I Theoretical basis 1 1 Definition The concept of stimulus is simply the governments active spending to increase demand for goods in the market and stimulate the production of goods Pump priming is g.
I Theoretical basis 1.1 Definition: The concept of stimulus is simply the government's active spending to increase demand for goods in the market and stimulate the production of goods Pump priming is government spending planned to stimulate aggregate demand and through multiplier effects, accelerate mechanisms to create a much larger increase in national income When the economy falls into recession, the government does not have to increase spending enough to offset the shortfall in output (the difference between potential output and actual output), but only needs to increase spending enough to create a wave of optimism in the economy This wave of optimism will make the private sector spend more and the economy move towards a state of full employment equilibrium Simply put, Pum priming is a policy that increases economic productivity, helping the economy to recover from recession by increasing the total demand for goods and services in society 1.2 Overview Specific stimulus measures may be tax reductions or increased spending, or both Stimulus is especially used when the economy falls into a liquidity trap, when monetary policy becomes ineffective because interest rates are already too low To be effective, stimulus measures must be implemented at the right time, with the right target, and in the right amount The right time means that stimulus must be implemented when businesses have not yet reduced production and households have not yet reduced consumption The right target means targeting economic entities that can quickly consume more as a result of the stimulus and thus have an early impact on total demand; while also targeting economic entities that are more adversely affected by the economic recession The right amount means that stimulus will be ineffective when the economy has become better II Why Vietnam needs to implement a stimulus policy in 2009? 2.1 Global situation In 2008, the surge in subprime mortgage lending led to an increasingly inflated real estate bubble Banks at the time were not concerned about the repayment ability of customers, and reckless lending caused debt to rapidly increase It was estimated that by the end of the third quarter of 2008, more than half of the value of the US housing market was in loans, with one-third of them being non-performing loans Previously, to cope with inflation, the Federal Reserve continuously raised interest rates from 1% in mid-2004 to 5.25% in mid-2006, making interest payments too burdensome for homebuyers The real estate market began to freeze and decline To reduce risk for real estate loans, banks, insurance companies, financial organizations, etc bought back mortgage contracts and turned them into secured assets to issue bonds in the market This type of product was highly valued by credit rating organizations for its good liquidity Moreover, some insurance companies, including AIG - a large US insurance company, were willing to pay for these swaps However, reality is always cruel, and this strategy created a domino effect and pushed up risk even higher Large banks in the pillars of the world economy had to rely on the government to take over, and many insurance companies and financial organizations had to file for bankruptcy The commodity market reached its peak and plummeted sharply Oil prices rose from $90 per barrel at the beginning of the year to over $100 on February 20 and reached a record high of $147 per barrel on July 11 However, after peaking in July, oil prices suddenly plummeted uncontrollably This serious financial crisis not only affected the US but also many other countries, causing their economies to be severely devastated, leading to the simultaneous collapse of many giant financial institutions, and the stock market was shaken Although it had been predicted since 2006, the forecasts and analyses of many economists were not convincing enough for the most powerful financial agencies in the US and Europe to take preventive measures 2.2 The Impact of the Global Economic Situation on Vietnam *Regarding Import-Export Activities The financial crisis has the quickest impact on exports, as it is the most sensitive sector to the fluctuations of the world market The growth rate of exports significantly decreased due to the US being Vietnam's major market, accounting for 20% of export value, and the US is currently in a crisis, spending less and limiting imports Additionally, two other markets, Japan and the European Union, were also negatively affected, thus they had to cut spending Importing businesses were equally affected compared to exporting businesses when they have to import 7080% of raw materials for production and processing of exported goods A decrease in exports leads to a decrease in imports, and the global economy's recession leads to a sharp decline in prices of input goods such as gasoline, petroleum refining products, steel billets, construction steel, and technical equipment, resulting in decreased imports For some essential goods, Vietnamese importers set a safe limit to avoid losses but import at a moderate level, clustering and limiting development and expansion From exports to imports, all goods of Vietnam have decreased, causing difficulties for service businesses, producing accompanying materials, and supporting exports such as packaging, transportation, etc., which have also been affected, leading to an increase in inventory *Regarding the Banking and Financial System Although it has not been heavily impacted by the financial crisis in the United States as Vietnam's banking and financial system is