However, due to the lacking in expertise knowledge because all members of the group are not students major in department of finance and banking

MEMBER’S ROLE No Name ID Vũ Thị Thu Nga 171445007 Lê Khánh Ngân 171445002 171445002 171445003 161334008 Vũ Thị Minh Nghĩa Tạ Mai Linh Nguyễn Thạch Thảo Role Rating Write Introduction, Conclusion, assign tasks for members 10/10 Write Chapter 10/10 Write Chapter 10/10 Write Chapter 10/10 Write Chapter 8/10 TABLE OF CONTENTS ACKNOWLEDGEMENTS………………………………………….……………………….1 ABSTRACT…………….………………………………………… …………………………2 CHAPTER 1: INTRODUCTION 1.1 Rationale 1.2 Literature review 1.3 Objectives of research 1.4 Methodology 1.5 Scope of the research .7 1.6 Research structure CHAPTER 2: THEORETICAL BASIS 2.1 General theory about Public debt 2.1.1 Definition of Public debt 2.1.2 Economic nature and impact of Public debt on the economy 2.1.3 Classification 11 2.1.4 Factors affecting Public debt .12 2.1.5 Debt forms and Public debt tools 13 2.2 Public debt Management 14 2.2.1 Definition .14 2.2.2 The importance of Public debt management .15 2.3 Public debt crisis 16 2.3.1 Definition .16 2.3.2 Causes of Public debt crisis 16 2.3.3 Consequences of Public debt crisis .17 CHAPTER 3: LATIN AMERICAN PUBLIC DEBT CRISIS IN THE 1980S 18 3.1 Causes of Latin American Public debt crisis 18 3.1.1 Internal causes 18 3.1.2 External causes .22 3.2 Progressions of the Latin American Public debt crisis 23 3.3 Impacts of the Latin American Public debt crisis 26 3.3.1 Impacts on the Latin American countries 26 3.3.2 Impacts on the global economy 28 3.4 The reactions and solutions of Latin American countries to the crisis 28 3.4.1 The reactions of Latin American countries to the crisis 28 3.4.2 The measures of Latin American countries to the crisis 29 3.5 Achieved result 34 3.5.1 Positive effects .34 3.5.2 Negative effects .36 CHAPTER 4: VIETNAM PUBLIC DEBT AND LESSON FROM LATIN AMERICAN PUBLIC DEBT CRISIS TO VIETNAM .37 4.1 Current situation of Vietnam public debt 37 4.1.1 Scale of public debt .38 4.1.2 Structure of public debt .41 4.1.3 The cause of the increase in Vietnam public debt .45 4.1.4 The impacts of budget deficit and public debt on Vietnam macroeconomy 48 4.2 Lessons from Latin America debt crisis for Vietnam 51 4.3 Measures to apply lesson from the crisis in Vietnam’s context .52 4.4 Policy recommendation for Public debt management in Vietnam 56 CHAPTER 5: CONCLUSION .59 REFERENCES…… …………… …………………………………………………………60 LIST OF FIGURES Figures 3-1: Latin American external debt and reserve 20 Figures 3-2: Latin American Total debt, Total debt service and Interest 21 Figures 3-3: Mexico Crude oil prices from 1861 to 2011 22 Figures 3-4: Total Debt and Public Debt by Region 24 Figures 3-5: Decomposition of economic growth (Source: OPEC) 27 Figures 4-1 Total public debt of Vietnam period 2010 - 2018 38 Figures 4-2 Public debt in Asian developing countries 40 Figures 4-3 Structures of total public debt 41 Figures 4-4 Structure of total public debt 42 Figures 4-5 Structure of Government debt 43 Figures 4-6 Structure of Government-guaranteed debt 44 Figures 4-7 Fiscal balance of Vietnam (%) 45 Figures 4-8 Vietnam's foreign exchange reserves 2016-2019 55 Figures 4-9 Vietnam total reserve 2010-2018 .55 LIST OF TABLE Tables 4-1 Total public debt of Vietnam (billion VND) .39 Tables 4-2 Public debt payment using budgetary expenditure (billion VND) 47 ACKNOWLEDGEMENTS Before going into the main content of the essay, group would like to express our sincere gratitude to the lecturer in charge of the subject, Assoc Prof Dr Mai Thu Hien, who has accompanied us in the idea development process and advise us to write the outline of the essay Your in-depth lectures are the source of inspiration for us to implement this topic and also help us to build the foundation and develop the direction of the essay However, due to the lacking in expertise knowledge because all members of the group are not students major in Department of Finance and Banking, this essay will surely have many flaws and shortcomings Our group hopes to receive your profound comments and guidance to help us improve the quality of essay content in the future Once again, we sincerely thank you Lastly, we would like to wish you plenty of good health and contentment to carry on your noble mission of passing on knowledge to future generations Foreign Trade University students Best regards, Group ABSTRACT This paper will empirically investigates, summarizes and assesses the nature of public debt, the causes and effects of the Latin American public debt crisis in the 1980s, as well as the ways countries behaved during the time of the catastrophe Furthermore, we will provide a practical analyzation of the situation in Vietnam today on the basis of comparison with international practices and lessons learned from the Latin American debt crisis in order to clarify