I – GOLD PRICE

1.     Roles of gold in modern society

Gold plays the role of means of reserve as well as of exchange in modern economy. In much of Asia, gold is the best possible protection against both political and economic upheaval. For men and women throughout the developing world, gold is still one of the most liquid and widely accepted forms of exchange, quite simply the most efficient store of value they possess.

Nowadays, gold is still considered an important reserve asset by most central banks, even though it is no longer the center of the international financial system. The most important reason is that gold is the only reserve asset that is no one's liability. This means that, unlike a currency, the value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation in that country.

Gold has a track record of holding its real value over the centuries. Since gold is no-one's liability, it can not be repudiated and holding it is a safeguard against potential unforeseen crises. Gold also brings much needed diversity to a central bank portfolio due to its low correlation with key currencies and its strong inverse correlation with the US dollar. 

It is estimated that 25% of gold reserves has been held by funds of central banks in the form of value reserve. Many countries consider the significant gold reserves the tool to protect their currencies against being dependent on US dollar. America is the country that possesses the greatest gold reserves. Gold accounts for 70% of reserves held by FED. The emerging countries such as China and Brazil have been also increasing their gold reserves recently.

The demand of gold has been rising since September 2008 when the global financial crisis broke out. Investors might have lost their confidence in paper currency.

2.     Roles of gold in Vietnamese economy – Gold price fluctuations in Vietnam in the recent years, especially in 2010

2.1. Roles of gold in Vietnamese economy

In Vietnam, gold plays an important role in the purchase of precious assets such as lands, houses, cars, etc. The buyer will arrange financing with a bank not in terms of the Vietnamese dong, but in gold, which holds its value in terms of purchasing power. Almost valued properties of Vietnamese are attached to gold price, thus, every fluctuation of gold prices is very closely followed by the people.

2.2. Gold price fluctuations in Vietnam in the recent years, especially in 2010

The domestic gold price began to increase since September 2009 by 2.04 per cent and kept rising steadily during the last quarter of 2009. The scenario of domestic gold price in 2009 repeats in 2010. However, the absolute value of gold price increase is much higher in 2010 than in 2009. The record domestic gold price was set at VND 38.4 million per ounce on November 9, 2010. After the two big shocks of gold price in 2010, the domestic gold price did increase nearly VND 10 million per ounce by the end of the year.

2.3.      Causes and consequences of gold price fluctuation

2.3.1. Strong increase of the world gold price

Due to the deep integration of Vietnamese economy into the world one, the domestic gold price has linked directly to the world gold price in terms of USD. Recently, the world price of gold has fluctuated and increased continuously owning to the following reasons: (i) the $600 billion quantitative easing of FED, (ii) the serious situation of bad public loans in some European countries, and (iii) the efforts of emerging countries such as China, Brazil to raising their foreign reserves by buying USD.

2.3.2. Increase of USD/VND exchange rate

The domestic gold price converting to VND has been subjected to a duplicate effect. On the one hand, it follows after the increase of the world gold price in terms of USD. On the other side, it is affected by the increase of USD/VND exchange rate. This duplicate effect is significant because the shortage of foreign currency reserve has been a hot issue in Vietnam since the beginning of 2010 that the USD/VND exchange rate keeps rising strongly.

2.3.3. Psychology factor and speculation

Gold prices have much impact on the public psychology. Facing the world gold price volatility hourly and the expectation of the press about the rise of gold prices, people rushed to buy gold that makes the gold demand increases while the gold supply is shortage. This contributes to the rise of gold prices.

However, the real demand of the people is not much. The high increase of gold prices mainly results from virtual demand. Large proportion of gold trading belongs to gold speculators that makes the gold market more heated, especially when the gold operations of commercial banks have been narrowed.

2.3.4. Impacts of the closure of the gold trading floor and squeeze of gold trading activities

The State Bank of Vietnam (SBV) issued: (i) the Circular 01/2010 dated on 06/01/2010 about the closure of the gold trading floor and end of all activities of gold trading on foreign account; (ii) and the Circular 22/2010 issued on 29/10/2010 that does not allow commercial banks to convert gold into paper currency and lend for gold trading activities. These legal documents have limited the supply of gold to the market while the demand of gold is still large that makes gold prices more and more "crazy" when world gold prices surges.

