Prime Minister Nguyen Xuan Phuc's article on the macroeconomic situation

Maintain macroeconomic stability, create a favorable environment for production and business,promote rapid and sustainable development

Maintaining macroeconomic stability is an important and consistent requirement in developing a socialist-oriented market economy. Building on the results achieved in the past, we must continue to strive to create a more solid macroeconomic foundation in 2018 and the following years, creating a favorable environment and conditions to promote production and business, contributing to the successful implementation of socio-economic development goals and tasks in 2018 and the 5-year period of 2016-2020 according to the Resolutions of the Party and the National Assembly.

I

In the development of a market economy, macroeconomic stability has an important meaning and role in many aspects, especially the close relationship with economic growth. Only with macroeconomic stability, especially controlling inflation and stabilizing the value of money, can we create favorable conditions to maintain order and promote investment, production, business, and consumption, thereby promoting economic growth. On the contrary, economic growth creates the foundation for macroeconomic stability by ensuring major balances of the economy such as monetary balance, savings and investment; State budget revenue and expenditure, import and export, balance of payments, employment, income and social security.

Looking back at the world economic history in recent decades, we see that most of the economies with rapid and sustainable growth are associated with effective implementation of macroeconomic stabilization policies, such as Japan since the 1950s, South Korea and the Asian tigers since the 1960s, China since the late 1970s and early 1980s.

For our country, during more than 3 decades of implementing the Party's policy of innovation and integration, macroeconomic stability has always been a consistent goal, a top priority and one of the principle requirements for the State in managing and operating the economy. Although the economy has had times of high inflation, threatening macroeconomic stability due to the low starting point during the transition process, weak economic potential, and limited ability to withstand fluctuations in the world and domestic economy; but overall, we have made continuous efforts to ensure macroeconomic stability, creating a foundation for economic growth.

During periods of great fluctuations such as the Asian financial and monetary crisis of 1997-1998 or the global financial and economic recession since 2008, our Party and State have always focused on directing the implementation of strong, synchronous and effective solutions to control inflation and stabilize the macroeconomy. From 2012 to present, it can be said that our country's economy has entered a period of stability, recovery and development. The consumer price index has decreased from 18.13% in 2011 to 6.81% in 2012 and 2.6% in 2017 (3.53% by average calculation). Meanwhile, GDP growth rate increased from 5.25% in 2012 to 6.81% in 2017. Not only in this period, the results of previous periods such as 1991-1996 or 2001-2006 all demonstrated a fairly close relationship between inflation and economic growth.

Looking back at 2017, overcoming difficulties and challenges from within and without, we are very pleased with the country's socio-economic situation changing positively and comprehensively in all fields; especially the continued stability of the macro economy is a great success, contributing significantly to promoting production and business development and economic growth. The implementation of tight, flexible and effective monetary policy, coordinated synchronously with fiscal, trade, investment, price and market policies has contributed significantly to controlling inflation according to the set target. Strong export growth, trade surplus of 2.8 billion USD, along with strong foreign direct investment and remittances flowing into Vietnam have contributed to improving the balance of payments and increasing foreign exchange reserves to nearly 60 billion USD at present. Stable exchange rates, interest rates tend to decrease in line with inflation developments, creating favorable conditions for production and business. The State budget balance has improved, with total State budget revenue exceeding the estimate by 5.9%, contributing to reducing the State budget deficit to 3.48% of GDP, and public debt to 61.2% of GDP. The stock market - the "barometer" of the economy - has increased sharply, currently in the range of 1,050-1,100 points. Economic growth has escaped dependence on short-term stimulus solutions and the mining industry, reaching the highest level since 2007, among the highest growth countries in the region and globally; in which the main economic sectors and fields have grown quite well, creating jobs, income and stabilizing people's lives.

