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How much more market intervention in store?
Policy makers are pondering whether to continue controlling inflation by administrative measures after June - and to what extent.
June marks the expiration of a prime ministerial order for keeping a cap on the price of 10 essential goods. The order, issued in March, regulates the cost of such items as petrol, electricity, coal, water, bus tickets, cement, steel, school fees and hospital fees.
It was issued following continued high monthly inflation, which reached 3.6% in February and 3% in March. However, the monthly Consumer Price Index growth in April stood at a relatively low 2.2%.
"There are some signs that the Government's efforts to control inflation have started making impacts," Asian Development Bank country director Ayumi Konishi told Viet Nam News.
However, concern has been expressed that essential goods will soar in price if the price cap is removed.
At present, prices are reined in, despite an increase in world prices.
The Trade and Industry and the Finance ministries claim that the order does not mean June marks the actual end of administrative controls.
"What goods are freed from controls and what has to be reined in for economic stability will need to be considered carefully," said deputy minister of Trade and Industry Nguyen Cam Tu.
The Ministry of Finance's head of pricing, Nguyen Tien Thoa, said that a suitable roadmap to regulate domestic prices, which would balance economic capability with business and consumers' interests, would be considered after June - and based on international and domestic developments.
However, while some economists and experts agree that the Government's administrative measures have been necessary, they argue the measures should not be long-term.
"In a critical period, we believe it is appropriate for the Government to use administrative measures to help control inflation, particularly to cool down or calm down people," said Konishi.
"Administrative measures should not be used for long periods as they also cause distortions in the market. This could put a burden on the State Budget as any losses incurred by State-owned companies need to be covered.
Others said it was time [for the Government] to drop administrative measures for curbing inflation.
"The Government issued measures to reduce inflation shock and make time for other market measures to take over," economist Nguyen Trung said in a recent interview with VietNamNet.
"Administrative measures have done their role. It's time to turn back to market tools to tackle problems," he said.
Nguyen Thi Son from the College for Business Administration for Managers argued that the Government should allow State corporations to follow market prices now.
Son agreed that administrative measures might help delay inflation growth in the short term, but not actually reduce it. However, the measures created unfair market competition.
Senior economist Vo Tri Thanh from the Ministry of Planning and Investment said that the Government should not set a specific period for administrative measures in case of unexpected world economic developments.
"If international prices increase more than the Government's capability to compensate, it will be in a dilemma," he told Viet Nam News.
'If the State's price controls continue, the State will have to compensate many State-enterprises for losses to keep domestic prices lower than world prices. If not, prices after June may create a big shock for the Consumer Price Index.
Deputy Prime Minister Nguyen Sinh Hung said in a recent interview with VNExpress that the Government order in March did not anticipate world oil reaching a record of $120 per barrel.
Hung also conceded that administrative orders were against the free market principle. "But we have to give priority to curbing inflation," Hung said.
The Government has said many times that its top priority now is to stabilise the marcro-economy, and has even reduced the target for growth rate in 2008 to 7%.
Another downside of price controls is the possibility of smuggling of key commodities, such as petrol, out of Vietnam when domestic prices are lower than international prices.
Hung concedes the fact, adding that "if we want to curb inflation effectively, we have to control prices, while minimising smuggling and pushing exports."
An economist from the Central Institute for Economic Management argued that if the Government loosened prices of some essential goods while continuing reining-in others, it would create differences that could lead to instability.
"Prices need to be regulated by nothing but the market Then, enterprises will be clear of the economy's capability to have a corresponding business strategy," the economist said.
Many observers believe that allowing prices to follow market demand and supply may be bitter for the economy's inflation and consumers in the short-term however, it is expected to create a healthier and sustainable development tag the long-term.
If the Government promotes market regulation after June, the challenge is how to convince people of its long term benefit if they have to cope with higher and higher prices.
VNS
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