3.     Comments on the measures of dealing with the gold price fluctuations - Some recommendations

3.1. Implemented measures and comments

3.1.1. Issuing policies on gold management

Facing with the volatility of gold prices, the SBV issued a series of legal documents aiming at managing the gold trading activities to stabilize the gold prices such as: (i) Circular No. 01/2010/TT-NHNN that requires all gold trading enterprises and organizations to terminate any business on foreign accounts of gold; (ii)  Circular No. 22/2010/TT-NHNN with provisions of mobilizing and lending gold by credit institutions that narrows the objects to lend gold in order to reach better management and particularly limit the speculation in lending for gold trading.

Moreover, the Ministry of Finance also issued the Circular No. 184/2010/TT-BTC with provision of increasing the tax of gold export from 0 per cent to 10 per cent dated on 01/01/2011.

3.1.2. Issuing quota for import of gold

Besides, to deal with the "virtual" gold price fever due to speculation, by October and November 2010, the SBV had issued three times the quota for importing gold.

This helps to reduce the gap between the domestic gold price and the world one. However, it should be noted that the issuance of quota for importing gold like that would create pressure on demand for foreign currency, exacerbating the trade deficit.

3.2. Some recommendations

3.2.1. Short- term solutions

First, the SBV needs to sell a part of its gold reserves to stabilize the gold market. Besides, the SBV needs to borrow gold from the commercial banks by issuing long term bonds in gold for sale to gold trading enterprises. These enterprises are required to pay the SBV in U.S. dollars which will be used then to intervene in the foreign exchange market to stabilize the USD/VND exchange rate.

Second, the SBV may issue promissory notes in gold which can be called paper gold to sell to the commercial banks. Moreover, the SBV should allow commercial banks to receive bank deposits in VND guaranteed by gold that avoids the situation that people draw deposits in VND to buy gold causing loss of liquidity in commercial banks.

 In addition, the SBV should allow the gold trading enterprises to be free to import and export gold plates in order to interlink the domestic market to the world one that helps to reduce gap between the two prices.

3.2.2. Medium and long –term solutions

- Increasing official gold reserves and “capitalizing” gold.

The SBV should allow commercial banks to mobilize deposits in gold and monetize gold by selling it to the SBV. Then, the SBV can convert the gold to VND to fund the economy. In necessary cases, commercial banks may buy gold from the SBV or market.

- Establishing a national gold trading floor:

Economics experts suggested establishing a national gold trading floor managed by the SBV, saying in that case smuggling of gold and the black market will surely cease.

 - Mobilizing effectively gold reserves in the population

II - USD/VND exchange rate

1.                       Role of US dollar in the world’s economy

For decades after the World War II, along with the position of the United States as the world’s leading superpower, the US dollar has become the global currency and been most widely used in international trade. However, entering the 21st century, especially after eruption of the global financial crisis and economic slowdown in 2008 in the US, the role and position of the US dollar has somewhat changed. The U.S. economy is not strong as before, its total GDP has declined significantly after the financial crisis, the unemployment rate has increased to nearly 2-digit figure, trade deficits has been serious, federal budget deficit in 2010 is the highest level since the World War II.

The global financial crisis and economic recession then has threatened to destroy the international monetary order, which previously dominated by the U.S. dollar. Euro, Japanese Yen, Chinese Yuan and recently SDR (Special Drawing Rights) of the IMF emerged as challenges to the U.S. dollar. This fact is opening prospects for the global monetary system being less dependent on the US dollar as present. However, economic and finance conditions of European countries as well as Japan and China, etc. have not been sufficient enough for their currencies to usurp the leading role of the US dollar. So, obviously the US dollar still continues to maintain a major role in foreign exchange transactions, international trade and banking market.

2.     Changes in the US dollar policy of the US government, and price fluctuations of U.S. dollar in recent years, especially in 2010

2.1. Changes in the US dollar policy of the US government

U.S. has been trying to achieve competitive advantage through weakening the US intentionally, especially since eruption of the global financial crisis and economic recession in the country in 2008.

2.2. Price fluctuations of U.S. dollar in recent years

The US dollar has constantly depreciated since 2002. With a series of economic stimulus package and the quantitative easing programs launched by the U.S. government, the US dollar has depreciated substantially.

Since mid-August 2010, USD-Index has decreased continuously. In 2010, the US dollar depreciated against most major currencies in the world. The US dollar depreciated by 9.8% against JPY, 8% against the AUD and 7-10% against the currencies of third countries like Thailand, Singapore and Malaysia.

