed to be most suitable.
2.3 Implementation
In applying monetary policy, State Bank of Vietnam had effectuated some measures
either step by step or jointly.
 Purchasing securities from public so as to increase money supply in the market. It
is the direct method of monetary policy
 Increasing foreign exchange reserves so that SBV can control effectively the
domestic or foreign currency in the market.
 Improving balance of payment by promoting export and trying to minimize import
activities.
 Lowering the discount rate

These above steps together led to a significant decrease in interest rate in complying with
the proposed objective of Vietnamese Government.
Along with the activities of expansionary monetary policy, several proposals in
implementing contractionary fiscal policy were reported as following.
 Decreasing Government’s expenditure as well as public investment.
 Increasing tax.
 Lowering transfer payment
Other policies under strategy of minimizing Government’s expenditures were conducted
in detail, such as strict management of state budget expenditures; maximum cut off
funding conference, workshops, overseas business expenses, expenses for the festival,
celebration; not buying the car (except for special purpose vehicles as prescribed by law);
definitely handling the budget amounts owed,… In brief, any expense must be adopted
before coming into action by the Ministry of Finance.
II. Criticism of the two policies
2.1. Positive effect this macroeconomic policy
Firstly, interest rate has decreased as the most important impact of monetary policy.
Whereby, VND deposit interest rate cap with the maturities of less than 1 month
remained only 1.2% per year. SBV also decided to drop VND deposit rate cap period
from 6 months upwards.
The lower the interest rate became, the more opportunities for enterprises to access to
capital and extend business activities (Beetsma, 2005). Do Duy Thai, general director of
Vietnam Steel Corporation said that in addition to market factors, business capacity,
interest rates are an important factor of enterprises because majority of their loans came
from banks. In comparison to 2011 when interest rate increased continuously, many
companies got risks and losses. For example, Sacomreal experienced 385 billion VND of

expense and only 127 billion VND of revenue in 2011. This volume of expenditure
lowered about 11% in 2013 due to gradual decrease of interest rate (Financial Report of
Sacomreal, 2011-2013).
Source: World Bank
Figure 1: Interest rate and inflation rate in period from 2008 to 9/2013
Secondly, Vietnam gained more economy stability. GDP of Vietnam has increased more
than 5% (NFSC, 2013). Index of industrial development (IID) recovered through the
quarter and in October, IIP rose by 5.4%. Moreover, the country has attracted FDI of over
$19 billion, up 65.6% over the same period.
Thirdly, when applying monetary policy, exchange rate of Vietnam dong over USD
tended to be higher, which then led to depreciation of VND from 20,826 VND/USD in
2012 to 21,246 VND/USD in 2013 (CETAI, 2013). Therefore, export volume had
chances to increase and import lowered (Keith, 2006).
2.2. Negative effect of two policies
Some criticisms about integrating expansionary monetary policy and contractionary fiscal
policy are drawn from many other authors based on private opinions of the writer.

It is essential to analyze the following report about some indicators of economy in
Vietnam in 2013.
Number Ratio 2012 2013
1 Real GDP growth 5,03 5,5
2 Consumer price index (CPI) 6,81 8,0
3 Investment over GDP 28,5 29,7
4 Export ratio 18,2 10,0
5 Import over export ratio 0,7 -8,0
6
Poverty
9,64
Decreased
2%
7 Unemployment 3,25 4,47
Source: The Ministry of Finance (2012-2013)
Table 1: Comparison some ratios between 2012 and 2013
The most controversial issue raised in this table was that contrary to prediction, export
ratio was not as high as it had been in 2012. The reason was that implementing monetary
policy was not really effective as expected. Deputy Director of the Institute for Research
and Economic Management Nguyen Dinh Cung had explained that Vietnam would not
separate monetary policy as independently as other countries in the world and utilized it
for many purposes.
The second problem here was investment over GDP. While Government tried to apply
tightened fiscal policy with the expectation of public expenditure, investment ration