still in the early stages of integration However, in the short term, due to the direct impact of the financial crisis, the profits of banks may decrease, and even some small banks may suffer losses, bad debts may increase, and the Vietnamese banking and financial system may be affected in the coming years *Market of goods and services Both production and consumption demand have decreased In the context of the global economic recession, Vietnam's macroeconomic situation has improved, but overall there are still many difficulties Due to the increase in production costs, especially bank loans, many businesses have cut back on their production and business plans, and reduced their scale In 2008, banks raised interest rates to tighten monetary policy and control inflation, making it difficult for companies to borrow from banks at high interest rates Service activities will be contracted, especially the number of tourists In the face of this situation, the Government has issued many decisions to fulfill the task of preventing economic decline, maintaining economic growth, and ensuring social security in the context of global economic decline One is to stimulate demand and deal with increasing inflation, and two is to nothing and wait long, recovery will not happen, and stimulus policies are evaluated as quick and appropriate in the short term 2.3 The Vietnamese Government implemented a stimulus package amidst difficult circumstances In response to the global financial crisis, the Vietnamese Government introduced a series of measures from the first quarter of 2008 to prevent and mitigate the unforeseeable consequences of the financial storm Fortunately, Vietnam timely applied appropriate measures to defend and combat the crisis from the beginning of the year Macroeconomic stabilization measures were effective in reducing inflation, strengthening liquidity among banks, ensuring market liquidity, narrowing the trade deficit, boosting state budget, tightening public expenditure, and increasing foreign exchange reserves The turmoil of the world market caused a decrease in commodity prices, which helped ease the burden of subsidies for commodities in Vietnam Commercial banks were also supported by numerous measures from the State Bank of Vietnam From a macroeconomic perspective, economic indicators have significantly improved However, in 2009, the global financial crisis continued to worsen, causing a recession in the world economy The Vietnamese economy showed signs of decline, particularly in terms of a decrease in aggregate demand due to a decline in exports and foreign investment In response to this situation, the Government issued Resolution 30/2008/NQCP on December 11, 2008, regarding urgent measures to prevent economic decline, maintain economic growth, and ensure social welfare This was followed by Decision 131/2009/QD-TTg on January 23, 2009, providing a 4% interest rate support for short-term loans for businesses and individuals to reduce capital costs and boost production, business, and services Soon after, on April 4, 2009, the Prime Minister signed Decision 443/QD-TTg on providing interest rate support loans for individuals and organizations borrowing mid-to-long-term loans in Vietnamese dong to invest in production, business, infrastructure, enhance product competitiveness, and create jobs To implement Resolution 30/2008/NQ-CP, the State Bank of Vietnam (SBV), the Ministry of Finance, and other relevant ministries and agencies coordinated policies to support production, business, and export, stimulate consumption and investment, significantly loosen monetary and fiscal policies, and ensure social welfare These policies included relaxing the budget, and the most significant policy introduced by the Ministry of Finance was to reduce and extend tax payments and refunds (the value-added tax ) 2.4 The Impact of Stimulus Policy on Vietnam's Economy 2.4.1 Positive Effects - The economic growth rate increased from 3.14% in first quarter to 6.9% in forth quarter of 2009, with an estimated annual growth of 5.32% - Thanks to the impact of stimulus packages, each sector has undergone significant changes The GDP of the industrial and construction sectors in 2009 increased by 5.4%, while the service sector increased by 6.5% - The total import turnover of goods in 2009 reached approximately $68.8 billion, a decrease of 14.7% compared to 2008 Of which, the block of foreign-invested enterprises reached $24.87 billion, accounting for 36.1% of the country's total import turnover, a decrease of 10.8% compared to 2008 The block of 100% domestic enterprises reached approximately $43.96 billion, accounting for 63.9%, a decrease of 16.8% compared to 2008 Although these figures all decreased, they were essentially positive results due to Vietnam's stimulus policies during the crisis at that time - The macroeconomic balances and indicators, such as budget revenues and expenditures, money supply, credit, and international payments balance, were relatively stable The inflation rate and consumer price index were at low levels Inflation decreased from 19.9% in 2008 to 6.5% in 2009 The price index in April 2009 compared to December 2008 increased by only 1.68% Along with the decrease in interest rates and the 4% interest support, it created favorable conditions for enterprises to reduce difficulties, restore production, and support stable and safe development of the credit system organizations - It directly contributed to increasing investment activities for economic and social infrastructure development, maintaining the economic growth rate, and creating the foundation and momentum for social development both currently and in the future - Many businesses that received timely support from the "stimulus package" had