2.3. Cause of price fluctuations of U.S. dollar

The decline of the US dollar in recent times derived from market expectations of the second quantitative easing program of the U.S. government.

In addition, the slide of the US dollar also derived from the "greed" of investors (especially investment funds) to seek profits on the commodity markets and looking forward to the prospect of interest rate increases in other countries.

2.4. Consequences of the price fluctuations of US dollar

The weak US dollar policy seriously threaten the export prospects of other major economies such as China, Japan and European countries. Prices of most basic goods in these countries are increased due to the slide of the US dollar.

Also, the weak US dollar policy pushes these countries in the risk of  overheating growth and swelling of asset bubbles because investors will leave the U.S. investment environment with ultra-low interest rates and the depreciated US dollar to pour money into their markets.

3.     Situation of dollarization in Vietnam - Volatility of the USD/VND exchange rate in Vietnam in recent years, especially in 2010 - Causes and consequences

3.1. Situation of dollarization in Vietnam

Vietnam is categorized as “unofficial dollarization" economy by the IMF. According to the statistics, the rate of dollarization is always above 20% in Vietnamese economy. Although the government pursued consistently a policy of foreign exchange management that is only using VND in all transactions in the market, but in fact, foreign currencies and gold are common used as means of payment in transactions relating to real estates, luxury goods, loans, debt repayment and storage. Whenever there is volatility in exchange rates, role of the US dollar again increases in the market.

One area which ​​is relatively strongly dollarized is e-commercial, especially trading electronics products.

Causes of the situation of dollarization in Vietnam includes (i) losing confidence in the domestic currency of the people following the currency crises, especially the Asian financial crisis in 1997-1998 and most recently the global financial crisis and economic slowdown erupted in the U.S. in 2008; (ii) increasing rapidly of the source of foreign currencies in cash in Vietnam, particularly U.S. dollar.

3.2. Volatility of the USD/VND exchange rate in Vietnam in recent years, especially in 2010

Since 2008, the exchange rate has been always a hot issue of the economy. This problem becomes more and more stressful in 2010. The year 2010 witnessed a strong depreciation pressure on the VND. The USD/VND exchange rate which is approximately 16,500 VND/USD in late 2006 skyrocketed to 21,500 VND/USD in the last quarter of 2010. From 11/2009 to 12/2010, the VND depreciated by 11.17%. Also during this period, there is significant gap between the black
market and official exchange rates.

In 2010, the depreciation of the official exchange rate was 5.5%, increasing from 18,482 VND/USD to 19,500 VND/USD, while the black market exchange rate depreciated by 8.37%, from 19,340 to 21,000 VND/USD.

Entering the 02/2011, the issue of exchange rate has become hot again when the price of US dollar rose 0.94% against that in 01/2011. The gap between the black market and the inter-bank average exchange rates was more than 8%.

3.3. Causes and consequences of the exchange rate fluctuations

3.3.1. Causes of the exchange rate fluctuations

First, the current account deficit has been large. Current account deficit of Vietnam jumped to 9.8% of GDP in 2007 and 11.9% of GDP in 2008 from 0.3% of GDP in 2006. This number dropped to 8% of GDP in 2009 and is projected at about 7.5% of GDP in 2010.

Second, confidence in the domestic currency of the people has declined due to the volatility of exchange rates and high inflation recently.

Third, the situation of dollarization has increased in the economy. The payment transactions in USD have risen. In addition, outstanding credit in foreign currency have also grown up due to the large gap between the interest rates in domestic currency and foreign currencies that has put pressure on the demand of foreign currencies.

Fourth, the rise in gold price also leads to increase in price of USD. In addition, smuggling gold is one of the causes of the stress of the foreign exchange market.

3.3.2. Consequences of the exchange rate fluctuations  

First, the fluctuations of exchange rate make the burden of Vietnam's foreign debt increase.

Second, the fluctuations of exchange rate impede the new flow of capital from foreign investors into Vietnam.

Third, the fluctuations of exchange rate make the inflation increase. The adjustment of exchange rate is always accompanied by high inflation indices. Therefore, the fluctuations of the USD/VND exchange rate recently along with 4 times of exchange rate adjustment since 2009 have put great pressure on the CPI in 2010 and the early 2011. Inflation in 2010 rose to 2-digit figure, threatening inflation target of below 7% of the National Assembly in 2011.

