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High inflation may be “uninvited guest” for April
According to economic theories, high inflation always turns up six or seven months after credit growth reaches its peak.
According to Nguyen Dinh Cung, Deputy Head of the Central Institute for Economic Management (CIEM), the credit peak came in November 2009, meaning that high inflation will be an “uninvited guest” as soon as April 2010.
Sweet in 2009, bitter in 2010
This is the forecast of Dr. Vo Dai Luoc from the Institute of World Economics and Politics. Luoc pointed out that there are three possible consequences of Vietnam’s 2009 measures to fight the economic downturn: high inflation due to the loosened monetary policy; state budget deficit and trade deficit.
Regarding high inflation, Dr. Le Dinh An, Director of the National Center for Socio-Economic Information & Forecast under the Ministry of Planning and Investment replied that it is unavoidable.
Moreover, An worries about the overly high credit growth rate in 2009, at 37.7 percent over 2008, and seven times higher than the GDP growth rate.
An also expressed his concern about high gold prices and exchange rates. Though gold is not a goods item used to calculate CPI, rapid gold price increases will have many consequences, including a decrease in currency value.
The gold price in December 2009 rose dramatically, 64.49 percent over December 2008, a record high increase. This has led to public expectations of high inflation and pushed up the prices of all kinds of goods and services.
Depreciation of the dong would lead to sharp price increases of houses, construction materials and imported goods.
National economic recovery not easy
According to the Vietnam Economics Institute Head Tran Dinh Thien, the world’s economy has bottomed out and now is trying to surface. However, the crisis has created a lot of “ghosts” that may come to haunt Vietnam.
The “ghosts” include, according to Thien, the financial and real estate “bubbles” created by the Government’s efforts to pump money into circulation to stimulate the economy. They may also be due to the dollar depreciation due to the weak dollar policy pursued by the US.
Both factors may lead to rapid increases of the money supply in many economies, Thien explained. The two big channels that absorb the money, real estate and financial markets, therefore, may see “big bubbles.”
Professor Nguyen Mai, former Deputy Chairman of the State Committee on Cooperation and Investment, remarked that unemployment could be the big problem in many countries.
A high ranking expert from the World Bank in Vietnam, Doan Hong Quang, has warned that stimulus measures would cause big debts, which will make economic recovery even more difficult.
Considering the world’s situation, Deputy Chairman of the National Finance Supervision Committee Ha Huy Tuan believes that Vietnam’s economy is likely to witness a recovery process similar to that of 1997-2002, after the Asian financial crisis.
“I think Vietnam’s economic growth rate will be between six and 6.5 percent in 2010,” he predicted.
VietNamNet, TBKTVN
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