"It is important that inflation, should be reduced to a single digit... to make people feel safer," Jonathan Pincus told selected reporters in Hanoi last Thursday. "I think the Government should set an inflation target of below 10%."

Pincus said that high inflation rate of above 10% was very harmful because it hurt the poor, businesses found it very difficult to map out plans, and Vietnam would become uncompetitive in export.

Wages will also go up and companies consider Vietnam as unattractive, Pincus said after the release of Vietnam's annual inflation in February leaping to 15.67% or the highest in more than 12 years.

"Vietnam's inflation is twice higher than other countries in the region including China," Pincus told the Daily just hours before a press conference in Hanoi where Government officials fielded questions focusing on inflation and control measures from reporters.

"It is a big blow if the inflation is above 10%. So Vietnam has to recognize that there are global problems but there are also problems that are very specific to Vietnam and need to be solved in Vietnam," Pincus said.

Pincus advised to forget about the growth rate in relation with inflation rate as the growth rate is an economic activity and the productivity of the entire economy while inflation rate related to supplying money to the economy.

He suggested the State Bank of Vietnam to be prudent to avoid hiccups such as increasing the required reserve, forcing banks to buy bonds and controlling the dong in circulation by not buying the U.S. dollar.

Pincus said the central bank needed restructure to become more effective and transparent.

"It needs restructure because it was developed and designed for a different economic system... Modern economy needs modern central bank," he said.

"The economist said Vietnam needed to hire professionals to give advice so that the country would be able to take quick actions to cope with the changes of the world as Vietnam was now globally integrated.

"Vietnam is now part of the global economy so it takes opportunities but also bad impact of the global economy."

Pincus said the real question for the Government is how to develop institutions to respond quickly and appropriately when changes occurred with the world's economy that would affect Vietnam.

"The Government has to tackle new problems that it has not dealt with before," he said and pointed out that the biggest challenge for Vietnam was how to solve the problem with a lack of coordination among ministries and agencies.

He said it was most clearly in the relationship between fiscal policy and monetary policy that the central bank tried to squeeze down equity but in the same time the Government (with its fiscal policy) was spending more, making deficit bigger.

Pincus compared the lack of coordination in relation to inflation as a car where someone was stepping on the brake to try to slow down it while the other was pushing on the gas. "The result is that inflation is not going down."

Pincus also added it was bad to allow a company to open a bank as it would allocate money to its projects without considering whether the projects were efficient or not.
Source: Vneconomy