Headline inflation picked up in August from 6.6 per cent at the end-2006 to 8.6 per cent year-on-year. This represents an inflation of 7.4 per cent in the first eight months of the year, somewhat below the real GDP growth of 7.8 per cent during the first half of the year.
Rising inflation was initially induced by a rapid increase in food prices, for example in staple crops, and then later in other goods, especially pork.
Non-food prices inched up only marginally during the same period from 5 per cent to 5.2 per cent year-on-year. While broadly stable, non-food price inflation is by no means low.
Categories with rapid price increases include housing and construction materials, and other goods and services, mainly personal consumption items. Except for transportation and education, most other prices are hovering between 5 and 8 per cent.
Adjusting for seasonal variations, the recent price acceleration can be seen clearly as a supply side shock. Non-food prices have been broadly stable at below 6 per cent since the third quarter of 2006, while food prices started to increase sharply from the early part of this year.
Food price inflation in Viet Nam reflects a region-wide development with China and Indonesia, in particular, experiencing a similar upswing. However, because of lower non-food inflation in these countries, Viet Nam’s headline inflation is one of the highest in the region.
Underlying factors
There are several underlying factors that could explain the recent pick up in inflation.
First, shortages of food arising from weather related calamities, compounded by foot-and-mouth and, most recently, blue-ear disease, have driven food prices higher, such as rice and pork, along with several vegetables and cooking oil.
Second, international commodity prices rose sharply in 2007, peaking in mid-year, and filtered through to the local market. For example, from the second quarter of 2006 to mid-2007, international cereal prices rose by 21 per cent, vegetable oil by 5 per cent, meat by 9 per cent, and metals by as much as 80 per cent.
Third, aggregate demand has remained strong during the first half of 2007, not only driving non-food inflation but also merchandise imports. The increase in imports helped to release some of the pressures from domestic demand. However, higher international prices also implied a sharp increase in the unit value of imports.
Fourth, the higher inflation in Viet Nam could partly be a relative price adjustment process, although a lack of quantitative evidence makes it difficult to affirm.
Policy and responses
The regular seasonal slowdown of economic activity in the first half of 2007 was less visible as strong domestic demand and exports helped sustain a high rate of GDP growth.
Non-oil exports recorded an overall growth of 28 per cent during the first eight months in US dollar terms, while strong domestic demand in response to large capital inflows and rising household incomes through the asset boom led to a pick up in consumer demand. Furthermore, investment remained robust in part due to increasing foreign direct investment (FDI) and construction.
Domestic sales data shows an increase of 23 per cent during the first eight months of the year, and construction sector rising by 10.5 per cent in the second quarter.
Moreover, non-oil import merchandise grew by 34 per cent during the same period, reflecting not only imports of capital and intermediate goods but also final consumer products such as cars and electronics.
As such, relatively low agricultural production compared with previous years was more than compensated by the strong growth in manufacturing, construction, and services.
Macroeconomic policies were broadly accommodative of these developments. The liquidity injection arising from foreign exchange market intervention was only partly sterilised, facilitating rapid private sector credit growth. Furthermore, credit expansion had a more direct impact on consumption than indirectly through the real balance effect by fuelling an asset boom and also through direct consumer loans.
Adding to this liquidity injection are private capital inflows, which in the case of dollarised economies, can add directly to domestic liquidity.
There was no added fiscal stimulus in the first half of the year as spending was contained.
However, the non-oil fiscal balance still remains well above 10 per cent of GDP. In other words, this amount represents a net fiscal injection of money into the economy that is not raised from local sources.
Short-term outlook
Inflation outlook is subject to various conditions. On the supply side, food inflation could pick up in the fourth quarter, repeating last year’s pattern, but is subject to weather conditions. Also, pork supply has not yet been brought under control, and will be an important factor in determining food inflation in the second half.
Overall inflation, however, will be influenced by macroeconomic policies. Policies implemented to date argue for some optimism.
Various measures introduced by the Government - for example State Bank of Viet Nam (SBV) Decision 03/2007 and Directive 03, and raising commercial banks’ required reserves by 100 per cent in June - helped absorb liquidity.
The longer maturity and larger quantity of SBV bills issued in recent months also helped to tighten the interbank market condition.
Assuming that the SBV will continue to do so in an environment where inflows have moderated due to the recent global financial turmoil related to the US sub-prime mortgage market, the rate of acceleration of monetary aggregates could be contained in the second half of the year.
Nevertheless, the recent cooling on the stock market by itself cannot assure containment of the asset boom as there is still ample liquidity that will search for other assets such as property.
On the fiscal policy side, the deferment of minimum wage increases by the Government and the containment of capital spending in the second half of the year will ensure that no added fiscal stimulus is provided to the economy.
Finally, the current moderation of inflows provides an opportunity for the Government to supplement the positive effect of the temporary reduction of tariff rates by intervening less rigorously in the foreign exchange market.
Higher inflation is a concern as it affects the poor more than the rich, especially if inflation is induced by an asset boom. Moreover, what matters is not whether inflation has exceeded GDP growth, but whether uncertainties created by high inflation is starting to have an adverse impact on economic growth itself.
Source: VNS
Showing posts with label CPI. Show all posts
Showing posts with label CPI. Show all posts
Friday, August 31, 2007
Tuesday, August 28, 2007
Price increases stopped by drastic measures
he prices of food, poultry meat, seafood and dairy products have been stabilised, while the prices of steel, import cars and electric products have been decreasing in some areas.
Regarding food prices, though rice exporters are trying to collect rice to fulfill signed export contracts, the rice price has still decreased by VND50-100/kg thanks to the superfluous supply, now selling at VND4,600-5,200/kg.
However, as the Ministry of Industry and Trade has forecast, as the northern region has entered the rainy and storm season, while floods threaten the south, the food price is expected to increase slightly in some areas.
Meanwhile, foodstuff prices are tending to slightly decrease thanks to superfluous supply. The price of pork, for example, saw a slight decrease in August after increasing sharply in July, now selling at VND19-23,000/kg in the north, and VND19-25,000/kg in the south.
The prices of beef, poultry meat, and seafood, seeing increases of VND2-4,000/kg in early August, have slightly decreased. Beef is selling at VND75-90,000/kg. Chicken bred in industrial farms is selling at VND35,000/kg, while chicken bred at households is selling at VND58-60,000/kg. In the Mekong River Delta, tra fish price reduced by VND500-600/kg, now selling at VND13,400/kg on average.
At the end of July and in early August, imported dairy products saw sharp price increases of VND20-96,000/unit. The decision to cut taxes on dairy products has helped prevent further increases, but has not helped reduce selling prices.
Nguyen Tien Thoa, Head of the Price Control Department under the Ministry of Finance, said that the 3-week inspection tours of steel mills, gas and dairy producers, the products that saw biggest price increases over the last time, was nearly finished, and the results would be announced in some days.
Regarding construction material prices, the Ministry of Industry and Trade (MIT) said that the prices would be stable until the end of the year thanks to big stocks.
Some 3mil tonnes of cement were consumed in August despite the rainy season, raising the total consumption level of cement to 23.3mil tonnes. The price is hovering between VND760-800,000/tonne in the north, and VND878-900,000 in the south. The volume of cement in stock is 2.21mil tonnes, which, together with local production, will ensure adequate supply for the market, and no price fever is expected to occur.
As for construction steel, Vietnamese steel producers now tend to purchase ingot steel from Malaysia and Thailand due to the limited supply from China. The steel price is VND9,550-9,900/kg now, down by VND300/kg over the previous month.
Also according to MIT, after the decision to reduce petrol price by VND500/litre, petrol distributors still can make profit of 9.6% of CIF price, while they are incurring heavy losses with diesel (VND1,488/litre) and kerosene (VND1,376/litre).
MIT has predicted the CPI growth rate of 0.2-0.3% for September, saying that the high purchasing power on the National Day holiday, the opening of the new academic year and Mid-Autumn festival will be the factors that can push up prices.
Also in an effort to curb the price increases, the central bank has announced it will continuously use the open market operations to withdraw cash from circulation. Since mid August 2007, the central bank has offered to sell bonds on all working days. Besides the 1-month, 2-month, 3-month, 6-month, 9-month and 12-month term, the central bank has offered 4-month and 5-month term bonds as well.
Source: VNE
Regarding food prices, though rice exporters are trying to collect rice to fulfill signed export contracts, the rice price has still decreased by VND50-100/kg thanks to the superfluous supply, now selling at VND4,600-5,200/kg.
However, as the Ministry of Industry and Trade has forecast, as the northern region has entered the rainy and storm season, while floods threaten the south, the food price is expected to increase slightly in some areas.
Meanwhile, foodstuff prices are tending to slightly decrease thanks to superfluous supply. The price of pork, for example, saw a slight decrease in August after increasing sharply in July, now selling at VND19-23,000/kg in the north, and VND19-25,000/kg in the south.
The prices of beef, poultry meat, and seafood, seeing increases of VND2-4,000/kg in early August, have slightly decreased. Beef is selling at VND75-90,000/kg. Chicken bred in industrial farms is selling at VND35,000/kg, while chicken bred at households is selling at VND58-60,000/kg. In the Mekong River Delta, tra fish price reduced by VND500-600/kg, now selling at VND13,400/kg on average.
At the end of July and in early August, imported dairy products saw sharp price increases of VND20-96,000/unit. The decision to cut taxes on dairy products has helped prevent further increases, but has not helped reduce selling prices.
Nguyen Tien Thoa, Head of the Price Control Department under the Ministry of Finance, said that the 3-week inspection tours of steel mills, gas and dairy producers, the products that saw biggest price increases over the last time, was nearly finished, and the results would be announced in some days.
Regarding construction material prices, the Ministry of Industry and Trade (MIT) said that the prices would be stable until the end of the year thanks to big stocks.
Some 3mil tonnes of cement were consumed in August despite the rainy season, raising the total consumption level of cement to 23.3mil tonnes. The price is hovering between VND760-800,000/tonne in the north, and VND878-900,000 in the south. The volume of cement in stock is 2.21mil tonnes, which, together with local production, will ensure adequate supply for the market, and no price fever is expected to occur.
