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Finance needs to closely and carefully schedule the maturity and repayment of both medium- and long-term foreign debt and short-term debt.
Second , to limit the growth rate of short-term foreign debt from medium- and long-term debt and at the same time aim to reduce short-term foreign debt, the Government needs to develop a plan for borrowing and using medium- and long-term debt that is reasonable, practical and truly helps the development of the national economy. At the same time, the Government must also strengthen management and control of debt use, avoid the situation of using debt for the wrong purpose or corruption... leading to the Government having to continue to borrow more, making the burden of national debt even greater and short-term foreign debt also increasing.
Third, for short-term foreign debts guaranteed by the Government for credit institutions and enterprises, especially state-owned enterprise groups, the Government needs to delimit and guarantee only certain essential borrowing purposes and industries, limiting widespread guarantees that increase short-term foreign debts. At the same time, the Government must carefully examine the borrowing purposes and the feasibility of debt repayment before agreeing to guarantee. In addition, the Government also needs to strictly control and manage after borrowing, requiring foreign borrowing organizations guaranteed by the Government to report on the use of loans and debt repayment plans to the Government periodically in accordance with the short-term loan term.
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For the ratio of state budget deficit/GDP
This variable also has a positive relationship with the probability of national debt default. Clearly, the data on Vietnam's budget deficit when running the risk premium model (refer to Appendix 3.1) shows that Vietnam almost had a budget deficit throughout the research period 2005 - 2017. Therefore, to reduce the probability of national debt default, the Government needs to reduce the state budget deficit with the basic measures to aim at increasing budget revenue and reducing budget expenditure, specifically shown:
Firstly , increase budget revenue by maintaining stable economic growth with the expansion of production and business scale. Besides, budget revenue can be increased by reforming the tax policy system and tax management. In reforming the tax policy system, the Government needs to
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Expanding revenue sources for consumption tax with two types of value added tax and special consumption tax because these are stable sources of tax revenue, less volatile than import tax or resource tax. The Government can increase new taxes, increase tax rates or expand taxable subjects. However, increasing taxes, especially consumption tax, needs to be carefully considered and chosen at the right time because it will increase prices of goods, put pressure on inflation and people's lives, possibly eliminating the motivation for businesses to expand production and business and reduce the competitiveness of the economy. In tax management, the Government needs to strengthen strict control measures and handle more drastically cases of long-term tax arrears; need to severely and strictly punish cases of tax evasion and incorrect tax declaration in order to deter and help raise awareness of self-compliance with the law, and pay taxes correctly and fully by taxpayers.
Second , reduce budget expenditures through the following measures: (i) reduce regular expenditures such as streamlining the state apparatus which is still cumbersome and inefficiently operating, and cut back on non-urgent items such as festivals, conferences, seminars, groundbreaking and inauguration ceremonies, and domestic and international business trips that are not really necessary.
(ii) strictly control public investment expenditure, only spend on necessary and urgent projects and strictly handle cases of investment waste or corruption when implementing public investment projects. In addition, the Government can mobilize social resources to serve development investment goals in the forms of public-private partnership (PPP), build-transfer (BT) contracts and build-operate-transfer (BOT) contracts to replace investment from the state budget.
Third , strengthen the Government's management role in operating fiscal policy by perfecting regulations on the division of revenue sources and expenditure tasks between budget levels in accordance with the functions and tasks of government levels and in the direction of specifically defining the tasks and revenue and expenditure authority of each government level to clearly identify which level will be responsible when the task is not completed, thereby ensuring that the task is carried out more seriously.
For fluctuations in indirect investment capital
This variable alone is negatively related to the probability of sovereign default. Capital
Indirect investment needs to have positive or increasing fluctuations in order to generate profits.
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signals that the national economy is growing well and attracting investors to participate. Therefore, foreign investors will have a better assessment of the country, the risk premium as well as the probability of national default will decrease. However, it should be noted that the stronger the increase in indirect investment capital, the higher the possibility of financial account damage because this is "hot" money, which can enter and exit the country very quickly and unexpectedly. Therefore, increasing indirect investment capital is the right thing to do, but it is also necessary to strictly control this capital flow. To simultaneously attract and control this capital flow, the Government needs to implement the following appropriate policies.
Firstly , it is necessary to improve the legal framework of the stock market in a transparent and clear manner so that foreign investors can confidently invest in the Vietnamese stock market. In addition, the scale of the Vietnamese stock market is still small, so it is necessary to expand the market scale by equitizing more and more large-capitalized and well-performing state-owned companies and listing these companies on the stock exchange. This will attract more foreign investors to be interested in and invest in the Vietnamese stock market.
