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Economists urge public investment reductions to fight inflation
Economists believe that it is necessary to tighten the fiscal policy and cut down public investment to fight inflation.
Just after the first quarter of 2010, the consumer price index (CPI) increased by 4.12 percent already, while the figure for the whole year 2010 set by the National Assembly is 7 percent. Since the CPI has fulfilled the plan halfway, curbing inflation now is the top priority. One solution, according to economists, is to tighten the fiscal policy.
According to Dr. Vu Thanh Tu Anh, Director of the Fulbright Economics Teaching Program in Vietnam, the CPI increased sharply in the first quarter of 2010 as the side effects of stimulus measures from 2009. High inflation rate also resulted from electric and coal price increases in the first months of 2010, as well as the inefficiency of public investment.
Anh argues that cutting down public investment is key to curbing inflation at 7 percent in 2010. The Ministry of Finance has promised to regulate prices effectively and flexibly, to avoid shocks to the national economy
Meanwhile, Dr. Quach Duc Phap, Chair of the Vietnam Association of Financial Investors, pointed out that the ministries have not paid appropriate attention to tightening the fiscal policy. Phap said that a lot of state-funded projects have begun recently, but Vietnam should gather strength and capital to complete its half-done projects.
Phap thinks that in the long-term, to curb inflation, Vietnam should reduce its public investment budget by letting the private sector join investment projects more heavily.
“Private investors know how to use capital in the most effective way. They have high capabilities in finance and technology,” Phap noted, adding that the problem now is that the State gives them reasonable preferences, including tax incentives, land use rights and simplified administrative procedures.
Anh agrees, stressing that, for countries applying stable exchange rate policies like Vietnam, the fiscal policy plays a very important role in controlling inflation.
Cao Sy Kiem, former Governor of Vietnam, now Chair of the Small and Medium Enterprises’ Association and Member of the Economics Committee of the National Assembly, also warned about high inflation in 2010 and urged cuts in public investments.
Economists believe that the quality of public investment will improve when the Public Investment Law comes into effect. With its many strict regulations, the law stipulates that investors will be replaced if they do not implement projects within a year after they obtain a license, do not fulfill projects as committed, or are unable to meet the project’s requirements.
vietnamnet, DTCK
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