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High inflation in 2010 will put pressure on economic operations in 2011: Expert
When talking with the press, Cao Sy Kiem, former Governor of the State Bank of Vietnam and now the Member of the National Advisory Council for Monetary Policies, warned that a high inflation rate in 2010 will show its impacts on the national economy in 2011 and cause difficulties to the economic operations.
The General Statistics Office has officially announced that the consumer price index (CPI) in November 2010 increased by 1.86 percent in comparison with October. Is this a surprise to you?
No, it isn’t. If we carry out drastic comprehensive measures, we can curb the momentum of increasing prices. If not, the prices may increase further.
What do you think about the 9.58 percent increase of the CPI in November 2010 in comparison with December 2009?
In fact, there is just a small gap between the one-digit and two-digit inflation rates. However, the problem is that high inflation rates will influence people’s psychology and pose as difficulties for enterprises. High inflation will also put pressure on the economic regulations in 2011. I have to say that these are the consequences for 2011 and they are causing worry. As for the immediate time, everything has been predestined.
No matter if the inflation rate is above or below 10 percent, the GDP growth rate in 2010 will still be between 6.5 and 6.7 percent. The outstanding loans will still see the growth rate of 25 percent this year no matter how monetary policies are changed.
What are the main reasons behind the inflation performance in this year?
There are many reasons, including inner reasons and the impacts from outside. We both “import inflation” and initiatively raise the prices of some products and services.
Other factors, including increases in investment, natural calamities, epidemics, which lead to increases in food prices, have also had impacts on inflation. However, I have to mention another important reason – the price and market management. Though a lot of measures have been applied to control market prices, the implementation has been not perfect. Therefore, some kinds of goods still endure price increases, though the supply remains profuse. The price increases here should not been blamed on the supply-demand imbalance, but on people’s psychology. For example, speculation and smuggling have led to the dollar and gold price hikes.
The interest rate liberalization policy has also pushed market interest rates up, which has immediately had bad impacts on enterprises’ production costs, thus pushing the prices up further. The dong/dollar exchange rate also impacted inflation.
At the beginning of the year, economists said the inflation rate in 2010 would depend on the economy regulation. What are your comments about the government’s operation of the economy?
I have to say that the government has been regulating the national economy well with timely policies. However, problems still have been existing in the implementation of the policies.
For example, when the government says it will intervene in the foreign currency market, it needs to show what it will do and when. We say we strive to stabilize the macro-economy but we let the interest rates increase. Right after the interest rate liberalization, the interest rates soared to 15-17 percent, while the interest rates for consumer loans jumped to 20 percent.
Some experts comment that the government’s policies just aim for short term goals. What do you think about that?
In the last three years, we have been very successful in implementing temporary measures which aim to fight against high inflation and economic downturn. However, we have not been successful in long term measures to stabilize the macro-economy, including measures to restructure enterprises, reform regulations, and dealing with trade deficit and overspending.
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