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| Inflation could be back in 2010 |
| 11/Nov/2009 Intellasia | Phap Luat |
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| 11 Nov, 2009 - 10:42:27 AM |
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The fact that inflation could be back in 2010 is very unavoidable when credit growth is now already very hot. Just during the first 10 months this year it exceeded 33 percent. This level has dropped so far compared to this year's plan of 30 percent set by the State Bank of Vietnam (SBV). This is the discussion theme of finance-banking scientists and managers at the workshop on financial-monetary solutions for Vietnam's economy after decline era held by SBV and Vietnam Economic Institute on November 10.
According to Tran Dinh Thien, head of Vietnam Economic Institute, this year's actual inflation is kept at one-digit and tended to fall thanks to the government's endeavours to keep a stable macroeconomic scenario. However, in comparison with the world inflation, Vietnam's figure at 7 percent is still quite high.
Thien worried that inflation in 2010 would probably happen because the credit growth is now very hot, reaching 33 percent within first 10 months of the year. According to central bank's plan set at the start this year, credit growth will be at only 25 percent, and then it was adjusted up to 30 percent in August. But certainly from now to the end of this year, credit growth will not only stop at below 35 percent.
Agreed with the Thien, Vu Dinh Anh, deputy director of Price and Market Scientific Research Institute under the Ministry of Finance, also said this year's credit growth would reach 40 percent. Because there is only two months left from now till the end of this year, this is the time for businesses, factories, sectors of investment projects to gather capital for the fulfilling of their approved plans. So the pressure on borrowing capital will be very high.
"The issue is not credit growth rate at 40 percent or 30 percent, or how many percent, but the worrying thing is that we hardly can control this number. The lesson of 2007 is still there when credit growth was up to 53 percent, money sources were mainly poured into investment fields containing many risks as real estate and securities" Anh recommended.
Thien also said that hot credit growth is one of main factors affecting inflation increase in 2010. At present, signals of re-inflation began to appear. The worrying thing is that the world economy has been restored; the price index such as crude oil prices began to rise while Vietnam's imports equal to 95 percent of GDP. Economic recovery of foreign countries also means that Vietnam's imports will have to face increase of price and inflation. Therefore, we must be careful when setting inflation target for next year and giving suitable solutions. If giving compatible solutions, it will cause instabilities. This is worrying thing.
According to Anh, in 2009 the foreign exchange rate is still the focus of monetary policy, especially the crisis caused deficit in the payment balance. Therefore, the dong always faces a high pressure. This pressure will be moved in 2010, making difficulties for us in exports, including foreign investment attraction.
Anh also said that though the central bank has issued adjustment measures on forex rate to shorten the distance between the free market and official market, but the forex rate has soared to nearly 19,000 dong/US dollar in the free market. This reflected that the problem of supply and demand of foreign exchange was from common payment balance.
Hoang Xuan Que from National Economics University said according to the calculation of the central bank, if the loss of dong is of by 5 percent, the state budget will have to spend extra 26 trillion dong each year to pay for foreign debts. Enterprises also have to repay more 13 trillion dong. According to statistic from the General Statistical Office, during the first eight months this year, the average dong/US dollar forex rate was up 9.02 percent over the same period in 2008. Clearly, the burden of foreign debts of the government and domestic enterprises has increased.
How to reduce pressure on the forex rate? According to Pham Hong Co, director of Bank for Agriculture and Rural Development (Agribank)'s Nam Dinh Branch, state should strengthen management on forex operations in accordance with the market signals based on keeping the stability of domestic currency and limiting forex rate risk. Also, state should give good administration and management on the relationship between forex rates, FDI and payment balance of import and export.
In addition, central bank needs to give forecasts on the flow of foreign currency to have foundation for orientation of export and import activities. As for export activities, the state should encourage enterprises to export directly. As for imports, the state should increase taxes to restrict the imports of consumer items which can be produced by domestic producers.
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