~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Ex-envoy warns Vietnam about risk of inflation

HO CHI MINH CITY - Inflation could damage Vietnam's economic competitiveness with regional countries, the former U.S. ambassador there warned an audience that included Vietnamese government representatives. Vietnam's inflation rate accelerated in May to an annualized 7.5 percent, from 7.3 percent in April, driven by an increase in gasoline prices and higher construction-related costs. The inflation rate in 2005 was 8.4 percent, after 2004's 9.5 percent, which was the highest figure in almost a decade.

Inflation exceeding 8 percent "should turn on some alarm bells within the government," said Pete Peterson, who was U.S. ambassador to Vietnam from 1997 to 2001, in comments prepared for delivery at a conference in Hanoi on the first two decades of Vietnam's shift toward market-oriented economic policies. "Inflation will become a damping factor in the economy in the future if not tamed," Peterson said. "Wages are increasing, as they should, given the increased productivity of the average Vietnamese worker, real estate costs are skyrocketing and the cost of commodities is rising."

Vietnam has become known as one of the most expensive places in Asia for foreigners to live and do business, Peterson said. "That reputation could have a damaging impact on Vietnam's future investment prospects and its competitive edge vis-à-vis its Asian neighbors if not contained," he said. Inflation in Vietnam appears to be more demand-driven than in the past, the International Monetary Fund said in a report prepared for a June 9-10 conference in Nha Trang. "Although food price increases that accounted for the sharp acceleration of inflation in 2004 have subsided, rising non-fuel commodity prices have kept import prices under pressure," the IMF said.

"In addition, the major increases in public sector wages enacted in the last two years, together with expansionary macroeconomic policies, have spurred demand and led to second-round effects on private-sector wages," according to the IMF. Adjustments in administered prices are also likely to put "upward pressure" on inflation in coming months, the IMF said.

By Jason Folkmanis - Bloomberg news - Junes 18, 2006