the present issues and recommend some solutions to public debt management in Vietnam CHAPTER 1: INTRODUCTION 1.1 Rationale Government debt has been regarded as a major source of capital to finance the economic growth for the less developed or developing countries Among all influencing factors to an economy, there is the fact that debt emerges as an indispensable part which could affect either positively or negatively to economic stability Therefore, to a country, good debt management would bring significant benefit to national development, while poor management could, in long-term, lead a country into serious problems, e.g high taxation of the domestic consumers, uncontrolled inflation and so on In the recent years, foreign debt problem, however, has become one of the basic problems in the developing countries The debt crisis which occurred in Latin American countries in the early 1980s destabilized the economy of many developing countries with low income The Latin America’s debt crisis in the 80s also known as “The decade of loss” had started since the 1970s In that period, countries in the Latin America such as Brazil, Argentina and Mexico had quite an impressive development mainly from the large scale external debt, aiming at developing domestic industries and improve the infrastructure However, by 1980s, Latin American countries had faced difficulties in huge debt payment Since the middle of 1975-1982, the public debts of Latin American countries to financial institutions and World Bank increased at the annual public debt to GDP ratio of more than 20% which raised the total debt from USD 75 billion in 1975 to more than USD 315 billion in 1983 Interest and principal payment increase steadily from USD 12 billion in 1975 to USD 66 billion in 1982 Besides, the global crisis in 1979 and 1980 affected the developing countries in OECD So, Latin American countries were incapable of maintaining the high economic growth rate and the foreign payable loan exceeded the earning Actual income and living standard sharply decreased, followed by the collapse of the dictatorships in the region such as Brazil and Argentina The Latin America crisis lasted for a period and was gradually over in the early 1990s when countries officially declared the end of “the decade of loss”, totally out of debt crisis and got started for the next period Vietnam, like many other developing countries, has a high demand for loan in order to implement various socio-economic and infrastructural construction projects However, the consequences of the public debt crises that happened in Latin American countries during 1980s are good lessons for the country to be careful with its budgetary decisions Specially, significant increase in accumulated public debt in Vietnam after the global financial crisis in 2007-08 raises concerns regarding sustainable growth in medium to long-term In fact, Vietnam’s total public debt increased from approximately 40% of GDP in 2007 to 56.3% of GDP in the end of 2010, slightly decreased to 54.9% of GDP in 2011 due to high inflation Simultaneously, external debt of the nation increased from 32% to approximately 42% of GDP1 The remaining challenges in public debt management show that this is the time for a thorough and comprehensive renovation in fiscal policy in order to gradually bring the budget back to its balance and maintaining long-term stability for the economy Lessons learned from what happened during the past debt crisis, about the causes of the crisis as well as the ways countries behave and resolve the matter can become valuable experiences for Vietnam in the process of reviewing the state of its public debt, suggesting the solutions to minimize and manage public debt effectively, The Government’s Report No 305/BC-CP dated October 30th, 2012 on the situation of public debt thereby reducing the risks which could lead to a debt crisis For the above reason, our team chose to study the topic “Public debt crisis in Latin America in the 1980s and lessons learned for Vietnam” to contribute the issues 1.2 Literature review Following the debt crisis in the 1980s, there was intensive research on determinants of a sovereign debt crisis According to the study of Schclarek and Ramon- Ballester (2005), the data of 20 Latin American and Caribbean nations in five years during 1970 – 2002 were separated seven periods which includes every five years Furthermore, due to the beginning of economic crisis over the world, most empirical scholars researches the causal relationship between the indebtedness and economic growth by applying a non-linear and concave connection pattern Classical economists, such as Smith (1776), Ricardo (1951), and Mill (1845) considered that the public debt effect destructively a country’s economic The Ricardian Equivalence theory noted that the financing of public expenditure via taxation and borrowing