Price increases – reverse effects of WTO admission

he price increases in the last eight months, according to economist Pham Chi Lan, have been explained as reverse effects of Vietnam’s admission to the WTO due to shortcomings in the management of the national economy.

The consumer price index (CPI) has increased by 6.78% through August, and 8.57% over the same period last year. The most worrying thing is that rural areas have exceeded urban areas in terms of CPI growth rate: in August, the CPI increase in rural areas was higher than that in urban areas, 0.6% vs. 0.5%. The continued price increases have negatively impacted peoples’ lives.

The price increases seem to come contrary to peoples’ expectations that prices would decrease as a result of WTO membership.

However, as Economist Pham Chi Lan, a former member of the Prime Minister’s Research Team, has pointed out, the price increases were expected. This is called one of the ‘prompt reverse effects’ occurring right after Vietnam has joined the WTO and signals the process of more deep integration into the world’s economy.

Mrs Lan said that WTO membership had brought both active and inactive effects. The active ones include the increasing investment flow into Vietnam, while the inactive ones include the price increases.

According to Mrs Lan, since becoming an official member of the WTO, the vulnerability of the national economy has become clearer. The links connecting Vietnam and the world’s market have become closer, i.e. the world’s market fluctuations have more direct impacts on Vietnam. Vietnam, for example, has been influenced by the oil price increases. It proves to be quite different from 1997, when the financial and monetary crisis occurred. At that time, the outside happenings did not have negative impacts on Vietnam.

As Vietnam has opened its market, the national economy has shown some shortcomings. As Vietnam’s management skills are not good, it finds it hard to control the market and prices.

Moreover, Vietnam still lacks necessary factors to run a market in which prices are defined purely by the supply and demand basis. Let’s take petrol price as an example. Enterprises did not lower the selling prices of petrol even when the world’s prices went down and the government asked them to lower prices. Mrs Lan said that in this case, it was because Vietnam did not have necessary market forces which could create healthy competition. Vietnam has 11 petrol distributors, including nine state owned, and Petrolimex alone holds up to 60% of the market share.

Mrs Lan said that in the short term, Vietnam would have to bear reverse effects of WTO membership, and the undesired effects would gradually disappear when Vietnam improved its management capability.

Source: VNE