As for construction steel, Vietnamese steel producers now tend to purchase ingot steel from Malaysia and Thailand due to the limited supply from China. The steel price is VND9,550-9,900/kg now, down by VND300/kg over the previous month.
Also according to MIT, after the decision to reduce petrol price by VND500/litre, petrol distributors still can make profit of 9.6% of CIF price, while they are incurring heavy losses with diesel (VND1,488/litre) and kerosene (VND1,376/litre).
MIT has predicted the CPI growth rate of 0.2-0.3% for September, saying that the high purchasing power on the National Day holiday, the opening of the new academic year and Mid-Autumn festival will be the factors that can push up prices.
Also in an effort to curb the price increases, the central bank has announced it will continuously use the open market operations to withdraw cash from circulation. Since mid August 2007, the central bank has offered to sell bonds on all working days. Besides the 1-month, 2-month, 3-month, 6-month, 9-month and 12-month term, the central bank has offered 4-month and 5-month term bonds as well.
Source: VNE
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
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
Friday, August 17, 2007
Central bank to issue bonds to check inflation
The State Bank of Vietnam (SBV) plans to reduce excess liquidity in the financial markets by issuing bonds in a move to curb inflationary pressure.
Nguyen Dong Tien, SBV deputy governor, said on August 13 that the central bank plans to continue keeping liquidity in check to rein in inflation, which accelerated to 8.39% year-on-year in July.
His statements came during a press briefing held by Government bodies to announce measures to keep inflation below 8.5% this year. A major cause of rising prices, said Tien, was foreign capital inflows, which the central bank has been forced to eat up in an effort to control the dong exchange rate and increase capital reserves.
“We face a historic problem in the SBV’s monetary management system: foreign capital inflows are too much. We, on several days, purchased up to US $500-600 million daily, while the total amount of foreign capital purchased for the entirety of last year was only US $4 billion,” said Tien.
Capital inflows have been fuelled by foreign direct and indirect investments, official development assistance and overseas remittances.
As a result of SBV buying, foreign currency reserves have doubled since the start of the year and are enough to cover imports for 20 weeks, the Government’s 2010 target, said the deputy governor. Unfortunately, it has also led to excess dong in the market, which helped drive domestic price levels higher.
State Bank officials are now considering issuing short term bonds through open market operations to absorb some of the excess cash floating in the market.
Tien said the central bank would spend the rest of the year withdrawing cash previously used to acquire foreign capital. As much as 82% of cash used to purchase foreign capital in January-July has already been withdrawn from the market.
The Ministry of Finance on August 13 also said it would issue bonds worth roughly VND 18 trillion (US $1.1 billion) in the third quarter to reduce liquidity.
The central bank has already taken steps to cut the amount of capital in the market this year. The State Bank in June doubled reserves requirements for commercial banks to 10%, which took out roughly VND 30 trillion from the market.
Source: VNE
Nguyen Dong Tien, SBV deputy governor, said on August 13 that the central bank plans to continue keeping liquidity in check to rein in inflation, which accelerated to 8.39% year-on-year in July.
His statements came during a press briefing held by Government bodies to announce measures to keep inflation below 8.5% this year. A major cause of rising prices, said Tien, was foreign capital inflows, which the central bank has been forced to eat up in an effort to control the dong exchange rate and increase capital reserves.
“We face a historic problem in the SBV’s monetary management system: foreign capital inflows are too much. We, on several days, purchased up to US $500-600 million daily, while the total amount of foreign capital purchased for the entirety of last year was only US $4 billion,” said Tien.
Capital inflows have been fuelled by foreign direct and indirect investments, official development assistance and overseas remittances.
As a result of SBV buying, foreign currency reserves have doubled since the start of the year and are enough to cover imports for 20 weeks, the Government’s 2010 target, said the deputy governor. Unfortunately, it has also led to excess dong in the market, which helped drive domestic price levels higher.
State Bank officials are now considering issuing short term bonds through open market operations to absorb some of the excess cash floating in the market.
Tien said the central bank would spend the rest of the year withdrawing cash previously used to acquire foreign capital. As much as 82% of cash used to purchase foreign capital in January-July has already been withdrawn from the market.
The Ministry of Finance on August 13 also said it would issue bonds worth roughly VND 18 trillion (US $1.1 billion) in the third quarter to reduce liquidity.
The central bank has already taken steps to cut the amount of capital in the market this year. The State Bank in June doubled reserves requirements for commercial banks to 10%, which took out roughly VND 30 trillion from the market.
Source: VNE
Thursday, August 16, 2007
SBV fights inflation, commercial banks’ wings clipped
In order to curb inflation, the central bank has to apply several urgent measures. However, the measures, while helping the central bank hit the mark, have been creating big difficulties for commercial banks.
Since July 30, 2007, the State Bank of Vietnam has three times raised the required compulsory reserve ratio for bank deposits. The ratio for demand deposits and less-than-12-month deposits has been raised from 2% to 5% and then to 10% of total deposits.
Experts say that it is actually necessary to raise the compulsory reserve ratio in the context of the ‘hot credit growth’ in the first six months of the year (15% over the end of 2006). However, they said that the central bank made an unsuitable move when raising the compulsory reserve ratio dramatically by two fold, which is believed will influence the liquidity of the national economy.
According to the Vietnam Industrial and Commercial Bank (Incombank), the higher required compulsory reserve ratio means that the capital cost will be higher, which will force the banks either to lower capital mobilisation interest rates, or raise lending interest rates.
As commercial banks now have to compete with each other fiercely, they will find it hard to demand higher lending interest rates from their traditional clients. If they insist on raising lending interest rates, they will see their market shares narrow or they will have to accept loans with higher risks. In previous years, the demand for capital always increased in the third quarter, and if the scenario repeats this year, banks may have to raise the interest rates on deposits and lending interest rates.
Several commercial banks have asked the central bank to consider re-adjusting the required compulsory ratio. The banks said that the high compulsory ratio had caused big difficulties for their operations, while enterprises said that the decision had weakened their competitiveness, since enterprises still rely on bank loans as their biggest source of working capital.
The State Bank of Vietnam has also announced it will tighten loans for consumer, real estate projects and securities investments.
However, experts have warned that if the central bank tries to keep a rein on loaning to real estate investors, it will freeze the real estate market for longer, which would hinder the synchronous development of key markets in Vietnam.
In fact, loans funding consumer projects remain modest, accounting for 5-20% of total outstanding loans of banks; therefore, there is no need to strictly control lending for consumer projects.
If considering investment portfolio and credit quality, one can see that banks should tighten lending to state-owned enterprises instead of lending for consumer or real estate projects. Statistics show that state-owned enterprises have a high ratio of bad debts: the ratio of debts on state capital in these enterprises is 5 on average, and reach 30-35 in some enterprises.
Source: VNE
Since July 30, 2007, the State Bank of Vietnam has three times raised the required compulsory reserve ratio for bank deposits. The ratio for demand deposits and less-than-12-month deposits has been raised from 2% to 5% and then to 10% of total deposits.
Experts say that it is actually necessary to raise the compulsory reserve ratio in the context of the ‘hot credit growth’ in the first six months of the year (15% over the end of 2006). However, they said that the central bank made an unsuitable move when raising the compulsory reserve ratio dramatically by two fold, which is believed will influence the liquidity of the national economy.
According to the Vietnam Industrial and Commercial Bank (Incombank), the higher required compulsory reserve ratio means that the capital cost will be higher, which will force the banks either to lower capital mobilisation interest rates, or raise lending interest rates.
As commercial banks now have to compete with each other fiercely, they will find it hard to demand higher lending interest rates from their traditional clients. If they insist on raising lending interest rates, they will see their market shares narrow or they will have to accept loans with higher risks. In previous years, the demand for capital always increased in the third quarter, and if the scenario repeats this year, banks may have to raise the interest rates on deposits and lending interest rates.
Several commercial banks have asked the central bank to consider re-adjusting the required compulsory ratio. The banks said that the high compulsory ratio had caused big difficulties for their operations, while enterprises said that the decision had weakened their competitiveness, since enterprises still rely on bank loans as their biggest source of working capital.
The State Bank of Vietnam has also announced it will tighten loans for consumer, real estate projects and securities investments.
However, experts have warned that if the central bank tries to keep a rein on loaning to real estate investors, it will freeze the real estate market for longer, which would hinder the synchronous development of key markets in Vietnam.
In fact, loans funding consumer projects remain modest, accounting for 5-20% of total outstanding loans of banks; therefore, there is no need to strictly control lending for consumer projects.
If considering investment portfolio and credit quality, one can see that banks should tighten lending to state-owned enterprises instead of lending for consumer or real estate projects. Statistics show that state-owned enterprises have a high ratio of bad debts: the ratio of debts on state capital in these enterprises is 5 on average, and reach 30-35 in some enterprises.
Source: VNE
Tuesday, August 14, 2007
Vietnam doubles forex reserves, fights inflation
Vietnam has enough foreign exchange reserves to cover 20 weeks of imports, a senior central bank official was quoted on Tuesday as saying.
"We have dozens of billions of U.S. dollar in reserves," the Thanh Nien newspaper quoted Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien as saying.
"While the foreign exchange reserves were just enough to cover nine to 10 weeks of imports, now they are enough for 20 weeks," Tien told a news conference on Monday to which foreign reporters were not invited.
He did not give the absolute value of reserves but said the increase resulted from rising foreign investment inflows and central bank purchases of foreign exchange to hold down the dong.
Economists say the central bank has bought $7 billion this year, meaning some 110 trillion dong has been pumped into the economy, which has fuelled inflation.
Consumer prices in July were 8.39 percent higher than the same month last year and by the end of July the consumer price index had risen 6.19 percent from the end of 2006.
The government is aiming for annual GDP growth of 8.5 percent this year while keeping inflation below that growth rate.
Economists say double-digit inflation is a possibility, but Tien told the news conference that the central bank had stepped up its draining of inflation-fuelling funds from the economy through open market transactions.
So far it had mopped up 80 percent of the dong spent to purchase the foreign currency, Tien said.
