This week the government will discuss
solutions to curb inflation and stabilize macro-economics at its October
meeting. VietNamNet reviews Vietnam’s inflation in the last five years.
Vietnamese people and businesses seem to be
very familiar to high inflation because the CPI in September 2011 is 16.63
percent more than that of December 2010. The growth of CPI in Vietnam is
alarming in comparison with that of its neighbors like Thailand, Malaysia and
Singapore.
It is more worrying to know that in the last
five years, only 2009 had the CPI with one digit. In the remaining years, the
CPI is over ten percent, specifically: 12.6 percent for 2007, 19.9 percent for
2008 and 11.8 percent for 2010. This year, it would be lucky if the CPI is kept
at 18 percent, because it is already over 16 percent by September.
According to the International Monetary Fund
(IMF), the average CPI growth in 2007-2010 of newly-emerging and developing
economies is 6.5 percent, 9.2 percent, 5.2 percent and 6.2 percent,
respectively. That of developing countries in Asia is 5.4 percent, 7.4 percent,
3.1 percent and 6 percent, respectively. It is much lower for developed
countries: 2.2 percent, 3.4 percent, 0.1 percent and 1.6 percent. Vietnam’s CPI
in the last five years is ashamed records.
High inflation in Vietnam is always explained
by the fluctuation of the international market. Recently, the method to
calculate basic inflation has been cited in a bid to reduce CPI. Using this
method, the State Bank of Vietnam and the General Statistic Office defined that
Vietnam’s CPI in December 2010 is 9.92 percent, equivalent to 84 percent of the
common CPI, if food is excluded. If energy is excluded, basic CPI is 9.81
percent, equivalent to 83 percent of the common CPI. If other non-monetary
factors are excluded, Vietnam can be glad to announce that the basic CPI is
even much lower.
In a recent report on high inflation in recent
year, compiled by the Ministry of Planning and Investment, the ministry
analyzed reasons as follows:
Regarding the monetary and credit policy: the
money supply in recent years was “loosened”. Money supply increased more higher
than the increase of gross domestic product (GDP) in a long time. The monetary growth
(M2) is 43.7 percent, credit growth is 53.9 percent in 2007. This is the record
high level in the 2001-2011 period, which is considered as one of the biggest
reasons causing high inflation in 2008.
In 2009, the situation repeated, but at lower
level than 2007, but it still caused high inflation in 2010 and 2011. The
tightened monetary and fiscal policy as of early 2011 has worked, resulting in
the reduction of inflation speed, which reached the peak in Apirl 2011 and has
gradually reduced (in September, CPI grew 0.82 percent, the lowest level so far
this year).
Strong devaluation of the Vietnam dong in
recent years has also caused inflation and inflation expectation. The US dollar
has depreciated in comparison with other currencies in recent years but in
Vietnam, the Vietnam dong has depreciated against the US dollar.
The fiscal policy is also a reason.
Overspending in this period is always over 5 percent (except for 2008 with 4.6
percent). If government bonds are included, overspending is much higher.
Constant overspending has forced the
government to mobilize capital from the people through issuing bonds, treasury
bills, which contributed to push up interest rate, total demand and pricing.
Another reason is the increase of input cost
in the world. In 2008, the price for imported materials increased by 27.1
percent on average, pushing Vietnam’s average CPI to 22.97 percent. It rose
9.59 percent in 2010 and 18.32 percent in the first half of 2011.
According to the Ministry of Planning and
Investment, ineffective economic and investment structure is the fundamental
reason that cause unstable macro-economic balances and promote high inflation.
The economy that develops in the width, mainly based on the increase of
investment capital, outdated technology, with low investment effectiveness has
made impacts on inflation.
Besides the above reasons, the ministry also
mentioned other reasons, including a poor distribution system, natural
disasters and epidemics, etc.
The Ministry has suggested 12 solutions to
curb inflation and stabilize macro-economics. Notably, the ministry proposes to
continue tightening the monetary policy but ensuring sufficient capital supply
for agricultural, electricity production and for producing export goods;
strictly controlling the gold, foreign currency market and restructuring
commercial banks.
Other long-run solutions suggested comprise:
restricting the economy and investment structure to improve macro-economic
balance, cutting down budget deficit, maintaining government debts at safe
level and gradually reducing government spending in the total investment.
Manh Quan
Business & Investment Opportunities
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.
No comments:
Post a Comment