the opportunity to maintain and expand production, thereby reducing unemployment pressure, ensuring social stability, continuing to focus on poverty reduction, especially for ethnic minorities, mountainous areas, remote areas, supporting people to have a joyful, warm and economical Tet holiday, supporting people to overcome the consequences of natural disasters and epidemics, etc The policies of supporting credit interest rates for investment in machinery 2.4.2 Negative impacts Despite the positive effects, the first stimulus package in Vietnam still has many limitations, including: - The objectives and policy directions for stimulus are not clear, and there is no distinction between the concepts of stimulus and supply-side policies or rescue policies The policies introduced are all placed under the name of stimulus, while their actual impact may not necessarily increase the overall demand of the economy - The interest support package has some underlying limitations that can be identified, specifically that this policy cannot reach the targeted beneficiaries, and may even support the wrong beneficiaries due to information asymmetry between the State Bank and commercial banks, as well as between commercial banks and enterprises, resulting in many businesses not receiving the State's support policies The impact of the interest support policy on organizations and individuals with medium and long-term loans for new investments to develop production and business activities is also very limited - The large interest rate support of 4% per year for loaned funds is applicable to many sectors and economic fields, and if prolonged, it may create a sense of dependency on the State's support and reduce the competitiveness of businesses The interest rate support policy of 4% may create inequality and unhealthy competition among businesses because of the unequal access to supported capital sources - The 4% interest rate support package may lead to a decline in the competitiveness of Vietnamese businesses because the capital cost is not accurately and fully calculated - The stimulus package does not fully meet the three requirements: timely, right target audience, and sufficient (short-term) Although the stimulus package was promptly introduced by the government, the implementation process was slow due to administrative procedures Delayed implementation may reduce the effectiveness of the stimulus package On the other hand, maintaining the stimulus package in the long term may weaken the economy's competitiveness - The entire process of checking, monitoring, following up, and evaluating the implementation of stimulus measures was not designed and operated in a synchronized manner Lack of strict supervision may lead to fraudulent acts happening in financial institutions - The stimulus policy does not directly address the biggest challenge faced by businesses today, which is the lack of market demand The impact of the COVID-19 pandemic on people's psychology and behavior has led to a decrease in consumer confidence, which in turn reduces the demand for goods and services, leading to the decline in business operations The stimulus policy cannot help overcome this fundamental problem 2.5 Conclusion Despite the negative impacts that stimulus policies have on the economy, we cannot deny the positive effects they have brought in the context of the global economic crisis Stimulus policies are necessary in the short term, and in the long term, the economy needs to be more positive and develop stronger, making greater efforts in scientific and technological development to increase productivity and avoid dependence on other economies Moreover, it is important to recognize the importance of stimulus policies in the context of the crisis If we had not stimulated the economy, Vietnam's economy would likely have suffered severe recession, high inflation, and increased unemployment, with low employment rates III Comparison of the economic stimulus policies of Vietnam, China, and the US * Economic Stimulus Act of 2008 under President George W Bush: - Total budget: approximately 152 billion USD - Main aims: + Provide income tax rebate for individuals and families in 2008 + Provide tax cuts for businesses investing in production and purchasing fixed assets + Provide funding for public construction projects such as bridges, roads, airports, and railways + Support debt relief for credit card holders with outstanding debts and late payments * The EESA (Emergency Economic Stabilization Act) under President George W Bush: - Total budget: approximately 700 billion USD - Main aims: + Aimed at financially distressed financial institutions to purchase risky assets and provide capital to support their normal operations + Aimed at the financial market to purchase bonds and securities related to the financial market, as well as expanding lending programs and asset exchanges + Support local governments to minimize financial risks and create jobs + Provide lending support to businesses and individuals + Support the Federal Deposit Insurance Program * The American Recovery and Reinvestment Act (ARRA) under the presidency of Barack Obama: - Total budget: approximately $787 billion USD - Main aims: + Tax cuts and enhanced subsidy policies for citizens + Support for businesses to reduce costs and increase investment + Investment in infrastructure and public works projects + Support for renewable energy projects and enhancement of green energy technology 3.2 China's stimulus policies trillion yuan economic stimulus package: In November 2008, the Chinese government announced a trillion yuan economic stimulus package, equivalent to about $586 billion USD The package includes measures such as public investment, support for small and medium-sized