Though Vietnam’s June inflation has fallen to the lowest level this year, the country’s macro-economy has far from being stabilized, and thus, the tightening monetary policy should continue, Tran Dinh Thien, head of the Vietnam Institute of Economics, told Tuoi Tre.
Tran Dinh Thien:
The economy is still suffering from inefficiency, represented by high Incremental Capital-Output Ratio (ICOR), and constant budget and trade deficits.
According to estimates by the Ministry of Planning and Investment, with export and import revenue of $41.5 billion and $49 billion in the first half of this year, trade deficit has surged to $7.5 billion, accounting for about 15.7 percent of export earnings, 82 percent of which has been paid for Chinese goods.
High inflation is only one indicator of macroeconomic instability. Moreover, this is the second month inflation rate has slowed continuously, while the core of the problem cannot be measured in just months or quarters.
Looking back from 2007 to date, inflation has clearly not been controlled in the long term and thus, the health of the economy has weakened ever since.
Enterprises and the people have suffered high interest rates and devaluation for the past years, which means both consumption and production are weakening.
Which indicators show that our economy is problematic?
In the past few years, Vietnam's inflation is the same story told all over. That is to say, basically we are still having problems with budget deficits, trade deficits and low ICOR.
Without solving these problems, the fight against inflation in the short-term is useless. If we keep moving this way [developing without solving the core problems], businesses have to scour for short-term loans by all means and the government has to tackle this to make ends meet, which means we won’t have enough resources for the long run.
I think the most crucial point is to distribute and use resources efficiently. The government should continue tightening up public investment and spending in accordance with Resolution 11, but still allocate enough capital to businesses.
Currently, businesses, especially the private sector, are under pressure due to difficult access to credit and high interest rates. Is it the time to loosen monetary policy?
We should not forget the lesson in 2010 when inflation began to drop and the government started to ease the monetary policy. The imminent result is that inflation immediately returned.
So we need to continue the tightening monetary policy even as inflation is slowing down.
So, your view is the same with that of the government, stated by Deputy Minister of Planning and Investment Bui Quang Vinh, in a recent briefing session…
It is more important to have consistency between word and action: the government needs to send a consistent message about the continuation of the tightening monetary policy. As far as I know, not only private sector but also some state officials who are in charge of stabilizing the macro-economy have started to ask for lowering rates.
In the process of taming inflation, surely we will pay a certain price: some weaker companies will die out.
It is best to coordinate monetary and fiscal policy orientation for the benefit of businesses, and thus, the government should tighten public investment and spending to set aside capitals for the production sector.
This is difficult but I think that the persistence in monetary tightening is the right direction.
The current set of policies to stimulate export of natural resources and raw materials is disastrous, Thien said
To deal with the rising trade deficit of Vietnam, intervention in exchange rates and tightening imports do not solve the core of the problem.
The adjustment of the current exchange rate will stimulate exports, which policy makers hope can bring down the deficit, but let's see what we're exporting.
Most major export goods are natural resources and raw materials.