Christine Lagarde Recent Speeches on Vietnam and Asia

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By Christine Lagarde, Managing Director, IMF
National Economic University, Hanoi, March 17, 2016
As Prepared For Delivery

Last Updated On: March 19, 2016
By: Nick Giammarino
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Good morning—Chào các bạn

I would like to thank Prof. Dr. Tran Tho Dat and the National Economic University for inviting me—and thank you, the students, for this wonderful welcome.

It is a great pleasure to be here at this prestigious flagship university—which has been central to Vietnam’s development over the past six decades. Today NEU graduates can be found in leading positions in both government and business.

These outstanding men and women have helped to achieve a remarkable transformation: in a single generation, Vietnam moved from being one of the world’s poorest nations to lower middle-income status, from a heavy reliance on commodities to manufacturing excellence, from economic stagnation to relentless dynamism.

This is a reflection of bold government policies and savvy business decisions. Above all, it reflects the incredible energy, ingenuity, and love of learning of the Vietnamese people.

As the great 15th century scholar and poet, Nguyen Trai, once said: “Learning is the key for everyone, whoever he is, either a teacher or a worker.”

After a remarkable 30-year period, Vietnam is now facing another pivotal moment of transformation.

I would like to discuss this with you from three perspectives:
• First, what are the global challenges and regional opportunities for Vietnam?
• Second, what are the key ingredients of Vietnam’s nexttransformation?
• And third, how can your generation—and how can you personally—contribute?

1. Global Challenges and Regional Opportunities

Let us start with the big picture. Over the past three decades, Vietnam has become one of the world’s most open economies—a nation that has benefited tremendously from international trade and foreign direct investment that have helped drive growth and poverty reduction.

usd vnd exchange rate

Chart: USD/VND exchange rate

Greater openness, of course, means a greater sensitivity to external shocks. In fact, there are several major economic transitions that are on the minds of policymakers right now.

They include China’s move to a new growth model; the prospect of commodity prices remaining lower for longer; and the tightening of financial conditions in many countries due to rising U.S. interest rates and a stronger dollar.

Understandably, policymakers are concerned—because these transitions have contributed to rising financial market volatility and sharply decreasing trade flows. They have also held back global growth.

Earlier this year, the IMF cut its global growth forecast for 2016—to 3.4 percent—and our latest assessment shows once again a weakening baseline and a further increase in downside risks.

There is a similar picture here in Asia, where we project a further easing of economic growth this year. Of course, even with declining momentum, Asia remains the world’s most dynamic region, accounting for 40 percent of the global economy. Over the next four years, this region is expected to deliver nearly two-thirds of global growth.

What does this mean for Asia’s economies? Can they sit back and enjoy the ride? I am afraid not.

China’s growth transition

Consider the profound impact of China’s shift from an investment-driven growth model to one that relies more on domestic consumption. This transition is necessary because it will lead to more sustainable growth and benefit both China and the world.

In the short run, however, it leads to slower growth. And this slowdown creates knock-on effects on other countries—through changing trade patterns, lower demand for intermediate goods and commodities, and increased volatility in currencies, equities, and bonds.

Some of Asia’s economies will be heavily affected. Think of machinery exporters, steel producers, and exporters of oil and other commodities.

Indeed, while you and your families are benefiting from cheaper petrol, Vietnam’s government is facing a widening budget deficit and growing public debt—partly because of lower oil revenues.

Vietnam can seize the day

vietnam gdp growth rate

Chart: Vietnam GDP Growth Rate

The good news is that there are also huge opportunities.

For example, China’s continuing retreat from less sophisticated, labor-intensive manufacturing may create major opportunities for its neighbors in the Mekong region—including Cambodia, Lao, Myanmar, and Vietnam.

The IMF has been analyzing these regional effects—and we will soon be releasing a new report that shows what countries in the Mekong region can do to take full advantage of China’s transition.

For Vietnam, we see two big benefits: in addition to winning market share at the lower end of the value chain, Vietnam has a unique opportunity to sell more final goods, such as cell phones and computers, to Chinese consumers. Last year, for instance, Vietnam’s exports to China grew almost twice as fast as its total exports.