Along with macroeconomic stability, the business investment environment has been improved with the business environment ranking increasing by 14 places, from 82nd to 68th/190; competitiveness increasing by 5 places, from 60th to 55th/137 countries and territories; the assessment of the prospects of the Vietnamese banking system has been raised, from "stable" to "positive". Vietnam's determination to innovate and the important results achieved have created an exciting atmosphere in business investment and the whole society, strengthening the confidence of investors and the business community. The successful organization of APEC Year 2017 has also contributed significantly to enhancing the prestige and position of Vietnam in the international arena.

II

Achieving the above important and comprehensive achievements, especially stabilizing the macro-economy in the context of many difficulties and challenges both domestically and internationally, demonstrates the outstanding efforts of the entire political system, of all levels, sectors, business communities and people nationwide under the leadership of the Party, first of all of the ministries, sectors and functional agencies in macroeconomic management. From the past practice, we can draw many profound and important experiences in macroeconomic management.

The first, macroeconomic management requires synchronous, effective and flexible coordination between policy tools, both in terms of level, dosage and implementation time. Macroeconomic planning and management requires a "chief architect" or "conductor", in which it is necessary to clearly identify each type of policy, the coordination and reasonable priority level between policies in each period, each specific condition and circumstance. Monetary policy needs to be closely coordinated with fiscal policy, especially in managing money supply, credit, interest rates, state budget deficit and public debt in a harmonious and reasonable manner. The lessons of inflation associated with public debt crisis in many countries are profound experiences in macroeconomic management. Increasing the attraction of foreign investment capital also requires a very flexible monetary policy, especially neutralizing foreign currency, avoiding inflationary pressure that we encountered in early 2008 when a large amount of foreign currency poured into our country while the credit growth rate increased rapidly, accumulating over a long period of time. Recently, the initial credit growth target for 2017 was set flexibly, possibly at a high level to promote growth; however, during the management process, thanks to the positive impact and influence of many other mechanisms, policies, and factors, including the strong recovery of the processing, manufacturing, agriculture, tourism, and service industries, demand-side solutions have been adjusted appropriately, in which credit growth was only at 18% but still exceeded the GDP growth target.

Monday, it is necessary to consider and carefully calculate the impact and influence of each policy to come up with appropriate and timely countermeasures and solutions. Most macroeconomic policies have the following in common: Wide scope of influence, directly or indirectly related to many sectors and fields; mutual impact; policy lag and large psychological impact; highly dependent on the circumstances and conditions of implementation. International and domestic experience shows that macroeconomic policies, even well-designed ones, but not suitable for socio-economic conditions and circumstances or not at the right time, are unlikely to be effective, especially in highly sensitive areas such as finance, currency, and prices. Therefore, although difficult to assess, it is still necessary to carefully research and analyze both direct and indirect impacts and influences to choose the optimal policy in specific circumstances, harmoniously combining short-term, medium-term and long-term goals to achieve the highest overall efficiency. Operational experience in 2017 shows that when price increase pressures were low, we proactively adjusted prices of education, healthcare services and electricity prices at appropriate times, both achieving the goal of implementing the market price roadmap and controlling the average price index at 3.53%.

Tuesday, one of the characteristics of the contemporary world economy is rapid, continuous, and unpredictable fluctuations, requiring close monitoring of developments in the international and domestic situation to come up with timely, appropriate, and realistic policies and solutions to practical issues, promoting the mission of the country.c) Strengthening the synthesis and continuous innovation in policy planning and implementation to meet the requirements of socio-economic development. Vietnam's economy is placing great demands on innovation and reform of mechanisms and policies on finance, currency, trade, investment, etc. when countries and major partners change their policy orientation towards protecting domestic production and attracting investment back to the mother country, especially using tariff barriers and cutting domestic income tax rates. Without appropriate policies, it can greatly affect exports, attracting foreign investment capital, production and business situation, domestic market, thereby affecting the growth of industries, sectors and the entire economy.