"The prime minister has a belief that it will be feasible to achieve both high economic growth and control of inflation," Tien was quoted by Thanh Nien as saying.
"I personally also believe so and I am ready to bet with anyone who says this year's inflation is double-digit," he said.
To back up the fight against inflation, the Finance Ministry cut the import duty on several diary products, meat, home appliances and cars last week.
The Finance Ministry and the Ministry of Industry and Trade are also asking domestic petrol distributors to cut petrol prices by 500 dong per litre, the government said. That is a cut of around 4 percent.
The government has instructed the Agriculture Ministry to try to contain pig disease now spreading in the central and southern provinces, which is pushing up meat prices.
Food accounts for more than 40 percent of the basket used to calculate Vietnam's consumer price index.
Source: Reuters
"We have dozens of billions of U.S. dollar in reserves," the Thanh Nien newspaper quoted Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien as saying.
"While the foreign exchange reserves were just enough to cover nine to 10 weeks of imports, now they are enough for 20 weeks," Tien told a news conference on Monday to which foreign reporters were not invited.
He did not give the absolute value of reserves but said the increase resulted from rising foreign investment inflows and central bank purchases of foreign exchange to hold down the dong.
Economists say the central bank has bought $7 billion this year, meaning some 110 trillion dong has been pumped into the economy, which has fuelled inflation.
Consumer prices in July were 8.39 percent higher than the same month last year and by the end of July the consumer price index had risen 6.19 percent from the end of 2006.
The government is aiming for annual GDP growth of 8.5 percent this year while keeping inflation below that growth rate.
Economists say double-digit inflation is a possibility, but Tien told the news conference that the central bank had stepped up its draining of inflation-fuelling funds from the economy through open market transactions.
So far it had mopped up 80 percent of the dong spent to purchase the foreign currency, Tien said.
"The prime minister has a belief that it will be feasible to achieve both high economic growth and control of inflation," Tien was quoted by Thanh Nien as saying.
"I personally also believe so and I am ready to bet with anyone who says this year's inflation is double-digit," he said.
To back up the fight against inflation, the Finance Ministry cut the import duty on several diary products, meat, home appliances and cars last week.
The Finance Ministry and the Ministry of Industry and Trade are also asking domestic petrol distributors to cut petrol prices by 500 dong per litre, the government said. That is a cut of around 4 percent.
The government has instructed the Agriculture Ministry to try to contain pig disease now spreading in the central and southern provinces, which is pushing up meat prices.
Food accounts for more than 40 percent of the basket used to calculate Vietnam's consumer price index.
Source: Reuters
Two-digit inflation rate won’t occur
The government will instruct ministries to take necessary action to curb inflation; two-digit inflation rate will not occur, government officials said yesterday at a press conference to announce the Prime Minister’s conclusions about measures to curb the price increases.
When asked if the government would ask the National Assembly to adjust the approved plan for CPI growth rate as the prices increased sharply in the last time, Tran Quoc Toan, Deputy Chairman of the Government’s Office said that the government was determined to curb inflation, and the approved plan for CPI growth rate would still be followed.
Nguyen Xuan Phuc, Chairman of the Government’s Office, stressed that the economic potential Vietnam had now (foreign currency reserves, food and materials) was strong enough to prevent overly high price increases. Moreover, as a result of the policy on encouraging investment, the GDP growth rate would be higher than CPI in 2007.
“The scenario for two-digit inflation rate will never occur,” Mr Phuc said, denying the opinions by some experts that the inflation rate in 2007 would reach 10% or 11%.
Meanwhile, Nguyen Dong Tien, Deputy Governor of the State Bank of Vietnam, said that he did not believe those who said that the inflation rate would be two digits. “I would bet money that the inflation rate will not reach the two-digit level. I have confidence in the measures the ministries are taking to curb the price increases,” Mr Tien said.
At the press conference, the State Bank of Vietnam officially announced monetary policy solutions aiming to settle the monetary problems which people think were the main reason behind the high inflation rate in the first seven months of the year.
According to Mr Tien, in the first half of 2007, the balance of payments saw the surplus of $6bil, which has helped double the national foreign currency reserves in the last seven months compared to the end of 2006. Vietnam now has the foreign currency reserves equivalent to the payment for seven weeks of imports, the figure which was previously set for 2010.
“We are facing a problem, which has never been seen in history: the foreign investment capital flows in big quantity. We have sometimes bought $500-600mil a day, while we bought $4bil only in a whole year of 2006,” Mr Tien said, adding that this had put big pressure on the economy and needed suitable solutions.
The central bank had to spend VND to buy foreign currencies, and then issue bonds to withdraw VND from circulation. It is estimated that 82% of the cash spent on buying foreign currencies has been taken back by the bond issuances. Moreover, the decision on requiring higher compulsory reserve ratio on bank deposits has helped withdraw VND30tril from circulation, thus reducing the total payment instruments and curbing the price increases.
On August 13, the Ministry of Finance also announced it would issue VND18tril worth of bonds in the third quarter of the year. The bond issuance in July helped raise VND5tril, and it is expected that another VND13tril will be raised in August and September to withdraw cash from circulation.
Deputy Minister of Finance Tran Xuan Ha said at the press conference that his ministry would consider lowering taxes further by 50-70% on goods items which had the tax rates of 20-50% in order to ensure stable supplies, thus stabilising the market.
The goods items which may see further tax decreases include fish, materials to make food (cereal, wheat flour, canned food, sausage, fruit juice) and products belonging to the construction material group, like construction glass.
Mr Ha said that the government would keep strict control over rice exports in order to ensure food security. Vietnam has exported 2.8mil tonnes of rice so far this year, and if counting the signed contracts, the exports have reached 4.5mil tonnes, equal to the volume the government set for the whole of 2007. No more contracts will be allowed to be signed until the fourth quarter of the year.
On the decision to lower taxes on 18 categories of products effective as of August 8, Mr Ha said that if the imports could be kept at the level in the first months of the year, the state budget would lose VND1tril in the last five months of the year. However, it is necessary to sacrifice the state budget collection for the supply and demand balance of goods.
The Ministry of Trade and Industry has forecast that the drastic measures taken by ministries and branches will help curb the inflation rate at 0.5% in August 2007.
Source: VNE
When asked if the government would ask the National Assembly to adjust the approved plan for CPI growth rate as the prices increased sharply in the last time, Tran Quoc Toan, Deputy Chairman of the Government’s Office said that the government was determined to curb inflation, and the approved plan for CPI growth rate would still be followed.
Nguyen Xuan Phuc, Chairman of the Government’s Office, stressed that the economic potential Vietnam had now (foreign currency reserves, food and materials) was strong enough to prevent overly high price increases. Moreover, as a result of the policy on encouraging investment, the GDP growth rate would be higher than CPI in 2007.
“The scenario for two-digit inflation rate will never occur,” Mr Phuc said, denying the opinions by some experts that the inflation rate in 2007 would reach 10% or 11%.
Meanwhile, Nguyen Dong Tien, Deputy Governor of the State Bank of Vietnam, said that he did not believe those who said that the inflation rate would be two digits. “I would bet money that the inflation rate will not reach the two-digit level. I have confidence in the measures the ministries are taking to curb the price increases,” Mr Tien said.
At the press conference, the State Bank of Vietnam officially announced monetary policy solutions aiming to settle the monetary problems which people think were the main reason behind the high inflation rate in the first seven months of the year.
According to Mr Tien, in the first half of 2007, the balance of payments saw the surplus of $6bil, which has helped double the national foreign currency reserves in the last seven months compared to the end of 2006. Vietnam now has the foreign currency reserves equivalent to the payment for seven weeks of imports, the figure which was previously set for 2010.
“We are facing a problem, which has never been seen in history: the foreign investment capital flows in big quantity. We have sometimes bought $500-600mil a day, while we bought $4bil only in a whole year of 2006,” Mr Tien said, adding that this had put big pressure on the economy and needed suitable solutions.
The central bank had to spend VND to buy foreign currencies, and then issue bonds to withdraw VND from circulation. It is estimated that 82% of the cash spent on buying foreign currencies has been taken back by the bond issuances. Moreover, the decision on requiring higher compulsory reserve ratio on bank deposits has helped withdraw VND30tril from circulation, thus reducing the total payment instruments and curbing the price increases.
On August 13, the Ministry of Finance also announced it would issue VND18tril worth of bonds in the third quarter of the year. The bond issuance in July helped raise VND5tril, and it is expected that another VND13tril will be raised in August and September to withdraw cash from circulation.
Deputy Minister of Finance Tran Xuan Ha said at the press conference that his ministry would consider lowering taxes further by 50-70% on goods items which had the tax rates of 20-50% in order to ensure stable supplies, thus stabilising the market.
The goods items which may see further tax decreases include fish, materials to make food (cereal, wheat flour, canned food, sausage, fruit juice) and products belonging to the construction material group, like construction glass.
Mr Ha said that the government would keep strict control over rice exports in order to ensure food security. Vietnam has exported 2.8mil tonnes of rice so far this year, and if counting the signed contracts, the exports have reached 4.5mil tonnes, equal to the volume the government set for the whole of 2007. No more contracts will be allowed to be signed until the fourth quarter of the year.
On the decision to lower taxes on 18 categories of products effective as of August 8, Mr Ha said that if the imports could be kept at the level in the first months of the year, the state budget would lose VND1tril in the last five months of the year. However, it is necessary to sacrifice the state budget collection for the supply and demand balance of goods.
The Ministry of Trade and Industry has forecast that the drastic measures taken by ministries and branches will help curb the inflation rate at 0.5% in August 2007.
Source: VNE
Monday, August 13, 2007
Vietnam to cut petrol prices by 4 pct to curb inflation
The Vietnamese government has agreed to a plan to reduce gasoline prices by about 4 percent as it seeks to contain high inflation.
Consumer prices in July rose by 8.39 percent from a year earlier due to higher import costs, rising food prices and higher foreign investment. The government says inflation was still under control but tight measures should be taken to curb price hikes.
