Sunday, December 09, 2007

Vietnam expert details economic trends

Expert discusses ins and outs of the economy

VietNamNet Bridge – Vietnam will have a ‘hot Tet’ as commodities’ prices keep skyrocketing after the petrol price hike and the consequences of this year’s heavy flooding and epidemics, said Dr Le Dang Doanh, senior economist and former Director of the Central Institute for Economic Management.

Could you please tell us about the main causes of the low disbursement rate and high inflation?

Dr Le Dang Doanh, senior economist and former Director of the Central Institute for Economic Management.
Inflation is high because of several reasons. First of all, we bear the pressure of the globally high crude oil price. However, I have to say the impacts of rising oil prices on different economies differ. Developed countries have nuclear power to rely on and therefore are not as burdened by rising oil prices. While in other and usually less developed countries, 90% of energy comes from oil and natural gas.

In Vietnam, 51% of total energy comes from hydropower and 49% from other sources like gas and coal, as such, rising oil prices have a considerable impact.

The second reason Vietnam being victim to this year’s high number of tragic natural calamities and epidemics, which has badly affected the supply of food and foodstuff.

Finally, I think inflation is high because of problematic monetary policies. The State has spent a great deal of VND to purchase foreign currencies. I have to say that it is good to raise the foreign currency reserve, but once such a big volume of cash is put into circulation, price increases are inevitable.

The price increases in Vietnam are among the highest in Asia, even higher than China’s.

It seems that Government efforts to curb inflation have not been so successful. Would you suggest any other measures?

We should raise the deposit interest rates in order to attract more capital to the banking system. Commercial banks will have to push up disbursement by lending to feasible projects. In doing so, money would be used in the most effective way.

We can also raise money from the public by issuing government bonds. However, I’m afraid that the Government would lend this money to state owned projects, which prove to have low feasibility.

Experts say too many imports are also a major component of the increasingly high inflation rate. What are your thoughts?

Vietnam will have a hot Tet
When we import at high prices, we have to sell at high prices on the domestic market. However, I have to remind you that in Vietnam, the prices of several commodity items exceed global prices, like medicine and cars. Therefore, one should not blame the high CPI entirely on overly high imports.

By the way, the high trade deficit is really worrying. A long-term outlook suggests we will not have foreign currencies to import commodities if we can’t earn foreign currencies from exports. Besides, a high trade deficit also means weak competitiveness of locally made products.

I think there are three things we need to do.

First, improving the competitiveness of locally made products, so that consumers prefer using them rather than imported ones.

Second, we need to have a technical barrier in order to control imported products.

Third, we need to improve the capability of local distributors

How do you think the commodity price will perform in the coming months?

Prices will keep rising until Tet. We will have a ‘hot Tet’, especially in the central region, which has been victim to serious flooding.