Wednesday, macroeconomic policy management must be based on the overall perspective of the entire economy and must be consistent with the characteristics of the country in each period, in which it must be clearly determined that macro policy planning must be based on the micro foundation, especially the impacts and interactions with the main subjects in the economy, especially enterprises and consumers (households). Many economic studies and practices in the world and in the country have shown that the macro economy can only be stable when there is a sustainable and effective micro foundation; on the contrary, the micro economy, production, business and consumption can only develop well when there is a stable and sustainable macroeconomic foundation. Public investment only effectively stimulates aggregate demand when it promotes but does not overwhelm private investment; borrowing and taxes can be equivalent under certain conditions and when people consider today's loans as increasing taxes tomorrow to pay off debts. This is especially important for developing countries like ours where the information system is still incomplete, lacking transparency and the expectation psychology is still very high, especially for important macroeconomic indicators such as inflation, exchange rates, interest rates, etc. This leads to the problem that macroeconomic policies must carefully consider the reactions and behaviors of economic actors in order to achieve the set goals. As an economy with a large degree of openness, we must also pay special attention to the independence and autonomy of the economy, and have appropriate policy solutions to enhance the resilience of the economy to fluctuations in the international market and changes in policies of major countries and partners.

Thursday, building a transparent public information system and the capacity to analyze and forecast plays a very important role and significance in planning and directing the implementation of macroeconomic policies. To build good policies, it is necessary to have a complete and quality information system and in-depth research and analysis, assessing the impact and influence on all aspects to choose the most appropriate policy options and tools. This is also one of the weaknesses of countries in the process of transformation like ours, especially the lack of specialized and specific databases and analysis to be able to build long-term stable policies, creating a favorable environment and conditions for investors and businesses to calculate appropriate and effective investment, production and business plans.

Friday,In macroeconomic management, human resources are the decisive factor in both policy planning and implementation. Practice shows that many ministries, branches and functional agencies still lack qualified human resources to carry out the task of planning and implementing macro policies, leading to a number of policy mechanisms of low quality, not meeting requirements, and having to be revised and improved after being issued. It is necessary to focus on building and training a team of specialized cadres in analysis, forecasting and policy planning at all levels and sectors, with special attention to professional qualifications, practical capacity and professionalism. At the same time, it is necessary to have high political determination, consensus within the entire Party, the entire army and the entire people; determination and discipline in leadership, direction and operation of all levels and sectors; especially innovation in the Government's operations, determining the right direction, focus, and key points in macroeconomic management, as we have successfully implemented in managing monetary, fiscal, trade, and investment policies in the past time.

III

Our country is entering a new stage of development with opportunities, advantages, difficulties and challenges intertwined. The world and regional situation is complicated and unpredictable; the world economy is forecast to grow higher than in 2017 but still has many potential risks. The US and major partners' policy changes towards increasing interest rates, increasing protection and reducing taxes to attract investment back home have had and are having a great impact on the stability and order of the world economy as well as the macroeconomic situation and many sectors and fields of our country's economy. Domestically, we have many advantages, inheriting achievements after more than 30 years of innovation, the position and strength of the economy is increasingly strong, the macroeconomic situation is more stable; all levels and sectors have more experience in practical direction and management. However, difficulties and challenges remain enormous, with many potential factors causing macroeconomic instability, especially the risk of high inflation due to fluctuations in energy and basic commodity prices in the world, the pressure of implementing the roadmap for marketization of electricity prices, education and health services, and measures to promote growth through fiscal and monetary policy instruments. The demand for development investment spending is huge while internal resources are still limited; external resources fluctuate due to dependence on many objective and subjective factors. The stability, sustainability and resilience of the economy, of industries, sectors, and of the business community are still limited in the context of an increasingly complex and unpredictable world, with increasingly fierce competition under the strong impact of the Fourth Industrial Revolution.

Macroeconomic stabilization has been identified by the Party and State as an important, consistent and priority task to create a foundation for rapid and sustainable growth, clearly demonstrated in the documents of the 12th Party Congress, the Resolution of the National Assembly on socio-economic development for the 5 years 2016-2020 and Resolution 01 of the Government. The Government's main viewpoint on macroeconomic management in the coming time is:Resolutely, proactively, flexibly manage, harmoniously and synchronously combine policy tools to ensure solid macroeconomic stability, ensure major balances of the economy, strive for higher growth in 2018 than in 2017 and create a foundation for faster and more sustainable growth in the following years.