Second , it is necessary to diversify investment tools of the stock market such as developing the bond market, introducing derivative transactions such as futures and options, etc. so that foreign investors have more choices and are willing to invest more capital in the Vietnamese stock market.
Third , it is necessary to strictly control this capital flow, including the management of foreign investors' activities by the State Securities Commission under the Ministry of Finance and the management of capital flows (foreign exchange) into and out of the country by the State Bank. Thus, for effective control, there must be close coordination between these agencies. Data on the flow of money moving from the stock market to the foreign exchange market and vice versa must be updated clearly and regularly between the State Securities Commission, the Ministry of Finance and the State Bank so that if there is a sudden large-scale withdrawal of indirect investment capital from the market, these agencies can proactively handle it because they have a clear understanding of the situation.
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5.3.3.2. Policy implications from the cost of loss due to sovereign default
According to the results of the research model, the cost of loss from national debt default has a positive relationship with the level of DTNHTU. Thus, to control the optimal reserve level and reduce it, the cost of loss from national debt default also needs to be reduced. However, this cost is represented by the loss of Vietnam's GDP output after the 2008 crisis, so it has been determined and remains unchanged. To reduce this cost, it can only be assumed that if a world crisis occurs again or a major event affects Vietnam's economy, this impact will not cause much damage or weaken Vietnam's economy for too long. In other words, the loss of output due to the impact of the world crisis or a major event, if it occurs, will be less than the loss determined in 2008.
To minimize the impact of crisis or events on the economy, Vietnam needs to ensure that the growth and development of the economy is solid with macroeconomic factors operating stably, without signs of instability. At the same time, a stable economic growth is also a favorable premise for increasing GDP.
Therefore, when trying to develop the economy while still maintaining stable internal factors, the Government needs to ensure the following issues: (i) control inflation well; (ii) maintain stable VND interest rates at a reasonable low level to stimulate production and business activities to expand both in breadth and depth; (iii) maintain stable operations of the banking system; (iv) effectively manage exchange rate policies towards stabilizing the VND/USD exchange rate and the foreign exchange market; (v) create favorable administrative conditions as well as develop infrastructure to attract foreign direct investment; (vi) deeply develop the financial market to increase foreign indirect investment flows; (vii) Increase exports by seeking and expanding export markets with many new markets, avoiding focusing on only a few traditional markets because when an incident occurs, if we only rely on traditional markets, export revenue may decrease sharply, foreign currency supply will narrow, causing pressure on exchange rates and trade balance.
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5.3.3.3. Policy implications from opportunity cost variables
According to the research results, the opportunity cost variable (represented by the VND lending interest rate) has an inverse correlation with the level of foreign exchange reserves. If the opportunity cost increases, the government tends to be afraid of holding more foreign exchange reserves, causing both foreign exchange reserves and foreign exchange reserves to decrease. Therefore, in order to increase foreign exchange reserves, it is necessary to find a way to reduce the opportunity cost, which according to this model is to reduce the VND lending interest rate.
When the VND lending interest rate is reduced, production and business activities in the economy have the opportunity to expand both in scale and depth, meaning that the economy is stimulated to grow and lead to export growth as well as attract investment capital flows into the country. This will bring an abundant supply of foreign currency to the country and create favorable conditions for increasing the SBV's foreign exchange reserves.
However, excessive reduction of VND lending interest rates can also bring disadvantages to DTNH in the following points.
Firstly , when the VND lending interest rate is reduced, it means that the opportunity cost is reduced. According to the research model for calculating the level of DTNHTU, this means that the level of DTNHTU will increase because the opportunity cost has an opposite impact on DTNHTU. If the optimal reserve level increases, it also means that the DTTNHTT must also increase accordingly to ensure that it is not lower than the optimal level. For the State Bank, accumulating a lot of DTNH to increase DTNH is not an easy thing to do.
Second , reducing VND lending interest rates means higher credit growth, and a larger money supply into the economy. If the interest rate reduction becomes excessive, the sharp increase in money supply will cause high inflation, creating large fluctuations in the VND/USD exchange rate and the foreign exchange market. In many cases, the State Bank has to use the DTNH fund to stabilize the market, reducing DTNH instead of increasing it as expected.
In short, reducing opportunity costs, i.e. reducing VND lending interest rates, is a measure to help the State Bank increase its foreign exchange reserves. However, it is necessary to control the reduction of VND lending interest rates appropriately to control the increase in foreign exchange reserves within the allowable range and also to simultaneously control inflation, avoid causing fluctuations in the foreign exchange market and the State Bank must use the foreign exchange fund to intervene and reduce foreign exchange reserves.
