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This document examines vietnam's implementation of stimulus policies in 2009 in response to the global economic crisis. It discusses the rationale behind demand stimulation, the origins of the stimulus ideology, and the practical application of stimulus policies by countries like the us, uk, and china. The document also analyzes the positive and negative impacts of vietnam's first stimulus package, as well as the reasons why the second stimulus package was not implemented. It concludes by highlighting the current situation in vietnam and the key lessons learned from the experience, emphasizing the need for clear policy direction, targeted support, and strict supervision when implementing stimulus measures. Valuable insights into the complexities of economic policymaking during times of crisis and the importance of balancing short-term relief with long-term sustainable growth.
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The years 2008 and 2009 marked a period of unimaginable global economic crisis in modern history. 10,000 billion USD lost, 30 million people lost their jobs, 50 million people returned to poverty line was the price paid for the 2008 crisis. The crisis originated from the financial earthquake in the US, when the market Real estate collapsed, spreading to the global financial system. On September 15, 2008, Lehman Brothers - an investment bank founded in 1844, one of the fives largest financial lending institutions in the United States at that time, declared bankruptcy after the US Government refused to inject relief capital. This was not the first signal foreshadowing an economic crisis considered 'the worst in history', but it was a milestone in the collapse of the US financial industry - also the cause main factor pushing the world economy into a period of terrible crisis. The collapse of banks and financial institutions has spread, pushing the world economy into a series of unforeseen recessions. The crisis situation spread from the US to the globe, affecting not only developed economies but also emerging markets such as China and other regions of the world. The sharp decline in production, unstable financial markets and sudden increases in unemployment have created a major economic and social challenge For the Vietnamese economy: an open economy depends heavily on other economies and depends heavily on direct investment from abroad, so falling into crisis is inevitable. In 2007, Vietnam's growth rate was 8.46%, in 2008 it decreased to 6.31%. Specifically, domestic production wasb stagnant, investment growth is low, consumption shows signs of slowing down, unemployment is increasing rapidly... Faced with this situation, the state must come up with measures to solve it. One is to stimulate demand and have to cope with rising inflation, the other is to do nothing but the wait will be very long and recovery may not happen. And the stimulus policy is assessed quickly and appropriately at the present time. So, with the global economic crisis, why did Vietnam had to implement stimulus policies in 2009? How is that policy different from countries with large economies like the US and China? and why was stimulus package 2 did not implement at that time? All will be clarified by this essay. Table of contents
1.3 Stimulus policy in theory and practice Faced with an important and vital decision such as implementing a huge stimulus package (from 1-5% of GDP) in a short time, it would be imprudent to not clearly define the economic basis, in practice. as well as reasoning, for this action. Although we are in a difficult situation and need strong, quick and wise decisions, it will be very difficult to succeed based purely on experience, and especially on the general trend of governments of major countries such as the bloc of industrialized countries and China. There seems to be a collective sense of insecurity among governments and stimulus policies are constantly being invoked as a lifeline. However, the government's stimulus action always means shifting huge resources in the economy, thus always bringing immediate disturbances as well as long-term consequences. It could be a miraculous surgery that heals the disease, but it could also be a cut that leaves lasting damage to the economy. In the next section we look at the origins of the stimulus ideology, and then look at the reality of current stimulus policies of some major countries in the world. a) The origin of the idea of "stimulating demand" First, perhaps we should take a moment to return to the roots that underlie the principle of stimulus in macroeconomics. The tradition of governments in developed market economy states strongly intervening in the economy, especially in the direction of increasing spending, only began after the Great Depression of 1929-1933. The use of government spending to stimulate the economy stems from two important Keynesian assumptions. First, the recession originated in an economy with excess production capacity. The manifestation of this situation is that inputs for production are not used at full capacity: unemployment in the labor market, neglected machinery in the corporate sector, and surplus goods. The oversupply phenomenon causes prices to tend to decrease in all markets, thus discouraging buyers, and demand is further below actual supply. As a result, the economy is caught in a recession trap from which it cannot escape. Second, the government has the ability to proactively spend all, or even more, of its income. Meanwhile, non-government sectors (households and the private sector) often spend less than their total income because they want to save (marginal propensity to save is greater than zero). Under normal conditions, savings are transferred to the business sector for investment (making up a component of aggregate demand), but during a recession, businesses do not want to invest any more because they are not able to profit. profit. Starting from the first hypothesis, Keynes argued that the economy goes into recession because there is temporarily not enough demand for
