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How to control inflation?
The macro-economy has shown positive signs after the Government’s solutions to curb inflation were put in place. However, economists say that it is too early to be optimistic about the stability of the economy, particularly following the Government’s decision to raise petrol prices.
In a recent interview granted to VOV, Minister of Planning and Investment Vo Hong Phuc provided a fresh insight into the national economy.
VOV: Could you give a brief summary of the national economy in July?
Mr Phuc: The Government’s solutions have helped bring some stability to the national economy. The consumer price index (CPI) fell to just 1.13 percent in July, the lowest in the past seven months. The monetary market also achieved relative stability, with the overheated exchange rate of foreign currencies on the free market being adjusted closer to the inter-bank exchange rate. The stock market also bounced back with the VN-Index showing an upward trend. However, these are initial positive signs and we must still take precautions against some strange happenings in unexpected circumstances.
For instance, even though the CPI in July dropped significantly, overall it has increased by 27 percent compared to a year ago and 19.7 percent compared to December 2007. In addition, the trade deficit remains high, so I think that ministries and sectors will continue to implement the Government’s solutions effectively.
VOV: Do you think that we will achieve the Government’s target of keeping inflation in check following the decision to raise petrol prices by 30 percent in July?
Mr Phuc: There is no doubt that the adjustment of petrol prices will have an impact on the CPI in August. However, the Government has decided not to raise the prices of several other commodities such as electricity and coal, while introducing more drastic measures to control market prices.
High inflation driven by price rises has immediately affected low income earners, particularly State employees in urban areas and the poor in remote and mountainous areas. Therefore, it is necessary to ensure social welfare for these people by adopting appropriate measures. I believe that the Government’s measures will minimise the impact caused by soaring petrol prices.
VOV: Over the past few days, the market has begun to fluctuate strongly with transport costs and powdered milk prices increasing considerably. Could you elaborate on the Government’s performance in the coming months?
Mr Phuc: The Government will continue to keep a close watch on market developments and control the prices of essential commodities such as food and foodstuffs, building materials and transport costs. Past experiences have taught us the lesson that without drastic measures being put in place, these commodities will affect others, thereafter driving up inflation. I think that the Government should strictly scrutinise the operations of petrol corporations to find a reasonable price level. At the same time, it should do the same to other State corporations and economic groups to establish a new pricing level acceptable for both sides.
VOV: Do you think that we will meet the Government’s export target this year as our export growth in the past seven months was driven by price rises, but not by product quality and quantity?
Mr Phuc: This is not completely true, because price rises contributed only 70 percent to the impressive export growth over the past seven months and the remainder was attributed to the volume of products. However, there is a worrying sign that imports also increased correspondingly in the review period. Luckily, the trade deficit in July fell to US$900 million – a rather large decline compared to the previous months.
VOV: But we are still confused about the macro-economic management. How do we solve this problem?
Mr Phuc: Earlier this year, we were still confused about managing banking activities as well as the relationship between the stock market and the banking sector. They seemed to have many contradictions between them, having an unfavourable impact on the development and stability of the macro economy as well as people’s trust. Therefore, it is necessary to consistently implement the solutions adopted by the Government.
VOV: It is said that the Government’s decision to cut down on public spending has not proved immediately effective. It has not even had much impact on its efforts to curb the inflation rate. What do you think about this?
Mr Phuc: This decision does not mean that the Government will reduce investment capital from the State budget, but it wants to arrange capital sources in a proper way. The Government has decided to cut investment capital allocated for key transport infrastructure projects by VND10 trillion from its bond sales because these projects can be delayed or have their deadlines extended. But it has announced a reduction of more than VND30 trillion allocated to State enterprises which have invested heavily in many areas such as industrial parks and large-scale infrastructure projects. We should consider their investment capacity and make them more efficient.
VOV: Is it true that this decision has not been implemented in reality because these projects are calling for investment?
Mr Phuc: This is not completely true. The Vietnam Shipbuilding Industry Corporation (Vinashin) has announced that it will cut VND6.5 trillion while the Vietnam Oil and Gas Group (PetroVietnam) has decided to trim more than VND6 trillion in their investment plans. They even said that if the State does not force them to cut, they will still have second thoughts because most of their projects focus on production and business activities with which they are paying high interest rates on bank loans.
VOV
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