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How to maintain growth and control inflation
In the first half of this year, the Vietnamese economy posted a positive growth rate of 3.9 percent and the inflation rate was only 10 percent over the same period last year. However, economic analysts are concerned about the danger of inflation rising in the remaining months of the year.
To reach this year’s economic growth target of 5 percent, Vietnam needs to achieve an economic growth rate of 5.9 percent in the second half of this year.
In the current difficult economic situation, it will not be easy to reach the set target of 5 percent as the economic growth rates in the two remaining quarters must reach 6 or 7 percent.
After talking with a Voice of Vietnam (VOV) reporter, senior economic expert, Le Dang Doanh analysed the domestic and foreign elements that could affect the outcome.
The dangers of inflation
In the first half of this year, the national economy has shown signs of recovery in a number of sectors such as industry, construction, real estate and securities.
Vietnam has so far managed to weather the storm but it should not be too optimistic as its economy faces a high risk of rising inflation, said Doanh.
The consumer price index (CPI) in the first six months was relatively low compared to that of December last year but it was up by 10 percent from last June’s figure. Therefore, the CPI must experience only a small increase in the second half of this year to curb inflation.
Doanh attributed the situation to the adoption of monetary and credit policies after a huge amount of credit, up to VND363,000 billion, was used to provide preferential interest loans for businesses.
However, the monetary and credit polices need to be strictly controlled to generate jobs and boost exports.
The recurrence of inflation and increases in the interest rates on loans will affect people’s lives and cause a trade deficit, making the macro economy more complex.
In order to make full use of any monies effectively, it is essential to have information about the government’s stimulus packages available so that the effectiveness of investment are properly evaluated and the economy is kept under control, Doanh noted.
It’s difficult to gain export goal
Following the latest forecasts on Vietnam’s economy from international organisations, the country will find it difficult to reach its export goals, said Dr Vo Tri Thanh from the Central Institute for Economic Management (CIEM).
In late 2008, the International Monetary Fund (IMF) said Vietnam’s export growth rate would be minus 20 percent but recently it was forecast at minus 3-8 percent, said Thanh.
The export turnover for the first 6 months of this year is estimated at US$27.6 billion, a drop of 10.1 percent against the same period last year. This is in keeping with the global economic downturn, which has impacted strongly on Vietnam’s major trading partners such as the US, EU and Japan.
Many people think that under the export reduction circumstances, a policy to control the exchange rate of Vietnam’s domestic currency is needed to give businesses more opportunities to reduce the prices of their goods for export, if not they could incur severe losses.
Nevertheless, for Vietnam’s exports, the exchange rate doesn’t solve all of the present issues, said Dr Vo Tri Thanh. Controlling the exchange rate at some level must avoid scaring the market. Because the costs of controlling the exchange rate could be enormous. Vietnam’s businesses don’t have the tools to take precautions against the risk of changing exchange rates.
The main reason for the reduction in exports is the falling demand for goods in export markets, particularly in Vietnam’s key trading partners.
Meanwhile, Dr Le Dang Doanh points out that Vietnam has 3 advantages it can exploit to boost exports, including stable agricultural production, large retail business operation and good performance in the private sector.
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