Global Financial crisis and responses from the GMS countries

); vii) Increasing outstanding debt on credit guarantee for enterprises (about 17000 billions VND); and viii) Other expenses to stimulate demand aiming at stopping economic recession, ensuring social security (7200 billions VND) (Vneconomy.vn, 13/5/2009). 4. The prospective of the GMS economies and the implication for the GMS economic cooperation Because of the lagging impact of the global recession, the first half of 2009 was a difficult moment for the GMS economies. The N.M. Hung / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 29-40 37 prospective of growth for the GMS economies depended by and large on the external demand but the forecast of regional and global economies was dismal. In March 2009, World Bank reported that the world economy in 2009 would suffer a negative growth of 1.7%, with contraction occurring in all G3 (US, Euro Area and Japan) and world trade volume contracting by 6.1%. However, by the end of Q3, the overall situation has indicated the light in the end of the tunnel. Global recession seemed to pass its trough and showed a positive sign of recovery. This was the result of the combined global and national efforts to weather the crisis and stimulate the growth. Recent IMF report expected a more vigorous global recovery in the later half of 2009 with the growth rate of 3% in 2010. The GMS economies have also performed better since Q3 of 2009. For example, the Vietnamese economy grew at 5.76% on the y-o- y basis compared to 3.1% and 4.5% in Q1 and Q2 respectively. China’s y-o-y economic growth accelerated to 8.9% in Q3 after tumbling to 6.1% in Q1 and reaching 7.9% in Q2 of 2009 (news.xinhuanet.com, 22/10/2009). The Thai economic growth in the third quarter expanded 2.3 - 2.5 per cent, compared to the second quarter but contracted 3.1 - 3.3 percent y-o-y. Although the fundamental for recovery has not been consolidated, improving economic performance in the GMS has been contributed by timely and well targeted fiscal and monetary measures by the governments in the sub-region. The responses from the GMS economies to the global recession bear important policy implications for macroeconomic management and sub-regional cooperation. First, like other Asian developing economies, the GMS economies rely too much on export and foreign investment as the sources of growth. There was remarkably synchronized nature of trade and investment contraction across countries in the sub-region, and this was generally consistent with their particular position within global and regional production networks. This kind of vulnerability may be even greater for such economies as Vietnam and Cambodia which have recently become the WTO member. Nonetheless, trading with neighboring economies is still very important for some countries in the GMS because of their disadvantageous geographical and political conditions. Laos, for example, being land- locked, depends on the intra-regional trade most, with 45% of its exports going to and 72% of its imports coming from other GMS countries. The U.S economic sanction has made Thailand and China Myanmar’s two largest trading partners. Geographical proximity also makes CLMV important trading partners of Yunnan and Guangxi provinces of China. Figure 1. GDP Growth of the GMS Economies, 2007 - 2014 -6 -4 -2 0 2 4 6 8 10 12 14 2007 2008 2009 2010 2011 2012 2013 2014 Cambodia China Lao People's Democratic Republic Myanmar Thailand Vietnam Figure 1. GDP growth of the GMS economies, 2007 - 2014. Source: International Monetary Fund, World Economic Outlook Database, October 2009 N.M. Hung / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 29-40 38 Figure 2. Consumer Price Index of the GMS Economies, 2007 - 2014 -5 0 5 10 15 20 25 30 35 2007 2008 2009 2010 2011 2012 2013 2014 Cambodia China Lao People's Democratic Republic Myanmar Thailand Vietnam Figure 2. Consumer price index of the GMS economies, 2007 - 2014. Source: International Monetary Fund, World Economic Outlook Database, October 2009 -25 -20 -15 -10 -5 0 5 10 15 2007 2008 2009 2010 2011 2012 2013 2014 Cambodia China Lao People's Democratic Republic Myanmar Thailand Vietnam Figure 3. Current account deficit of the GMS economies, 2007 - 2014. Source: International monetary fund, World Economic outlook database, October 2009 Second, there has been congruence yet synergy in the policy responses as the countries across the sub-region adopted expansionary monetary and fiscal measures. In this respect, these policies were quite useful and necessary but limited because they have been largely national, independent, and uncoordinated, given that the GMS economies are increasingly interdependent with each other, not only in trade and investment, but also finance. Indeed, there has been a “stimulus pressure” upon smaller countries with limited budget such as Laos and Cambodia who could not afford to compete with Thailand and Vietnam in terms of stimulus package size. However, fiscal policy stimulus can have a positive spillover effect on the neighboring countries through trade. Although this is the benefit of the smaller economies, this should not be the condition for “free rider” incentive which leads to a smaller than desirable fiscal stimulus. So there is a case for more coordinated action and further deepening and integration of financial markets in the GMS to support the sub-region’s long-term growth. Financial cooperation will help reduce the sub- region’s financial risks and increase the sub- N.M. Hung / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 29-40 39 regional influence in shaping the direction of the international financial system. Third, although the risk of defection is always remaining high in a difficult moment, the GMS economies have not pursued a kind of beggar-thy-neighbor policy with an aggressive move to encourage exports through engineering currency devaluation and