excess supply, that is, there is a lack of effective demand. Therefore, the problem will be solved if a large enough effective demand appears. Starting from the second hypothesis, that only the government has the ability to spend aggressively - based on its will - even when the economy is in recession (making other sectors such as the private sector and households The family is completely discouraged and doesn't want to spend. On that basis, Keynes proposed a plan that basically follows the following 6th principle: Transfer purchasing power from the residential and private sectors into the hands of the government to increase effective demand, bringing the economy out of the trap of stagnation due to lack of purchasing power. This basic idea of Keynesian theory has gradually become a guideline for the economic activities of states around the world. Over time, along with a range of other tools, it became the basic means of policy intervention. However, as Milton Friedman observed in 1962 in a classic defense of the market economy, these policies are all oversimplified, arbitrary and abusive, in a version of “crude Keynesian analysis” (Friedman 1962 [2002]: 79), in which government spending is always seen as a means of salvation, without much consideration of the state of the economy in which Then the first hypotheses were established. In fact, increasing spending in the name of rescuing the economy brings many conveniences to the government: expanding its budget and therefore political power; do not have to carry out reforms that are painful for the government itself and the bureaucracy such as institutional and legal reform; popular with the people because it keeps resource prices high (labor wages and interest rates are maintained); and importantly, the economic efficiency of spending is no longer the number one priority, because it is justified mainly by the impact that the demand of that spending package will spread through the digital effect. Keynes's famous cause, not the object being spent on itself. Economic advocates of market efficiency argue that Keynesian policies can ease the pain of a socially deteriorating economy, but at the cost of prolonging economic recovery. international. This argument is also based on the experience of the Great Depression, but interpreted through a different lens. They believe that the Federal Reserve's too-long monetary tightening has kept interest rates at high levels. Second, the huge social relief programs of that time kept wages at a relatively high level, making it very difficult for businesses during the recession to access cheap labor to restore production. Learning from these experiences, modern governments use loose monetary policies and interest rate cuts in anti-recession solution packages. However, social security programs and union strength rarely reduce labor costs significantly. This is a practical trade-off: the pain that is alleviated must be prolonged.
finally the decline in investment demand from the business sector. , as suffering the consequences of all the above factors. _ Therefore, it can be said that we are in a period of recession from aggregate demand, but that is not all. Behind and mixed with that disease, there are many other diseases. Therefore, focusing only on stimulus measures is not enough and can obscure other necessary measures.Therefore, we think we need comprehensive solution packages, of which demand stimulation is only a part. _However, discussion of other solutions is beyond the scope of this discussion, and we hope to discuss them separately in another study. In the next section, we examine the current budget situation to see what size a stimulus package is feasible in Vietnam's actual conditions. In the final section, we attempt to show which parts of the economy should be targeted for a stimulus package, if it is implemented. 1.4 Principles and experiences in stimulating demand in the world It can be said that there is not a specific formula for a stimulus package that applies to all countries in the world, but countries, depending on their circumstances, implement different stimulus packages. For some countries such as the US and the EU, a stimulus package is understood as an economic stimulus package using fiscal measures (including increased government spending and tax cuts) – This is because normally When the economy faces difficulties, these countries often use the economic tool of monetary policy (adjusting lending interest rates, implementing open market operations), and only consider using monetary policy. fiscal policy when monetary policy seems no longer effective, or impossible to implement (for example, when interest rates have fallen very low). But for some other countries, the stimulus package is implemented simultaneously with monetary policy like some other policies. In the case of Vietnam, and in this article, although we have mentioned the use of monetary policy in several places, we basically limit the scope of research to the stimulus package (cutting reduce taxes, increase government spending). II. Why did the Vietnamese government have to implement the size policy in 2009?
