Vietnam - Government not to loosen monetary policy

(VOV) - The Government is determined to reduce interest rates and continue its strict monetary policy.

The decision was made at the Government’s regular monthly meeting on September 25-26.

During the two-day meeting, the cabinet members discussed measures to deal with inflation effectively.

Positive economic growth, inflation under control

Although the economic growth rate in September was estimated at only 5.76 percent, much lower than a year earlier, both Vietnamese and foreign economists described this as a positive sign.

The industrial, agricultural and service sectors, for instance, continued maintaining high growth.

Export turnover in September reached US$8.3 billion, raising the total revenue in the first nine months to US$70 billion, up 35.4 percent against last year’s same period and a three-fold increase compared to the target set by the National Assembly.

As a result, the trade deficit in the first nine months stayed at 9.8 percent of the total export value. Minister of Industry and Trade Vu Huy Hoang said he believes it will be kept at around 13 percent, much lower than the set target of 16 percent as mentioned in Government’s Resolution 11.

The rate of inflation dropped to a record low of 0.82 percent. In addition, the growing trade surplus and foreign exchange reserve, stable foreign exchange rates, falling interest rates, decreasing public investment, and national debt at safe level are expected to provide fresh impetus for keeping the rates of inflation at 18 percent and growth at six percent, respectively in 2011.

Unsustainable macroeconomics

Despite this fact, Vietnam’s rate of inflation in the first nine months was still 16.63 percent higher than last December. This was, in part, attributed to the impact of the high input costs coupled with ineffective domestic investment and management.

Minister of Construction Trinh Dinh Dung pointed out certain shortcomings in controlling public investment, making medium- and long-term investment plans, and managing the domestic market. He cited the outstanding balance in the real estate sector at VND245 trillion, 12 percent of which remains in bad debts.

Minister of Information and Telecommunications Nguyen Bac Son proposed a restructuring of the banking system to make it more transparent by strictly handling violations of the State Bank of Vietnam’s ceiling interest rate policy.

Prime Minister Nguyen Tan Dung warned ministries and agencies not to be too satisfied with initial achievements in the national economy.

He said that there remain numerous challenges and difficulties such as the growing banks’ bad debts, the foreign exchange reserve not yet at safe level, the unimproved living conditions of low-income earners, and the negative impact of natural calamities.

Persistent with Resolution 11

Sharing the common view that the government should not revise the target of Resolution 11, PM Dung asked the State Bank of Vietnam (SBV) to continue its strict monetary policy, reduce interest rates, stabilize foreign exchange rates, keep the outstanding credit at 15-17 percent and means of payment growth at 12-13 percent, control bad debts, and ensure liquidation until at the end of 2011.

The SBV is responsible for controling the rate of inflation at 18 percent in 2011 and less than 10 percent in 2012 before bringing it down to 5 percent by 2015, said Mr. Dung.

He asked central agencies and local authorities to cut public investment and improve its effectiveness, increase State budget collections and reduce the State budget deficit to 5 percent of GDP.

Central agencies and local authorities should promote production, especially agricultural production, to ensure food supplies until the Tet festival while boosting exports and developing support industry, the PM said.

He also urged agencies and localities to prevent damages caused by natural disasters and the spread of epidemics while ensuring social welfare and maintaining defence and security.

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