Still, with China accounting for only a tenth of Vietnam’s overallexports, the biggest prize is the global market. This is why the recently signed Trans-Pacific Partnership (TPP) could have a transformative impact.

According to some estimates, this trade deal could lift Vietnam’s GDP by a cumulative 8 percent, and exports by 30 percent, over the next 15 years.

How can this be achieved? By boosting Vietnam’s exports to key markets, such as the United States and Japan, and by encouraging further strong inflows of foreign direct investment.

More broadly, TPP could provide critical impetus for much-needed economic reforms, especially in state-owned enterprises. Stepping up these reforms will not only allow Vietnam to meet its TPP requirements, but it will be essential for its future prosperity.

2. Vietnam’s Next Transformation

vietnam interest rate

Chart: Vietnam Interest Rate

This brings me to my second topic—the policy recipe for Vietnam’s next transformation.

To my mind, it is fitting to use the word “recipe” in a country that has one of the world’s best cuisine. My personal favorite is a fragrant serving of Phở—a dish so iconic that it seems to capture Vietnam’s joie de vivre in a single bowl.

Why is this relevant right now? Because managing an economy is akin to preparing a perfect serving of Phở—both require a well-balanced mix of ingredients.

Indeed, Vietnam has now reached a point where new powerful ingredients are needed to safeguard macroeconomic stability and lift tomorrow’s growth and living standards.

Yes, current growth is projected to remain solid this year—at around 6.3 percent. But growth since 2008 has been slower than in the preceding two decades. This means that Vietnam has not been able to match the growth in per capita income that East Asia’s most successful countries experienced at a similar level of development.

Without a big reform push, Vietnam will find it extremely difficult to catch up.

Why? Because Vietnam is on track to become one of the world’s fastest-ageing societies, with a working-age population whose share in the overall population has already started to decline. This demographic shift could become an additional drag on growth.

A strong policy recipe

So with this in mind, let me highlight four new ingredients that can be added to the recipe.

First—safeguard macroeconomic stability. This means, for example, making greater use of exchange rate flexibility to soften the impact of external shocks and help build external reserves.

It also means creating a new monetary policy regime for a rising, more sophisticated economy. That could eventually include using inflation as a nominal anchor for monetary policy.

Second—generate higher government income by broadening the base for revenue collection. This means, for instance, reducing tax exemptions and introducing a property tax. These measures would help reduce public debt—currently at about 60 percent of GDP—and would help create more fiscal room for maneuver.

A fuller public purse is needed to boost critical infrastructure investment—in roads, bridges, and urban transport—while protecting spending on health and education.

Third—step up bank reforms by fully addressing the legacy of non-performing loans. More comprehensive legal reforms are needed to resolve bad loans, combined with a strengthening of capital in viable banks.

By bolstering bank balance sheets, policymakers can help support higher-quality credit growth—which leads to safer and more sustainable economic growth over the medium term.

Fourth—promote growth that is stronger, more inclusive, and more sustainable. In other words, increase the size of the bowl to accommodate a larger serving of Phở—with everyone sharing the benefits.

vietnam debt to gdp

Chart: Vietnam Debt to GDP

One way to accomplish this is to accelerate the restructuring of state-owned enterprises—through governance reform, divestment of non-core activities, and increased private participation in ownership. This would help boost overall labor productivity and potential growth.

It is worth remembering that productivity in foreign-invested companies is five times higher than in state-owned enterprises and domestic private firms. This helps explain why foreign-invested firms account for 70 per cent of total exports—and it shows the huge scope for improvement.

Another way to boost growth and living standards over the long term is to encourage greater technological innovation and learning. This requires more investment in research and development—where Vietnam is spending significantly less than its peers.

Greater efforts are also needed in education. To be clear: Vietnam can be proud of the fact that it ranks well above most developed countries in basic science, math, and reading skills. But expanding vocational training, for example, will be key to address skills mismatches. This would also help reduce Vietnam’s relatively high youth unemployment rate.

