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Ireland shares experience with public debt crisis

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HCM CITY — Irish economic experts spoke about their country's public debt crisis and experiences during the EU/IMF bailout to Vietnamese experts and businesspeople during a seminar yesterday in HCM City.

"What happened was not unique to Ireland and merited greater examination from different perspectives, including the perspective of an emerging economy, such as Viet Nam," said Maeve Collins, Irelands' Ambassador to Viet Nam.

Speaking at the "Ireland – Southeast Asia Business" seminar in HCM City, she said that it was hard to explain how such a small and relatively prosperous country was in "the Viet Nam News every morning and on CNN every night and how we could suddenly have such a potentially dramatically destabilising effect on the entire Eurozone."

Dr. David Duffy from the Irish Economic and Social Research Institute said that important priorities for the country were to restore order to public finances in balance with economic growth, deal with high unemployment levels, restructure the banking system, and drive export growth but also build for strong domestic demand.

He said there was a cost to the recession with permanent loss of output, lower potential output growth in the future, and higher emigration.

"We had to take severe fiscal action, such as eliminating the deficit, but too slow an adjustment was not an option, and it highlighted the cost of past policy mistakes," he added.

The economy can return to growth as the world recovery continues and the export sector responds to world demand and competitiveness. The labour market will become more flexible and competitiveness will be restored.

The banking system will finally be sorted out and there will be no more shocks, Duffy said.

"Long-term damage is likely to be significant because of lower capital stock and higher debt. However, recovery could see rapid growth but would not restore all losses and the higher cost of capital would have long-term effects," Duffy said.

The expert stressed that public finance constraint means domestic policy options are limited, and there was no scope for a fiscal stimulus.

"Fiscal policy should address past failures and restore a sustainable path, move towards a stable tax base, and not rely solely on cyclical factors. Government fiscal policy needs to become counter-cyclical," he said.

In response, senior Vietnamese economist, Dr. Le Dang Doanh spoke about the lessons learned from the public debt crisis in Europe.

"Overly high budget spending leads to high budget deficits, easy borrowing abroad, inefficient public investment, declining tourism and painful measures for workers and the poorest people," he said.

Viet Nam has a budget deficit of around 6 per cent of GDP and Government debt that is 53 per cent of GDP.

Doanh asked for more reforms from the Government, especially more transparency in the state budget and in small – and medium-sized enterprises.

"Anti-corruption measures must be implemented rigorously and efficiently in all public investment projects, land licenses and mineral exploitations," he added.

Other urgent tasks include tightening of monetary and fiscal policy, efficiency instead of high growth rate and more attention to the social safety net and health care.

Noting the Government's battle against inflation, Dr Le Xuan Nghia, vice chairman of the National Financial Supervisory Commission, outlined what Viet Nam had done.

"This year, we will cut public spending by around US$4.5 billion, reduce public investment from 44 per cent to 37 per cent, decrease the rate of money supply less than 13 per cent from last year's 28 per cent, and increase monetary tightening by degrading credit growth only 19 per cent in comparison with 31 per cent last year," Nghia said.

In addition, the Government will apply a ceiling interest rate of 14 per cent annum, refinance interest increased from 9 per cent per annum to 14 per cent per annum, control of credit limit, credit for real estate and prices, particularly petrol and food.

Nghia also announced that the Government was battling dollarisation until 2013. — VNS

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