At the government's regular cabinet meeting, Prime Minister Nguyen Tan Dung requested that inflation be held to 12-13 percent this year. A few days earlier, the domestic market management group held a meeting and forecasted a consumer price index increase of 1.8 to 2 percent in May. If they are right, inflation will be approximately 12 percent for the first five months of the year.
Obviously it is difficult to restrain inflation to meet the prime minister's target. After all, high inflation is a consequence of shortcomings in the economy. So it is important to define and solve inflation at the roots.
Reasons for High Increase
At the meeting, members of the government analyzed the reasons for the high increase in the consumer price index in April 2011. According to the analysis, the main cause was an increase in world prices, putting a pressure on commodity prices in the domestic market. In addition, a chain reaction and the psychological impact of the decisions to increase the prices of some essential commodities such as electricity, petroleum, gas and coal for the electricity production sector, as well as exchange rates and credit interest rates contributed to the increase in consumer prices.
The above analysis is correct but it does not go far enough. In addition to the factors mentioned by government members, there is a very important reason concerning the matter of state-owned capital management and usage. Our current high inflation rate is the consequence of years of inefficient management and misuse of public investment capital. The report on supervision and assessment of investment in 2010, submitted to the prime minister by the Ministry of Planning and Investment, tells some of the story.
Impact of Slow-Moving Major Projects
The partial data from the Ministry of Planning and Investment indicate that more than 717 trillion Vietnam dong of state capital was invested in 2010, much higher than the figures released by the General Statistics Office in 2010. The concern is that only 58.8 percent of projects, using 30 percent of state capital, were supervised and audited. The slow progress has been improving, but there are 3,386 delayed projects, and investment capital for more than 3,400 projects needs to be adjusted.
It is noticeable that the proportion of slow-moving major projects (Group A) has not improved, and even doubled to 19.35 percent with 90 projects. All of those projects are important to the economy, so slow progress not only affects investment efficiency and but also contributes to inflation.
Capital Investment
In addition to tightening credit, the government has ordered decisive steps to reduce unnecessary and inefficient public projects in order to direct capital into important and urgent areas. This is what needs to do but not enough. Even efficient but urgent and important projects need strict supervision.
If supervision of projects using state capital remains as loose as indicated in the report by the Ministry of Planning and Investment, if slow progress continues to be widespread, especially in A group projects, and if state capital investment continues to be lost, even if the government manages to restrain inflation, the results will not be stable.
What the people and enterprises expect is not only temporary control of inflation but also long-term stability.
Obviously it is difficult to restrain inflation to meet the prime minister's target. After all, high inflation is a consequence of shortcomings in the economy. So it is important to define and solve inflation at the roots.
Reasons for High Increase
At the meeting, members of the government analyzed the reasons for the high increase in the consumer price index in April 2011. According to the analysis, the main cause was an increase in world prices, putting a pressure on commodity prices in the domestic market. In addition, a chain reaction and the psychological impact of the decisions to increase the prices of some essential commodities such as electricity, petroleum, gas and coal for the electricity production sector, as well as exchange rates and credit interest rates contributed to the increase in consumer prices.
The above analysis is correct but it does not go far enough. In addition to the factors mentioned by government members, there is a very important reason concerning the matter of state-owned capital management and usage. Our current high inflation rate is the consequence of years of inefficient management and misuse of public investment capital. The report on supervision and assessment of investment in 2010, submitted to the prime minister by the Ministry of Planning and Investment, tells some of the story.
Impact of Slow-Moving Major Projects
The partial data from the Ministry of Planning and Investment indicate that more than 717 trillion Vietnam dong of state capital was invested in 2010, much higher than the figures released by the General Statistics Office in 2010. The concern is that only 58.8 percent of projects, using 30 percent of state capital, were supervised and audited. The slow progress has been improving, but there are 3,386 delayed projects, and investment capital for more than 3,400 projects needs to be adjusted.
It is noticeable that the proportion of slow-moving major projects (Group A) has not improved, and even doubled to 19.35 percent with 90 projects. All of those projects are important to the economy, so slow progress not only affects investment efficiency and but also contributes to inflation.
Capital Investment
In addition to tightening credit, the government has ordered decisive steps to reduce unnecessary and inefficient public projects in order to direct capital into important and urgent areas. This is what needs to do but not enough. Even efficient but urgent and important projects need strict supervision.
If supervision of projects using state capital remains as loose as indicated in the report by the Ministry of Planning and Investment, if slow progress continues to be widespread, especially in A group projects, and if state capital investment continues to be lost, even if the government manages to restrain inflation, the results will not be stable.
What the people and enterprises expect is not only temporary control of inflation but also long-term stability.
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