Wednesday, May 26, 2010

Experts Predict Inflation Higher Than Vietnamese Government's Target

Many experts believe that external factors and the fiscal policy will have a significant affect on the ability to successfully implement the objectives of a stable macro economy for Vietnam this year.
to the government's Resolution number 23 that was published a few days ago, it was affirmed that the target growth rate will be 6.5 percent while inflation is to be maintained at 8 percent in 2010. This indication is 1 percent higher compared the previous target adopted by Congress at the 6th meeting held in late 2009.

Increase in Consumer Price Index
Analysts think that the Consumer Price Index (CPI) increased up to 4.27 percent within the first 4 months of the year is one of the main reasons that led to the government's recent rate adjustment.

Dr Nguyen Duc Kien, member of the Economic Committee in Congress, evaluated the adjustment as a timely and necessary decision. He said that if the government was determined to maintain inflation rate at 7 percent and would do so at all costs, then Vietnam's economy will find it difficult to achieve the set out growth target. Dr Kien explained: 'This event should be seen as part of the big picture, along with many other macro variables. To maintain the inflation rate at 7 percent would mean to tighten the monetary policy, it will make it harder for businesses to approach capitals and consequently economic growth will be very difficult to achieve.'

Even though Dr Kien supports the rate adjustment, however according to this economic expert, to set targets is one thing, but whether or not the targets can be implemented is an entirely different matter. This view is also shared by Dr Vu Thanh Tu Anh, deputy director of the Fullbright Research Program and Economic Teaching in Vietnam, who shared that: 'A set target does not mean that it will definitely be implemented. The CPI itself, just like any other macro variables, is being affected by many factors, both internally and externally.'

Maintaining Fiscal Policy
Dr Tu Anh believes that an imports dependent country like Vietnam will find it difficult to monitor and control impacts due to increased raw materials input prices during the recovery of the world market. Meanwhile, if the government continues to maintain the fiscal policy and the monetary with high investment rates, while continuously increase credit to meet investment needs, then it will be very difficult to control inflation.

Dr Vu Thanh Tu Anh said: 'What concerns me most is the compatibility among these macro economic objectives, in particular growth target and inflation. Between these two goals there are always tradeoffs. It is very difficult to implement both in parallel, maintaining high growth as well as controlling inflation in an economy that is yet effective. In my opinion, we should not set out too many goals and then try to chase after them. Such policies are voluntarism and very difficult to implement.'

Pham Lan Huong, head of the macro economic policy committee at the Central Institute for Economic Management (CIEM), also suggests that setting a fixed target is not appropriate in the current economic conditions. She said: 'I think that the government's inflation adjustment is reasonable, but this decision is one with a directional characteristic rather than a fixed target. Inflation in 2010 may not be at exactly 8 percent.'

Rate of Inflation
On 12 May 2010, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) published the economic and social survey results for 2010 in the region. In this report, UNESCAP forecasted that Vietnam's inflation rate would reach 10.3 percent in 2010, while GDP is only at 5.8 percent (compared to the government target rate of 6.5 percent).

UNESCAP representative and economic expert Eugene Gherman affirmed that: 'Forecasted figures and target rates can be different, but what is important is that we recognize that inflation is the main problem that needs to be addressed in 2010 for economies in Asia, including Vietnam.'

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