Group Assignment - FIN201

Deadline: 31
st
July, 2014

Group assignment
Macroeconomics
Monetary Economics and Global
Economy - FIN201

SB0802 class
Group members:
Nguyn c Bo
Nguyn c Pht
Nguyn Khc Duy
Lecturer: m Nguyn Anh Khoa
Email: khoadam07@gmail.com
Requirement: Find an article (one article ONLY) in a recent newspaper or
magazine (dated year 2011 or 2012) that illustrates one macroeconomic issue
in VIETNAM. Read and understand the article, then answer the following
questions based on the article.

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Group assignment FPT University
Present: 1
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August, 2014 SB0802 - summer 2014
Table of Contents
Introduction .......................................................................... 3
Situation of Vietnams economy in 2014 ................................................................... 3
Summarize the article: ................................................................................................ 4
Definition and clarifying ...................................................... 5
Gross domestic product - GDP ................................................................................... 5
Purchasing power parity - PPP ................................................................................... 5
Consumer Price Index CPI ...................................................................................... 5
Macroeconomic issues .......................................................... 5
GDP the virtual configures (unreal) ........................................................................ 6
Advantages ............................................................................................................. 7
Disadvantages ......................................................................................................... 7
Southeast Asian region ........................................................................................... 7
CPI .............................................................................................................................. 8
Disadvantages ......................................................................................................... 8
Advantages ............................................................................................................. 9
Conclusion and Recommendation ....................................... 9
Conclusion .................................................................................................................. 9
Recommendation: ....................................................................................................... 9
GDP and Unemployment ....................................................................................... 9
GDP and Inflation ................................................................................................. 10
Relationship between GDP, Consumption, saving and investment ..................... 10
Appendices .......................................................................... 13
Reference ............................................................................. 13

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Introduction
Situation of Vietnams economy in 2014
With the goals of improving living standards and encouraging foreign investment through more
open economic policies, a renewed period of economic reform began in 1986. The initial steps of
economic reform ("doi moi") had been gradual. But during the 1990s, enhanced institutional
support and steadily improving infrastructure made Viet Nam's growth rate one of the highest in
the region. This growth brought impressive gains in incomes and in the quality of life of the
Vietnamese people.
The investment-led growth of the mid-1990s began to tail off even before the Asian financial
crisis dealt a further blow. Investor expectations were not being met, and many projects suffered
from excessive bureaucratic interference. However, the cautious economic policies of the
government enabled the economy to avoid the serious balance of payments, fiscal, and banking
crises common elsewhere in the region.
In recent times, the Government has had to focus its policy efforts on avoiding a macroeconomic
crisis; however, with inflation likely to have peaked and the merchandise trade deficit having
eased back, there are now concerns that policymakers will become complacent, with the
governments potentially shifting its focus back to boosting growth rather than stabilizing the
economy.
The government has started to heed the calls of donor governments and investors for greater
transparency, reform of the SOE, financial and trading sectors, and improved public sector
governance. Implementation has been slow, however, and Viet Nam retains a strong commitment
to state enterprise and outmoded financial and trade regimes. Reforms and restructuring have
reduced the numbers of state owned firms to around 6,000, but despite preferential access to credit
through the state banking sector, these enterprises are not growing strongly enough to absorb the
growing numbers of unemployed.
Viet Nam's growth over the medium term depends on whether it becomes a truly multi-sector
economy in which private businesses are able to grow and compete in an undistorted environment
with the same freedoms as state enterprises. In 2007, FDI inflows exceeded government's
expectations and credit growth rose by approximately 50 percent. However, forecasts for growth
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are being scaled down in light of rising inflation and other signs the Vietnamese economy is
overheating.

Summarize the article:
This website had a great question about the development of Vietnams Economy, which
usually be confused about its speed: starting with the lower position within the highly investment
from foreigners while compare with other countries in South East Asia, why our economy rises
slightly like that? Secondly, is this development stable and unshakeable ?
Many data are presented, and the website made some analysis and also estimations about
GDP, ICOR, CPI, inflation to indicate out how and why Vietnam had those numbers. Beside of
that, the page not only point the data but also use it to provide some solutions for this situation of
our economy.