provision of favorable tax treatment for exports or discourage imports by raising tariffs to protect domestic industries. Nonetheless, given a more integrated labor market in the sub-region, the economic recession may spur the flow of cross-border migrant workers, therefore forcing the receiving country to tighten its employment policy on the migrant workers. Fourth, there has been concern over the long-term effect of fiscal stimulus measures and the expansionary monetary policy. The GMS economies need to keep a watchful eye on medium- to long-term deficits and public debt, balancing fiscal stimulus with fiscal sustainability. They must ensure that the right money reaches the right person or money is channeled into “bankable” investment projects in infrastructure and other areas, rather than making a “round-trip” within the financial system of the economies. Although some part of fiscal resources may be directed to stabilizing output and employment in the short term through support of consumption and investment, a substantial part should be directed to laying foundations for long- term growth through, for instance, building credible social sector protection systems and promoting green industries. Finally, as the response to the global recession, a number of economists recommended that Asian developing economies should look at ways to rebalance growth (Kawai, 2009a, 2009b). The GMS is no exception. That means the sub-region must become a market for its own production. The ultimate objective of growth rebalance is not to restore current account balance. Export-led growth of such market-oriented economies as those in the GMS may have surplus or deficit. Rather, rebalancing should focus on rectifying the bias of the incentive scheme in favor of particular sectors such as export-oriented industries. More importantly, rebalancing needs to remove the impediments to domestic consumption by increasing the purchasing power of those in the middle to lower part of income distribution. References [1] ADBI (2008), Conference on the sub-prime mortgage crisis, Managing capital flows, and the asian economy. [2] An Pham Sy (2009), Impact of global financial crisis on Vietnamese economy and policy response, Paper at International Workshop “Global financial crisis and responses from the GMS countries,” Ha Long, 8/11/2009. [3] BBC News (2008), Inflation tops China 2008 agenda. [4] Chanhming Phosy (2009), Measures Taken by the Lao Government to Tackle Global Financial Crisis and Its Effects, Paper at International Workshop “Global financial crisis and responses from the GMS countries,” Ha Long, 8/11/2009. [5] Chomthongdi, Jacques-chai (2008), Initial thoughts on impacts of the global financial crisis on Thailand and India, Focus on the global south, Thailand, October 30, 2008. [6] EIU (12/2008), Country Report Laos December 2008. [7] Hoang, Nguyen Huy (2009), An analysis of the policy response to the impact of the global financial crisis: the case of Cambodia, Paper at International Workshop “Global financial crisis and responses from the GMS countries,” Ha Long, 8/11/2009. [8] Kawai, Masahiro (2009a), Welcome remarks at the conference on global financial crisis: Macroeconomic policy issues, ADBI, Tokyo, 28- 29 July 2009. [9] Kawai, Masahiro (2009b), The global financial crisis and Asia, Policy Dialogue: European Policy Centre, Brussels, 19 January 2009, ADBI. [10] Kuroda, Haruhiko (2009), Asia's recovery from the global financial crisis-What it takes and what could ADB do?" Lecture by president Asian development bank at the institute of Southeast Asian studies (ISEAS), 22 June 2009, Raffles Hotel, Singapore. N.M. Hung / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 29-40 40 [11] Lu Na (2009), Chinese Members in Greater Mekong Sub-region Actively Responding to the International Financial Crisis, Paper at International Workshop “Global financial crisis and responses from the GMS countries,” Ha Long. [12] Nag, Rajat M (2009), "Impact of the Financial Crisis on Asian Developing Economies" Presentation at the University of Ottawa, 22 April 2009, Ottawa, Canada. [13] Nidhiprabha, Bhanupong (2009), Macroeconomic management under the global financial crisis. [14] Nijathaworn, Bandid (2009), Financial Developments and the Thai Banking Sector, Keynote address given at the Third Euromoney Thailand Investment Forum, Centara Grand Hotel, Bangkok, June 10th 2009. [15] Tongurai, Jittima and Kazuo Toritani (2009), Corners Hypothesis and the Proposals on Foreign Exchange System for East Asia: A Perspective from the Incompatible Trinity, Faculty of Economics, Oita University, Asia- Pacific Economic and Business History Conference 2009. [16] Websites: rate_(consumer_prices).html file.html erest-Rate.aspx?symbol=CNY _exporting_deflation 01/2009-01-08- voa6.cfm?CFID=323436453&CFTOKEN=31316 578&jsessionid=6630f41a862f32dc40403b463d2 97c5b5d13 siness/business_30098145.php stimulus-economy-biz-cx_pm_1109notes.html 03/06/content_10952638.htm 0C6/cong-bo-chi-tiet-ve-goi-kich-cau-8-ty- usd.htm &ItemID=64689 10/22/content_12295571.htm pacific/7278450.stm www.econ.tu.ac.th. Hà, Đống Đa, Hà Nội Trong những năm gần đây, các nền kinh tế thuộc Tiểu vùng sông Mê Kông mở rộng (GMS), bao gồm Campuchia, Lào, Myanmar, Việt Nam, Thái lan và tỉnh Vân Nam của Trung Quốc, đã đạt được những tiến bộ đáng kể trong phát triển kinh tế - xã hội và hội nhập quốc tế. Tuy nhiên, cuộc khủng hoảng tài chính toàn cầu, cùng với những biến động về giá lương thực, dầu mỏ và các mặt hàng chủ chốt khác đã tạo ra một số những thách thức khó khăn nhất định cho các nền kinh tế của Tiểu vùng. Bài viết này nghiên cứu tác động của cuộc khủng hoảng tài chính toàn cầu đối với các nền kinh tế GMS và đối sách của các nền kinh tế này. Mặc dù triển vọng của các nền kinh tế GMS phụ thuộc nhiều vào sự phục hồi của nền kinh tế thế giới, song các chính sách đúng đắn của các chính phủ trong Tiểu vùng vẫn đóng vai trò then c