Economic forecasts: dangers come from false figures

14:48' 17/04/2008 (GMT+7)
VietNamNet Bridge – Foreign experts all said that Vietnam’s economic information syste remains very weak. In all reports about ASEAN economies, the columns for Vietnam’s indices are always left blank because there is no updated information.
The Ministry of Planning and Investment (MPI) announced the total disbursed volume foreign direct investment (FDI) capital in 2007 at $8bil
Two months ago, the Ministry of Planning and Investment (MPI) announced the total disbursed volume foreign direct investment (FDI) capital in 2007 at $4.6bil, and the figure has been used by the State Bank of Vietnam for setting up macroeconomic management policies.
However, the ministry later released another figure of the FDI disbursed capital in 2007, at $8bil, or $4bil higher than the previously announced level. The huge gap between the two figures has put State Bank’s policy makers into the dilemma as they don’t know how to deal with the foreign exchange policy.
It is clear that the two figures will lead to two different foreign exchange rate scenarios. If the disbursed volume was $4.6bil, while the trade deficit reached $14bil, the situation would be worrying as Vietnam may lack foreign currencies as the dollars it spent were more than the dollars it received.
If the disbursed volume was $8bil, the situation would be better, as the $14bil worth of trade deficit could be offset by other foreign currency sources: $6bil worth of overseas remittance and $8bil worth of FDI disbursement. Meanwhile, the foreign portfolio investment can be seen as the surplus capital which can support the payment balance.
The figure of $4.6bil worth of FDI disbursement initially released by MPI actually raised the worry about the big trade deficit. The foreign currencies obtained from exports cannot offset the big volume of foreign currencies paid for imports. Meanwhile, the deficit cannot be covered by overseas remittance and FDI disbursement. In fact, the foreign portfolio investment can help ease the foreign currency shortage, if it occurs. However, portfolio investment should be seen as the short term investment capital, which inflows to Vietnam today, and may flow out tomorrow.
In this case, the State Bank of Vietnam did not have any better choice than to make up trade deficits by controlling imports and adjusting exchange rates. The foreign exchange policy of the State Bank should be built up in a way that stimulates exports and limits imports, in order to get more foreign currencies and reduce spending foreign currencies.
However, the MPI finally released another figure of FDI disbursement, $8bil. An official from the State Bank said that with such a high disbursement rate, the trade deficit would not be the urgent problem any more. This also means that the foreign exchange policy can be amended to stimulate exports and reduce the difficulties of importers as well
As such, the wrong figure led to the wrong prescription and overdose.
It is easy to change the statistics, but it is not so easy to settle the problems caused by the different figures.
Foreign experts all said that Vietnam’s economic information system in Vietnam remains very weak. In all reports about ASEAN economies, the columns for Vietnam’s indices are always left blank because there is no updated information. However, Vietnamese ministries and branches seem to pay inappropriate attention to forecasts. Weak forecasting certainly led to wrong policies, which may harm the national economy.