Date of Article: 21/2/2008
Source of Article: Economist Intelligent Unit, Taiwans WB, WDI.

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Definition and clarifying
Gross domestic product - GDP
GDP (gross domestic product) is the market value of final goods and services newly
produced within a nation during a fixed period of time.
Equation: Y = C + I + G + NX
C: consumption
I: investment
G: government purchases of goods and services
NX: net export (NX = export import)
Purchasing power parity - PPP
An economic theory that estimates the amount of adjustment needed on the exchange
rate between countries in order for the exchange to be equivalent to each currencys
purchasing power. It means real exchange rate equal to 1.
Consumer Price Index CPI
A measure that examines the weighted average of prices of a basket of consumer
goods and services, such as transportation, food and medical care. The CPI is
calculated by taking price changes for each item in the predetermined basket of goods
and averaging them; the goods are weighted according to their importance. Changes in
CPI are used to assess price changes associated with the cost of living.
Macroeconomic issues
Viet Nam GDP growth is on medium and low growth group. Compared to other
countries in South East region, Viet Nam is lower almost other countries except some
underdeveloped nations as: Laos, Cambodia while Viet Nam is a country have the
second highest inflation level in the world (after Venezuela) (2011).
High inflation and low GDP is signs which show that Viet Nam is a less developed
country.
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GDP the virtual configures (unreal)
Much of any country's economic well-being flows from natural, rather than human-
made, assets land, rivers and oceans, natural resources (such as oil and timber), and
indeed the air that everyone breathes. Ideally, for the purposes of economic and
environmental planning, the use and misuse of natural resources and the environment
should be appropriately measured in the national income accounts. Unfortunately,
they are not. There are at least two important conceptual problems with the way the
national income accounts currently handle the economic use of natural resources and
the environment. (1. Natural resource depletion and 2. The costs and benefits of
pollution control) [Ref1]

Viet Nam is a country which develop rely on natural resource primarily.
In Viet Nam, the government claim that mineral and rsesource mining is a key (major,
pioneer) industry, accounted for high GDP proportion and it is also an industry which
affect to environment and social strongly.
Vietnam has more than 5000 mines with about 60 different types of minerals. Mineral
resources of Vietnam relative abundance and diversity of species, including the group
of fuel minerals (oil, coal); group of iron minerals and iron alloys (iron, chromite,
titanium, manganese); ferrous metals group minerals (bauxite, tin, copper, lead-zinc,
antimony, molybdenum); group of wealth mineral (gold, precious stones); Mineral
group of industrial chemicals (apatite, kaolin, glass sand); mineral group of
construction materials (cement, limestone, building stone, paving stone).
The rate of mineral exports in Vietnam is relatively high. For only the first 7 months
of 2013, exports of ores and minerals growth in both volume and value, we compared
to the same period last year, increased by 100.86% and 3.11% is equivalent to 1.4
million tones valued at $ 140.5 million. In particular, China is the main export
market, accounting for 91.2% of ores and minerals, with 1.2 million tons, valued at
101.7 million, an increase of 129.29% in volume and 28.6 % in value over the same
period in 2012. Next to the Japanese market, with 20.7 thousand tons valued at $ 12.1
million, down 17.88% and 36.85% decrease in value. The third major export markets
are Malaysia was with 15.9 thousand tons valued at $ 4.3 million, an increase of
61.97% and 31.59% increase in value over the same period. [ref2]
These data show that mineral mining industry of Vietnam is on track to strong growth
and a large proportion of the national economy. Its about 10-11% GDP of Viet Nam.
We have not mentioned to fuel group yet. In particularly, export value of fuels
accounted for 18-22% GDP of Viet Nam.
That are only statistic figures and no one know about real figures how it is high.
We can confirmed that least 1/3 Viet Nam GDP is from the exploitation.
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Advantages
From the above analyzes, GDP expresses excessively the wealth creating ability and
competitiveness. It makes foreign investors misidentify about Viet Nam. Generally,
Viet Nam will be received more investment (ODA, FDI...) than we expected.
Secondly, high GDP figure makes people improve awareness about their
achievements and patriotism. It also improve mental and performance in their work.