II.1 The world economic crisis and its effects on the Vietnamese economy II.1.1. World economy The real estate market crash in 2008 stemmed from a complex chain of factors and its widespread impact on the global economy. First, the US real estate market has gone through a period of unsustainable growth for many years. Housing prices rose disproportionately, stimulating home buying and borrowing. However, the rationale for this price increase is not supported by actual demand or sustainable economic growth. The home loan model leads to lending without proof of income or upfront payment, contributing to creating a "hot" real estate market with rising and unstable housing prices. Homebuyers purchased under loan without ensuring their financial capacity to maintain repayment within the term. But as housing prices continue to rise and loans become more complex, many borrowers are unable to repay their loans, leading to bankruptcies, loss of homes, and increased foreclosures. This decline spread from low-income homebuyers to more senior borrowers. This causes a wave of collapse in the real estate market, reducing housing prices and hindering loan payments. The decline of the US real estate market has spread to the global financial system through complex financial products such as CDOs (Collateralized Debt Obligations), MBSs (Mortgage-Backed Securities - Securities secured by debt) and derivative contracts. CDO, or Collateralized Debt Obligations, is a type of financial product created from packaging different loans and debt to form a complex financial product. This is a way to redistribute risk in the hope of enhancing liquidity and attract investors. CDOs are classified by risk level, with bond classes having different risk levels based on the ranking of the debt in the packaged package. However, the impact of CDO was not as expected. As the US real estate market began to decline and the number of defaulters increased, the value of the loans inside the CDO plummeted. This caused a significant decline in the value of CDOs, causing the financial institutions that owned them to record large losses. Many financial institutions of developed countries, especially those in Europe, also participate in the secondary housing credit market in the United States. When the value of CDOs declines, they are forced to absorb unforeseen losses, causing capital problems and major financial risks for them. Large financial institutions
financial crisis is that banks face reduced credit supply due to the deterioration of the global financial system. This can lead to a reduction in loan capital, slow down the economic growth process and affect the business activities of businesses, especially real estate businesses. The instability of global financial markets has created major fluctuations in the assessment of financial risks for banks. This could lead to increased supervision and control of financial risks, as well as increased capital costs for banks. Businesses and people have difficulty repaying debt due to the economic slowdown, leading to increased bad debt in the banking system. These things make banks worry about having enough money to continue operating and providing financial services to everyone. Impact on foreign investment capital With the crisis situation, mobilizing capital for the economy is no longer as favorable as before. Foreign direct investment (FDI) and official development assistance (ODA) will slow down.. This affects the construction of new factories, expansion of production, or investment in large projects. But why is that so? When a crisis occurs, people are often very worried about risks. Investors are no different, they do not want to invest money in what they think is high risk. They fear that doing business in Vietnam during this difficult time may not be as profitable as expected or may have difficulty repaying debt. In most investment projects in general and FDI in particular, loan capital often accounts for a large proportion of the total investment capital, so when financial institutions and banks encounter difficulties, many loan contracts will cannot be signed or cannot be disbursed. Ongoing FDI projects may slow down as investors have to rebalance their capital capacity and ensure financial safety during this crisis. Newly licensed FDI projects will face difficulties if investors are greatly hurt by the crisis. If in 2008 Vietnam attracted nearly 63 billion USD of foreign direct investment (registered capital), disbursed 12 billion USD, then in 2009 the situation of attracting FDI has become more difficult, with many projects Registered capital of tens of billions of dollars, foreign investors have asked to withdraw... In the first 5 months of 2009, FDI capital only reached 6.3 billion USD. Impact on real estate and stock markets
During these difficult times, many people have to cut back on daily spending. They focus on basic and essential needs rather than consuming unimportant products and services. Businesses operating in the goods and service sectors face difficulties, because there are not enough consumers to buy their products or use their services. Commodity markets, such as raw materials for production and consumer goods, were also heavily affected. Reduced demand, leading to reduced production and imports. Enterprises producing and trading goods must reduce output or partially stop operations to adapt to a less vibrant market. Services such as travel, entertainment, and technology are also affected. Tourism has declined as people cut back on travel and entertainment to save costs. New technologies may fall out of favor as consumers focus on saving and holding on to profits during these difficult times. Faced with this situation, the Government must take measures to resolve it. One is demand stimulation and facing rising inflation, the other is to do nothing but the wait for recovery will be very long which probably won't happen. Stimulus policies are evaluated quickly and are most suitable current time. And the measure has had a positive impact on the country's economy II.2 Vietnam's stimulus policy and its impacts during the period of 2009 II.2.1. Introducing Vietnam's stimulus policy On May 12, 2009, the Ministry of Planning and Investment officially announced the Government's stimulus package worth 143,000 billion VND (equivalent to 8 billion USD), later increased to 160 trillion VND (equivalent to 9 billion USD). Accordingly, the stimulus package equivalent to 8 billion USD is divided into 8 parts with different values. Specifically, parts of this stimulus package include:
rate support of 4%year from the State for a maximum period of time. 24 months, with total support interest of 20,000 billion VND. This interest rate support is implemented from April 1, 2009 to December 31, 2011. -The Government exempted, reduced, extended a number of taxes, and extended the deadline for payment of import and export taxes, estimated at about VND 28,000 billion to stimulate demand thanks to the implementation of tax reduction policies. Reduce 50% of value added tax (VAT) for 19 groups of domestic consumption products (Decision 16/2009/QD-TTg) and postpone personal income tax collection in the first 5 months of 2009....
