MMT part three

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NOTE THAT THE LEFT-HAND SIDE AXIS REFLECTS BOTH TOTAL RESERVES IN BILLIONS AND RESERVES AS A PERCENTAGE OF EXTERNAL DEBT. SOURCE: WORLDBANK, VIETECON CALCULATIONS

NOTE THAT THE LEFT-HAND SIDE AXIS REFLECTS BOTH TOTAL RESERVES IN BILLIONS AND RESERVES AS A PERCENTAGE OF EXTERNAL DEBT. SOURCE: WORLDBANK, VIETECON CALCULATIONS

So, yesterday, I was looking at monetary sovereignty, and wanted to see how close Vietnam was to true sovereignty. And as I get more into MMT, I find it difficult to understand exactly how developing countries, actually any countries, can actually get to monetary sovereignty. Does it really just mean autoarky? If so, that’s not that compelling. Countries really do benefit from trade.

Maybe the key is that it exists on a spectrum with few countries actually existing on the side of almost complete sovereignty, with the US being the main example right now. On the other side, you have countries like Ecuador that just use the US dollar. Ironic given that the Ecuadorian government is pretty anti-American, or was (a bit less now).

The European Union, Japan and Canada are all pretty sovereign, basically they may have some non-Euro/-Yen/-CAD-denominated debt, but generally debt is denominated in their own currency. Exchange rates are flexible. They don’t need large reserves, and they are able to print their own money as they see fit. The Euro is a good example.

Emerging economies have not gotten that far, or most of them haven’t. Even China, cares a great deal about foreign (dollar) reserves. Vietnam also cares, and it has tried to keep high levels of reserves. It led us to the hypothesis that the government is trying to increase exports in part to make sure that it can keep high enough reserves in order to maintain export levels - our treadmill. Let me be clear this is just a hypothesis, and something that I continue to examine.

But today, I wanted to look at some of the main components of exports and imports that are basically “required” for the country. One of the main ways to move up the scale of monetary sovereignty is to not worry about imports. That means trying to be self-sufficient in the most important imports necessary for life, but have luxury good prices susceptible to whatever the floating exchange rate is.

Looking at the main points that Kaboub raised as necessary for monetary sovereignty (see my April 9 post for more info about Fadhel Kaboub’s views on MMT), then Vietnam should be mostly independent for food, energy and then try for high-value exports.

POSITIVE = NET EXPORTS. SOURCE: IMF, VIETECON CALCULATIONS

POSITIVE = NET EXPORTS. SOURCE: IMF, VIETECON CALCULATIONS

NEGATIVE = NET IMPORTS. SOURCE: IMF, VIETECON CALCULATIONS

NEGATIVE = NET IMPORTS. SOURCE: IMF, VIETECON CALCULATIONS

So, looking at exports and imports (charts above), let’s see where Vietnam stands.

  • Fuel: Not looking good. Vietnam is a net exporter, and its exports of oil have fallen pretty significantly. The oil and gas potential of the South China Sea is quite high, but, as we have talked about before, difficult for geopolitical issues. My view is that the government should go all in on renewables. It’s a sunny country, and it could easily produce enough electricity from that. Then switch to electric scooters, etc. Plus, it has a fair amount of hydro as a fairly reliable base of power production, plus gas.

  • Food: Here Vietnam is fine. It’s a net exporter. Of course it would need to import some food, but that’s fine.

  • Pharma: This is a category that I wasn’t looking for but is part of the IMF data set, and so it was interesting to see how much it costs the country to import pharmaceuticals. I don’t see this changing.

  • High-value manufacturing products: Here, we can see the impact of Samsung’s production. The Korean company accounts for a quarter of Vietnam’s exports. That shows up in telecom equipment exports, but electronics are actually significant net imports.

In summary, Vietnam is doing well in terms of food production, but needs to import fuel, pharmaceuticals and high-value add goods, but is able to pay for it partially through its low-value clothing exports and the help of Samsung.

That’s not the worst situation, but not sure it is the best. Plus, Samsung may be getting the best of that, with the profits transferred up to the parent. According to this older Quartz article, the company imports almost as much as it exports. If a company comes in with all the components and uses local labor for the assembly but without really transferring the know-how, there is little ability for the country to actually move up the ladder of skilled production.

So in terms of moving to greater monetary sovereignty, it seems like the best way to do that would be to heavily invest in renewables and higher value-add exports (as it is doing with its ventures in auto and mobile phone production).

Over time, the government could start to allow the currency to float without worrying about inflation in the most important goods (energy, food). That could allow it to focus more on domestic lending, and would allow it to relax its high levels of reserves.

These are just preliminary thoughts. Now, I want to think a bit more about employment (as I talked about in my earlier posts), but also how sustainable Vietnam’s reserves are currently. This paper by the IMF offers some proposals in gauging reserve adequacy. I might look at these for Vietnam.