is equal Governments can finance their expenditures either through taxes or by issuing bonds Since bonds are loans, they must eventually be repaid—presumably by raising taxes in the future Suppose that the government finances some extra spending through deficits According to the hypothesis, taxpayers will anticipate that they will have to pay higher taxes in future As a result, they will increase their savings to pay the future tax increase; they could reduce their current consumption to so The effect on aggregate demand would be the same as if the government had chosen to tax now Therefore, there is neutral effect of public debt on economic growth On the contrary, in the Investment Saving-Liquidity Preference Money Supply (ISLM) model, Keynesian economists pointed out that an increase in government debt, which induced by deficit financed fiscal policy, will improve the level of income, the transaction demand for money and prices Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require government was broad for the recent years, especially after 2011 Vietnam is now attracting massive scale of FDI, so that larger fiscal spending is used for infrastructure investment during the stage of rapid development However, the pace of expansion of the expenditure may not continue for a long period Meanwhile, public administration has accounted for a large proportion of public expenditure and tends to move up in recent years The industrial structure of the VN economy has been changed in the past decades Agriculture is in trend of decline while industry and service has increased significantly This could be the result that FDI has transformed the economic structure to have larger shares of manufacturing industries Also, public investment in infrastructure and other industrial bases has been increased These factors have increased public expenditures and private borrowings Domestic debt is mostly used to finance budget deficit of Vietnamese government until 2012 In detail, more than 70% of total debt of government is derived from domestic resources in 2000-08 However, due to global financial crisis and widening in trade deficit which, in turn, contributed to a loss of confidence in the currency, large private capital outflows (as domestic residents switched their VND denominated assets into foreign currency denominated assets or gold) led to severe loss in international reserves, and finally depreciations of the exchange rate As a result, Vietnam’s external debt increased by more than 7.5 times from 19,668 billion VND in 2008 to 1,647,124 billion VND in 2012 Even though, foreign borrowing has already exceeded by 1.75 times compared to domestic borrowing in 2013 Furthermore, Vietnam’s total public debt increased from approximately 40% of GDP in 2007 to approximately 56.3% of GDP in the end of 2010 due to the global financial crisis in 2007-2008, then slightly decreased to 54.9% of GDP in 2011 45 The debt service principal amount has increased by times from 62.6 trillion VND in 2010 to 187,9 trillion VND in 2014 The volume of rollover was 260.8 trillion VND in 2014 (Table 2) and was 288.7 trillion VND in 2015 The primary reason is that majority of bonds have been issued in a very short maturity since 2009, from to years The maturity dates of these bonds have been starting in 2011; therefore, total principal payment has increased rapidly The appearance of some kinds of short-term bills (3-6 month of maturity) also increased the amount of principal payment After that, long-term bonds were promoted to be issued more National Assembly issued Resolution No 78/2014/QH13 to limit government bonds under 5-year maturities from 2015 However, the demand for long-term bonds is still very low Year 2010 2011 2012 2013 2014 2015 2016 Principle 62,602 78,450 110,54 125,81 187,91 203,44 160,59 Interest 24,503 32,184 43,837 59,996 72,886 85,259 90,371 Total 87,105 110,634 154,386 185,814 260,803 3,2% 4,2% 5,1% 5,2% 6,6% Debt service payment Interest payment/Budget expenditure 288,70 6,8% 250,963 7,1% Tables 4-2 Public debt payment using budgetary expenditure (billion VND) Besides, interest payment accounted for a large proportion of budget expenditure Compared to total expenditure, interest payment increased rapidly, from 3.2% in 2010 to 6.8% in 2015 In terms of volume, interest payment increased by times in a 2010-2015 period Expenditure for interest payment was often at a high level This is hiding the budget for development investment, as a direct result of high public debt ratio Moreover, education expenditure, pension and social securities, and public administration also accounted for large amount, especially pension expenditure has increased recently and will continue to rise because of aging process in Vietnam 46 4.1.4 The impacts of budget deficit and public debt on Vietnam macroeconomy To clarify the impacts of budget deficit and