Prime Minister Nguyen Tan Dung approved a proposal by the Finance Ministry at a cabinet meeting on Sunday to cut retail gasoline prices, a government report said. It gave no timing for the reduction, but the move is expected soon. Prices of other fuel, including coal, and oil products such as diesel and fuel oil will stay unchanged, the report said.
Finance Ministry officials have said retail gasoline prices would be cut by about 500 dong (3 U.S. cents) per litre. The most popular 92-octane petrol grade would be priced at about 11,300 dong (70 U.S. cents) per litre, down from 11,800 dong now.
Despite having allowed distributors to set their own selling prices earlier this year, Hanoi still maintains tight control over fuel prices as it requires sellers to seek government approval before making any changes.
Prime Minister Dung also ordered government offices to lay out effective measures to achieve an economic growth of 8.5 percent for the whole of 2007 and keep inflation below the economic growth rate, the report said.
Last week Hanoi slashed import tariffs on a host of products including cars, steel and several food items such as beef and diary products as it moved to battle rising consumer prices.
Vietnam ranks as Southeast Asia's third largest crude producer after Indonesia and Malaysia but is forced to import most of its oil product needs as it lacks major refineries.
Source: Reuters
Consumer prices in July rose by 8.39 percent from a year earlier due to higher import costs, rising food prices and higher foreign investment. The government says inflation was still under control but tight measures should be taken to curb price hikes.
Prime Minister Nguyen Tan Dung approved a proposal by the Finance Ministry at a cabinet meeting on Sunday to cut retail gasoline prices, a government report said. It gave no timing for the reduction, but the move is expected soon. Prices of other fuel, including coal, and oil products such as diesel and fuel oil will stay unchanged, the report said.
Finance Ministry officials have said retail gasoline prices would be cut by about 500 dong (3 U.S. cents) per litre. The most popular 92-octane petrol grade would be priced at about 11,300 dong (70 U.S. cents) per litre, down from 11,800 dong now.
Despite having allowed distributors to set their own selling prices earlier this year, Hanoi still maintains tight control over fuel prices as it requires sellers to seek government approval before making any changes.
Prime Minister Dung also ordered government offices to lay out effective measures to achieve an economic growth of 8.5 percent for the whole of 2007 and keep inflation below the economic growth rate, the report said.
Last week Hanoi slashed import tariffs on a host of products including cars, steel and several food items such as beef and diary products as it moved to battle rising consumer prices.
Vietnam ranks as Southeast Asia's third largest crude producer after Indonesia and Malaysia but is forced to import most of its oil product needs as it lacks major refineries.
Source: Reuters
Tuesday, August 07, 2007
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
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
Rising inflation undermines growth
The consumer price index (CPI) has increased continuously for the last seven months. The figure rose 6.19% in comparison with late last year.
The increase has caused a "price fever" and threatened economic growth.
People on low incomes, such as farmers and workers, have suffered greatly and their daily life has become more difficult.
Earlier this month, the Prime Minister has asked relevant agencies to take measures to reduce the CPI. In response, the Ministry of Finance has suggested a temporary reduction in import taxes on more than 20 essential commodities in food, fodder, material for construction, cosmetics, electronics and automobiles starting on August 8.
In particular, food prices would be cut by more than 50%.
Local prices have increased in line with international prices. The ministry believes that the lower tax cut would significantly reduce CPI in local market soon and force local producers providing cheaper products.
In addition, some local products' taxation level will be considered.
Furthermore, the ministry will allow enterprises extended time to pay value added taxes for imported agricultural products to help them cut their expenses.
Price supervision for import, production, circulation and retail sales will be tightened to avoid speculation.
Initially, five businesses in the steel industry and four enterprises in the gas industry will soon be checked to find out why they have sharply increased their prices in the last two months.
Last week, the Central Institute for Economic Management (CIEM) caused a "shock" in public opinion as they announced their survey results that the average Vietnamese business spent 1,959 employee-hour per year non tax formalities.
The news was astounding in light of the government having implemented administrative reform for years with significant results.
With so much time and human resources lost on tax compliance, a local business has less to focus on other needs, thus it cannot be as competitive. This is especially true for small-and-medium size businesses.
Another survey from the World Bank pointed out that small and medium sized enterprises need additional time to do paperwork regarding value added taxes, enterprise income taxes and social insurance. Altogether, this requires approximately 1,050 hours per year.
Therefore, the fact that enterprises spend a great deal of time and energy on tax compliance is a reality.
Lower end car manufacturers are staking out a larger piece of the pie as they build factories and assemble car parts right here in Vietnam.
After Malaysian JRD Vietnam completed their factory in the central province of Phu Yen, they starting coming out with nine automobile models ranging from sedan to pick-up trucks priced under US$20,000.
Duc Phuong Limited released a five-seat sedan similar to a popular Korean Matiz, but with a competitive price sticker two thirds that of Matiz. Their seven-seat automobile is being offered for around $17,000.
Truong Hai Automobile Join stock company has also joined the market by importing the Kia sedan from South Korea. After selling 400 Kia's, the company began construction on its second factory to assemble the model in Vietnam.
These companies offer a good alternative to automobiles sold at high prices by world famous automobile companies with well-known brand names doing business in Vietnam.
The latest players in the automobile industry here are attracting customers keen on prices, but it will take time to see how their quality holds up. In the meantime, local consumers looking for a car will have more to choose from.
Source: VNS
The increase has caused a "price fever" and threatened economic growth.
People on low incomes, such as farmers and workers, have suffered greatly and their daily life has become more difficult.
Earlier this month, the Prime Minister has asked relevant agencies to take measures to reduce the CPI. In response, the Ministry of Finance has suggested a temporary reduction in import taxes on more than 20 essential commodities in food, fodder, material for construction, cosmetics, electronics and automobiles starting on August 8.
In particular, food prices would be cut by more than 50%.
Local prices have increased in line with international prices. The ministry believes that the lower tax cut would significantly reduce CPI in local market soon and force local producers providing cheaper products.
In addition, some local products' taxation level will be considered.
Furthermore, the ministry will allow enterprises extended time to pay value added taxes for imported agricultural products to help them cut their expenses.
Price supervision for import, production, circulation and retail sales will be tightened to avoid speculation.
Initially, five businesses in the steel industry and four enterprises in the gas industry will soon be checked to find out why they have sharply increased their prices in the last two months.
Last week, the Central Institute for Economic Management (CIEM) caused a "shock" in public opinion as they announced their survey results that the average Vietnamese business spent 1,959 employee-hour per year non tax formalities.
The news was astounding in light of the government having implemented administrative reform for years with significant results.
With so much time and human resources lost on tax compliance, a local business has less to focus on other needs, thus it cannot be as competitive. This is especially true for small-and-medium size businesses.
Another survey from the World Bank pointed out that small and medium sized enterprises need additional time to do paperwork regarding value added taxes, enterprise income taxes and social insurance. Altogether, this requires approximately 1,050 hours per year.
Therefore, the fact that enterprises spend a great deal of time and energy on tax compliance is a reality.
Lower end car manufacturers are staking out a larger piece of the pie as they build factories and assemble car parts right here in Vietnam.
After Malaysian JRD Vietnam completed their factory in the central province of Phu Yen, they starting coming out with nine automobile models ranging from sedan to pick-up trucks priced under US$20,000.
Duc Phuong Limited released a five-seat sedan similar to a popular Korean Matiz, but with a competitive price sticker two thirds that of Matiz. Their seven-seat automobile is being offered for around $17,000.
Truong Hai Automobile Join stock company has also joined the market by importing the Kia sedan from South Korea. After selling 400 Kia's, the company began construction on its second factory to assemble the model in Vietnam.
These companies offer a good alternative to automobiles sold at high prices by world famous automobile companies with well-known brand names doing business in Vietnam.
The latest players in the automobile industry here are attracting customers keen on prices, but it will take time to see how their quality holds up. In the meantime, local consumers looking for a car will have more to choose from.
Source: VNS
Friday, August 03, 2007
Prices up, salaries remain stationary
While the CPI has increased dramatically by 6.19% in the last seven months, the incomes of employees have stood still, thus lightening consumers’ pockets.
Dairy products have increased by 10-15% in price so far this year. Oil, vegetables, pork, the main foods of Vietnamese people, all have seen sharp price increases: the price of oil has risen by VND3,000/litre, vegetables and fruits by VND2,000/kg, and pork by VND4,000/kg.
Mrs Tam, who has a stand at Hom market in Hanoi, said she previously spent VND40-50,000 on a meal for three persons, but now she had to pay VND100,000 for the same meal.
Meanwhile, the incomes of most consumers have remained unchanged. According to the Ministry of Labour, War Invalids and Social Affairs (MoLISA), there are 11mil wage earners, including 0.5mil people working in foreign invested enterprises, which means that 10.5mil are eligible for salary adjustments.
MoLISA said that under the roadmap on salary reform for 2003-2007, the new turn of adjusting the minimum salary level will only come after October 1, 2007 (the minimum salary levels are now different for different economic sectors, but there will be only one level for all economic sectors by 2010). This means that those 10.5mil workers still have to wait until the end of 2007 to get raises.
A recent survey of employees’ salaries in 2007 conducted by Navigos Group showed that the average salary of domestic enterprises (both private owned and state owned) is much lower than that of foreign invested enterprises. However, it is not easy to make adjustments in salary schemes in foreign invested enterprises.
Experts have said that every foreign invested enterprise has its own policy on wage control, and the policy cannot be affected by the CPI or any outside impacts.
Curbing the price increases proves to be a headache for the newly set up Government. The Prime Minister has released a lot of instructions in order to control the market and avoid further price increases, and people hope the drastic measures will be effective.
Source: VNE
Dairy products have increased by 10-15% in price so far this year. Oil, vegetables, pork, the main foods of Vietnamese people, all have seen sharp price increases: the price of oil has risen by VND3,000/litre, vegetables and fruits by VND2,000/kg, and pork by VND4,000/kg.
Mrs Tam, who has a stand at Hom market in Hanoi, said she previously spent VND40-50,000 on a meal for three persons, but now she had to pay VND100,000 for the same meal.
