Despite the efforts by the government, the inflation rate was high in March. The 9% CPI increase in the first quarter of the year proves to be a 10-year high.
Associate Prof, Dr Tran Hoang Ngan, Member of the National Advisory Council for Monetary Policies, said that it is because of ineffective fiscal policies.
State budget overspending has been more than 5% of GDP for many years (it was VND56tril in 2007). Meanwhile, Vietnamese investments have been largely ineffective, with ICOR (incremental capital output ratio) at 4.7, very high compared to other regional countries. Government spending has been increasing rapidly, leading to the sharp increase of total demand, while supply has not seen an increase.
There have also been problems in monetary policies. The money supply has been increasing rapidly, 23.4% in 2005, 33.6% in 2006, 53.8% in 2007, while GDP has grown by only 25.09% in the last three years.
The big gap between the money supply in the three years (134.5%) and GDP (25.09%) has been spurring the price increases. Especially, the price increases have become more dramatic due to world inflation and calamities.
Total import-export turnover reached $111.3bil in 2007, equal to 156% of GDP, while imports were more than 88% of GDP. When the dollar weakens, the high prices of commodities in the world have bad impacts on inflation in Vietnam.
What is your assessment of the implementation of the measures to curb inflation?
The government has been taking comprehensive steps to fight inflation, but the inflation rate remains high. I think that it is because we were late in diagnosing and in prescribing treatment.
For example, we were late in changing forex management policies. In September 2007, regional countries began following flexible forex management policies which allowed the dollar to devaluate in accordance with the international market, in order to avoid high inflation. Meanwhile, at that time, Vietnam still insisted on stabilising the VND/US$ exchange rate in order to encourage exports.
However, I believe that the government’s measures will show effects in late April and early May.
What do you think would be the most suitable targets for GDP growth rate and CPI for 2008?
It is necessary to adjust the target for the GDP growth rate, while focusing on fighting inflation. It will take 3-6 months to ‘contain the fever’, and 2-3 years to ‘reduce the fever’. I think that in 2008, a 7-8% GDP growth rate and 15-16% CPI increase would be reasonable.
You have said that it is necessary to let the dollar devaluate, but won’t this influence exports and the payment balance?
We have to devaluate the dollar in order to avoid impacts of world inflation. Meanwhile, Vietnamese exports should not rely on the monetary policy. We should have suitable policies to encourage exports, including support in trade promotion and credit.
(Source: Tien phong)
Associate Prof, Dr Tran Hoang Ngan, Member of the National Advisory Council for Monetary Policies, said that it is because of ineffective fiscal policies.
State budget overspending has been more than 5% of GDP for many years (it was VND56tril in 2007). Meanwhile, Vietnamese investments have been largely ineffective, with ICOR (incremental capital output ratio) at 4.7, very high compared to other regional countries. Government spending has been increasing rapidly, leading to the sharp increase of total demand, while supply has not seen an increase.
There have also been problems in monetary policies. The money supply has been increasing rapidly, 23.4% in 2005, 33.6% in 2006, 53.8% in 2007, while GDP has grown by only 25.09% in the last three years.
The big gap between the money supply in the three years (134.5%) and GDP (25.09%) has been spurring the price increases. Especially, the price increases have become more dramatic due to world inflation and calamities.
Total import-export turnover reached $111.3bil in 2007, equal to 156% of GDP, while imports were more than 88% of GDP. When the dollar weakens, the high prices of commodities in the world have bad impacts on inflation in Vietnam.
What is your assessment of the implementation of the measures to curb inflation?
The government has been taking comprehensive steps to fight inflation, but the inflation rate remains high. I think that it is because we were late in diagnosing and in prescribing treatment.
For example, we were late in changing forex management policies. In September 2007, regional countries began following flexible forex management policies which allowed the dollar to devaluate in accordance with the international market, in order to avoid high inflation. Meanwhile, at that time, Vietnam still insisted on stabilising the VND/US$ exchange rate in order to encourage exports.
However, I believe that the government’s measures will show effects in late April and early May.
What do you think would be the most suitable targets for GDP growth rate and CPI for 2008?
It is necessary to adjust the target for the GDP growth rate, while focusing on fighting inflation. It will take 3-6 months to ‘contain the fever’, and 2-3 years to ‘reduce the fever’. I think that in 2008, a 7-8% GDP growth rate and 15-16% CPI increase would be reasonable.
You have said that it is necessary to let the dollar devaluate, but won’t this influence exports and the payment balance?
We have to devaluate the dollar in order to avoid impacts of world inflation. Meanwhile, Vietnamese exports should not rely on the monetary policy. We should have suitable policies to encourage exports, including support in trade promotion and credit.
(Source: Tien phong)
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