But does that number reflect a success of the government’s inflation-control policy? Or perhaps simply the feeble purchasing power in hard times?

The Ministry of Planning and Investment (MPI) last week trumpeted that Vietnam’s consumer price index (CPI) - a calculator for inflation growth - for May declined 0.06 per cent on-month, recording the lowest May CPI over the past more than 10 years.

This is the second time since early this year that Vietnam has seen a CPI decrease, which in March suddenly fell 0.19 per cent on-month.

“The government’s inflation-taming and macro-economic stabilisation solutions continue to be made effective,” said an MPI report on May’s production and business situation.

However, Bui Sy Loi, vice chairman of the National Assembly’s Social Affairs Committee responded: “The low CPI is ascribed not to the government’s macro-monitoring, but largely to enterprises’ and people’s shortages of cash for spending.”

LienVietPostBank vice chairman Nguyen Duc Huong warned that the government’s inflation achievement had been leading inflation to “deflation.”

“Lending rates have been remarkably trimmed, but why does local production remain difficult? It is because the government’s tightened policy used for curbing inflation has over a long time driven enterprises into woes,” Huong said.

Nearly 120,000 enterprises have either stopped production or declared bankruptcy since early 2011, according to MPI statistics. “But only a small part of this number have recovered their production,” Loi said.

Cao Sy Kiem, chairman of Vietnam Association for Small- and Medium-sized Enterprises and former State Bank Governor, said: “The government should not rest on its laurels about its inflation achievement. The economy has deeply declined, meaning that enterprises cannot sell their products while having to narrow down production.”

For instance, state-run Vietnam Steel Corporation reported that it “suffers from big losses in this year’s first five months.”

“We made 480,000 tonnes of long steel - down 10.8 per cent on-year, and 1.32 million tonnes of flat steel – down 8.2 per cent on-year. It is due to a big shrink in demand for steel in the market,” said a corporation representative.

The MPI reported that the industrial index of May rose 6.7 per cent on-year, lower than the 6.8 per cent in May 2012, 14.2 per cent in May 2011, 13.8 per cent in May 2010, 6.8 per cent in May 2009 and 16.4 per cent in May 2008.

Also worrying about local production is Huynh Dac Thang, vice head of the Ministry of Industry and Trade’s Export and Import Department, who reported that Vietnam’s electricity consumption ascended 8.9 per cent in May, far lower than 15 per cent in last May. “Our statistics show that both the public and enterprises have cut down their use of power,” Thang said.

Nguyen Ngoc Hung, vice head of the Ministry of Finance’s Export-import Tax Department, said local production woes had slashed state budget revenue. By May 15, 2013 total state budget revenue was tantamount to only 23.9 per cent of initial estimates for the year ending May 15.

Nguyen Huyen Diu, a representative from the State Bank’s Monetary Policy Department, said about 70 per cent of local enterprises said they needed output markets to sell off their inventories, before seeking new loans from banks.

However, Diu also noted that local production has shown some signals of recovery. “In this year’s first five months, credit has increased 2.1 per cent, up from 1.4 per cent in the year’s first four months. In May 2012, credit witnessed minus growth,” she said.

Source: VIR