Likewise, Vietnam can be proud of its track record in reducing itspoverty rate—from almost 60 percent in 1993 to 13.5 percent today. This a remarkable accomplishment by any standard. But disparities persist between urban and rural areas, within cities and rural areas, and across regions.

Reducing poverty and income inequality requires better infrastructure and greater access to education and health care. In fact, IMF studies have shown that countries that have managed to limit excessive income inequality have enjoyed both faster and more sustainable growth.

Let me highlight another achievement that Vietnam can be proud of: its relatively low gender gaps, which have supported growth and development. But as Vietnam moves further up the income ladder, it will be important to empower women even more—by bringing more women into the formal workforce, and by improving access to higher education.

3. Your Next Transformation

Vietnamese dong
vietnamese dong

So what can you do about all this? How can you become a powerful ingredient in this recipe for economic transformation?

Start by transforming yourself and your environment. What do I mean by that?

Think of the incredible technological progress we are seeing right now—in robotics, genetic engineering, 3-D printing, quantum computing, and artificial intelligence. Earlier this week, for example, the world champion of Go, the ancient board game, lost a five-game match to a computer that uses a process called “deep learning”.

Yours is a world in which individuals, companies, and institutions are measured by their creativity and innovation. It is essential to have a good grasp of math, engineering, finance, and of course economics. But I would also encourage you to embrace a diversity of experiences—including in literature, arts, and languages.

Consider using the entire range of your skills to create products and services that resonate here at home and abroad. Smartphone apps, social media, e-commerce, and software and game development: these are only some of the sectors where Vietnamese entrepreneurs are unleashing their creative energy. You can make your mark, too.

You will also have a chance to create sustainable ventures that are firmly grounded in mutual trust and strong ethical behavior. New research shows that unethical behavior can become endemic in any industry that is highly competitive. But there are long-term gains from doing the right thing. You can help set the right standard for yourself and your community.

Connect with the world

At the same time, your community is looking to you for leadership on one of the most pressing global issues—climate change. Vietnam is exposed to climate risks because of its population density and geography. It is also home to large and rapidly growing urban centers.

In fact, we are likely to see a massive further increase in urbanization in many emerging and developing economies over the next 15 years. This could require global infrastructure investment of up to $90 trillion.

Just think about the risk if this investment is done in the wrong way—for example, if it locks in carbon-intensive energy and transportation structures in these mega-cities. This could radically affect the quality of life on the planet—for all of us.

On this and other issues, you have the opportunity to becomeglobal citizens. Connect with your friends, your colleagues, and your peers around the world to raise awareness.

Connect with the International Monetary Fund! Many of you will know that the IMF has a world-class expertise in fiscal, monetary, and financial policies. But we also focus on what we call macro-critical issues such climate change, gender, and inequality.

I encourage you to consider joining the IMF—to help us address the needs of our 188 member countries with research, policy advice, and hands-on technical assistance. Help us promote the global public good of economic and financial stability—which has been the Fund’s raison d’être for more than 70 years.


Let me conclude.

Here in this room, I see future policymakers and business leaders. I see a generation that will have a unique opportunity to lead Vietnam’s next transformation. What an exciting prospect! But also, what a great responsibility!

What do you do when you contemplate your future? On Tết holidays, many students—including some of you—come to Văn Miếu, the Temple of Literature, where calligraphists write wishes in beautiful Hán characters.

My wish for this year—and the next 30 years—is that you succeed in putting together a strong recipe for transformation—for yourself, for Vietnam, for the world.

Thank you—Cảm ơn

Asia’s Advancing Role in the Global Economy

christine lagarde imf

By Christine Lagarde
Managing Director, International Monetary Fund
New Delhi, India, March 12, 2016

As Prepared For Delivery

Good morning. I am delighted to be back in India to co-host this landmark conference on Advancing Asia. Let me thank Prime Minister Modi, Finance Minister Jaitley, and Governor Rajan for their commitment to this joint initiative.

