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Driving the world economy
By Binh Nguyen in HCMC
Thursday,  Jun 3, 2010,23:49 (GMT+7)

Driving the world economy

By Binh Nguyen in HCMC

About 450 leaders in different fields from different parts of the globe are converging at the 19th World Economic Forum (WEF) on East Asia in HCMC with thoughts of the growing role of Asia that is well on its way to steer the world economy out of the current doldrums.

 In Vietnam, leaders from the political, business and academic communities, and civil society are also pinning hopes that the forthcoming event will bring about new opportunities for the country, besides spending time “Rethinking Asia’s Leadership Agenda” as is the theme of the forum.

Seeking sustainable growth

As the managing director of Tata Steel India and co-chair of the WEF on East Asia, Hemant M. Nerurkar straightforwardly said that he is looking towards a framework proposed to develop sustainable inclusive growth at the forum.

 “It is to this end that our discussions shall be working towards,” Nerurkar said. “We engage with multi-stakeholder networks and experts and we hope to bring visibility and insight to strategic decision-making which can lead to more efficient, effective and sustainable ways of conducting business.” In an email interview with the Daily ahead of the forum from June 6 to 7, Nerurkar underscored the important contribution of Asia, especially the eastern part, to the global economy despite doubts around.

“Barely 18 months ago, very few guessed that East Asia would lead and help recover the world economy out of the crisis. Some economists even pointed out that all countries in the region would rethink their growth models to focus more on domestic demand rather than exports and investment,” Nerurkar said.

However, things changed quickly afterwards, and so as those in doubt. “In only one year and a half, East Asia has recovered from the economic and financial crisis, with output, exports and employment almost touching the pre-crisis levels.”

The World Bank’s “East Asia and Pacific Economic Update” report shows real gross domestic product (GDP) in developing East Asian countries is set to grow 8.7% in 2010 over the 7% last year. “The projected growth rate for 2010 is almost a percentage point higher than our own forecast made six months ago, and is higher than the 8.5% expansion recorded in 2008,” Nerurkar counted.

According to this WB’s six-monthly assessment of the economies of the region, developing countries in the East Asia and Pacific region can grow rapidly in the next decade even in a weakened world.

Sushant Palakurthi Rao, director, head of Asia, World Economic Forum, has hailed Asia’s fast rebound and its head start on the global economic recovery, but has expressed concern that strong demand in Asia alone will not rescue the world economy, as many economies in this region are export dependent.

“The U.S. consumer still accounts for nearly 20% of global demand compared with only 8% for the Chinese economy. Furthermore, in many ways the recovery is policy-induced and not necessarily driven by private sector demand,” Rao said.

Nerurkar said the developing economies in East Asia and Asia as a whole will grow rapidly and play a growing role in the world if they implement structural reforms and cooperate further on regional economic integration and environment issues.

"It is quite obvious that Asia will be the demand driver and the production hub of the world in the foreseeable future. However, the rethinking needs to be in the direction of making this rapid growth sustainable," Nerurkar said.

Alain Cany, chairman of the European Chamber of Commerce in Vietnam (EuroCham), has a similar view, saying that even many European Union states will have to undergo structural reforms to ensure a recovery from the crisis and long-term sustainability.

Notwithstanding certain issues in Asia, Cany believes in the growing influence of this region on the global economy in the current era. “Certainly, China and other emerging Asian markets such as India and Indonesia are contributing to redesigning the world economy,” he said.

Cany said the Vietnamese economy was small, so it would not have a big impact on the redesigning process, but there was a wide consensus on its strong economic fundamentals. “So, the country cannot be ignored in any new strategy.”

Opportunities for Vietnam

In his role of a foreign business leader in Vietnam, Cany regards the WEF on East Asia as a golden opportunity for Vietnam to show what is on offer to investors and traders, but urges the country to make preparations to woo them.

“It is extremely beneficial for Vietnam that the WEF on East Asia is being held in the country,” Cany said. “It is important for the Vietnamese Government to take this opportunity to market the country to investors, highlighting ongoing improvements to facilitate business in Vietnam.”

But Cany stressed Vietnam should attach more importance to the foreign direct investment disbursement than committed FDI when the country remains a destination of choice for investors. And at the same time, the country must find proper measures to fix weaknesses involving trade deficit, inflation and infrastructure.

“The trade deficit at about 10% of the country’s GDP needs to be kept in check, inflation should be kept below 8-9% maximum in an environment of 6-7% economic growth and the weakness of the Vietnam dong needs to be addressed,” Cany said.

In terms of foreign investment attraction, Nerurkar of Tata warned of the crowding out of investors in certain sectors, as this would result in a strain on natural resources and infrastructure – the two of the major public concerns in Vietnam these days.

“This (crowding out) may affect the viability of the projects and will find it difficult to raise funds from the international market because of the perceived risk of the lender from such overcapacity,” Nerurkar said.

Nerurkar is right as reality shows that several of the big-ticket projects licensed in Vietnam in 2007 or 2008, a year when the country’s FDI commitment exceeded US$60 billion, particularly in the property sector are laid idly or likely transferred to other developers.

Nerurkar called for more efforts to ensure the quality rather than quantity of projects. “We should develop the mindset to get out of the ‘big number syndrome’. We should focus more on the quality of FDI.”

Cany said it should be kept in mind that after three years of Vietnam’s accession to the World Trade Organization and two years of global economic crisis, the ‘honeymoon’ period of Vietnam as a rising star of the region had passed.

The attraction of Vietnam as a place to invest based on its solid fundamentals remains strong in comparison to other ASEAN countries, but Cany said the crisis forced investors to be much more selective in their investment strategies, and as a result, they were watching macroeconomic prospects more carefully than two to three years ago.

Cany said Vietnam could make itself more attractive if the Government worked harder to keep the growth momentum and open the market more to the world while ensuring that investors do not grow impatient with the pace and scope of reform.

The WEF head in Asia, Rao, said Vietnam had shown its openness to the world in becoming a member of the WTO and becoming one of the most attractive destinations for foreign investors.

 “In this regard, Vietnam’s chairmanship of ASEAN is a chance for Vietnam to demonstrate its growing leadership in regional and international affairs by facilitating stronger cooperation across Asia.”

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