Curbing Inflation Remains an Open Question

Top priority should be given to curbing inflation in managing the economy, according to Vietnamese and foreign economists.
There is growing concern about runaway inflation which already reached 16.63 percent in the first nine months of 2011, causing macro instability and lowering the rate of growth.

The rising rate of inflation in 2011 is attributed to a delay in the implementation of loose monetary and fiscal policies in the fourth quarter of 2010 and the management of these policies in the first quarter of 2011. Adjustments in the prices of input materials such as electricity, coal, and petrol as well as the VND/USD exchange rate according to the market-based mechanism sent the rate of inflation soaring in the first four months of 2011 to a record high of 9 percent against 2010.

Then, thanks to the implementation of the government’s Resolution 11, the situation has changed for the better with the consumer price index (CPI) decreasing from 0.93 percent in August to 0.82 percent in September. However, the index in the first nine months of 2011 is still higher than the GDP growth rate of 5.76 percent.

At the regular meeting of the government in September, cabinet members shared the same view that there are many reasons for the rising rate of inflation, the most noticeable one is the total amount of investment has exceeded savings and credit level while the means of payment also keeps increasing.

Dr. Nguyen Duc Thanh, Director of the Centre for Economic and Policy Research under Vietnam National University in Hanoi argued that tightening monetary policy and increasing interest rates is a passive and ineffective measure which is often taken to cope with inflation.

Also at the September meeting, the concept of “psychological inflation” came to the fore for the first time. It was considered a particular feature that affects inflation in the country and requires managers to find appropriate solutions.

Minister, Head of the Government Office Vu Duc Dam said scientific research shows that if interest rates increase by 1 percent, the rate of inflation will rise by 0.03 percent but a 1 percent increase in the so-called “psychological inflation” can lead to a real inflation rate of 0.64 percent.

At the recent 44th Annual Meeting of the Board of ADB Governors in Hanoi, leading economists pointed out shortcomings in Vietnam’s policy formulation process, including the lack of a tight policy structure against inflation, poor coordination between ministries, inadequate allocation of budget and human resources, and an incomplete legal framework.

Economists of the International Monetary Fund (IMF) pointed out that there still exists a gap between the implementation of tight monetary policy and fiscal policy while cuts in public investment show no clear results.

In order to combat inflation, economists said, it is necessary to strictly manage the public sector, which is using resources ineffectively, and to encourage the private sector to develop creatively and provide fresh impetus for long-term sustainable development.

VOV News

Tags: Vietnam economic, Vietnam economic growth, Vietnam economy, Vietnam economy 2011, Vietnam inflation, Vietnam inflation 2011