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Vietnam should not chase dollar price fluctuations: Economist
Vo Tri Thanh, Deputy Director of the Central Institute of Economic Management (CIEM), in an interview with VietNamNet, said that if Vietnam is too busy dealing with gold and dollar prices, the national economy will suffer.
What are your comments about the current “gold price dance “?
It would be a blunder if Vietnam, the economy with limited strength and thin foreign currency reserves, chase gold prices all of the time.
The gold price in Vietnam must follow the world price but adjusting the gold prices is out of reach.
We must tell people that gold is a special kind of good, and that the domestic prices will be regulated not only by the world price, but also by different sources in the market, including speculators. In such a market, if you are an investor, you must take responsibility for your investment decisions, and you must not think that the State has to insure you against risks. People must understand that they must not expect profit in all cases.
What the State can do for people is take necessary measures in order to restrict macroeconomic uncertainties. When the macro economy stabilizes, resources in society will be used in a more effective way. Meanwhile, in the context of macroeconomic uncertainties, people will only pay attention to maintain their assets or make speculations. I have to say that speculation is not a bad thing at all, but in such a poor economy like Vietnam, if people spend all their time on dollar, gold and real estate, and the money does not go to the production sector, it will bring about bad consequences.
The Government has sent a clear message that it will keep the dong/dollar exchange rate unchanged, pump more dollars into the market, and allow to import gold. What would you say about the moves?
These are just temporary measures. The gold imports will only help narrow the gap between the domestic and the world gold prices, while this should not be viewed as a measure to change the gold prices.
The increase in gold prices, plus the pressure on inflation and trade deficits all have made the Vietnam dong lose its value against the dollar. The Government has to pump money into circulation in order to help partially stabilize the dong/dollar exchange rate on the official market, thus helping easing the pressure on Vietnam dong. However, the move could lead to a side effect of high inflation.
However, as our foreign currency reserves are still thin, the money pump will only last for a certain time, while the State will not be able to continue pumping more and more money.
The best behavior in such conditions is trying to stabilize the national economy and minimize the impacts of the “gold price dance”, while we must not chase after the price hike waves.
People compare the gold price with Vietnam dong and complain that the local currency has lost its value dramatically. What do you think about that?
I do not want to compare the value of the Vietnam dong with the gold price, while I look into the inflation rate in Vietnam, and compare the purchasing power of Vietnam dong with other currencies. If so, we can see that all the currencies in the world have lost their value if compared with the gold prices.
If we do not understand the issue well, and we adjust the policies based on the gold price fluctuations, this will be a blunder.
The exchange rate is always a very complicated story. Every variable will have different impacts. For example, if the dong loses its value against the dollar, dollar depositors will be happy, while dong depositors will feel sad, exporters will be happy, while importers feel sad.
Therefore, I have to say that policy makers are always very brave men, because they have to bear hard pressure from different groups of people in the society. However, they cannot draw up the policies which can satisfy all people in the society.
What would you say about the inflation rate in 2010?
It would be 7.6 percent if compared with December 2009, and over 9 percent if compared with 2009. If comparing the inflation rate in December 2010 with December 2009, the figure would be some 10 percent.
If we have reasonable policies, we can keep the inflation rate at below two-digit level. However, it is clear that inflation rates previously targeted by the government, 7 percent and then 8 percent, are impossible in 2010.
Several months ago, when the inflation rate was low at 0.2-0.3 percent per month, some optimistic people thought that the inflation rate during the whole year 2010 would be seven percent. However, at the time some economists and I warned that the inflation rate would be 8.5-9 percent.
What should we do to ensure economic stability?
The policies need to be consistent. The biggest problem for policy makers is not unsuitable policies, but the biggest problem is that they dare not explain their policies and they dare not take responsibility for their decisions. Policy makers need to keep a straight manner. Please tell people like that: we are going to issue such policies and the policies will bring these good things and bring those unwanted things. However, we need to accept the unwanted things for some time, one or two years.
There is no policy which can satisfy all people.
Pham Huyen
vietnamnet
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