India and the IMF go back a long way together—in fact, India was a founding member of the Fund more than 70 years ago. Our partnership has gone from strength to strength ever since.

India, Asia, and the World

It is fitting that we meet in India: the world’s fastest growing large economy; on the verge of having its largest and youngest ever workforce; and, in a decade’s time, set to become the world’s most populous country.

So India stands at a crucial moment in its history—with an unprecedented opportunity for transformation. Important reforms are already underway. Think, for example, of Make-in- India and Digital India. And with the promise of even more reforms to come, India’s star shines bright.

In about ten days, India, Nepal and many other countries will be celebrating the festival of Holi (festival of color), which heralds the coming of spring. I am not suggesting that we cover each other with color or spray water as is customary (we will leave that to the children). But I do think today we should celebrate India’s achievements—and Asia’s achievements.

Asia has a lot to be proud of. It is the world’s most dynamic region and today accounts for 40 percent of the global economy. Over the next four years—even with slightly declining momentum—it stands to deliver nearly two-thirds of global growth.1

Given this vital economic role, making the most of Asia’s dynamism is of great interest to the entire world.

What gains can the region build on? How can it respond to today’s global economic challenges? And, above all, what can it do to realize its future potential?

I. Building on Recent Gains

Asia’s rapid integration into the world economy has been one of the most striking global developments of the last generation. In that relatively short time, many countries across this vast and diverse region have achieved economic “miracles,” and several have become powerhouses of the global economy.

For the past 25 years—the Asian crisis notwithstanding—the region’s economy has grown by around 6 percent a year. In the aftermath of the recent global financial crisis, Asia was a rare bright spot.

This economic transformation has supported social development. Over the past 35 years, this region has been the world’s leader in reducing poverty.2 Education and health outcomes have improved significantly. People’s living standards have been raised.

Asia has also become a byword for innovation. Each day, almost everyone around the world is touched by Asian technology. Cars, smartphones and televisions spring to mind—but think also of biotechnology, commercial satellites, and renewable energy.

This increased interconnectedness means that Asia now affects the world more than ever before; by the same token, Asia is now more deeply affected by global economic developments than ever before—and must respond to them.

II. Global Economic Challenges and Asia’s Response

Indeed, the global economy faces many challenges: volatile markets and capital flows; economic transitions and financial tightening in many countries; the large drop in commodity prices, including oil; and escalated geopolitical tensions.

What should be Asia’s response? Some of the broad areas for action are well-known:

  • Supportive monetary policy—consistent with price and external stability objectives;
  • Growth-friendly fiscal measures; and,
  • Macro-prudential measures to safeguard financial stability.

The policy specifics, of course, vary across countries and according to circumstances. In all cases, however, it is safe to say that structural reforms are key—to boost competitiveness, growth, and jobs. To give a few examples:

  • In China: improving the allocation of credit to help rebalance the economy away from debt-led investment.
  • In Japan: tackling dual labor markets, liberalizing product markets, and reforming corporate governance.
  • In India: enhancing the efficiency of product markets, encouraging private investment, and improving infrastructure.
  • In many countries—from emerging markets to low-income nations—strengthening the business environment and developing bond markets.

Successfully dealing with these kinds of structural issues will not only support Asia’s near- and medium-term prospects, but also secure the foundations on which to unlock the region’s exciting future potential.

III. Unlocking Asia’s Potential

Indian Nobel Laureate Rabindranath Tagore once said: “You can’t cross the sea merely by standing and staring at the water.” Asia has done a lot more than that! And yet, there is still a lot to do.

Across the region as a whole, income inequality has worsened since 1990. A new IMF staff paper finds that income inequality has since increased in 15 of 22 Asian economies.3 Asia remains home to two-thirds of the world’s poor, many of whom live in India.4 In most of the region, women and youth are still greatly underrepresented in the labor market.

Seen from another perspective, however, these concerns can be opportunities.

What if income inequality could be reversed, poverty further reduced, and women and young people economically empowered? What if growth could be made more inclusive and sustainable? What if Asia’s 4.4 billion people could each realize their full potential?

