High inflation no more a worry
The inflation rate in Vietnam in 2011 reached 18 percent, the second highest level in the world. The high inflation has overshadowed the signals in the future of the national economy, and forced businesses delay their plan to expand production. Therefore, the government of Vietnam has vowed to curb the inflation, considering this the top priority task in 2012.
However, Truong Dinh Tuyen, a senior economist, former Minister of Trade, said that one should not be too worried about the inflation in 2012. He said that the economic difficulties have led to the demand decrease. Therefore, the inflation in 2012 would not be likely to jump as it did in 2011.
“The government should not be too worried about the high inflation, even if Vietnam floats the prices of some key products,” he said, rejecting the opinion that the tense in Iran may lead to the oil price increase and the push costs in the domestic market.
“Cambodia has been floating its petrol prices, and the prices are always higher than Vietnam’s. However, its inflation rate is lower than Vietnam’s. And so is Laos’,” Tuyen said.
“The target for 2012 is to just curb the inflation rate at one digit level, which would pave the way for the government to reduce the inflation rate to 6-7 percent in the next years,” he said.
Banks’ liquidity – the biggest worry
Tuyen has emphasized that the priority task for the immediate time is to settle the liquidity problem, and then deal with the relation between growth and inflation.
Only when the liquidity problem is settled will commercial banks be able to reduce the interest rates. And only when the interest rates go down will Vietnam be able to recover the asset markets (real estate and securities markets). Once the markets recover, banks will be able to clear bad debts, which paves the way for the successful implementation of the national economy restructure initiated by the government.
The liquidity problem of commercial banks is really serious. The banks remain so panicked that they do not dare to lend. The weak liquidity is the root of the bad debts in the banking system.
Credit growth and bank restructuring have become the hottest topics for now.
Most of the banks have received the quotas from the State Bank for their credit growth rates in 2012. Big banks have been told to obtain the credit growth rate of 17 percent. However, they have said that they may not use up the quotas.
Agribank, for example, has got the right to have a credit growth of 17 percent for 2012, but it only builds up the business plan to obtain the growth rate of 10 percent only this year. The bank has decided to cut down the lending to real estate developers and consumer credit, while focusing on lending to fund agricultural production.
In order to settle the problem, Tuyen said, the State Bank should spend money to buy weak banks. The move, if taken, would not affect the credit growth, but just aims to prevent the bad debts from spreading out to other healthy banks.
“After the liquidity problem is settled, the State Bank should remove the ceiling interest rate mechanism to let the market define the true interest rates itself,” he said.
Quoc Dung
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