Disadvantages
GDP cannot express Viet Nam growth ability exactly. It can be an error for investors
and make many investments become the mistakes. Furthermore, the wrong
investments can causes the bad debts in commercial banks one of the crisis causes.
From the beautiful figures, Viet Nam hard to find how to create wealth and develop. A
country which lean to minerals and resources so much, do not have a stable economic
platform in the present, so a bright future of the economy is unrealistic.
Southeast Asian region
Overall, Viet Nam GDP (PPP) is quite low and ranking 5
th
in ASEAN (2010). In the
present, it seems we are at 6
th
ASEAN (Singapore is 5
th
).

We consider GDP per capita of Viet Nam, Viet Nam GDP is only equal 1/17
Singapore while Singapore area is equal a city of Viet Nam. What a disappointing
figure!
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CPI
In the article, there is an issue in recent years: CPI inflation.
Although growth speed does not have a significantly changing, CPI increase strongly
year by year. 3-4% early years 2000s up to 12.6% in 2007 and 18.12% in 2011.
We back to the fuel industry. Petrol and gasoline are skyrocketing, two petrol litter
value is higher than a minimum wage day (1,350,000VND/month -> 45,000
VND/day). This is also a main cause high CPI inflation.
Disadvantages
Firstly, The CPI increasing is an inflation tax which reduces life of people,
especially the people has been retired and had a fixed salary.
Secondly, the inflation is higher than saving rate (real rate is negative), so money flow
in the economy are running to other investment channels as: securities and real estate.

More details: [ref3]
There are 7 important investment channels.
1. Produces
2. Services
3. Securities
4. Debit in bank
5. Foreign currency
6. Gold
7. Real estate
In Viet Nam, (1) is not encouraged so (3) is not attractive; because of high inflation,
(4) is not a good choice. Money flow will run to (7) because real estate have high
profit and low tax, but disadvantage of (7) cannot be splited into the smaller pieces.
People will invest to remain channels as (5) & (6). (5) is limited by anti-dollarization
policy, (6) is monopoly by the state (SJC). So people invest to (7) because of no more
other choices.
This is an unstable point in the economy which cause real estate bubble and bad debt.
Lastly, outstanding loan ratio of real estate is quite high (10%) and almost loans are
mortgaged by real estate. In the present, the real estate bubble has been broken and
Viet Nam economy is in difficult stage. Bank system are threatened seriously.
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Advantages
Businesses can take a bit disadvantages if theyre contracting with governments, but
consider wage contracts when the employers worked at a factory, their contracts
with factory are usually signed in long-run, so if CPI inflation increases, firms and
businesses are the beneficiaries. That means that the business could negotiate
contracts throughout the year for supplies and sales, but its real wage expenses
actually fell.
Conclusion and Recommendation
Conclusion

