Economist: Vietnam needs to take measures ahead of AEC establishment

09:25:33 Tuesday, January 05, 2016
Vietnam needs to take measures to protect itself including aligning its economic institutions with other ASEAN nations in order to avoid the risk of economic crisis when the ASEAN Economic Community (AEC) is officially formed, according to a leading economist.

The ASEAN Economic Community (AEC) – a key pillar in the ASEAN Community which came into being on December 31, 2015 – has set a foundation for the start of a new chapter in economic integration in the Southeast Asian region.

During an interview granted to Vietnam News Agency correspondents, Dr. Nguyen Chi Hieu, a financial and banking expert, stressed that as the country has not yet become a true market economy, the gap in economic institutions will be an obstacle for absorbing the flows of capital and other financial resources.
When the common market is formed, Vietnam will have to open the door to facilitate the circulation of capital among the bloc’s member nations. Apart from attracting new credit sources from foreign direct investment (FDI), the country will also be the destination of payments from trade, exports and service and tourism activities.

These will actively impact on all the country’s economic and financial activities, bringing benefits to the Government, business community and people, Hieu said. However, Vietnam will also have to deal with challenges because its economy’s ability to absorb capital remains limited.

Foreign investors and banks are concerned about investing in Vietnam due to credit risks, bad debt and the slow restructuring of the economy, Hieu said. He cited the example of Mexico which fell into crisis due to the outflows of foreign investment after the country was unable to absorb the flow of foreign capital.

Hieu also forecast competition in the regional banking sector will increase and put pressure on domestic trade banks that operate on a small scale with a shortage of modern services and weak administrative capacity. They are likely to lose domestic market share.

He added that however, Vietnam is yet to become a lucrative market for regional banks because the average annual GDP per capita stands at 2,000 USD. Foreign banks are also hesitant to provide Vietnamese businesses with loans because they are worried about bad debt.

Hieu underlined the need for Vietnamese banks to accelerate their restructuring and expand user-friendly products and services. They should also study and introduce more derivatives products in periodic foreign currency transactions, thus both creating flexibility and ensuring interest and increased consumer confidence.

According to Secretary-General of Malaysia’s Ministry of International Trade and Industry Rebecca Fatima Sta Maria, adopted by the ASEAN leaders in 2007, the AEC Blueprint highlights about 600 initiatives, including measures to create a single market and production base and a highly competitive economic region with equal economic development and deeper integration into the global economy.

The AEC Scorecard used to track the progress of implementing AEC measures of separate countries over the past eight years has been delivered at ASEAN summits. She noted that nearly 96 percent of tax lines in ASEAN have been removed, enabling regional businesses to sell and buy almost all commodities without paying import tax.

ASEAN member countries agreed to liberate services, including financial ones, while making it easier for the flow of skilled workers in the region and encouraging investment and consumer protection. Between 2007 and 2014, the bloc’s gross domestic product (GDP) increased from 1.33 trillion USD to 2.57 trillion USD, total trade from 1.61 billion USD to 2.53 billion USD, and foreign direct investment (FDI) from 85 billion USD to 136 billion USD.

At the 27 th ASEAN Summit in Kuala Lumpur in November 2015, the ASEAN leaders adopted the AEC Blueprint 2025 to reiterate ASEAN’s continuous economic integration and ensure regional economic development is reliable and sustainable, Rebecca said.

The blueprint will focus on addressing non-tariff trade barriers and non-tariff trade measures as well as barriers arising from law, she said, adding the ASEAN Solutions and Settlements for Investments, Services and Trade (ASSIST) will be put into operation in the first quarter of 2016 to remove bottlenecks for ASEAN businesses.

She noted that the ASEAN’s Strategic Action Plan for Small and Medium-Sized Enterprises (SMEs) Development (SAP SMED) in 2016-2025 covers measures to build capacity for SMEs in applying information-technology and e-commerce, along with facilitating the connectivity network among businesses.

In addition to intra-bloc economic integration, ASEAN has been integrating deeper into the global economy via its engagement in the ASEAN+1 Free Trade Agreements and the Regional Comprehensive Economic Partnership (RCEP) – comprising of ASEAN member states and six FTA partners: Australia, China, India, Japan, the Republic of Korea, and New Zealand.
Source From hanoitimes

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