"Controlling inflation is the first priority of the Government," said Permanent Deputy Prime Minister Nguyen Sinh Hung. "The austerity measures are not aimed at wages or Government policy beneficiaries but to pause new equipment acquisitions, reduce energy spending and cut non-essential expenditures."

Viet Nam has been grappling with high inflation, with the consumer price index rising at an annual rate of 12.24 per cent in February, the highest rate of increase in the past two years.

The Government will also lower credit growth targets from 23 per cent to under 20 per cent, gradually cut interest rates, and give priority to agricultural production and support and essential industries.

Last year, credit growth reached 27.65 per cent, pushing outstanding loans to 140 per cent of gross domestic product (GDP).

The Government, together with the State Bank of Viet Nam, would also dedicate all resouces to controlling the foreign exchange rate. Dung ordered all major State-owned enterprises to sell their US dollar reserves to commercial banks and reminded commercial banks that they were required to sell the dollar to enterprises with a legitimate need for them at quoted rates.

The dong was recently devalued and was under continued high depreciation pressures.

Dung ordered State budget expenditures to be cut by 10 per cent with the overall goal of bringing State spending from 41 per cent of the GDP to about 38-39 per cent.

The measures were seen as a major shift in the Government's emphasis on economic growth, following strong advice from the donor community in the Consultative Group Meeting last December.

International Monetary Fund resident representative in Viet Nam Benedict Bingham told Viet Nam News earlier : "It is important that the Government tackle the perception that it is sometimes more interested in short-term growth objectives than securing the stability needed to sustain growth over the longer term. Growth through stability should be the motto. That's the only path to sustained growth."

The Prime Minister yesterday also said that the prices of agricultural products were very high, so it was good time to boost agricultural production. The country would continue to minimise imports of products that could be produced domestically, he said.

Measures to maintain production, encourage exports, control imports and conserve energy were included in the Government proposals yesterday.

But, despite the new focus on controlling inflation, the Government also increased fuel prices by nearly 18 per cent, a measure that lifted fuel prices to record levels and which was expected to have a strong inflationary impact.

Yesterday's increase followed a decision earlier this week to increase electricity rates by 15.28 per cent from next month.

Hung said that the increases were necessary to bring electricity and fuel prices in line with the market.

"Low electricity rates don't attract investment and encourage industries to continue to use old technologies that waste electricity," Hung said. "Fuel prices in Viet Nam are also just one-third of what they are in Thailand, Laos and China, which does not encourage fuel savings and causes cross-border fuel smuggling."

Minister of Finance Vu Van Ninh said that the Government would lose VND57 trillion (US$2.61 billion) this year if it continued to subsidise electrical rates.

"Since the industry gets the benefit, rates must be raised by 62 per cent," Ninh said. "And we need to raise fuel prices by 34-40 per cent to be in line with global prices."

Hung said that the Government would apply policies to support the poor and low-income households in dealing with the higher energy costs. — VNS by restructuring capital projects and delaying non-essential or ineffective works; to lower the budget deficit to less than 5 per cent; and to raise State revenue collections by 7-8 per cent,...

Source: Vietnamnews.