public debt on macroeconomic variables, including GDP growth, inflation, interest rate, trade balance and exchange rates, we have carried out a qualitative analysis of possible budget deficit transmission and various solutions to financing them *Inflation Government expenditure which is not funded by tax revenues or other kinds of revenue may be the culprit of excessive aggregate demand and inflation This situation is more likely to happen if government spending is funded by surplus money supply that is pumped into the economy If a small part of fiscal deficit is financed in that way, inflation will by no means occur However, when the funding is enormous and continuous for several years, the economy will eventually get into a situation where the high inflation rate is seen in a long time In reality, Vietnam has experienced the same impacts in the past years Most of its fiscal deficit has funded by government bonds and even money issued by Central Bank in the f orm of advancing state budget20 However, a large number of government bonds and government-guaranteed bonds are sold to big commercial banks They are then left in the state bank as a pledge in order for commercial banks to take out money through open market operations or rediscounting Finally, this causes an increase in the money supply, resulting in inflation According to statistics of the Hanoi Stock Exchange (HNX), the total amount of government bonds and government-guaranteed bonds in circulation is about 336 thousand billion dongs, equaling more than 13% of the nominal GDP and nearly 12% of money supply M2 of the year 2011 Thus, besides the private sector’s high demand for credit, public expenditure funded by government bonds has also indirectly led to sharp increasing money supply recently *Interest 20 According to term 23, State budget Law 2002, an advance on the state budget aims to temporarily dispose of the budget deficit according to the government’s decisions 47 Under no control of administrative limitation, interest is determined by demand and supply in the capital market, where household savings and business investment converge Total of government savings and private savings, also called national savings, will reflect the supply while investment represents the demand of loan market Budget deficit results in a decline in government savings and national savings, leading to a fall in capital supply and an increase in the interest rate in the market As a result, the increasing interest rate brings about a decline in private savings This situation is called crowding out effect In other words, excessive public spending is the culprit of state budget deficit Government is put under pressure to borrow capital by issuing bonds, resulting in a lower amount of available capital in the market that the private sector is supposed to access with a low cost In recent years, the structure of loans in Vietnam has experienced a change from external debts into domestic debts By the end of 2011, external debts accounted for 56% of total debts while domestic ones occupied 43% of total debts and followed an upward trend However, this trend hardly seems to be a positive picture that Vietnam is less dependent on foreign countries In fact, it shows a fall in foreign concessional loans Because of a high interest rate of foreign commercial loans, we had to switch over to domestic loans Nevertheless, that government borrowed a large number of domestic loans crowded out private sector, leading to the lower economic growth when capital unit was not used effectively by the public sector *Trade balance and exchange rates Consumers in a country are able to spend more than the value of domestic products and services by importing goods from other countries Thus, if the government expands expenditure without imposing policies on restricting private spending, there will be an increasing demand for imports and trade deficit A decline in private investment caused by the budget deficit can be easily explained by crowding-out effect while an increase in government spending on imports is the reason for a drop in net exports As a result of the increase in public spending and budget deficit, the gross domestic consumption is higher than the domestic output In order to meet the demand for additional expenditure, both 48 domestic production and imports will go up, causing the trade deficit Especially, the budget deficit affects adversely trade deficit in countries dependent on imported raw materials like Vietnam Budget deficit has other impacts on trade deficit Importing goods and services leads to abroad asset outflow When imports surpass exports, we have to pay an amount of foreign currency to foreigners They, then, invest such foreign currency in stocks, corporate bonds, government bonds or real estate As a result, when budget deficit happens, Vietnam becomes a net importer of