“Vietnam’s government is facing difficulties in balancing growth and stabilisation of financial institution targets, while having to ensure local production development and lure investment. If the government does its policies right, opportunities for it are immense,” he said.

The European Chamber of Commerce’s (EuroCham) Business Climate Index (BCI) survey of 200 Vietnam-based European companies in October found that concerns about inflation remained high with 50 per cent of companies expecting inflation to have a significant impact on their business in the medium-term.

Aninda Mitra, head of ANZ’s Southeast Asia Economics Section, at an economic conference in Hanoi last week said that taming inflation should be of prime importance to the government’s agenda next year. ANZ forecasted Vietnam’s CPI would increase 9.3 per cent next year.

Many National Assembly delegates like Bui Duc Thu representing Lai Chau province said the government must prepare for inflation to rear its ugly head again. During this year’s first 10 months, though the money supply grew 12.7 per cent on-year, the credit growth rate was only 2.52 per cent. However, Thu pointed out this 2.52 per cent growth rate was seen in between July and October after almost no growth in this year’s first seven months.

“The government has begun to loosen its monetary and fiscal policies. Thus, if credit grows strongly together with a bigger money supply growth rate, the volume of cash in the market will be far higher than now. High inflation can recur in the coming months,” said Thu, who is also an economist.

National Assembly Chairman Nguyen Sinh Hung said many cash-strapped enterprises wanted more bank loans for production. “Thus, the problem is how to boost credit growth reasonably without swelling inflation.”

Some international organisations in October forecasted that Vietnam’s inflation for 2013 would be higher than the government’s target, with the Asian Development Bank predicting a 9.4 per cent rate and HSBC forecasting 10.8 per cent. The reasons cited included higher global food prices next year and domestic demand to other goods to trend higher, while fiscal policy would likely be relaxed.

The government has successfully curbed inflation, from 18.13 per cent in 2011 to 6.02 per cent in this year’s first ten months. It is expected that the inflation rate would be about 8 per cent for the whole 2012.

Source: VIR