Vietnam is a developing economy in the Southeast Asia. In recent years, the nation has been
rising as a leading agricultural exporter and an attractive foreign investment destination.
Vietnam's key products are: rice, cashew nuts, black pepper, coffee, tea, fishery products and
rubber. Manufacturing, information technology and high-tech industries constitute a fast
growing part of the economy. Vietnam is also one of the largest oil producers in the region.
Viet Nam have many human resources, while Viet Nam has not yet taken advantages of
available resources. Viet Nam need more good and clean-handed policymakers to develop
and build a stable platform for the economy.
Recommendation:
GDP and Unemployment
The relationship between unemployment and GDP is called Okun's law. It is the association
of a higher national economic output with the decrease in national unemployment. This is
because in order to increase the economic output of a country, people will need to go back to
work, thus lowering unemployment. Empirical studies on the relationship between GDP and
unemployment show that for every percentage point fall in the unemployment rate there is an
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increase in GDP by 2.5 percent. Experts believe that the reason for this large coefficient is
because the unemployment rate does not count discourages workers who obtain a job before
they are counted in the unemployment numbers. Another reason is when economic output
increases firms typically don't hire new workers but have their current workers work for
longer hours. Also some industries have increasing returns to scale where increasing the labor
force has a multiplicative effect on their output.
GDP and Inflation
GDP and inflation are both considered important economic indicators. It is widely believed
that there is a relationship between the two. The problem is that there are disagreements as to
what that relationship is or how it operates. As a result, when governments make decisions
based on these pieces of information, the outcome often cannot be guaranteed.
How to Grow the Economy without Growing Inflation. Simply put, however, it is possible to
grow the economy without any drastic manipulation of the money supply. Supply-side
factors may stimulate output independent of aggregate demand through:

- Increases in labor productivity (output per worker), through investments in
education, capital goods and technological advances.
- Shifts in investment as a result of lower prices for capital and higher expected
future returns.
- Increases in globalization and free trade, which makes imports more
affordable while increasing the demand for U.S. exports.
- Cutting taxes on capital investment, which stimulates job creation.
Relationship between GDP, Consumption, saving and
investment
One of the points that emerges from the discussion in our program 'The Paradox of Thrift' is
that while saving is undeniably an important part of the economic process that gives rise to
new investment and economic growth, the precise relationships between saving and
investment is somewhat complex. This helps to explain why there are differences prediction
as to what is a satisfactory national saving rate.
Here we try to unravel the elements of the puzzle, and to clarify some of the macroeconomic
issues that underlie the saving debate.
The Components of Saving
On this basis, then, we can represent the (real) GDP for any period as a sum of these
components:

(1) GDP = C + I + G + NX
The process of production generates not only a flow of outputs of goods, but also a flow of
incomes to those participating in the process. Since, in general, every dollar of production
generates a dollar of income, it follows that the real GDP of a country reflects a
corresponding flow of aggregate real income in that country.
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Thus aggregate output and income are essentially equivalent measures of aggregate economic
activity. Leaving aside some refinement of detail associated with international transactions,
all of the income generated in any period is attributable to the household sector, since the
owners of firms (whose income takes the form of profits) are of course themselves also part
of that sector.

The incomes received by households may be deal into the part that they spend on
consumption goods, the part that they save, and the part that they are required to pay in taxes.
Thus aggregate income may be represented as a sum of consumption (C), saving (S) and
taxation (T). Bearing in mind that we can represent aggregate income by GDP, we can
summary the components of income as:

(2) GDP = C + S + T
Now we may combine our definitions of aggregate output and aggregate income in equations
(1) and (2), to get:

(3) C + I + G + NX = C + S + T
This may be rearranged as:

(4) I = S - (G - T) - NX
This important national accounting relationship gives us the key to much of the discussion in
'The Paradox of Thrift' concerning the macroeconomic significance of the national saving
rate. For it defines, in the three terms on the right hand side, the sources of saving from which
aggregate investment can be financed.

The first is domestic private sector saving, S (that is, saving by households and business
enterprises). The second is public sector saving, represented by the government budget
deficit, or the difference between government expenditure and tax revenue, (G-T).

The third source of saving is the foreign sector. By the logic of our international economic
relationships any net borrowing from the rest of the world implies a corresponding current
account deficit. Thus our use of foreign saving is represented here by net exports, NX. It is
important to note that, in principle, any of these saving flows may be positive, zero, or
negative.
Saving, Investment and Foreign Debt
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It is clear now that some of the confusion about the relationship between saving and
investment derives from the fact that there are several kinds of saving to be taken into
account. Total saving is made up of a domestic component and an international component,
either of which may be positive, zero or negative. Domestic, or national, saving comprises the
saving of the private sector, S, and the saving of the government sector (G-T).