We can imagine the possibilities. The question is how to realize them:

First, broadening access to services like health and finance is essential. India, for example, is targeting universal access to banking services by 2018. Through the Pradhan Mantri Jan- Dhan Yojana5 scheme, over 210 million previously unbanked people have opened a bank account since August 2014, with social transfers paid directly.

Second, leveraging the impact of fiscal policy is essential. This means targeting social spending on the neediest. Countries such as the Philippines, for example, have pioneered conditional cash transfer programs. Effective redistribution also means avoiding costly across-the-board subsidies, and making taxes more progressive. With the Aadhaar system, India has come up with a groundbreaking way to deliver targeted subsidies. Almost 1 billion people have Aadhaar numbers, and the potential to use this for delivering payments and other services—including for women—is tremendous.

This brings me to my third point: empowering women is essential—whether by enhancing girls’ access to high quality education, dismantling legal and logistical barriers to economic participation, or making it more practical for women to combine a job and a family. An initiative of Prime Minister Modi’s government, for example, is to improve women’s welfare services under Beti-Bachao, Beti-Padhao.6 Tackling duality and informality in labor markets would also bring more young people into formal jobs, providing a particularly welcome boost in countries with aging populations.

Fourth, with more than 800 million people in Asia lacking access to water, sanitation and electricity, inclusive growth means more investment in infrastructure—and making that investment more efficient.

Fifth, even-greater trade integration can support more sustained growth, especially for India and other countries in South Asia. Multilateral trade liberalization has the potential to be globally welfare-enhancing. If, however, progress at that level remains slow, comprehensive regional trade agreements can help to lower tariff and non-tariff barriers, and incorporate new areas like services.

Finally, there is the challenge of climate change. Last December, 186 countries submitted mitigation pledges in the context of the historic Paris Agreement. Now they must keep their promises, including through carbon pricing and energy subsidy reforms. Clearly, Asia has a massive stake in this effort.

Yes, these challenges are daunting—and yes, I am convinced that Asia can meet them. I have visited Asia many times, and I have always been struck by the vibrancy, energy, and can-do attitude of its people.

They have shown the world before what Asia can achieve—and they will show the world again.

Asia and the IMF

I am pleased to say that the IMF is Asia’s partner in this endeavor—and the region’s increasingly important role is increasingly reflected in our relationship.

Earlier this year, quota and governance reforms came into effect that enhance the representation of emerging Asian economies within our 188 member countries. One consequence is that India now joins China and Japan among the Fund’s top ten shareholders.

Also, late last year, the decision was taken to include the renminbi as the second Asian currency in the IMF’s SDR currency basket—joining the yen, of course.

Yet another milestone in our partnership is that, in 2018, Indonesia will host the IMF Annual Meetings.

And here in New Delhi—I am delighted to announce—the Fund is opening a new Regional Training and Technical Assistance Center for South Asia. This will be for us the first fully integrated center and a model for our future capacity development work. I would like to warmly thank the Government of India for offering to host the center, and for their substantial financial commitment. I would also like to thank the other member countries— Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka—for joining with India, the IMF, and other external partners like Australia and Republic of Korea, in making this exciting initiative happen.

Conclusion: Asia’s Global Leadership

Mahatma Gandhi once said: “The future depends on what we do in the present.”

This region’s dynamism presents a historic opportunity to invest now in the future—and to advance Asia.

Doing so will not only put Asia on the path to sustained growth, but also strengthen its role in the global economy—as a key contributor and as a leader for the 21st Century.

Thank you.

1 IMF Regional Economic Outlook. Asia and Pacific: Stabilizing and Outperforming Other Regions, April 2015

2 IMF Working Paper: Asia’s Quest for Inclusive Growth Revisited

3IMF Working Paper: Sharing the Growth Dividend: Analysis of Inequality in Asia

4IMF Working Paper: Asia’s Quest for Inclusive Growth Revisited

5 “Prime Minister’s Community Wealth-Building Scheme”

6 “Save girl child and educate her”

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