goods and services and a net exporter of properties Foreigners are holding more and more domestic assets Budget deficit reduces the capital supply of private sector, causing higher interest rate When other factors are constant, higher interest rates could attract external capital to flow to domestic market, leading to increases in the supply of foreign currency and local currency prices However, in Vietnam, this impact is not enough to offset the pressure of the currency depreciation due to serious trade deficit Furthermore, the inflow of capital from abroad is limited by high inflation and unpredictable exchange rates in Vietnam *Growth In response to an increase in inflation and current account deficit due to long-lasting deficit, Vietnamese government as well as others usually imposes administrative interventions in controlling prices and exchange rates However, such methods result in the shortage of aggregate demand because they distort domestic production factor markets leading to unreasonable resource allocation It is also because the lack of imported inputs, limiting the capacity of production and exportation Over time, long-lasting expansionary fiscal policy worsens current account balance and accelerates inflation Deterioration in belief in domestic currency and economy will cause foreign capital outflows unless the government accepts to suffer from drawbacks of tightening money supply and raising interest rates in order to revive the belief in domestic currency Vicious circle of budget deficit – trade deficit – budget deficit may occur when policies on price control and trade reduce revenues from taxes, especially those from imported goods This results in more 49 difficulties in shrinking budget deficit, so the policy on increasing taxes or imposed new ones is the final solution to such a situation As a result, high taxes and fees discourage production in the private sector, causing low or negative growth 4.2 Lessons from Latin America debt crisis for Vietnam The above mentioned chapter shows that fundamental reasons for the debt crisis in Latin American countries in the 1980s were the combinations between the populist policies – over spending and carelessly, ineffectively and corruptively borrowing from foreign resources – which might be considered as a policy failure In the scenario, the countries became vulnerable to risk of capital withdrawal made by investors Once it had become the truth, it would have been too late to tackle crisis From the above reasons, lessons can be drawn on for Vietnam Firstly, reckless and ineffective government borrowing with the probability of corruption while maintaining budget deficit for big spending is the first notion Although most of Vietnam’s current debts are from ODA of other countries with favorable interest and are mostly long term ones, the ability to continue to receive such favorable cannot be prolonged as Vietnam has made itself a middle income country while facing quite a few risks from government borrowing such as risk of long term risk, risk of foreign exchange rate, etc Secondly, effectively control of external borrowing is necessary First, external borrowing increases vulnerability to external conditions When debt is contracted at a floating rate, higher foreign interest rates lead to increase in debt-servicing costs This raises budgetary outlays, which may translate into a larger deficit Likewise, a depreciation of the currency has the same effects Second, when the government borrows to cover a growing deficit, foreign borrowing leads to an unsustainable level of debt, and substantial use of foreign exchange to service the debt In the long run, this may lead to debt crisis Although total external debt of Vietnam (% of GDP) is still under safe threshold, experiences from Latin America countries show that there is no safe external debt threshold that applies to all countries 50 Thirdly, all the erupted crises relate to poor mechanism and structure of the economy which particularly is demonstrated in: (i) existing problems in finance and banking system, lack of effective supervision; (ii) lack of transparency in private businesses, lack of separation of ownership and management; (iii) untransparent relationship between the Government and major corporations, etc Therefore, the economic restructuring especially in finance and banking sector is a critical and objective requirement to address similar crises Fourthly, if the nation maintains the USD based – fixed exchange rate system, the economy should well prepare for the worst situations, in the long run it can often lead to balance of payments crisis 4.3 Measures to apply lesson from the crisis in Vietnam’s context Firstly, to avoid reckless and ineffective government borrowing, IMF’s harsh structure adjustment policies such as contractionary policy (reducing the budget to decrease budget deficit, adversely