enterprises, tax reform, and other measures to support the economy Monetary policy easing: The People's Bank of China (PBOC) has reduced interest rates and increased money supply to support banks and businesses Enhanced support for businesses: The Chinese government has increased support for businesses by providing low-interest credit, reducing business costs, and reforming tax policies Promoting domestic consumption: The Chinese government has implemented various measures to promote domestic consumption, including strengthening the value-added tax reduction policy, strengthening health insurance policies, and promoting social protection policies 3.3 Similarities in economic stimulus policies During the global economic crisis of 2008, countries around the world implemented economic stimulus policies to support their economies Vietnam, China, and the United States all shared similarities in their stimulus policies Firstly, all three countries focused on increasing public spending to stimulate the economy Vietnam applied a policy of increasing public spending to promote public investment and encourage foreign investment projects Similarly, China increased public spending on infrastructure projects to create jobs and stimulate consumption The United States also increased public spending in areas such as education, healthcare, and infrastructure to create jobs and stimulate the economy Secondly, all countries reduced taxes for both businesses and consumers to create a favorable environment for businesses to increase production and for consumers to increase spending In addition, reducing taxes also aimed to enhance purchasing power of people and businesses, helping to stimulate economic activity Thirdly, the governments of the United States, China, and Vietnam all strengthened support for businesses by providing funding for production and business operations and implementing policies that encouraged businesses to create more jobs and economic growth Fourthly, the governments implemented measures to enhance support for people, including policies to support the unemployed, provide cash assistance, reduce interest rates, and other policies to help people overcome difficulties Finally, the United States, China, and Vietnam all strengthened financial management to ensure stability in economic activities Measures included strengthening bank supervision, financial reform, and international cooperation In conclusion, Vietnam, China, and the United States shared similarities in their economic stimulus policies during the economic crisis of 2008 to support their economies All countries focused on increasing public spending to promote public investment, creating new jobs and reducing unemployment rates They also found ways to support consumers by reducing taxes and implementing other policies to increase personal spending These similarities show that during an economic crisis, countries can learn from each other and implement similar policies to support their economies 3.4 Differences between policies Firstly, in terms of scale, the stimulus policies of the US and China have implemented the largest economic stimulus packages in history, with amounts up to trillions of USD, while Vietnam has only implemented smaller-scale economic stimulus policies Regarding objectives and targets, the US stimulus policy has focused on creating new jobs and promoting economic growth, while China aims to achieve economic growth by strengthening public investment and developing new industries Meanwhile, Vietnam has set a goal to enhance public investment and support small and medium-sized enterprises to create new jobs In terms of the impact of stimulus policies on the economy, the US stimulus policy has helped improve employment and economic growth, but has also led to inflation and increased public debt Meanwhile, China's stimulus policy has helped achieve economic growth, but also led to increased public debt and risk assets in the banking system For Vietnam, stimulus policies have helped mitigate the impact of economic recession on Vietnam's economy, boosting economic growth and creating new jobs Finally, in terms of effectiveness, the US and China's stimulus policies have helped achieve short-term economic growth, but have also caused economic and financial problems in the future For example, inflation and public debt in the US, as well as risky assets in China's banking system Meanwhile, Vietnam's stimulus policy has been evaluated as quite effective, helping to increase Vietnam's GDP in the years following the economic crisis and improving employment IV Why didn't Vietnam implement stimulus package 2? In 2008, the world witnessed a major financial crisis that affected many countries around the world, including Vietnam However, while many countries implemented stimulus packages to help their economies recover, Vietnam did not implement a second stimulus package Vietnam implemented its first stimulus package in 2009, with a total value of up to 47 trillion dong This package helped Vietnam's economy recover quite well, with GDP growth reaching 5.32% in 2009 However, implementing a second stimulus package would be costly for the national budget, especially since the budget has already been under pressure from tax and fee reductions Vietnam has implemented other measures to stimulate the economy to recover from the financial crisis, such as tax reform, improving the competitiveness of businesses, and increasing public investment These measures have been effective, with GDP growth reaching 6.3% in 2010 Implementing a second stimulus package may not be necessary if other measures have been sufficient to help the economy recover Vietnam needs to focus on improving basic economic issues, such as tax system reform, improving