Fiscal does not tone with the monetary policy in implementing a common task of fighting against inflation.
The inflation rate has decreased in the last two months with the consumer price index (CPI) increasing by 0.16 percent and 0.05 percent in March and April, thus helping curb the inflation rate in first four months of the year at 2.6 percent in comparison with December 2011.
This has been hailed as an “exploit” created by the “coordination” between the fiscal and monetary policies, between the policy on tightening public spending and the policy on tightening credit.
However, Le Hai Mo, deputy Head of the Institute for Financial Strategy and Policy, an arm of the Ministry of Finance the coordination can be seen in settling short term problems, while the two policies have not been on the same tone when dealing with long term matters.
“It’s necessary to clarify the function of managing the fiscal policy of the Ministry of Finance and the function of managing the monetary policy of the State Bank,” said Ha Huy Tuan, deputy Chair of the National Finance Supervision Council.
“If not, when the high inflation returns, the State Bank would blame the inflation on unreasonable fiscal policy, while the finance ministry would blame on the monetary policy,” he added.
Chief Secretariat of the State Bank of Vietnam Dao Minh Tu, on one hand, said the fiscal and monetary policies in 2008-2011 were consistent in implementing the most important tasks for the national economy: they both opened to put brake on the economic recession, or both tightened to fight against inflation.
“However, the efficiency in the coordination in implementing the two policies remains limited. In some cases, the “dephasing” of the two policies badly affected the implementation of macroeconomic tasks,” Tu said.
In order to stop the economic slide, the monetary policy was loosened, which, together with the opened fiscal policy in 2009 and 2010, helped Vietnam escape the economic recession quickly, with the GDP growth rate of 5.3 percent. However, the high inflation risk still existed.
In order to fight against inflation in 2010, the monetary policy was gradually tightened (the credit growth rate decreased from 37.53 percent in 2009 to 31.19 percent in 2010). Meanwhile, the fiscal policy was opened, especially in the public investments. As a result, the inflation rate in 2010 was really high at 11.75 percent, which was nearly double that of 2009 (6.8 percent).
In 2011, in order to fight inflation, both the fiscal and monetary policies were tightened. However, the fiscal policy was not tightened drastically enough. Meanwhile, with the tightened monetary policy, the credit growth rate in 2011 dropped to 14.47 percent, which then pushed the inflation to 18.13 percent.
Also according to Tu, in many cases, the two policies were adjusted in “separate ways”, without a close cooperation, which then led to the conflict and reduced the efficiency of macroeconomic management.
In the first months of 2012, while the State Bank made every effort to slash the lending interest rates to help businesses reduce the production costs, the Ministry of Finance still raised the petroleum retail prices. The two decisions made by the two ministries clearly led to the two different effects.
According to To Kim Ngoc, deputy Head of the Banking Academy, while the State Bank has been trying to slash the interest rates since late 2011, the Ministry of Finance still has been issuing government bonds for public spending at sky high interest rates.
Especially, experts have noted that the Vietnamese government bonds’ interest rates are even higher than the Greek bonds’ interest rates, the economy which has fallen into debt crisis (approximately 11 percent vs. 9.7 percent per annum)