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Is deflation now really the biggest concern?
The 0.19% consumer price index (CPI) decrease in October 2008 after many months of hyperinflation has raised concerns about deflation. However, experts say that this is not a concern at the moment.
It is clear that the measures to curb inflation have brought the desired effects, but leading economists believe that it is now a ‘sensitive moment’ for the national economy.
Why? Because if Vietnam applies tightened monetary policies for too long it could lead to the massive bankruptcy of enterprises. However, if it pays too much attention to avoiding deflation and ignores the fight against inflation, hyperinflation could burst out again.
Deflation? Be wary of it!
Cao Sy Kiem, Chairman of the Association of Small- and Medium-size Enterprises, said that Vietnam should not worry too much about deflation at this moment.
Kiem said that deflation comes only when the consumer price index (CPI) and GDP both decrease. A GDP decrease leads to production stagnation and lower purchasing power. However, Vietnam is maintaining the high economic growth rate of 6.5% while employment is normal.
“The thing we need to do now is to rescue enterprises. If enterprises can develop well, they will help create growth, generate jobs and income, and if so, the biggest problems will be settled. Rescuing the national economy means fighting both inflation and deflation,” Kiem said.
Prof Cao Cu Boi from the Hanoi Economics University, a senior finance and banking expert who participated against the fight against inflation in the 1990s, said that as the CPI has increased by 23% so far over last year and there are still latent factors of inflation, high inflation is still more of a concern than deflation.
“The most reasonable attitude for now is to fight inflation and be wary of deflation. Fighting inflation should be seen as the top priority. However, deflation is also very dangerous,” Boi said.
Flexible policies needed
Though suggesting the country continue applying the tightened monetary policies and prioritise the fight against inflation, Boi said that it is necessary to take action to provide capital for businesses.
“If businesses are not provided with capital, this will lead to the massive collapse of enterprises, especially small- and medium-size enterprises. However, when providing capital, banks need to control credit quality and avoid risks,” Boi said.
Boi has suggested applying flexible fiscal policies, and setting up a fund to provide low-cost capital for enterprises.
Vu Duy Thai, Chairman of the Hanoi Industrial and Trade Association, said that the government should harmonise credit tightening and reasonable GDP growth. Thai has called for suitable policies on loans and interest rates for small- and medium-size enterprises.
VNN
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