Along with continuing to effectively and thoroughly promote the above macroeconomic management experiences, in the coming time we need to focus on implementing the following key policy orientations and solutions:

One is,Implement a prudent and effective monetary policy; manage money supply and credit growth appropriately, avoiding putting pressure on inflation; promote restructuring of credit institutions, handle bad debts associated with ensuring credit quality, especially in areas with potential risks such as consumer lending and real estate; strive to reduce interest rates; maintain stable currency value, manage exchange rates according to market signals, avoid large fluctuations, in line with inflation developments, increase foreign exchange reserves; have scenarios to deal with shocks from outside and inside the economy. Difficulties and challenges in controlling inflation in 2018 are very large in the context of increasing interest rates, crude oil prices and basic commodities in the world; internally, we need to implement a market price roadmap for electricity, education and health services and also neutralize a large amount of foreign currency being poured into the economy in the context of limited policy space and high inflation expectations. It is necessary to proactively manage appropriate monetary, exchange rate and interest rate policies, synchronously combining them with fiscal and other macroeconomic policies to achieve the goal of stabilizing the macro economy and controlling inflation; paying attention to the timing and extent of policy adjustments of countries, especially regarding interest rates, to have appropriate and timely countermeasures.

Two is,Implement a tight fiscal policy, thoroughly save, ensure financial discipline - State budget in all sectors and levels; resolutely fight against revenue loss, transfer pricing, tax evasion, expand and prevent erosion of the tax base; thoroughly save on regular expenditures, purchases, meetings. Have appropriate solutions to ensure resource concentration so that the central budget plays a leading role. Mobilize and effectively use resources from public assets. Manage and effectively use public debt and ensure debt repayment capacity, ensure public debt safety and national finance, do not let public debt be a burden but must be a tool to promote development. Well control capital inflows and outflows, increase information transparency, improve service quality, develop a stable stock market to become an important medium- and long-term capital mobilization channel of the economy, contributing to sharing the burden with the banking system. In the context of the US reducing corporate income tax rates and increasing tariff barriers, leading to some countries and partners changing their policies in this direction, we need to focus on research and soon have solutions on appropriate and timely tax, trade and investment policies.

Third,Focus on effectively solving the problem of rational resource allocation nationwide, in each sector, region and locality. Experience from some countries shows that in the early stages of the development process, it is possible to consider and concentrate resources on regions, areas and subjects with the highest efficiency in use to create a bigger "pie"; after a while, there will be larger resources for balanced and sustainable development for the remaining regions, areas and subjects, as China did in the early stages of the innovation process. We need to speed up the implementation and disbursement of public investment capital; review and allocate public investment capital reasonably to promote private investment and investment forms in the form of public-private partnerships, giving priority to the development of infrastructure systems. Regarding trade, it is necessary to continue implementing solutions to promote exports and control imports with policy tools and technical barriers in accordance with international practices, striving for balance and sustainable trade surplus; At the same time, strengthen linkages along the value chain, increase added value, connect the domestic economic sector with the FDI sector, between the domestic market and the international market.

Four is,Continue to implement the market price roadmap to soon move towards no more subsidization of electricity prices and education and health services associated with support for policy beneficiaries and the poor; thereby contributing to reducing the impacts and distorting influences on investment and business decisions. However, it should be noted that this does not mean not managing prices but strictly implementing legal regulations on prices, combating price monopoly, unfair competition, price manipulation, and violations of the law. Promote the development and good management of e-commerce and new forms of production and business. Do a good job of market management, especially the retail market, to avoid manipulation; synchronously implement solutions to prevent smuggling and trade fraud to contribute to protecting and developing domestic production and consumption.

