Vietnam's consumer prices are higher than they've ever been thanks to the Government's failure to control prices of essential commodities as the country adapts to the World Trade Organization (WTO).

Import tax-cuts have reduced certain retail prices on the domestic market but the recent surge in foreign investment has increased the circulation of local currency, on the back of which, prices have risen.

It is forecast that the country's Consumer Price Index (CPI) would outpace the GDP to stand at over 10 percent this year.

Over the past 11 months, the inflation rate has hit 9.45 percent.

But the Government's moves to control the galloping prices have proved

deficient, passive and fragmented in the emerging market economy.

Reality check

The Government often ignores the difference between objective fore-casts of market prices and its desire to fix a target.

This disparity between reality and idealistic goals often leaves planners grasping in the dark for evasive monetary solutions to price turbulence.

The country is not yet a full market economy.

It lacks healthy competition in supplying essential commodities such as petroleum, electricity and medicine while prices are often set out of synch with time-tested market laws.

The Government has not brought relevant agencies together to coordinate on the problem.

Especially important is bridging the gap between the Ministry of Finance and the State Bank of Vietnam.

The State must work to harmonize the use of financial regulators including interest rates, credit limits, compulsory reserves, foreign currency reserves, tax policies and Government debt.

The state has also failed to monitor, detect and investigate acts of policy violation.

And while the administration has said it is pouring over solutions, relevant agencies have in fact failed to issue concrete policy to tackle the problem.

Tying up loopholes

In 2007, commercial banks' interest rates have been lower than the inflation rate, which means that savers have actually lost money while the banking industry has had a fruitful year.

Issuing bonds internationally to attract foreign currency rather than selling them domestically to cut the dong surplus was yet another mistake.

Experts forecast that next year's prices would experience similar fluctuations as in 2007, but domestically, positive elements could prevail over setbacks.

Experts have said that with careful Government management, CPI could increase at a slower pace than GDP in 2008.

However, to achieve this target requires greater determination to establish tough policies that support at stronger market mechanism.

The lack of a fully competitive market without proper Government management allows dominant businesses to benefit from price changes, sometimes illegally.

Only by fostering the market liberalization, will there be more pressure to reduce prices.

The Government should also not worry so much about the effects of the state sector wage increase on inflation.

Most importantly, relevant agencies must work together to realistically forecast market prices and implement improved measures against price surges.

Source: TBKTSG.