A lot of measures have been taken to deal with the high inflation, but they have not helped improve the situation. Head of the HCM City Economics Institute Tran Du Lich talks about this.

Why do you think the measures taken by the government recently to curb inflation have not brought the desired effects?
 
Curbing inflation is one of the four big goals of the government: economic growth, inflation control, job creation and export boost. In general, there is always a conflict in the implementation to reach the four goals. For example, hot economic growth always leads to high inflation. But the situation is quite different in Vietnam: the national economy does not grow hot, but we still have to face price increases.

I think there are two reasons behind the price increases: first, the impact of the input material price increases in the world’s market has made production costs higher; and second, the high foreign currency inflow into Vietnam in the first half of the year (overseas remittance, foreign direct investment, and foreign portfolio investment).

The central bank has had to spend VND to buy foreign currencies, and as a result, a big volume of VND has been put into circulation. If the national economy could absorb the capital well, the excess of money in circulation would have not happened, and the price increases would have not occurred.

Do you mean that the national economy could not absorb the big volume of foreign currencies?

Yes, I do. You can think of it this way: the blood in the body is profuse, but it can’t transfer easily to other parts of the body.

However, I still have to stress that the main reason behind the price increases is the higher input material price. The government has been taking actions to curb inflation: cutting taxes to help reduce input expenses; limiting cash in circulation; fighting speculation; trying not to raise the prices of products which are still under the state’s control. I think the four groups of measures were suitable. The remedy has been prescribed, but it is another story if the remedy can help.

Do you think that the prescribed doses will be effective?

I think they will bring the desired effects, but not immediately. We should wait to see if the measures can help reduce prices. The immediate goal of the actions is to curb the price increases, and the goal is achievable.

In August, the CPI growth rate was restrained at 0.55%, lower than the growth rate of 0.94% in July. We do hope that September and October will see slight increases. However, what I need to emphasise is the important role of the forecasts.

Do you mean that the high inflation was caused by the bad forecast?

It is clear that we did not anticipate the price increases in the world’s market and big foreign currency flow into Vietnam. Let’s look at China. As the capital flow was big, the country raised the foreign currency reserves to $1,300bil, while it still can control its economy well, because the economy can absorb the capital. Foreign currencies, like restoratives, are good for health if the body can absorb them.

Could you please give a forecast about the inflation rate for 2007?

It will be below 8.5%, the same as the GDP growth rate.

Source: VietnamNet.