affecting public debt, maintaining the low credit growth and decreasing spending and inflation) is needed The fiscal policy should be rigidly enforced according to a clear roadmap, by using revenues exceeding the yearly estimate to pay debts, and striving for the budget deficit to be maintained at 4% from now to 2020, maintained at 3% after 2020, etc To maintain the low credit growth, The State Bank of Vietnam (SBV) recently set a credit growth target for 2019 of 14 per cent, focusing on priority fields to ensure risk control and support economic growth The SBV will also continue to set credit growth quotas for each bank, depending on its health, to regulate overall credit growth and support government targets In order to improve the effectiveness of the use of funds, especially with the sharp decrease of ODA sources and more dependence on commercial loans at higher interest rates in the short-term, it is essential to further modernize the State Budget system The 51 first recommendation is to further strengthen State Budget transparency, to promote more public participation in the budget process at all levels of government and to improve accountability For example, the State Budget submitted to the National Assembly and Local People’ Councils should be disclosed at the same time so that citizens can provide feedback State Budget information should be communicated clearly and concisely to facilitate citizens’ understanding of and participation in budget discussions Secondly, there is a need for more discipline in implementing approved spending plans Actual spending has in recent years significantly exceeded planned spending Such big changes affect the credibility and integrity of spending plans To address this, we recommend that major changes to budget appropriations be approved through a supplemental budget This should help to promote more efficient spending The third recommendation is to introduce medium-term budgeting A medium-term budget would provide projections of total revenue, spending and borrowing over the coming three to five years This would enable the government and the public to estimate the cost and affordability of its development plans The fourth recommendation is to consolidate reporting on all activities of the public sector so that the government, the National Assembly and citizens have a fuller picture of fiscal policy This could be done through consolidated government financial statements with full information on revenue, expenditure, financial and non-financial assets, and liabilities Like in other countries, the State Budget is not the only channel through which public services are delivered In Vietnam there are for example extra budgetary funds and state enterprises It is important to monitor risks to the State Budget emanating from these As previous global crises have shown the biggest risks to the State Budget often come from extra budgetary public sector activities Secondly, in order to effectively control external borrowing The sustainability of public debt depends not only on the level of debt of a country but also on the ability of the nation to continue borrowing, in which creditworthiness(IIR) plays a very important role, to avoid the liquidity crisis Over the time, Vietnam's creditworthiness has gradually improved and is currently lower than the investment level by about 2-3 units according to 52 the rating of the world's leading credit rating agencies Although there are no published figures on IIR ratings for Vietnam, credit ratings can be converted according to the rating of independent credit rating agencies Accordingly, Vietnam belongs to a group of countries with limited access to international capital markets Moreover, the State Bank of Vietnam needs to increase foreign reserves to use in case Vietnam’s government lose the ability to pay the debt Besides, a sufficient foreign reserve is needed to stabilize exchange rate Vietnam's foreign exchange reserves have increased sharply recently after the State Bank of Vietnam focused on buying foreign currencies from banks Figures 4-13 Vietnam's foreign exchange reserves 2016-2019 However, total reserves (% of total external debt) in Vietnam reported since 2010 have been low, despite of slight increase 53 Figures 4-14 Vietnam total reserve 2010-2018 Moreover, suitable capital account should be opened along with health improvement of the domestic finance – banking sector and simultaneously, a mechanism to monitor macro and micro finance is essential to effectively control the credit of private enterprises as well as private borrowing with government’s underwriting Thirdly, to avoid risks from USD based – fixed exchange rate system, Vietnam should implement healthy and cautious macroeconomic policies to maintain suitable exchange rate system In 2016, the State Bank of Vietnam decided to change exchange rate system from