Meanwhile, the incomes of most consumers have remained unchanged. According to the Ministry of Labour, War Invalids and Social Affairs (MoLISA), there are 11mil wage earners, including 0.5mil people working in foreign invested enterprises, which means that 10.5mil are eligible for salary adjustments.
MoLISA said that under the roadmap on salary reform for 2003-2007, the new turn of adjusting the minimum salary level will only come after October 1, 2007 (the minimum salary levels are now different for different economic sectors, but there will be only one level for all economic sectors by 2010). This means that those 10.5mil workers still have to wait until the end of 2007 to get raises.
A recent survey of employees’ salaries in 2007 conducted by Navigos Group showed that the average salary of domestic enterprises (both private owned and state owned) is much lower than that of foreign invested enterprises. However, it is not easy to make adjustments in salary schemes in foreign invested enterprises.
Experts have said that every foreign invested enterprise has its own policy on wage control, and the policy cannot be affected by the CPI or any outside impacts.
Curbing the price increases proves to be a headache for the newly set up Government. The Prime Minister has released a lot of instructions in order to control the market and avoid further price increases, and people hope the drastic measures will be effective.
Source: VNE
Friday, July 27, 2007
Minister of Finance answers how to curb inflation
In order to curb inflation, one of the measures the Government will apply is to pick up foreign currencies and reduce the VND in circulation, Minister of Finance Vu Van Ninh said on the morning of July 25 when answering questions from the press on the sideline of the National Assembly’s session.
Could you please tell us about the measures the Government will take in order to maintain the high economic growth rate, while ensuring the control of prices as the CPI in the first half of the year was higher than that in the previous year?
The Government will take more drastic measures in order to control prices. We will buy foreign currencies to increase the foreign currency reserve. We will issue Government bonds, push up investment. Meanwhile, the tools of the open market will be used to control prices and avoid shocks.
Strengthening society’s investment is one of the most important tasks. We have been mobilising sources from society at a high level through direct and indirect investment. The capital market has been developing well so the harmonisation of supply and demand on the market will bring efficiency in developing the economy and curbing inflation.
Regarding the harmonisation of supply and demand of goods, the Government will allow imports to meet domestic demand if necessary.
As for the monetary policy, the Government will pick up foreign currencies, while withdrawing VND from circulation
Do you think that prices have been escalating because Vietnam heavily relies on material imports?
The imports were really big in the first six months of the year, mostly the materials for domestic production. In the second half of the year, we should think of measures that allow for the balance of material supplies. Measures will be taken in harmonisation, including the tax policies, in order to prevent prices from increasing sharply. For example, if the world’s petrol price increases, we will have to lower the import tax to keep the petrol market in normal operation.
The excess of imports over exports remained high. Enterprises still cannot take full advantage of the opportunities to boost exports due to low competitiveness. How should the problems be tackled?
The Government has a programme on supporting enterprises to renovate equipment and technologies, which will help improve the quality of products. Moreover, the Government is choosing the products Vietnam has advantages in for export and pushing up the export of these products. We will balance exports and imports on that basis. It is forecast that exports will grow towards the year’s end.
Could you please talk about budget overspending?
The overspending remains within control. Though revenue was lower from oil exports, the Government has taken measures to offset the loss. Besides, the Government will use the provision fund more effectively, so as to ensure the budget collection even if the turnover from oil decreases.
What is your comment about the newly released report by Merrill Lynch, which said that Vietnam does not deserve to be a good investment place?
Corporations assess things differently based on different interests and from different perspectives. From the Government, we think that the most important thing now is to ensure the supply and demand balance on the market. The Government’s equitisation programme is running in order to bring more high-quality commodities to the market. The Ministry of Finance will have solutions to harmonise supply and demand, avoiding shocks to the market. It is also very necessary to control all the capital flow on the stock market.
Will the report have negative impacts on the investment decisions by foreign investors, as Merrill Lynch is a big financial group in the world?
I think there will be psychological impacts. However, there still needs to be further studies to make a sufficient assessment about possible impacts.
Some experts said that Merrill Lynch released the report in order to exert influence on Vietnam’s macroeconomic policies. Will the Government fulfill the commitments on expanding the market or keep stricter control over the market?
In principle, we have to create the most favourable conditions for the market to develop in a healthy and safe way. In the market economy, the Government should not deeply interfere in the market with administrative orders. The Government should apply measures that ensure macroeconomic balance while controlling capital flows, ensuring the legal benefit of investors, including small investors.
Do you think investors will worry about Instruction No 03 (on limiting loaning to securities investors – reporter) about the tax policies and the management over the capital transfer abroad?
We are trying step by step to perfect the legal framework. All markets in the world must be put under strict control so that they can develop in a healthy way. Regarding the measures, they must not cause shocks to the market. The measures are being taken, including ones on controlling speculation and controlling the information on the market
Investors are also worried that the income from securities investments will be taxed. What would you say to them?
It is the international practice to tax the earnings from securities investments. However, it is still necessary to think over when and how to tax.
What is your viewpoint about the State Bank of Vietnam’s decision that commercial banks’ outstanding loans for securities investments must not be higher than 3% of total outstanding loans?
In principle, it is necessary to control the flow in and out between banks and the stock market. If banks give big loans to fund securities investments, they would face risks. Regarding the proportion of 3%, I think this is a suitable figure
Source: VNE
Could you please tell us about the measures the Government will take in order to maintain the high economic growth rate, while ensuring the control of prices as the CPI in the first half of the year was higher than that in the previous year?
The Government will take more drastic measures in order to control prices. We will buy foreign currencies to increase the foreign currency reserve. We will issue Government bonds, push up investment. Meanwhile, the tools of the open market will be used to control prices and avoid shocks.
Strengthening society’s investment is one of the most important tasks. We have been mobilising sources from society at a high level through direct and indirect investment. The capital market has been developing well so the harmonisation of supply and demand on the market will bring efficiency in developing the economy and curbing inflation.
Regarding the harmonisation of supply and demand of goods, the Government will allow imports to meet domestic demand if necessary.
As for the monetary policy, the Government will pick up foreign currencies, while withdrawing VND from circulation
Do you think that prices have been escalating because Vietnam heavily relies on material imports?
The imports were really big in the first six months of the year, mostly the materials for domestic production. In the second half of the year, we should think of measures that allow for the balance of material supplies. Measures will be taken in harmonisation, including the tax policies, in order to prevent prices from increasing sharply. For example, if the world’s petrol price increases, we will have to lower the import tax to keep the petrol market in normal operation.
The excess of imports over exports remained high. Enterprises still cannot take full advantage of the opportunities to boost exports due to low competitiveness. How should the problems be tackled?
The Government has a programme on supporting enterprises to renovate equipment and technologies, which will help improve the quality of products. Moreover, the Government is choosing the products Vietnam has advantages in for export and pushing up the export of these products. We will balance exports and imports on that basis. It is forecast that exports will grow towards the year’s end.
Could you please talk about budget overspending?
The overspending remains within control. Though revenue was lower from oil exports, the Government has taken measures to offset the loss. Besides, the Government will use the provision fund more effectively, so as to ensure the budget collection even if the turnover from oil decreases.
What is your comment about the newly released report by Merrill Lynch, which said that Vietnam does not deserve to be a good investment place?
Corporations assess things differently based on different interests and from different perspectives. From the Government, we think that the most important thing now is to ensure the supply and demand balance on the market. The Government’s equitisation programme is running in order to bring more high-quality commodities to the market. The Ministry of Finance will have solutions to harmonise supply and demand, avoiding shocks to the market. It is also very necessary to control all the capital flow on the stock market.
Will the report have negative impacts on the investment decisions by foreign investors, as Merrill Lynch is a big financial group in the world?
I think there will be psychological impacts. However, there still needs to be further studies to make a sufficient assessment about possible impacts.
Some experts said that Merrill Lynch released the report in order to exert influence on Vietnam’s macroeconomic policies. Will the Government fulfill the commitments on expanding the market or keep stricter control over the market?
In principle, we have to create the most favourable conditions for the market to develop in a healthy and safe way. In the market economy, the Government should not deeply interfere in the market with administrative orders. The Government should apply measures that ensure macroeconomic balance while controlling capital flows, ensuring the legal benefit of investors, including small investors.
Do you think investors will worry about Instruction No 03 (on limiting loaning to securities investors – reporter) about the tax policies and the management over the capital transfer abroad?
We are trying step by step to perfect the legal framework. All markets in the world must be put under strict control so that they can develop in a healthy way. Regarding the measures, they must not cause shocks to the market. The measures are being taken, including ones on controlling speculation and controlling the information on the market
Investors are also worried that the income from securities investments will be taxed. What would you say to them?
It is the international practice to tax the earnings from securities investments. However, it is still necessary to think over when and how to tax.
What is your viewpoint about the State Bank of Vietnam’s decision that commercial banks’ outstanding loans for securities investments must not be higher than 3% of total outstanding loans?
In principle, it is necessary to control the flow in and out between banks and the stock market. If banks give big loans to fund securities investments, they would face risks. Regarding the proportion of 3%, I think this is a suitable figure
Source: VNE
Government prioritises stabilision of inflation
The Government has announced it will take drastic measures to keep inflation below national economic growth and consider this to be its key task in the remaining months of this year.
Deputy Prime Minister Nguyen Sinh Hung has made the statement on the sidelines of the first meeting of the on-going 12th National Assembly in Ha Noi.
Deputy PM Hung said to rein in consumer price hikes, a balance must be struck between demand and supply of commodities items.
The deputy PM stressed the need for ensuring a sufficient supply of locally-made indispensable commodities and importing reserves in case they are in short supply in order to avoid hoarding of goods.
Finance Minister Vu Van Ninh said in the fist six months of this year, the consumer price index surged 5.2 percent in comparison with a 4 percent hike over the same period last year.
The Government will move to ensure balanced budget and money and commodity flows to stabilise the increase of the index as set out by the National Assembly, the Minister said.
He went on to say that for products, which are affected by world prices, such as oil, the Government will curb their prices hike by measures that include tax adjustments.
