Since the global depression swept through the world economy in late 2008, now is the most critical point of time for Vietnam when signs of stagflation – the fearful combination of both economic stagnation and high inflation – become clearer.

At a meeting convened by the Ministry of Planning and Investment (MPI) in Hanoi last week, ministerial officials admit to such signals, including high interest rates, higher input costs, low purchasing power of the economy, and thus rising inventory. The grim situation, says the MPI in Vneconomy, has forced 12,000 enterprises to go bust in the first quarter. The number, some 6% higher than the year-earlier period, is just the floating part of the iceberg, as most of the remaining enterprises, especially small- and medium-sized ones, will find it difficult to survive the tough times if current conditions persist, says economist Pham Chi Lan in the paper.

The most fearsome headache in the current conditions, according to Thoi bao kinh te Sai Gon magazine, is the mounting losses incurred by local enterprises, especially those in the manufacturing sector. The paper, citing data from the General Statistics Office, says input costs in the first quarter rose by 2.31%, while the selling price of this sector’s products rose by a mere 0.75%, meaning either narrowing profits or rising losses for enterprises.

As products find no buyers, inventory is rising staggeringly. The steel industry, for example, saw its stockpile rising by 59.1% year-on-year in the first quarter, while cement producers lamented a rise of 55% in inventory. The magazine says that out of 32 key manufacturing sub-sectors, two-thirds of them saw inventory rising by over 20%.

Bui Ha, a senior official of the MPI, attributes the rising inventory to low domestic purchasing power, according to Vneconomy. The official says that the processing industry as a whole even saw negative growth on the domestic market if exports are left out of the total output.

“Vietnamese enterprises have become exhausted,” utters Tran Dinh Thien, head of the Vietnam Economics Institute. The economist explains in Thoi bao kinh te Sai Gon that the current situation takes root in economic woes that have accumulated over a long time, causing prolonged economic uncertainty.

Commenting on the rising number of bankruptcies, Thien says it is too dearest a price to pay for prolonged macroeconomic problems that have not been duly attended to, but the more serious problem is that most other enterprises have to scale down production as a result of stagflation.

The outlook is still somber, say economists.

Nguyen Minh Phong, a researcher at the Hanoi Socio-Economic Institute, notes that it is difficult to say whether the worst is over or has yet to come. “Without drastic changes and tough measures, GDP in the second quarter will be worse than in the first quarter, and probably better signs will only come from the third quarter onward,” Phong says on the news website VnMedia.

Meanwhile, citing import and export figures in the first quarter, Bui Ha of the MPI says that falling import of materials and machinery for domestic production is a clear sign of continued stagnation in the local economy in the coming time. Similarly, Thoi bao kinh te Sai Gon paints a dark picture for the local economy as imports by local enterprises fell by 7.5%.

Such a situation requires prompt intervention by the Government.

Sai Gon Tiep Thi suggests that the Government cuts its regular expenditures from the current 20-21% of GDP to some 16-17% of GDP as practiced in the 2000-2005 period, and by doing so, tax collection should be reduced to make life easier for enterprises. It is noted that despite economic woes, tax collection last year still far exceeded the target.

Thoi bao kinh te Sai Gon calls for the Government to scrap all plans to place heavier financial burdens on enterprises, especially the imminent introduction of new fees. “If tax collection is not reduced, the burden on enterprises still persists at a time when the investment efficiency of the State sector is not improving,” says the magazine.

Tuoi Tre quoted Nguyen Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry, as saying that “the Government should reschedule or reduce taxes and fees for enterprises as the top priority.”

There is hope in this regard as Minister of Finance Vuong Dinh Hue said on Vnexpress on Thursday that his ministry has just set up a team to look into difficulties faced by enterprises, and there will be a proposal to offer tax reduction and exemption for certain enterprises.

Source: SaigonTimes.