fixed exchange rate system to floating exchange rate system, but under control of SBV Basically, Vietnam is still following fixed exchange rate system, but more flexible than before At the end of 2015, statistical data showed that, with the corresponding exchange rate system, the value of VND was still under control; however, the SBV has made every effort and steadily with the goal of a stable exchange rate and flexibility in line with the movements of international financial markets, especially fluctuations of CNY or interest rates of the Fed It is clear fact that, with the old exchange rate system, the value of VND was greatly affected by the appreciation of the USD when the Fed raised interest rates and 54 fluctuations of CNY - a major trading partner of Vietnam (in 2015, Vietnam had a trade deficit of about US $ 3.4 billion with China) 4.4 Policy recommendation for Public debt management in Vietnam The main objective of the public debt management is to consider strategy and debt structure-related risks, thereby making policy orientation adjustments to maintain public debt sustainability in medium and long term Thus, in this section, we are trying to suggest some policies for further discussion so as to find out appropriate methods of managing current public debt and budget deficit in Vietnam *Establishing the Public debt Monitoring Committee under the Finance and Budget Committee of the National Assembly The establishment of the Public debt Monitoring Committee allows close, subjective and independent public debt monitoring and management The Public debt Monitoring Committee is empowered to access to all information about public and external debt of other Ministries in public sector, including Ministry of Finance, SBV, SOEs, etc The information must include details of the scales, maturities, interest rates, currencies, strategies, etc of all domestic as well as external debts This will be the basis for public debt supervisors and managers can monitor, analyze and supervise the total debt of the public sector and then give appropriate policy advice to the National Assembly The Public debt Monitoring Committee has to carry out and support the Finance and Budget Committee to quarterly propose the Overall report on public debt monitoring and management to the National Assembly This report must summarize the latest updated information and cover discussions about policy and market developments Also, the Public debt Monitoring Committee has the authority to coordinate and collaborate with stakeholders; and right to implement essential processes of administration, auditing, accounting and reporting *Establishing a system of debt safety indicators 55 To strengthen the fiscal discipline, it is necessary to set up a system of indicators regulating on debt limit in terms of quantity and flows of repayment These limits can be presented in both nominal value and in percentage of important macroeconomic variables The scope of limitation applied is divided by each type of debt: total public debt, external public debt, domestic public debt, and total external debt Normally, the limit to the total debt is expressed as a percentage of GDP and export, and limit to the debt service is expressed as a percentage of total tax revenue and foreign reserves or limit of annual debt to capital expenditure ratio However, the important thing is that the National Assembly must provide reasonable limits If too low, they can hinder the Government in implementing necessary reactions during the crisis because the adjustment or approval of new regulations takes time Conversely, if the limit is set at too high level, they are pointless Once issued, the fiscal disciplines of the government need closely monitoring by the Public debt Monitoring Committee *Debt accounting according to international standards In order to exactly assess the practice and then propose appropriate strategies of debt management, the accounting of budget and public debt must be performed transparently following international standards The off-balance sheet expenditure accounts must be absolutely avoided The budget deficit measures, except for unsustainable revenues and revenues from sale of property, need further calculations for accurateassessment of current fiscal situation In addition, the budget burdens arising in the future, such as pension payments or health insurance, should also be included in the forecasts of the budget deficit to get a more accurate picture of public debt outlook in the medium and long term Due to its potential risks to public debt, the SOEs’ debt should also be sufficiently calculated, analyzed and reported in the current definition of the public debt in Vietnam The analysis and assessment of the SOEs’ debt should be considered as an inseparable part of the report on Vietnam's public debt 56 *Enhancing domestic debt market Enhancing, both