Source: VNA
Deputy Prime Minister Nguyen Sinh Hung has made the statement on the sidelines of the first meeting of the on-going 12th National Assembly in Ha Noi.
Deputy PM Hung said to rein in consumer price hikes, a balance must be struck between demand and supply of commodities items.
The deputy PM stressed the need for ensuring a sufficient supply of locally-made indispensable commodities and importing reserves in case they are in short supply in order to avoid hoarding of goods.
Finance Minister Vu Van Ninh said in the fist six months of this year, the consumer price index surged 5.2 percent in comparison with a 4 percent hike over the same period last year.
The Government will move to ensure balanced budget and money and commodity flows to stabilise the increase of the index as set out by the National Assembly, the Minister said.
He went on to say that for products, which are affected by world prices, such as oil, the Government will curb their prices hike by measures that include tax adjustments.
Source: VNA
GDP growth rate 8.5%, inflation rate below 8% – acceptable
Deputy Prime Minister Nguyen Sinh Hung in a recent talk with the press said that 8.5% GDP growth and inflation of less than 8% would be acceptable.
Mr Hung said that the most important tasks the Government had to fulfill were to curb inflation and ensure a high economic growth rate.
Mr Hung said that the two works proved to be difficult to fulfill at the same time. In principle, the measures to ensure a high GDP growth rate lead to a high inflation rate. Therefore, the Government will have to find solutions that can harmonise the two tasks.
According to Nguyen Ngoc Bao, Head of the Monetary Policy Department under the State Bank of Vietnam, the bank had taken a lot of measures to control the monetary increase in the first six months of the year. The bank has required the higher ratio of compulsory reserve in order to withdraw cash from circulation, apply open market tools in order to keep the credit at a suitable level. These have helped ensure high economic growth and curb inflation.
Mr Bao said that the National Assembly had said the inflation rate must be lower than the GDP growth rate.
Mr Bao has stressed that the central bank will try to withdraw money from circulation, but keep the interest rates and exchange rates stable. Moreover, the central bank will ask commercial banks to expand loans at a suitable level in order to ensure sufficient capital supply for production and business.
When asked if the central bank feared uncontrollable inflation when it decided to tighten the monetary policy, Mr Bao affirmed that inflation remained within control. However, the central bank, in a cautious step, needs to take action to control the situation and cope with possible unexpected changes.
The statement by the central bank about withdrawing cash from circulation can be understood that the volume of cash in circulation is overly high. Mr Bao said that foreign currency supply proved to be profuse thanks to high direct and indirect investment. Therefore, the central bank has to spend a big sum of money to buy foreign currencies.
“The volume of cash in circulation needs to be kept at a suitable level and in harmonisation with the total value of goods, after considering the situation and inflation rate,” Mr Bao said.
Mr Bao has also revealed that the growth rate of mobilised capital is now higher than the rate of loaning, which has led to the excess of usable capital.
Source: VNE
Mr Hung said that the most important tasks the Government had to fulfill were to curb inflation and ensure a high economic growth rate.
Mr Hung said that the two works proved to be difficult to fulfill at the same time. In principle, the measures to ensure a high GDP growth rate lead to a high inflation rate. Therefore, the Government will have to find solutions that can harmonise the two tasks.
According to Nguyen Ngoc Bao, Head of the Monetary Policy Department under the State Bank of Vietnam, the bank had taken a lot of measures to control the monetary increase in the first six months of the year. The bank has required the higher ratio of compulsory reserve in order to withdraw cash from circulation, apply open market tools in order to keep the credit at a suitable level. These have helped ensure high economic growth and curb inflation.
Mr Bao said that the National Assembly had said the inflation rate must be lower than the GDP growth rate.
Mr Bao has stressed that the central bank will try to withdraw money from circulation, but keep the interest rates and exchange rates stable. Moreover, the central bank will ask commercial banks to expand loans at a suitable level in order to ensure sufficient capital supply for production and business.
When asked if the central bank feared uncontrollable inflation when it decided to tighten the monetary policy, Mr Bao affirmed that inflation remained within control. However, the central bank, in a cautious step, needs to take action to control the situation and cope with possible unexpected changes.
The statement by the central bank about withdrawing cash from circulation can be understood that the volume of cash in circulation is overly high. Mr Bao said that foreign currency supply proved to be profuse thanks to high direct and indirect investment. Therefore, the central bank has to spend a big sum of money to buy foreign currencies.
“The volume of cash in circulation needs to be kept at a suitable level and in harmonisation with the total value of goods, after considering the situation and inflation rate,” Mr Bao said.
Mr Bao has also revealed that the growth rate of mobilised capital is now higher than the rate of loaning, which has led to the excess of usable capital.
Source: VNE
Tuesday, July 24, 2007
Vietnam forecasts July CPI up 8.39 pct year on year
Vietnam forecast Tuesday that annual consumer price inflation in July would accelerate to 8.39 percent due to higher costs of food, housing and medicine, up from 7.8 percent in June. Consumers expect outbreaks of pig diseases and bird flu will lead to a surge in food prices in the coming months.
The rise in the consumer price index (CPI) this month is way above the government's initial target to keep annual inflation this year at less than 7 percent.
The Finance Ministry recently revised up the country's 2007 inflation forecast to 7.5 percent to 8.2 percent, after prices in May and June rose beyond the annual target level.
The General Statistics Office released preliminary inflation figures showing food prices in July would be 15.03 percent higher than last July, up from a rise last month of 14.86 percent.
Food prices account for 42.8 percent of the price basket Vietnam uses to calculate inflation. Vietnam's inflation data is not seasonally adjusted.
Vietnam has been confronting a pig disease involving a bacteria that has infected 22 people in northern provinces. Two died during the first half of this year, doctors said.
People infected by the bacteria suffer from rapid internal haemorrhage and high fever after they eat pork from a sick pig or inhale the air near the sick swine.
The Agriculture Ministry said thousands of pigs have been infected by a virus in two central provinces and Da Nang city, and bird flu returned to ducks in a third central province.
The statistics office forecast prices of medicine and health care this month would rise 5.04 percent from last July, higher than the price growth last month of 4.64 percent.
The accumulated CPI growth this month is estimated at 6.19 percent since last December, the statistics office said.
The World Bank earlier this year forecast Vietnam's consumer prices for 2007 would be 6.5 percent higher than 2006 while the International Monetary Fund estimated a year-end inflation rate of 7.1 percent.
Source: Thanh Nien
The rise in the consumer price index (CPI) this month is way above the government's initial target to keep annual inflation this year at less than 7 percent.
The Finance Ministry recently revised up the country's 2007 inflation forecast to 7.5 percent to 8.2 percent, after prices in May and June rose beyond the annual target level.
The General Statistics Office released preliminary inflation figures showing food prices in July would be 15.03 percent higher than last July, up from a rise last month of 14.86 percent.
Food prices account for 42.8 percent of the price basket Vietnam uses to calculate inflation. Vietnam's inflation data is not seasonally adjusted.
Vietnam has been confronting a pig disease involving a bacteria that has infected 22 people in northern provinces. Two died during the first half of this year, doctors said.
People infected by the bacteria suffer from rapid internal haemorrhage and high fever after they eat pork from a sick pig or inhale the air near the sick swine.
The Agriculture Ministry said thousands of pigs have been infected by a virus in two central provinces and Da Nang city, and bird flu returned to ducks in a third central province.
The statistics office forecast prices of medicine and health care this month would rise 5.04 percent from last July, higher than the price growth last month of 4.64 percent.
The accumulated CPI growth this month is estimated at 6.19 percent since last December, the statistics office said.
The World Bank earlier this year forecast Vietnam's consumer prices for 2007 would be 6.5 percent higher than 2006 while the International Monetary Fund estimated a year-end inflation rate of 7.1 percent.
Source: Thanh Nien
Monday, July 16, 2007
CPI increases by 1.5 times in first 2 quarters 2007
The first six months of the year have seen a year-on-year increase in the consumer price index (CPI) by 1.5 times, the General Statistics Office (GSO) has said.
CPI in June increased by 0.85% compared to May. The price of food increased the most in June, 1.44%. It was followed by housing and construction materials; cultural, sports and recreation commodities; garment and footwear goods; and other equipment and services.
Compared to December, 2006, CPI in June increased by 5.2%.
According to the GSO, the increase is brought about by many reasons. Complex climate changes, avian flu, foot-and-mouth disease which have not been controlled have influenced the price.
Meanwhile, the output of rice production has decreased sharply in the north and increased negligibly in the south.
Apart from these, two increases in the price of oil in June, an increase in the price of coal, poultry food, fertilizer, material and fuel imports are said to greatly influence production spending and people’s lives.
Meanwhile, the GSO also says the management of domestic prices and the market has not been strong enough. On the other hand, smuggling and the monopoly of some enterprises has also pushed the price up.
CPI is expected to be on the rise in the last six months of the year. If there is no effective solution to control the price, it will be more difficult to keep the CPI increase lower than GDP growth, the GSO has warned.
source: VNE
CPI in June increased by 0.85% compared to May. The price of food increased the most in June, 1.44%. It was followed by housing and construction materials; cultural, sports and recreation commodities; garment and footwear goods; and other equipment and services.
Compared to December, 2006, CPI in June increased by 5.2%.
According to the GSO, the increase is brought about by many reasons. Complex climate changes, avian flu, foot-and-mouth disease which have not been controlled have influenced the price.
Meanwhile, the output of rice production has decreased sharply in the north and increased negligibly in the south.
Apart from these, two increases in the price of oil in June, an increase in the price of coal, poultry food, fertilizer, material and fuel imports are said to greatly influence production spending and people’s lives.
Meanwhile, the GSO also says the management of domestic prices and the market has not been strong enough. On the other hand, smuggling and the monopoly of some enterprises has also pushed the price up.
CPI is expected to be on the rise in the last six months of the year. If there is no effective solution to control the price, it will be more difficult to keep the CPI increase lower than GDP growth, the GSO has warned.
source: VNE
Sunday, July 15, 2007
GDP growth talked down
Vietnam is likely to hit its 8.5 per cent GDP growth target this year, but economists have warned that the government’s key emphasis should be on reform not growth figures.