One , the goals and direction of the demand stimulation policy are unclear, there is no distinction between the concepts of demand stimulation and supply stimulation or rescue... The proposed policies are all put under the name of demand stimulation while having real impacts. Its economy does not necessarily increase aggregate demand of the economy. Second , the interest rate support package has some potential limitations that can be seen, specifically: this policy does not reach those who need support, and may even support the wrong people due to imbalances. information asymmetry between the State Bank and commercial banks and between commercial banks and businesses, leading to many businesses not enjoying support policies from the State. The impact of the interest rate support policy on organizations and individuals borrowing medium and long-term capital to make new investments to develop production and business is also very limited. Third , with the loan interest rate support of 4%/year being quite large, beneficiaries in many fields and economic sectors, if prolonged, will develop a mentality of dependence on state support, reducing business competitiveness. The 4% interest rate support policy can create inequality and unfair competition among businesses due to the uneven ability of businesses to access interest-supported capital. Four , the 4% interest rate support package can lead to a decline in the competitiveness of Vietnamese businesses because capital costs are not calculated correctly and fully. Five , the stimulus package does not fully meet 3 requirements: timely, right target and sufficient (short term). Although the stimulus package was promptly introduced by the government, implementation was still slow due to administrative procedure issues. Slow implementation of the stimulus package may reduce the effectiveness of the stimulus package. On the other hand, maintaining the stimulus package in the long term can weaken the competitiveness of the economy. Sixth , the entire process of inspection, supervision, monitoring and evaluation of the implementation of stimulus solutions has not been designed and operated in a synchronous manner. Due to the lack of strict supervision, profiteering acts can occur right at financial institutions. Seventh , demand stimulation policies do not directly help solve the biggest difficulty facing businesses today, which is lack of market demand. Due to the
impact of the global financial crisis, the world economy is in recession, sharply reducing demand for exports. Purchasing power is decreasing, domestic consumption is declining, and manufactured goods are backlogged. Eighth , the amount of money supplied into circulation creates a potential risk of high inflation. With the implementation of many support mechanisms along with loosening monetary policies, the amount of money supplied to the economy has increased at a high level, causing great pressure to increase inflation. III. Compare the stimulus ploicies of Viet Nam, China and the US China and the US always maintain different directions in implementing policies. Economically, China places a strong emphasis on saving, while the United States places a high priority on consumption. The setting between these two countries can be for example the intertwining of yin and yang in Eastern learning From September 2008 until now, the two countries' economies have had to cope with many difficulties and levels, military leaders have had to come up with coping methods to minimize damage caused by the global crisis. bring. And of course the two countries' dialogue methods are not the same. China's economic stimulus package mainly won investment in infrastructure construction, while the US used a large part of the capital in the economic stimulus package for biological, insurance, and social work.. According to researchers, if the US reduces consumption, increases savings, and increases investment like China; If China increases use and reduces savings like the US, the chance of success may be greater III.1. US economic stimulus policy: 1st package (by President Bush February 2008) The US economy since the end of 2007 has shown signs of recession, and it is predicted that 2008 will be an extremely difficult year for the US, and reality shows that the US has fallen into a state of crisis.. In early 2008, the Bush government launched a stimulus package worth $152 billion with the following highlights: Contents of stimulus package 1:
people and businesses. But it can be seen that they also help businesses reap benefits much faster. They will not have to spend a lot of time and money investing in infrastructure before going into production For the Vietnamese economy, trade is severely affected, especially Vietnam is greatly affected by the amount of foreign exports; Investment capital sources in Vietnam decreased sharply; Domestic consumption demand is not positive. Therefore, the government has chosen the factor of maintaining operations, the policy to support reducing bank interest rates is the most optimal to help businesses maintain operations. This reduces the risk of business bankruptcy and worker unemployment Meanwhile, Vietnam's stimulus model is heavily influenced by foreign aggregate demand packages, which depend heavily on exports. In fact, domestic consumption demand is not positive, so the Government has chosen the factor of maintaining operations, the policy of supporting and reducing bank interest rates is the most optimal. This also minimizes the risk of bankruptcy and unemployment for workers. By comparing the stimulus policies of Vietnam, China and the US, we can fully see the importance of the stimulus packages chosen by the state. If you don't make the right choice, promoting the economy will be extremely difficult. IV. Why doesn't Vietnam implement the second stimulus package? To answer the question: "Why doesn't Vietnam implement the second stimulus package", we need to pay attention to the following issues: First, the trend of declining growth and macroeconomic instability of Vietnam. Vietnam was exposed before the crisis really impacted the economy. Thus, the difficult situation of the economy in 2009 is rooted in internal weakness and not mainly from negative external impacts. This crisis only worsens the already serious situation caused by existing internal structural weaknesses. Second, reality shows that under the strong impact of the crisis, the growth decline did not last long and was not too serious, the recovery came quickly, even before the stimulus packages were actually deployed.