4.     Comments on the measures to deal with the exchange rate fluctuations - Some recommendations

4.1. Measures on exchange rate adjustment

Since 2009, the SBV has adjusted the interbank exchange rate 4 times with the total depreciation of 20.47%.

-   The 1^st adjustment

On 25/11/2009, the SBV depreciated the interbank exchange rate by 5.5% dated from 01/12/2009. With this adjustment, the floor and ceiling exchange rates will be respectively 17,422 and 18,500 VND/USD. This movement helps to reduce the stress on the foreign exchange market by pulling down the market exchange rate, reducing dollarization in the economy and reducing pressure on prices of imports that contributes to control inflation.

-   The 2^nd adjustment

On 10/02/2010, the SBV depreciated the interbank exchange rate by 3.3% dated from 11/02/2010. According to the SBV, the purpose of this adjustment is to harmonize the supply and demand for foreign currencies, increase liquidity for the foreign exchange market, and contribute to control the trade deficit and stabilize the macro economy.

-   The 3^rd adjustment

In 8/2010, the SBV decided to increase the USD/VND exchange rate by 2.1%, rising from 18.544 VND/USD to 18.932 VND/USD. According to that, the ceiling exchange rate would increase to 19,500 VND/USD.

 This step aimed at reducing pressure on the Vietnam dong due to pressure from high trade deficit, foreign currency credit, inflation and expectation of the people. This can be considered a reasonable decision in terms of time and goals. The adjustment of the exchange rate was basically achieved the objectives of improving trade balance, increasing market transparency and disbursements of foreign indirect investment, stabilizing expectation of the people, pulling down pressure on inflation, and contributing to reduce overheating credit growth recently.

-   The 4^th adjustment

The most recent adjustment is on 11/02/2011 when the SBV adjusted the interbank average exchange rate from 18,932 VND/USD to 20,693 VND/USD applied from 11/02/2011. This 9.3% of depreciation of USD/VND exchange rate is recorded the largest increase in the history of exchange rate adjustment in Vietnam. With this adjustment, the floor and ceiling exchange rates will be respectively 20,486 and 20,900 VND/USD that would narrow the gap between the black market and the inter-bank average exchange rates which has been around 10% since 10/2010.

The purpose of this movement is to stimulate exports demand, increase the competitiveness of Vietnamese goods, and improve the trade balance that will have positive impacts on the economy and the stock market as well.

However, according to some economists, the depreciation of the USD/VND exchange rate by 9.3% of the SBV is really a shock to the market. Firstly, the adjustment of exchange rates with a dose of "shock" somewhat reduced the people's confidence in the operating policies of the Government. Secondly, the shocked adjustment of the exchange rate like that would lead to inflation because it makes imports prices increase, that puts pressure on inflation and indirectly puts pressure on the interest rates. Thirdly, when the exchange rate is adjusted with such a large margin, the Government's foreign debt and debts in foreign currencies of enterprises will increase. Fourthly, for non-professional investors, the exchange rate changes will make them puzzled that causes some turmoil in the stock market.

4.2. Pumping foreign currency into the economy

Government agreed for the SBV to pump foreign currency with strong dose into the market to meet essential demands of import. In 9/2010, the SBV bought $300 million to increase the bank reserves and in 10/2010, it sold $200 million to stabilize the market. However, according to economists, these measures are not strong enough. The biggest effect of this solution is solving the problem of market confidence for Vietnam dong. However, this will cause increased inflation in the next cycle.

4.3. Some recommendations

The exchange rate has been posing two issues: how to stabilize and how to combat dollarization. In the next time, the Government should combine synchronically the adjustment and intervention of exchange rate to pull down the gap between the black market and the official exchange rates. Then, the Government should start limiting and come to end lending in foreign currencies. To limit lending in foreign currencies, the SBV has to implement foreign currency swap operations to get VND.

III – Consumer price

1.     Fluctuations of consumer price in 2010 in Vietnam – Causes and consequences – Forecast on 2011 inflation

1.1. Fluctuations of consumer price in 2010 in Vietnam

The volatility of CPI in 2010 was basically similar to previous years that was up and down in line with the sine graph, specifically, the CPI rose in months after the Lunar New Year, then decreased gradually in the second quarter and continued to increase since the end of the third quarter and the quarter IV/2010. However, the CPI difference between months in 2010 was rather large, the deviation between the highest monthly CPI and the lowest one  was greater than 1.5%.

