Spectre of inflation returns to haunt Vietnam's economy
HANOI - After years of remarkable price stability, Vietnam has been grappling since January with strong and unanticipated inflationary pressure which some experts believe could cause serious problems unless the government takes immediate action.
Official figures for June showed the prices had risen 8.3 percent from a year earlier and the authorities are predicting an inflation rate of 9.0 percent over the balance of the year -- compared to just 3.0 percent in 2003.
While Vietnam has come a long way since the late 1980s, when the bankrupt communist country was battling annual inflation of over 700 percent, some foreign experts are sounding the alarm.
"Many people think that as long as it is below 10 percent then it is nothing compared to what they got before," said a foreign economist, who asked not to be named.
"But the reality is that inflation is rising by almost a percentage point every month. You can't turn a blind eye to it because then you create an uncontrollable phenomena."
The new head of the International Monetary Fund, Rodriguo Rato, also had a very clear message on inflation during his visit to the country last weekend.
"We have advised the Vietnamese governement to have a very vigilant approach," he said.
Facing down criticism from a Vietnamese journalist who accused the IMF of strangling the economies of developping countries with rigid policies, Rato warned: "All growth policies based on inflation always end up in tears."
Several experts have traced the source of the inflation problem to a steep rise in the price of foodstuffs over the past year, put at between 11.5 percent and 13.2 percent by government figures.
Some of the rise can be attributed to the bird flu epidemic which led to the slaughter of 44 million chickens.
Other factors such as the global rise in oil and steel prices have weighed more heavily on the economy, hitting sectors as diverse as fishing, transport and textiles.
The authorities have also pointed to salary rises due for bureaucrats in October as a factor creating inflationary pressure and they have criticised some state enterprises controlling monopolies such as air transport and telecommunications for overcharging.
The state-controlled media has been at pains to stress the government is aware of the inflation problem and trying to do something about it.
"We think it is not time to adjust the prime interest rate though we are considering some other measures to help control inflation," said Le Duc Thuy, governor of the State Bank of Vietnam, in response to the IMF warning.
On Tuesday, the central bank said it was increasing bank reserve requirements, taking funds out of circulation as part of efforts to curb inflationary pressures in the economy.
Analysts say the government is caught between wanting to continue the push for strong economic growth and preventing a dangerous spiral of rising prices.
"There is also great pressure to follow the five-year plan and reach this year the 7.5 percent growth scheduled," said the foreign economist.
A foreign banker, also asking to remain anonymous, said there were different views about the seriousness of the inflation problem.
"It is not a panic situation. Do they have the ability to handle it? Yes," he said.
The business community is awaiting the next few months with a certain degree of trepidation.
"In March the government was talking of 4.0-5.0 percent inflation. Today it is 8.0-9.0 percent. The government is clearly dealing with a problem that it had not anticipated," said another banker based in the commercial capital Ho Chi Minh City.
Agence France Presse - June 30, 2004.
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