Page last updated at 08:50 Asia/Manila, Wednesday, 02 July 2014 PH
Watchers of emerging markets may be jumping too quickly to the conclusion that the luster in the stars of BRICS (Brazil, Russia, India, China and South Africa) is gone definitively because of slowdown in their GDP growth and increasing trade and fiscal deficits. Some of these original EAGLES (Emerging and Growth Leading Economies) are now being grouped under such unflattering clubs as the "Fragile Five" or the "Failing Four." Should we also conclude that the former attractiveness of the VIP countries (Vietnam, Indonesia, Philippines) has disappeared with the recent crisis of emerging markets? The answer is obviously NO for the Philippines that is the fastest growing economy in East Asia after China. After my recent visit to Vietnam, I can also say that Vietnam continues to be a very attractive country for long-term investments.
In a dialogue that a team from the University of Asia and the Pacific had with the faculty of economics and management of the College of Foreign Economic Relations in Ho Chi Minh City, I saw at close range how Vietnam is meeting the challenge of overcoming short-term problems of fiscal and monetary management. The professors we talked to were proudly showing us how Vietnam has tamed its inflation to less than 5% after suffering rates as high as 25% just three to four years ago. Vietnamese technocrats are learning from other countries in the ASEAN in the practice of inflation targeting and prudent fiscal management.
I confirmed what I had read before the trip to Vietnam in Asianomics in an article written by Anantha Nageswaran and Michael Charnock. They reported that high inflation is no longer an impediment to policy easing. The data presented are a "mixed bag" but the general tone is that the Vietnamese economy is out of the woods and positioning itself for long-term growth on the basis of a highly productive agricultural sector (e.g. rice, coffee, and fisheries) and massive investments in infrastructure (in fact, some Philippines-based firms are investing in toll roads, water and power plants). As the report goes: "The data are a mixed bag. The trade balance swung to a deficit of US550 million from a surplus of US1.827 billion in January 2014. Of course, the data are not seasonally adjusted. Therefore, it is pertinent to note that the trade surplus in the first two months of 2014 registered an impressive growth of 37% YoY. CPI inflation slowed to a low of 4.4%. In fact, MoM the consumer price index registered a small contraction of 0.4%. Consumer price inflation is heading lower and almost all the components of the consumption basket show a declining trend."
I talked to some business people in consumer products and services as well as tourism and there is a general mood of optimism. Thanks to the improving incomes of farmers and higher wages for industrial workers, consumption is becoming a main engine of growth. As the Asianomics report indicated: "Retail sales data show that economic activity is reasonably brisk but not necessarily overheating. Tourism has bounced higher strongly in the first two months of 2014. Of course, seasonally it is a good time to visit the country as the weather is not too hot. Further, political unrest in Thailand might have also diverted some tourists to other Southeast Asian nations. Vietnam could have been one of the beneficiaries." (Coincidentally, at the same time of my visit to COFER, some close relatives of mine were actually in Ho Chi Minh as tourists. Filipinos are discovering the country for its tourist destinations. I suggested to the travel agents in Ho Chi Minh to partner with Philippine travel agents to package a ten-day tour of both Vietnam and the Philippines for Chinese, Korean and Japanese tourists. The two countries have complementary tourist attractions.
Given more prudent monetary and fiscal policies, Vietnam will be increasingly attractive to investors in infrastructures, housing, tourism, consumer-oriented industries and education. I was very impressed with the way the education officials we met are determined to follow the example given by South Korea on how to avoid the middle-income trap. I am referring to a single-minded focus on improving the quality of education at all levels. They are sparing no efforts in learning from other countries on how to improve the quality of their higher education. They are identifying Philippine colleges and universities as partners especially in the important task of improving the English skills of their university students. With the advances they have made in enhancing their agricultural productivity (Vietnam is now one of the largest exporters of rice and coffee to the rest of the world), the Vietnamese are well positioned to take advantage of the massive increases of food imports that countries like China and other Northeast Asian countries will need to feed their large and increasingly affluent populations. I am convinced that a close partnership between the Philippines and Vietnam will result in many win-win situations in such strategic areas as education, tourism, infrastructure, housing, and agribusiness. I encourage Philippine business people to travel more often to this country that has shown admirable courage and determination to overcome some of the most difficult obstacles in their history. For comments, my email address is firstname.lastname@example.org.