Five is,Promote production and business development, creating a solid micro-foundation for macroeconomic stability. Clearly identify industries, fields, and products with key competitive advantages to have appropriate development support policies according to market mechanisms, especially focusing on product consumption and output. Manufacturing, agriculture, services, and tourism industries are in a good recovery trend; however, it is necessary to pay attention to the possibility of countries and major partners applying trade defense measures and trends in the FDI sector to have appropriate and timely countermeasures. Promote the results of 2017, soon have scenarios for each industry and field by quarter and have drastic and specific directive measures to ensure more even growth in the quarters and achieve the set annual target. Focus on improving labor productivity, efficiency, competitiveness and resilience of the economy, sectors, fields and enterprises through appropriate and effective policies and solutions, especially promoting the application of high technology, taking advantage of opportunities of the 4.0 industrial revolution. Strengthening macroeconomic stability needs to be carried out simultaneously with restructuring the economy in sectors and fields as recommended by many experts, international and domestic organizations. Continue to promote administrative procedure reform, improve the investment and business environment, create breakthroughs, expand the space for digital economic development on the basis; promote restructuring, improve the operational efficiency of state-owned enterprises and truly turn the private economy into an important driving force in the socialist-oriented market economy in the spirit of Resolution 5 of the 12th Central Committee.

Six is, international integration poses great challenges to macroeconomic stability but is also a good opportunity to innovate policy planning and implementation. We need to mobilize and effectively use technical support, learn from international experience, and enhance the capacity for macroeconomic analysis and forecasting in terms of the overall economy and each sector, field, and locality. The benefits from Free Trade Agreements (FTAs) are huge in theory, but to realize them requires all levels and sectors to have careful preparation and efforts to reform related mechanisms and policies, thereby both ensuring macroeconomic stability against external impacts and pressures, and making good use of opportunities to promote socio-economic development; At the same time, it strengthens the independence, autonomy and resilience of the economy against external shocks. Free trade has contributed to bringing Vietnam's import-export turnover to nearly 425 billion USD in 2017, 4 times higher than 10 years ago when Vietnam joined the WTO and we must take better advantage of opportunities, especially from new generation FTAs ​​in the coming time.

Seven is,Improve the overall quality of policy coordination. Strongly promote the role of ministries, general agencies and sectoral management ministries under the unified direction of the Government and the Prime Minister; building macro policies must ensure the principle of not serving local interests but for the whole. We need to flexibly apply tools, better promote coordination work and have appropriate policy options in 2018, especially in the context of great inflationary pressure due to many causes, including the upward trend in prices of crude oil and some basic commodities in the world market. Only by controlling inflation well can we have the conditions to continue to reduce interest rates and support production and business development. To effectively serve the direction and administration of the Government and all levels and sectors, it is necessary to focus on building a data information system and early warning of macroeconomics at the national level and in key sectors and fields of the economy. At the same time, improve the effectiveness of leadership and direction of the state administrative apparatus, do a good job of preventing corruption and waste, contributing to strengthening the trust of investors, businesses and people.

With many positive signals from both international and domestic sources, the macroeconomic and growth forecast for 2018 continues to change positively. However, we must not be complacent in the context of a rapidly changing, unpredictable situation with many potential risks. Perfecting institutions, maintaining macroeconomic stability, and creating a favorable investment and business environment are important factors in promoting the State's role as a facilitator in developing a socialist-oriented market economy following the Party's innovation policy. Resolutely and persistently maintaining macroeconomic stability, not growing at all costs, is a consistent goal in leadership and management.

“With the constant, adapt to all changes” - we need to flexibly use policy tools to promptly respond to fluctuations in the international and domestic situation to maintain macroeconomic stability. Macroeconomic management is both a science and an art, requiring all levels and sectors to be proactive, flexible, always closely following reality, constantly innovating, contributing significantly to strongly improving the investment and business environment, enhancing competitiveness, and putting our country's economy firmly on the path of rapid and sustainable development.

Nguyen Xuan Phuc
Member of Politburo, Prime Minister