The increase of CPI in the first two months of 2010 was more than 2 times higher than that of the same period in 2009. CPI increased approximately by 1.67% per month on average in the first two months of 2010 while that number in 2009 was only 0.67%. Therefore, the increase of CPI within 1/6 time of the year 2010 accounted for about 2/5 of the target of CPI for the year 2010 which was set below 7%.

The typical example of “shock” in CPI increase was the increase of CPI in 9/2010. While CPI in August 2010 increased only 0.23%, CPI in September 2010 went up sharply by 1.31% over the previous month. On average, the inflation in the last four months of 2010 reached the highest increase over last 20 years. The accumulated CPI in the first 11 months in 2010 was up to 9.58% which is also the highest inflation rate since 1992, except the year 2007 and 2008. And CPI in 12/2010 was 1.98%, the highest increase in 2010. The average inflation in 2010 was 9.19%.

1.2. Causes of consumer price fluctuations

(i) Impacts from external factors

Along with the deeper and broader integration process into the regional and the world economy, the global inflation has certain influence to the dynamics of inflation in Vietnam via two channels: exports and imports.

(ii) Impacts from internal factors

First, the growth of credit and money supply has been exploded again since 6/2009 that leads Vietnam to a high inflation in the current period. According to the General Statistics Office, this monetary factor can explain 40% increase in CPI in 2010.

In addition, CPI increased in 2010 also due to the lag effects of the loosing fiscal and monetary policies as well as the economic stimulus packages in 2009.

Second, the Government continued the efforts of demand stimulus via the fiscal channel. Overall, the growth of Government spending and budget deficit in 2010 still remained at high levels. Total state budget expenditure in 2010 is expected to increase 9% over 2009. Budget deficit is about 5.4% of GDP, significantly higher than the safety threshold of 5% of GDP.

Third, the year 2010 witnessed severe storms and floods in central provinces and droughts in many localities throughout the country that affected agricultural production and prices of agricultural products. Food prices soared nationwide in the last months of 2010.

Moreover, the serious decline of confidence of the people in the domestic currency contributes to high inflation in 2010.

1.3. Consequences of CPI fluctuations

First, high inflation has had impacts on the poor working class who are hand-to-mouth people and have no accumulation.

Second, high inflation reduces the confidence of the people and enterprises in the domestic currency and increases hoard of gold and foreign currencies. This further exacerbates the situation of dollarization in our country as well as makes gold and foreign exchange markets stressful. The result of this vicious spiral is that inflation continues to rise.

1.4. Forecast on 2011 inflation

1.4.1. Inflation in the first 2 months of 2011

Entering the year 2011, inflation has not relieved, by contrast, the economy has continued to suffer severe price storm from the increase of exchange rate and prices of some essential commodities such as electricity, gas and coal.

Nationwide CPI in 01/2011 went up by 1.74% over 12/2009 and by 12.17% over 01/2009.

In 02/2011, CPI faced with 3 “shocks”: (i) on 11/02/2011, the SBV depreciated the USD/VND exchange rate by 9,3%, the highest level of adjustment in history; (ii) on 23/02/2011, the Prime Minister adopted the plan of increasing electricity price by 15,28%; (iii) on 24/2/2011, the Ministry of Finance allowed to raise the A92 gas price from 16,400 VND per litter to 19,300 VND per litter, breaking the record of gas price increase in 2008. These shocks lead to 2.09% increase of CPI in 02/2011 over 01/2011, the highest increase level in the recent two years. CPI in only two first months of the year 2011 increased by 3.78% while the inflation target of the National Assembly is below 7%.

1.4.2. Forecast on 2011 inflation

According to economists, inflation in 2011 will continue to be stressful due to plenty of pressures as the following:

First, the world’s commodity prices soar simultaneously: in 2011, food prices continue to escalate due to changes in weather causing bad harvest worldwide. In addition, policies on restricting exports of certain countries also make food scarcity become more severe.

In addition, domestic commodity prices are suffered a heavy pressure of increase because the raw material inputs for production rise owning to the world economic recovery and currency devaluation all over the world.

Second, money supply growth exceeds real GDP growth: Credit in 2010 increased by nearly 30%, far exceeding the target of 25%. Especially, credit increased sharply in the last months of the year despite high interest rates. Credit growth was 4.4 times and M2 money supply growth was 3.7 times of real GDP growth. This is one of the factors that creates imbalance between money and goods in the economy. Therefore, inflation pressures due to the money supply is still huge.

