Many economists said that inflation and exchange rate remain two of the biggest challenges in 2011.
In the extended session of the National Assembly’s Economic Committee on February 15, Vu Viet Ngoan, vice Chair of the committee said that exchange rate would put pressures on other balances and inflation, adding that the pressure on inflation this year would even be greater than 2010. He addd that exchange rate should be adjusted promptly, if not, exchange rate expectation would cause psychological effects. According to Ngoan, in the future, if the adjustments of prices of basic commodities such as electricity, coal and petroleum, etc. would not influence greatly on customer price index (CPI), it would significantly affect the market psychology. Therefore, there should be measures to control this psychology.
Nguyen Duc Kien, member of the National Assembly’s Economic Committee evaluated that in the second quarter, a new level ground of price would be formed, when prices of electricity and petroleum would be adjusted. Prices of those items would go directly into production costs of businesses.
Representative of the government Office, at the meeting, has also agreed that inflation pressure in 2011 would be higher than 2010 although the macroeconomic situation in general has shown more signs of stability. He added that there are implicit factors causing inflation. Recently, many localities have spent big money to “stablise prices”, but this has distorted the market prices.
At the meeting, Governor Giau explained very carefully the reason why only until now SBV made adjustment to exchange rate. According to the governor, from October last year, when there were signs causing imbalances and straining exchange rate, he proposed to adjust exchange rate in November. However, the ministers, (at regular government meeting) did not support his proposal for reason that it might cause inflation. He said that the exchange rate has recently been raised by only seven percent, not nine percent as published by the press. He added that since the exchange rate adjustment was made late, great resources were arranged for market intervention. The inflation issue is difficult to be resolved, when there is still trade deficit. However, deeper issues such as restructuring the economy have not been discussed deeply and carefully.
To overcome the challenges in 2011, Governor Giau asserted that investment must be reduced, and specific measures are needed to reduce overall aggregate demand, such as each ministry, locality and sector should make plans to cut expenses and investment, etc. He expressed concern that during the recent Lunar New Year, although prices increased high, the spending rate of people did not go down, it was even very high, in contrast to the common spending trend in other countries, where people tend to immediately cut expenses. Governor Giau said SBV would carry out drastic measures to maintain credit growth at below 23 percent this year and gradually lower interest rates.
The governor also cited and agreed with some other recommendations of IMF and WB, such as no public debt, to reduce budget deficit, to request corporations to make report on foreign debts to the National Assembly annually, to conduct auditing accordingly to international standards, and government to promote reform in state-owned enterprises.
Economic experts in National Assembly’s Economic Committee seemed to agree with Governor Giau’s opinion. Ngoan said it is right to reduce aggregate demand, adding that in the last few years, Vietnam has still maintained total investment at over 40 percent of GDP, which means current account deficit is still accepted; therefore, specific policies are needed this year. Ngoan also said that, restructuring investment should be carried out, by applying high technology and science into production, paying attention to environmental protection, reducing public investment and encouraging investment from all economic ownerships. Ngoan stressed that special attention should be paid to trade deficit. Dr Tran Du Lich, member of National Assembly’s Economic Committee also suggested that monetary and fiscal policies should be well-balanced, to keep the value of money and eliminate the risk of inflation.