competitiveness, and increasing investment in infrastructure Implementing these measures will help Vietnam's economy become more sustainable in the future, rather than continuing to increase spending now to achieve short-term growth Focusing on improving the basic issues of the economy will help Vietnam develop a more sustainable and independent economy In addition, in 2008, Vietnam faced many different economic challenges, such as rising oil and food prices, credit and investment crises, and foreign investment Therefore, the Vietnamese government had to make wise decisions about using the country's financial resources to cope with all these challenges In addition, implementing a financial stimulus package must ensure effectiveness and sustainability In the case of Vietnam, implementing a second financial stimulus package could also have some adverse effects such as increasing inflation, hidden inflation, increasing public debt, increasing financial risk, and other issues This can have long-term negative impacts on Vietnam's economy With the current economic development, Vietnam has had positive changes in the economy, such as exporting products, attracting foreign investment, and developing basic industries Focusing on measures to develop basic economic sectors and improve the investment environment will help Vietnam continue to develop sustainably and effectively In addition, Vietnam is also facing many other economic challenges, such as a trade deficit, high public debt, slow progress in public investment, and issues related to economic reforms Therefore, implementing a second financial stimulus package will be a challenge for the government and Vietnam's economy The decision not to implement a second financial stimulus package can also be explained by evaluating the consequences of the first financial stimulus package In the period of 2009-2010, Vietnam implemented the first financial stimulus package, with a total value of up to billion USD However, the results of this stimulus package did not meet expectations, especially in creating effective investments and stimulating sustainable economic growth Moreover, implementing the first financial stimulus package led to many negative consequences, including a high inflation rate, a sudden increase in public debt, and slow economic growth Therefore, the government has valuable lessons from implementing the first financial stimulus package and does not want to repeat those negative consequences In general, the decision of the Vietnamese government not to implement the second financial stimulus package to cope with the global financial crisis of 2008 was made based on careful evaluations of the country's economic situation and budget Other policies and measures were applied to deal with the financial crisis and promote Vietnam's future economic development, which have shown effectiveness and significant contributions to the country's development It can be seen that the decision of the Vietnamese government not to implement the second financial stimulus package to cope with the 2008 financial crisis was a difficult and complex decision However, it was the right and reasonable decision based on careful assessments of the situations and risks in Vietnam's economy at that time Despite not implementing the second financial stimulus package, the Vietnamese government took many other measures to minimize the negative impacts of the global financial crisis on Vietnam's economy These measures helped Vietnam's economy overcome the difficult period and continue sustainable growth in the following years In 2010, Vietnam's economy grew by 6.8%, higher than the 5.3% growth in 2009 By 2011, Vietnam's economy continued to grow at 7.0% Not implementing the second financial stimulus package but implementing other measures helped Vietnam's economy to quickly recover and enter a period of stable growth With the experiences and lessons learned from the 2008 financial crisis, the Vietnamese government needs to improve its ability to cope with difficult situations in the future To this, Vietnam needs to enhance its capacity and create favorable conditions for domestic businesses to develop One of the important things for domestic businesses is to enhance their competitiveness The government needs to introduce support policies and encourage businesses to improve the quality of their products and services, strengthen effective management, and apply advanced technology In addition, the government needs to promote institutional reforms and improve the business environment Creating a favorable and fair business environment will help businesses develop more strongly and at the same time attract more foreign investment Implementing these measures will help Vietnam better cope with future difficulties However, for success, the government needs determination and consensus from all stakeholders in society Only when there is consensus and cooperation between the government, businesses, and people can Vietnam develop strongly and sustainably in the future With the above advice and proposals, it can be seen that Vietnam's decision not to implement the second stimulus package in 2008 was not a mistake Instead, the government has implemented many other support measures to help businesses and people cope with difficulties in difficult economic conditions However, to develop sustainably, Vietnam needs to continue to improve the competitiveness of domestic businesses, promote institutional reforms, and improve the business environment In the future, Vietnam needs to be more cautious in managing risks and coping with unwanted changes in the global economy and finance, enhancing the competitiveness of domestic businesses and attracting foreign investment are extremely important