Ayumi Konishi, country director of the Asian Development Bank in Vietnam, said the Vietnamese economy would continue to grow quickly and he was optimistic about prospects for 2007, particularly as Vietnam benefits from increased FDI and administrative and economic reforms.
Last year, the ADB forecasted Vietnam’s 2007 economic growth at around 8.0 per cent and later revised it upwards to 8.3 per cent. In the first six months of this year, GDP growth was measured at 7.87 per cent, the highest rate over the same period over the past five years, according to the General Statistics Office.
“Vietnam’s GDP will expand, thanks to continued robust export performance, investment growth and domestic demand,” said Il Houng Lee, senior resident representative of the International Monetary Fund in Vietnam.
However, Konishi said it would be a bad idea to focus too greatly on the GDP growth target and the figure should be treated as a ‘projection’ rather than a goal.
“We keep making this point because what is most important for Vietnam right now is to accelerate reforms, particularly in public administration and finances, control corruption, improve efficiency and equitise state-owned commercial banks and enterprises,” added Konishi.
Focusing on reforms was particularly important in the medium- to long-term for Vietnam’s sustainable development, he said.
Current limitations including weak governance, low labour productivity, a skilled worker shortage and inadequate infrastructure must also be tackled, he said. Despite the GDP growth optimism, Vietnam is faced with a number of risks including a potential soaring trade deficit and high inflation. Vietnam incurred a trade deficit of $4.78 billion in the first six months of this year, surpassing the 2007 forecast of $4.7 billion.
However, Konishi maintained it was incorrect to judge WTO impacts or benefits based on short-term changes in trade figures.
He said that it was essential to carefully analyse and understand trade flows. As FDI increases and domestic industries modernise, the country could see an increase in the import of equipment or capital goods.
“The true impact of the WTO accession will become clear through medium- to long-term changes in Vietnam’s economic structure, particularly as the new globalised economy requires Vietnam’s economic and administrative systems to become more efficient in order to remain competitive,” Konishi said.
Konishi said the Vietnamese Government should carefully monitor prices, particularly as Vietnam becomes more directly exposed to world market volatility.
“The risk of rising inflation could be heightened if a large positive fiscal impulse were to further add to the demand pressures in 2007. The risk of inflation, and the need to protect medium-term debt sustainability, calls for a more cautious fiscal stance,” added Lee of the IMF. Konishi, however, said that current levels of inflation were not yet at an alarming point, despite the fact that the consumer price index has risen 5.2 per cent since January.
Source: VNE
Ayumi Konishi, country director of the Asian Development Bank in Vietnam, said the Vietnamese economy would continue to grow quickly and he was optimistic about prospects for 2007, particularly as Vietnam benefits from increased FDI and administrative and economic reforms.
Last year, the ADB forecasted Vietnam’s 2007 economic growth at around 8.0 per cent and later revised it upwards to 8.3 per cent. In the first six months of this year, GDP growth was measured at 7.87 per cent, the highest rate over the same period over the past five years, according to the General Statistics Office.
“Vietnam’s GDP will expand, thanks to continued robust export performance, investment growth and domestic demand,” said Il Houng Lee, senior resident representative of the International Monetary Fund in Vietnam.
However, Konishi said it would be a bad idea to focus too greatly on the GDP growth target and the figure should be treated as a ‘projection’ rather than a goal.
“We keep making this point because what is most important for Vietnam right now is to accelerate reforms, particularly in public administration and finances, control corruption, improve efficiency and equitise state-owned commercial banks and enterprises,” added Konishi.
Focusing on reforms was particularly important in the medium- to long-term for Vietnam’s sustainable development, he said.
Current limitations including weak governance, low labour productivity, a skilled worker shortage and inadequate infrastructure must also be tackled, he said. Despite the GDP growth optimism, Vietnam is faced with a number of risks including a potential soaring trade deficit and high inflation. Vietnam incurred a trade deficit of $4.78 billion in the first six months of this year, surpassing the 2007 forecast of $4.7 billion.
However, Konishi maintained it was incorrect to judge WTO impacts or benefits based on short-term changes in trade figures.
He said that it was essential to carefully analyse and understand trade flows. As FDI increases and domestic industries modernise, the country could see an increase in the import of equipment or capital goods.
“The true impact of the WTO accession will become clear through medium- to long-term changes in Vietnam’s economic structure, particularly as the new globalised economy requires Vietnam’s economic and administrative systems to become more efficient in order to remain competitive,” Konishi said.
Konishi said the Vietnamese Government should carefully monitor prices, particularly as Vietnam becomes more directly exposed to world market volatility.
“The risk of rising inflation could be heightened if a large positive fiscal impulse were to further add to the demand pressures in 2007. The risk of inflation, and the need to protect medium-term debt sustainability, calls for a more cautious fiscal stance,” added Lee of the IMF. Konishi, however, said that current levels of inflation were not yet at an alarming point, despite the fact that the consumer price index has risen 5.2 per cent since January.
Source: VNE
Wednesday, July 11, 2007
What lies behind the high inflation rate?
The consumer price index (CPI) increased by 5.2% in the first six months of the year, a figure that surprised every one. Head of the Ministry of Finance’s Price Management Department Nguyen Tien Thoa talked about this.
According to official explanations, prices in Vietnam escalated because prices increased all over the world. However, prices did not increase so sharply in other countries which also were affected by oil price increases and animal epidemics. How can you explain this?
I know you want to know why price increases were different in different countries, though the countries were all in the same situation. Firstly, I think the root cause is the weak competitiveness of the national economy. You can see this in the high production costs of Vietnam-made products. It is clear that the high domestic production costs plus the higher input material prices pushed the selling prices up.
Secondly, the measures which have been carried out by Vietnamese enterprises to cope with the difficulties caused by the world’s price fluctuations remain insufficient.
Thirdly, in a national economy like Vietnam, the imports of many key materials are always at very high levels. For example, Vietnam imports 100% of petrol, 60-70% of ingot steel, 90% of materials for drugs. Therefore, Vietnam is heavily affected by the world’s price fluctuations, and domestic prices escalate right when the world’s prices increase.
Other countries seem to find it easier to cope with the difficulties caused by the price hikes (for example, they improve production technologies and try to reduce fuel consumption), while Vietnamese enterprises still find it hard to overcome the difficulties.
I also have to say that other countries have got used to the market pricing system with no subsidies, while Vietnam still maintains the subsidisations of several key product items. Therefore, price increases do not cause special impacts in other countries, while causing shocks in Vietnam as the price increases are bigger in Vietnam than in any other countries.
In the last six months, the central bank has bought $7bil, which means some VND112tril has been put into circulation. How has the move affected the monetary supply? (Total goods and service retail value was VND335tril, or $20.93bil in the first six months of the year)
In the first six months of the year, the foreign investment inflow increased, which has resulted in bigger supply of foreign currencies, putting pressure on the local currency to revaluate against other foreign currencies, while increasing the total means of payments. In the last six months, Vietnam has attracted $5.2bil more in foreign direct investment (FDI), $1.7bil in portfolio investment.
The central bank has put more money into circulation by buying more foreign currencies for reserve, while trying to withdraw cash from circulation by selling SBV bonds. The total sum of money put into circulation since the beginning of the year is equal to 67% of that approved by the Government for the whole of 2007.
The stock market keeps developing, the total value of listing securities has reached VND221,156bil, or $14bil, or 22.7% of 2006’s GDP.
Regarding the total means of payment and credit, an estimate by the central bank showed that by the end of May, the total means of payment had increased by 16.9% over the end of 2006, and by 39.8% over the same period of 2006. The total outstanding loans increased by 15.04% over the end of December 2006, and 33.53% over the same period of 2006.
Two groups of goods and services saw price increases higher than the average levels, construction materials and food. Could you please give more details about the increases of the two categories of goods?
The real estate markets in Hanoi and HCM City saw price fever when prices rose by 20-50%. The prices of fuel, including petrol, also increased twice, by 8.9% and 7.2%, while the prices of gas and steel also saw sharp increases.
Food products saw big price increases due to higher demand and higher export prices, while the supply was shorter due to animal epidemics.
The Government plans to apply a lot of measures in order to curb inflation. In the immediate time, taxes will be cut as a result of global integration with the average reduction of 44%, especially on products which have high tax rates, including paper, wooden products and cars.
In terms of monetary policies, the central bank will maintain the basic interest rate for VND, while requiring higher compulsory reserve ratio, withdrawing money from circulation, thus easing the pressure on prices.
Vietnam began implementing WTO commitments right at the beginning of the year, which has resulted in the reduction of prices of many goods. What can you say about the impact of WTO membership on prices?
You should not think in the one way that WTO membership will only make prices lower. There will be both price decreases and increases, which will depend on market supply and demand. More foreign-made goods will be imported thanks to lower tariffs, which will lead to the price decreases of many goods, but when Vietnam exports more goods, this will make the prices of the export items on the domestic market increase.
The principle that the Government and relevant ministries will observe is to follow the world’s market closely.
Source: VNE
According to official explanations, prices in Vietnam escalated because prices increased all over the world. However, prices did not increase so sharply in other countries which also were affected by oil price increases and animal epidemics. How can you explain this?
I know you want to know why price increases were different in different countries, though the countries were all in the same situation. Firstly, I think the root cause is the weak competitiveness of the national economy. You can see this in the high production costs of Vietnam-made products. It is clear that the high domestic production costs plus the higher input material prices pushed the selling prices up.
Secondly, the measures which have been carried out by Vietnamese enterprises to cope with the difficulties caused by the world’s price fluctuations remain insufficient.
Thirdly, in a national economy like Vietnam, the imports of many key materials are always at very high levels. For example, Vietnam imports 100% of petrol, 60-70% of ingot steel, 90% of materials for drugs. Therefore, Vietnam is heavily affected by the world’s price fluctuations, and domestic prices escalate right when the world’s prices increase.
Other countries seem to find it easier to cope with the difficulties caused by the price hikes (for example, they improve production technologies and try to reduce fuel consumption), while Vietnamese enterprises still find it hard to overcome the difficulties.