primary and secondary, domestic government bond market is very important In short-term, the Government may have to accept high domestic borrowing cost for the development of the Government bond market However, time by time, once this market develops and has higher liquidity, the Government can mobilize capital at a low cost The development of the market will help the Government to mobilize capital with long maturities, fixed interests and especially in domestic currency Therefore, the risks related to interest rates, exchange rates and rollovers will be minimized In addition, the growth of the secondary Government bond market will also be followed by the development of the corporate bond market, as the Government bonds is the standard for determining the risk of other debt instruments *Tax system reform Finally, tax system should be reformed to ensure criteria for sustainable, efficient, fair and transparent revenue The tax burden needs properly reducing adjustment However, this level of reasonability depends very much on the process of public spending cut Thetoo high tax burden will make the tax system less effective because it encourages tax evasion and distort the resource allocation Tax and fee system should be reviewed to avoid overlapping The taxes should be adjusted to ensure social security for low-income people, to encourage savings and limit consumption, especially imported luxury consumer goods 57 CHAPTER 5: CONCLUSION In the context of a society with limited resources, borrowing seems to be a desirable method that allows governments to finance required expenditures Government borrowing is accepted as long as it is consistent with a sound fiscal policy The fundamental reasons for the debt crisis in Latin American countries in the 1980s were the combinations between the populist policies – over spending and carelessly, ineffectively and corruptively borrowing from foreign resources – which might be considered as a policy failure The lessons in public debt management which can be drawn on for Vietnam is that it is time for Vietnam to carry out a thorough and comprehensive fiscal reform in order to bring its budget to the balanced status for assuring the debt sustainability and prolonged economic stability In order to achieve that, we need to have a proper management and thorough control from the government as well as the strictly implementation to economy context Only when we can ensure the security in public debt management, can our economy grow sustainably in the long-term, putting the first bricks to build ideal conditions for the next generation Therefore, we hope that the topic of Public debt as well as public debt crisis handling will continue to be of national interest there will be many innovative and new solutions to increasingly improving the situation of public debt in Vietnam 58 REFERENCES Trading Economics (2018) Vietnam Current Account International Monetary Fund (1993) Balance of payments manual (the fifth edition), P.6 Dao Van Hung Public debt management in Vietnam: Access to international practices Vietnam National University Publishing House, Hanoi, 2016 International monetary fund IMF (2013) Public Sector Debt statistics, Guide for Compliers and Users Socialist Republic of Vietnam Government portal Ministry of Finance Public Debt report No.7 URL: http://www.mof.gov.vn/webcenter/portal/btc/r/lvtc/qln/qln_chitiet? dDocName=MOFUCM084850&_ afr Loop=34091313221732310 Vietnam Institute for Economic and Policy Research The characteristics of public debt in Vietnam URL: http://vepr.org.vn/upload/ 533/ 20151113/ CS% 2010.pdf World Bank (2014) International Debt Statistics Retrieved on March, 30th 2016 URL: http://data.worldbank.org/data-catalog/internationaldebt-statistics Datviet Newspaper URL: http://baodatviet.vn/kinh-te/tai-chinh/lai-canh-baonguy- co-no-cong-viet-nam-vuot-tran-3318697/ 10 Ministry of Finance, State Budget Statements and Projections(2003–2011), Publishing House of Finance, Hanoi 11 Vũ Tuấn Anh (2010), A summary on Vietnam’s public investment in the last ten years, Vietnam Institute of Economics 12 Rolph, E.R., (2002), "Principles of Debt Management", American Economic Review 13 Olivares Caminal and Panizza U., (2010), Avoiding Avoidable Debt Crises: Lessons from Recent Defaults 59 ... develop the direction of the essay However, due to the lacking in expertise knowledge because all members of the group are not students major in Department of Finance and Banking, this essay will... divided into two sectors: the financial public sector and the non-financial public sector However, in fact, the debt figures of the two sectors guaranteed by the government are included in public... process and advise us to write the outline of the essay Your in- depth lectures are the source of inspiration for us to implement this topic and also help us to build the foundation and develop the