Nguyen Xuan Thanh, Vu Thanh Tu Anh, David Dapice, Jonathan Pincus, and Ben Wilkinson, January 2009
This paper responds to a request from the Vietnamese government for an analysis of the impact of the global economic crisis on Vietnam, and policy recommendations to help the government stimulate growth and reduce the risk of financial crisis. The government has proposed an economic stimulus valued at six billion U.S. dollars, although details of this plan are still being worked out as this document is prepared. The roots of macroeconomic instability in Vietnam are domestic, and that the appropriate policy response is structural change. This paper argues that the deepening of the international economic downturn strengthens the case for structural reforms. Further, the paper suggests that the fiscal and monetary stimulus proposed by the government will not have the desired impact but will instead accelerate inflation and increase systemic financial risks. The authors recommend an alternative set of policies including gradual depreciation of the VND and adjustments to the public investment program to delay capital and import intensive projects in favor of labor intensive projects that do not rely heavily on imports.