I also have to say that other countries have got used to the market pricing system with no subsidies, while Vietnam still maintains the subsidisations of several key product items. Therefore, price increases do not cause special impacts in other countries, while causing shocks in Vietnam as the price increases are bigger in Vietnam than in any other countries.
In the last six months, the central bank has bought $7bil, which means some VND112tril has been put into circulation. How has the move affected the monetary supply? (Total goods and service retail value was VND335tril, or $20.93bil in the first six months of the year)
In the first six months of the year, the foreign investment inflow increased, which has resulted in bigger supply of foreign currencies, putting pressure on the local currency to revaluate against other foreign currencies, while increasing the total means of payments. In the last six months, Vietnam has attracted $5.2bil more in foreign direct investment (FDI), $1.7bil in portfolio investment.
The central bank has put more money into circulation by buying more foreign currencies for reserve, while trying to withdraw cash from circulation by selling SBV bonds. The total sum of money put into circulation since the beginning of the year is equal to 67% of that approved by the Government for the whole of 2007.
The stock market keeps developing, the total value of listing securities has reached VND221,156bil, or $14bil, or 22.7% of 2006’s GDP.
Regarding the total means of payment and credit, an estimate by the central bank showed that by the end of May, the total means of payment had increased by 16.9% over the end of 2006, and by 39.8% over the same period of 2006. The total outstanding loans increased by 15.04% over the end of December 2006, and 33.53% over the same period of 2006.
Two groups of goods and services saw price increases higher than the average levels, construction materials and food. Could you please give more details about the increases of the two categories of goods?
The real estate markets in Hanoi and HCM City saw price fever when prices rose by 20-50%. The prices of fuel, including petrol, also increased twice, by 8.9% and 7.2%, while the prices of gas and steel also saw sharp increases.
Food products saw big price increases due to higher demand and higher export prices, while the supply was shorter due to animal epidemics.
The Government plans to apply a lot of measures in order to curb inflation. In the immediate time, taxes will be cut as a result of global integration with the average reduction of 44%, especially on products which have high tax rates, including paper, wooden products and cars.
In terms of monetary policies, the central bank will maintain the basic interest rate for VND, while requiring higher compulsory reserve ratio, withdrawing money from circulation, thus easing the pressure on prices.
Vietnam began implementing WTO commitments right at the beginning of the year, which has resulted in the reduction of prices of many goods. What can you say about the impact of WTO membership on prices?
You should not think in the one way that WTO membership will only make prices lower. There will be both price decreases and increases, which will depend on market supply and demand. More foreign-made goods will be imported thanks to lower tariffs, which will lead to the price decreases of many goods, but when Vietnam exports more goods, this will make the prices of the export items on the domestic market increase.
The principle that the Government and relevant ministries will observe is to follow the world’s market closely.
Source: VNE
Monday, July 02, 2007
Prices increase, depositors depressed
With the currently offered deposit interest rates and the CPI (consumer price index) growth rate of 5.2% by the end of June 2007, depositors are currently struggling to make a profit.
Mrs Van, a staff of a financial company, said that she made a deposit at a bank in January 2007 with the interest rate of 0.75% per month. She estimated that she could get the profit of 4.75% of the deposit sum. However, as the CPI grew by 5.2% in the first six months, Mrs Van, in fact, could not make any profit.
In this case, the interest rate offered by the bank is called ‘the minus (-) interest rate’.
Commenting about the minus interest rate, an economist said that in principle banks must ensure real profit for depositors with the ‘plus (+) interest rate’ policy in order to attract more capital to the banking system (the offered interest rate should take the CPI growth rate into consideration).
The economist said that banks were now paying special attention to mobilising more capital in foreign currencies in order to meet the increased demand from enterprises. Banks have to raise the offered interest rates for foreign currencies deposits by 0.08% per annum (short-term deposits), and 0.1% per annum (long-term deposits) on average, compared to those in March 2007.
In June alone, at least four banks announced interest rate increases. Vietcombank (HCM City branch) led the movement, announcing a new interest rate commencing on June 8 (5% for 12-month term and 4.75% for 9-month term deposits). On June 20, EAB also raised the interest rates on deposits of all terms (5.25% for 12-month, 5.1% for 9-month term deposits). Just five days later, Sacombank announced it would raise offered interest rates by 0.05-0.2% per annum. Eximbank also jumped onto the bandwagon by announcing on June 29 that it would raise interest rates on US$ deposits by 0.05-0.2%.
Though the interest rates for US$ deposits are increasing, experts don’t think that people will begin making deposits in US$ instead of VND.
“One should not think that he can avoid exchange rate risks by selling VND and depositing in US$. Once he needs to spend money, he will still have to sell US$ to get VND, which means he will still be subject to the exchange rate fluctuation,” an analyst said.
In fact, the members of the Vietnam Banking Association in April reached an agreement on lowering deposit interest rates. However, many banks have ignored the agreement, saying that they still needed to consider the issue thoroughly, especially as the inflation rate remained high, and that banks should ensure real profit for depositors.
Sacombank has just announced it will lower interest rates on all terms of deposits, commencing from June 26 (0.76% per month for 12-month term, and 0.745% for 9-month term deposits). However, in a different move, Eximbank on June 29 announced it would raise deposit interest rates with the sharpest increases for 18-month term deposits and longer.
The director of a bank reiterated that the central bank had initiated the double compulsory reserve rate in an effort to reduce bank’s usable capital and control credit growth.
The move by the central bank will put a lot of pressure on banks, forcing them to reduce deposit interest rates and raise lending interest rates, he said.
Source: VNE
Mrs Van, a staff of a financial company, said that she made a deposit at a bank in January 2007 with the interest rate of 0.75% per month. She estimated that she could get the profit of 4.75% of the deposit sum. However, as the CPI grew by 5.2% in the first six months, Mrs Van, in fact, could not make any profit.
In this case, the interest rate offered by the bank is called ‘the minus (-) interest rate’.
Commenting about the minus interest rate, an economist said that in principle banks must ensure real profit for depositors with the ‘plus (+) interest rate’ policy in order to attract more capital to the banking system (the offered interest rate should take the CPI growth rate into consideration).
The economist said that banks were now paying special attention to mobilising more capital in foreign currencies in order to meet the increased demand from enterprises. Banks have to raise the offered interest rates for foreign currencies deposits by 0.08% per annum (short-term deposits), and 0.1% per annum (long-term deposits) on average, compared to those in March 2007.
In June alone, at least four banks announced interest rate increases. Vietcombank (HCM City branch) led the movement, announcing a new interest rate commencing on June 8 (5% for 12-month term and 4.75% for 9-month term deposits). On June 20, EAB also raised the interest rates on deposits of all terms (5.25% for 12-month, 5.1% for 9-month term deposits). Just five days later, Sacombank announced it would raise offered interest rates by 0.05-0.2% per annum. Eximbank also jumped onto the bandwagon by announcing on June 29 that it would raise interest rates on US$ deposits by 0.05-0.2%.
Though the interest rates for US$ deposits are increasing, experts don’t think that people will begin making deposits in US$ instead of VND.
“One should not think that he can avoid exchange rate risks by selling VND and depositing in US$. Once he needs to spend money, he will still have to sell US$ to get VND, which means he will still be subject to the exchange rate fluctuation,” an analyst said.
In fact, the members of the Vietnam Banking Association in April reached an agreement on lowering deposit interest rates. However, many banks have ignored the agreement, saying that they still needed to consider the issue thoroughly, especially as the inflation rate remained high, and that banks should ensure real profit for depositors.
Sacombank has just announced it will lower interest rates on all terms of deposits, commencing from June 26 (0.76% per month for 12-month term, and 0.745% for 9-month term deposits). However, in a different move, Eximbank on June 29 announced it would raise deposit interest rates with the sharpest increases for 18-month term deposits and longer.
The director of a bank reiterated that the central bank had initiated the double compulsory reserve rate in an effort to reduce bank’s usable capital and control credit growth.
The move by the central bank will put a lot of pressure on banks, forcing them to reduce deposit interest rates and raise lending interest rates, he said.
Source: VNE
CPI to be calculated by new method
As of 2008, the consumer price index (CPI) will no longer be calculated on a monthly basis, but on a quarterly average or the yearly average basis, said Head of the General Statistics Office Le Manh Hung.
According to Mr Hung, the current method to calculate CPI has been used since 1985. At that time, inflation was very high and managers had to calculate CPI on a monthly basis to have timely reactions.
However, this way of calculation, according to Mr Hung, is not suitable to international practice and sometimes causes difficulties for management. He said that in many cases, if CPI is defined on a monthly basis, it would be difficult to evaluate the impacts of factors to prices.
For example, if petrol price increases in mid-May, CPI of May is announced in mid-June. This period of time is too short to assess the impacts of petrol prices on other goods. In addition, there are many factors that do not immediately show their impacts, but they need time. As a result, calculating CPI on a quarterly basis would be more precise.
To make acquaintance with this change, as of June 2007, the General Statistics Office has introduced the average CPI of the first half of 2007 to compare with that of the first half of 2006. Specifically, compared to the first half of last year, the average CPI of the same period of time increased by 7%.
Source: VNE
According to Mr Hung, the current method to calculate CPI has been used since 1985. At that time, inflation was very high and managers had to calculate CPI on a monthly basis to have timely reactions.
However, this way of calculation, according to Mr Hung, is not suitable to international practice and sometimes causes difficulties for management. He said that in many cases, if CPI is defined on a monthly basis, it would be difficult to evaluate the impacts of factors to prices.
For example, if petrol price increases in mid-May, CPI of May is announced in mid-June. This period of time is too short to assess the impacts of petrol prices on other goods. In addition, there are many factors that do not immediately show their impacts, but they need time. As a result, calculating CPI on a quarterly basis would be more precise.
To make acquaintance with this change, as of June 2007, the General Statistics Office has introduced the average CPI of the first half of 2007 to compare with that of the first half of 2006. Specifically, compared to the first half of last year, the average CPI of the same period of time increased by 7%.
Source: VNE
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