If the government sector is in deficit, as in Australia it typically has been over the period
since the second World War, then the government is dissaving and contributing negatively to
aggregate domestic saving. We can see then that under those conditions if indeed the national
saving rate is thought to be too low, the government itself must share the responsibility for
this, and any attempt to correct the problem can have important budgetary implications.

Recognition of this point has been implicit in the widely-public strategy of the current
government to transform the Federal Budget from deficit to surplus. It also helps to explain
the Labor government's flirtation with surplus budgeting in the late 1980s and early 1990s.

As noted earlier, our reliance or otherwise on foreign saving is reflected in net exports. If NX
is negative, indicating a current account deficit, then foreign lenders are contributing to the
flow of saving available to sustain our domestic investment, thereby enabling us to spend in
excess of our income. This has been chronically the situation for Australia for some decades,
and is a point of some concern for Dr. Fitzgerald in 'The Paradox of Thrift'.
So the key underlying macroeconomic issue in the saving debate is not whether it is possible
for investment to proceed in the face of a relatively low rate of national saving, but whether it
is desirable (or even feasible), on a long term basis, to cover a shortfall between national
saving and national investment by drawing on the saving of foreigners. Our views on this
issue will be colored by a number of considerations, including whether it is the public or the
private sector that is accumulating the foreign debt, whether the investment projects are
economically and socially viable, and whether we think heavy reliance on foreign lending
makes us unduly vulnerable to global volatility.

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Appendices
[ref2](gdmv.gov.vn) T l xut khu khong sn Vit Nam tng i cao. Tnh
ring 7 thng u nm 2013, xut khu qung v khong sn tng trng c v lng
v tr gi so vi cng k nm trc, tng ln lt 100,86% v tng 3,11% tng
ng vi 1,4 triu tn, tr gi 140,5 triu USD. Trong , Trung Quc l th trng
xut khu chnh, chim 91,2% lng qung v khong sn, vi 1,2 triu tn, tr gi
101,7 triu USD, tng 129,29% v lng v tng 28,6% v tr gi so vi cng k nm
2012. K n l th trng Nht Bn, vi 20,7 nghn tn, tr gi 12,1 triu USD, gim
17,88% v lng v gim 36,85% v tr gi. Th trng xut khu ch yu ng th
ba l Malaysia vi 15,9 nghn tn, tr gi 4,3 triu USD, tng 61,97% v lng v tng
31,59% v tr gi so vi cng k. See more at:
http://dgmv.gov.vn/index.php?option=com_k2&view=item&id=6252:t%C3%A1c-
%C4%91%E1%BB%99ng-x%C3%A3-h%E1%BB%99i-c%E1%BB%A7a-
ho%E1%BA%A1t-%C4%91%E1%BB%99ng-khai-th%C3%A1c-kho%C3%A1ng-
s%E1%BA%A3n&Itemid=357&lang=vi
(Media.chinhphu.vn) - Ngnh cng nghip khai khong v ang ng vai tr quan
trng trong s nghip pht trin nn kinh t t nc khi hng nm ng gp khong
10 - 11% GDP ca c nc. Nhng ti nguyn th hu hn do vy vic khai thc v s
dng ti nguyn phi minh bch v hiu qu. - See more at:
http://media.chinhphu.vn/Video/ChiTiet/toa-dam-truc-tuyen-khai-thac-tai-nguyen-
khoang-san-minh-bach-va-hieu-qua--1#sthash.rp3rpKRV.dpuf
Reference

Author Source In-text
Andrew B. Abel, Ben S.
Bernanke, Dean
Croushore

Title: Macroeconomics seventh
edition book, page 29.

Much of any country's
economic well-being flows
[Ref1]
L Tot (2012) Xacbacxangbang.blogspot.com There are 7 important
investment channels...
[ref3]

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