Market prices, inflation to be kept in check
  • | VOV | January 06, 2010 09:21 PM

Vietnam has bottomed out from the global economic recession in 2009 and is now back on the road to recovery.

To meet the target of a 6.5 percent GDP growth rate in 2010, the country needs to work harder to keep market prices and inflation under control.

The World Bank (WB) and the International Monetary Fund (IMF) have forecast that the global economy will continue to see an upward trend in 2010, and Vietnam is no exception. However, the country, which is expected to achieve a GDP growth rate of 6.5 percent, will face a number of difficulties, especially the possible return of a high inflation rate.

Analysts say that high inflation rate probably resulted from the loosened monetary policy which was put in place last year and eventually led to a rise in the amount of money in circulation. The country’s minimum monthly salary which is set to increase to VND730,000 from VND650,000 this year will drive up consumer demand, along with plans to boost the social welfare policy and the poverty reduction programme.

In addition, the prices of essential commodities such as electricity, coal and clean water will be regulated according to market mechanisms. Natural disasters and epidemics will also affect the market law of supply and demand, prompting the prices to go up.

Many people wonder whether Vietnam will meet its targets of keeping the consumer price index (CPI) at less than 7 percent and achieving a GDP growth rate of 6.5 percent in 2010. Economic experts suggest that the government will introduce flexible monetary and price policies to keep pace with market fluctuations.

Commodity prices to be adjusted

Many people are concerned that such move will affect other consumer products. The head of the Pricing Management Department under the Ministry of Finance, Nguyen Tien Thoa, confirms that the State will intervene to stabilise the market in case of abnormal fluctuations.

Nguyen Duc Thang, an official from the General Statistics Office, proposes that the government draw up a plan for adjusting market prices to avoid any shock and not to create conditions for opportunists to corner the market.

Experts underline the need to increase market inspections, especially of the prices of monopoly products and services, to encourage healthy competition.

Inspections must be enhanced to combat smuggling and fraud and keep in check essential commodities such as oil&petrol, construction steel, cement, medicines and foodstuffs, says Mr Thang.

Need for appropriate monetary policy

To bring inflation under control, appropriate monetary and price policies should be introduced, says Mr Thoa.

“It is necessary to apply a flexible monetary and exchange rate policy in line with inflation forecasts and the market law of capital supply and demand,” says Mr Thoa. “In addition, we should control the credit growth rate at a maximum level of 25 percent.”

The fact is that the State Bank of Vietnam has set a target of keeping the rate at 25 percent in 2010, much lower than last year’s 37.73 percent level. The bank explains that it has been asked to tighten its policy to prevent a possible return of high inflation.

However, the bank has been urged not to take any 'sudden’ moves that could alarm the national economy and businesses. Accordingly, it will create the right conditions for businesses to access credit to boost production, exports, agriculture and rural development, while limiting credit for non-production areas.

Dr Tran Du Lich, a member of the National Monetary and Financial Policy Advisory Council, warns that there is no room for complacency and inflation could edge up this year. He supports the government’s efforts to keep inflation in check and reduce the credit balance growth rate to 25 percent.

He says that the Pricing Management Department should propose adjusting the fiscal policy for 2010 but remain canny over investments and spending.

During its year-end session in Hanoi last December, the National Assembly approved the government’s major targets for 2010, of which the CPI will be kept at around 7 percent. The International Monetary Fund has also forecast a 7-percent inflation rate for Vietnam – a level slightly higher than in 2009. Meanwhile, Goldman Sachs – the global investment banking and securities firm - has put it at 10.8 percent.

Financial analysts say that it is not too important to set the specific GDP and inflation rates for the country. The crux of the matter is how to keep them at acceptable rates and ensure the macro-economic management policy will run smoothly.