seemed to be still high. Resolution 11 only described this rule vaguely so that almost
departures could not exercise effectively.
Another drawback of two policies was derived from Government perspective, which
implied that both State Bank of Vietnam and Prime Ministry had addressed more on the
monetary policy in stabilizing macroeconomics. To get stability, SBV only concentrated
on lowering interest rate. While influence of interest rate existed clearly, the impacts of
fiscal policy in cutting public expenditure were still hard to indentify. The bias may cause
fiscal policy conducted ineffectively.
Lastly, a lot of enterprises could not “touch” capital with lower interest rate while the
main objective of macroeconomic policy in this period is to promote production and save
some companies which were about to come to bankruptcy. Thus, it is critical to analyze
that these policies have not really brought benefits to the enterprise.
III. Conclusion
Movements of interest rate and real interest rate are dominated by monetary policy; the
effect of fiscal policy on interest rate is not statistically significant (Carlson, 1982). It is
the key reason why in this period, Vietnam focus mainly in monetary policy, leading
some criticisms on affects of fiscal policy.
To recap, Vietnamese Government has undertaken contractionary fiscal policy and
expansionary monetary policy with the purposes of lowering interest rate and public
expenditure in order to promote production from enterprises and balance budget for
Government. However, even though stability of macroeconomics seemed to be improved,
some problems remained, including export ratio, ability to access capital of enterprises
and dependence of monetary policy. Because the assignment only analyzed the current
conditions in 2013, it is limited in specific case, not applied for other situations. And
since the criticisms here remain subjective, it can be only used as reference for further
researches.

REFERENCE
Beetsma, R. & Jensen, H. (2005), “Monetary and fiscal policy interactions in a
Micro-Founded Model of a Monetary Union”, Journal of International Economics, Vol.
67, p. 320-352
Bui Tat Thang (2013), “Phối hợp chính sách tài khóa với tiền tệ trong giải quyết các vấn
đề kinh tế vĩ mô”, Tapchitaichinh, 28 March, 2013, viewed on 13 April, 2014
< http://www.tapchitaichinh.vn/Kinh-te-Dau-tu/Phoi-hop-chinh-sach-tai-khoa-voi-tien-te-
trong-giai-quyet-cac-van-de-kinh-te-vi-mo/24000.tctc>
James, T. (1982), The wrong mix for recovery, New York, p. 25
Joseph, A. & Barry, P. (1983), “The Budget and the economy”, Setting National
Priorities: The 1983 Budget, Vol. 2, p. 43
Keith, P. (2006), International Finance, 3rd
ed., Palgrave Macmillan Publisher, New
York, p. 69-76
Mankiw, G. (2011), Principle of Macroeconomics, 6th
ed., South-Western Cengage
Learning Publisher, p. 340-345
Ramey, V. & Shapiro, M. (1998), “Costly capital reallocation and the effects of
government spending”, Carnegie Rochester Conference on Public Policy, Vol. 48, p.
145- 194
Vinh Thanh (2013), “Tiếp tục nới lỏng tiền tệ”, CETAI, 1 July, viewed on 13 April, 2014
< http://kinhdoanhvatiepthi.vn/tiep-tuc-noi-long-tien-te/>
Vu Dinh Anh (2014), “Kinh tế Việt Nam 2013 đã ổn định”, Tapchigiaothongvantai, 23
January, 2014, viewed on 13 April, 2014
< http://tapchigiaothongvantai.vn/2014/01/kinh-te-viet-nam-2013-da-on-dinh/>

Walton, M. & Rockoff, Hugh. (1998), History of the American Economy, 8th
ed. New
York: The Dryden Press, p. 671-673

MACROECONOMIC POLICIES IN 2013.docx

Recommended

Recommended

More Related Content

Similar to MACROECONOMIC POLICIES IN 2013.docx

Similar to MACROECONOMIC POLICIES IN 2013.docx (20)

More from lamluanvan.net Viết thuê luận văn

More from lamluanvan.net Viết thuê luận văn (20)

Recently uploaded

Recently uploaded (20)

MACROECONOMIC POLICIES IN 2013.docx