Vietnam inflation attributes to good-money imbalance

Vietnam inflation partly stems from the imbalance between GDP and credit growth, Tran Du Lich, a Member of the National Advisory Council for Monetary Policies told the online newspaper Sai Gon Giai Phong.

From 2007 to 2010, for every 1 VND increase in GDP growth, total outstanding loans of the whole banking system rose by nearly 5 VND on average compared to the average credit growth of only 3 VND from 2001 to 2005, the senior official cited.

That’s why Vietnam’s economy is still lack of capital although total outstanding loans were 1.2 times as much as GDP, he added.

Lich pointed out 3 main reasons for the above-mentioned issue:

Firstly, stock and property bubbles from late 2006 to late 2007 manipulated the money market as it created a big gap between actual and nominal assets, and inflation in 2006-2007 helped to fill the gap with higher price level.

Secondly, from 2008 to 2010, Vietnam stock market was only active in secondary market, therefore most of local enterprises raise capital by borrowing from banks. Imbalance in the supply-demand of banking services encouraged small lenders to set up, compete aggressively and create the credit boom which caused disorders in the credit market and monetary policies.

Thirdly, widening budget deficit, inconsistent public investments…partly boosted up ICOR. Despite huge investment, lengthening and inconsistent construction progress helped create in equivalent assets which broke the imbalance between “goods and money”.

Although Vietnam should remains active budget deficit by borrowing more to invest in infrastructures and technology, it must ensure some strict conditions including clear strategies of Government and national debts, effective investment, probability of debt repayments in both domestic and foreign currencies, he added.

Lich was positive that Vietnam’s public debts are still in “safe” area, yet suggesting Government to have a system to forecast the state income after paying debts and recurrent expenditures at national and state-owned enterprises levels. – Stoxplus.com

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial