VN should sacrifice growth to stabilise prices

The inflation rate may be two digits for 2007, according to Dr Tran Dinh Thien, Deputy Head of the Vietnam Economics Institute. In order to stabilise prices in this context, the government should reconsider the targeted 9% economic growth rate.


All countries in the world bear the same pressure from the price increases. How can they all successfully control the prices in their domestic markets?

The structure of the basket of goods which is used for calculating consumer price index (CPI) in Vietnam is different from those in other countries. In our ‘basket’, food and foodstuff products account for more than 40% of total product and service items, while the proportion is smaller in other countries’ baskets. In poor and developing countries with low development levels, more raw products are listed in the ‘basket’. Therefore, in controlling prices, the government should draw up solutions considering the specific characteristics of Vietnam.


What are solutions then?

The government is now focusing on lowering taxes in order to stabilise the prices of key products, like oil and petrol, and steel, which can help stimulate growth. Meanwhile, the prices of food and foodstuffs will not see big increases.


Do you think tax reductions will help stop the price increase wave?

It is necessary not only to lower taxes but also to issue government bonds to withdraw cash from circulation. It is necessary to lower government spending. Reality shows that when the inflation rate is too high, the most important thing to do is to urgently cut government spending and raise interest rates in order to attract idle capital from the public. Currently, the budget overspending remains within control. But I have to say that the government still has to cut expenditures in the context of overly high price increases, causing the inflation. The expenditure cuts will help reduce the inflation rate.


Experts have forecast that prices will keep rising towards the year’s end due to many factors. Could you please give other reasons behind the price increases?

In the first six months of the year, the government disbursed less than 50% of investment capital, while it is striving to reach the growth rate of 9% this year. Therefore, the government has to pump more money in the economy from now until the year’s end.

Factors that may cause price increases in the last months of 2007 prove to be very strong, while the volume of cash in circulation remains very big. I think that the price increase will be two digits.

However, I do not think that inflation has reached the chaotic level. We can control the situation if the inflation rate is less than 10%, and it would be fine if we could not gain the targeted economic growth rate of 9% this year.

Source: VNE