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5.3.3.4. Policy implications from the actual foreign exchange reserve variable
According to the research results, the GDP has a negative correlation with the GDP per capita. This means that increasing the GDP per capita can control and reduce the GDP per capita. Increasing the GDP has been partly discussed in the policy suggestions in the sections above. However, increasing the GDP can also be done through measures to increase the sources of GDP formation, in which the main sources for Vietnam include export revenue, foreign direct and indirect investment activities, and remittances. However, for foreign direct and indirect investment activities, measures to increase indirect investment capital have been discussed in the policy suggestions for the national debt default probability variable, so in this section, the author only mentions the issue of attracting foreign direct investment capital.
For increasing export revenue
The Government needs to synchronously implement the following measures:
Firstly , expanding trade relations with more countries to seek new export markets, strengthening Vietnam's activities in the international arena to enhance Vietnam's reputation in order to promote more trade exchange between Vietnam and the world.
Second , continue to improve export-oriented policies such as eliminating sub-licenses, reforming administrative procedures, and further simplifying customs procedures to bring the most transparency and convenience to businesses when exporting goods and helping businesses make the most of export opportunities.
Third , encourage enterprises to improve the quality of export products and should export processed products to increase export value, not export raw products by specific policies such as tax incentives, fees ... for enterprises exporting processed products and imposing export taxes on raw products. Improving the quality of export products is also a way to control the decline in exports. When a shock occurs causing partner countries to reduce imports, product quality will be one of the factors.
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so that countries decide to continue buying goods from our country and not from other countries. Thanks to that, our country's export sales have not decreased sharply.
Fourth , there are policies to support the private economic sector towards export and export production such as prioritizing loans with low interest rates, reducing corporate income tax... to further promote exports from the private economic sector and further expand the scale of the private economy.
For attracting foreign direct investment
This capital is long-term investment capital in the country, so there is no need to worry about sudden capital withdrawal or unexpected cash flow out of the country. Therefore, the Government needs to have policies to attract more of this capital flow.
Firstly , improving the country's investment environment such as stabilizing the macro environment, controlling inflation well, developing the banking system in the direction of serving customers more quickly and conveniently, and keeping exchange rates stable... At the same time, it is necessary to improve the legal environment and reform administrative procedures in an easy and convenient direction to avoid causing trouble for investors. These efforts aim to attract more foreign investors to invest in Vietnam and investors who have signed previous commitments to disburse early, helping the flow of foreign currency into the country to be more abundant.
Second , although this is an important source of investment capital and brings a large amount of foreign currency to the country, it is also necessary to note that it is necessary to innovate the mindset of attracting foreign direct investment, avoiding the situation of attracting at all costs to receive low technology, causing environmental pollution and turning Vietnam into the world's technology dumping ground. The government needs to have special policies and preferential conditions to attract the world's leading corporations and multinational companies to Vietnam. With the advantage of high management and technology, these companies or corporations will train high-quality human resources for the country and at the same time transfer and help Vietnamese enterprises access modern technology.
For attracting remittances to the country
This is an important source of foreign currency for Vietnam, so the Government also needs to have many policies to attract this source of remittances into the country.
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Firstly , to increase the source of remittances, the Government should improve remittance management policies in a transparent manner, creating convenience for both senders and recipients. In addition, the State Bank of Vietnam needs to issue regulations in the direction of incentives for credit institutions and money transfer companies to establish an effective payment infrastructure for remittances, helping recipients receive money faster with reduced costs when using the service. In addition, to attract more remittances and help expand the remittance network, the State Bank also needs to develop regulations to encourage domestic commercial banks to establish remittance offices and centers abroad, especially in countries with a large Vietnamese population or labor export such as the US, Taiwan, Korea, Japan, etc. The government also needs to support domestic commercial banks to connect with authorities abroad because the establishment and operation of remittance offices abroad will have to comply with the standards, laws and culture of the host country.
Second , to avoid loss of remittances and prevent money laundering, the Customs authority needs to coordinate with the State Bank to strengthen strict control over smuggled remittances, not through the banking system or money transfer companies, helping to reduce informal remittances.
Third , to attract remittance recipients to resell foreign currency to banks and avoid them selling it on the “black market” foreign exchange market, causing a loss of remittances, the State Bank needs to implement the following policies: (i) maintain a positive real interest rate policy for VND with an attractive enough positive real interest rate and a 0% USD deposit interest rate policy to encourage remittance recipients to sell USD to the banking system and switch to depositing money in VND. This helps the country have more foreign currency revenue from remittances while reducing dollarization in the economy. (ii) try to eliminate the “black market” foreign exchange market by the State Bank regularly conducting surprise inspections of gold shops and foreign exchange agents and taking appropriate measures to punish and sanction both buyers and sellers if they are found to have “underground” foreign currency transactions. If the black market is eliminated, remittances will be forced to be bought and sold through the banking system, avoiding the loss of remittances and making it easier for the State Bank to control remittances.