Third, adjustments of exchange rate, and prices of electricity, gas and coal create a huge pressure on the domestic prices.

Fourth, high interest rates create a vicious cycle of inflation: tightening monetary policy increases interest rates to prevent inflation but simultaneously, it also produces cost-push inflation.

Fifth, inherent weaknesses in economic structure, quality of growth, competitiveness, infrastructure, etc. which have not been eliminated effectively remain the underlying factors causing high inflation and instability of macro-economy.  

In addition, the CPI in 2011 also suffered some pressure from weather conditions, complicated epidemic diseases as well as inflation expectations from the minimum wage increase in May, 2011

Therefore, there are reasons to believe that CPI in 3/2011 might increase by 1% as in 2010. This means CPI in the first quarter of 2011 might rise by nearly 5% which is not far from the goal of 7% of the year. Therefore, it can be seen that inflationary pressure in the following months of 2011 will continue at high levels and the target of controlling CPI below 7% in 2011 is less feasible. Inflation in 2011 is supposed to be 2-digit figure.

2.     Comments on the measures to restrain the consumer prices – Some recommendations

2.1. Comments on the measures to restrain the consumer prices

The Prime Minister has issued the Resolution No. 11/NQ-CP dated on 24/02/2011 providing solutions on controlling inflation, stabilizing macro-economy, and ensuring social security. Message of controlling inflation by fiscal and monetary policies is quite clear. However, the tightening monetary measures implemented recently by the SBV seemed to be not effective in restraining consumer prices. Moreover, if the SBV tightens monetary policy further by raising interest rates or increasing requirement reserve, the consequences for the economy will become more severe.

2.2. Recommendations

To control inflation at a reasonable level, we must implement comprehensively solutions that are set out by the Resolution No. 02/NQ-CP on 09/01/2011 and the Resolution No. 11/NQ-CP on 24/02/2011 of the Government but with a stronger and more drastic dose, in particular:

First, the Government should take initiative to cut aggregate demand by reducing growth of money supply and credit, raising taxes, reducing government spending, particularly reducing investment. This implies a tradeoff between inflation and economic growth.

Second, it is necessary to ensure positive but not too high real interest rates. According to international experience and Vietnamese practices, real interest rates for deposits should be maintained at only about 1.5% per year. This interest rate is attractive enough to allure idle cash flow into the banking system in order to reduce inflationary pressure as well as encourage investment, reduce production costs for enterprises, and contribute to the economic growth.

Third, the government needs to make greater efforts in adjusting the budget, especially reducing public investment to bring the budget deficit to the safe level of 5% of GDP.

Fourth, applying measures to increase the economic stability of the gold, foreign exchange, and interest rates markets; implementing the mechanism of market prices, boosting price competition; controlling monopoly in accordance with effectively control the operation of the market against commercial fraud, breach or non observance of the laws on business, financial, monetary and price.

Fifth, tightening investment to improve the efficiency of public investment.

IV - Synthesis

1.                       Synthesis of gold price, exchange rate and CPI

As mentioned above, in Vietnam, apart from the VND, there are two other means of payment that are gold and US dollar. Especially, in the recent stages of inflation, when confidence of the people in the domestic currency fell down, role of gold and US dollar has been confirmed. Therefore, there is a much close relationship among gold, US dollar and CPI in Vietnam. Any changes of one of the three types of prices also affects the other prices.

2.                       Some general recommendations     

First, it is necessary to determine that inflation is an urgent matter in the macro-regulation at present in Vietnam. In short term, controlling inflation should be considered a top priority program of the Government policy. The Government should have the strong commitment and decisive, comprehensive and consistent actions to reinforce and strengthen the confidence of the people in the VND as well as reduce their expectations about future inflation.

Second, the SBV should consider to abandon the policy that allow export enterprises to borrow loans in foreign currency to use as working capital to purchase raw materials and exports. This will facilitate to lower interest rates rapidly.

Third, accelerating the equitization of SOEs as the phase of 2004-2006, focusing on selling the State shares in large equitized enterprises in 2011.

Fourth, the state should adjust development policy that runs after quantity norms as present. This implies to reduce investment. To do so, the government should raise interest rates to attract money into the banking system.

Finally, reforming economic structure is a vital priority of Vietnamese economy.

Source: VNEP