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Difficulties will exist until 2010: expert   2008-09-24 - VNN

Concerns about high inflation have been eased, but fresh concerns about production stagnation have been raised. Vietnam has been warned about the new difficulties which will come after a long period of high inflation.

 

Associate Prof Dr Ngo Tri Long

Associate Prof Dr Ngo Tri Long from the Finance Institute under the Ministry of Finance said that the 0.18% CPI increase in September has surprised many experts. Prior to that, ministries’ officials predicted that the CPI increase in September would be some 1%.

 

Could you please tell me why the CPI increase was low in September 2008?

 

The direct reason was that food and foodstuff prices did not increase, or even decrease in the recent past, while food and foodstuffs make up 40% of total commodities in the commodity basket for CPI calculation.

 

The prices of petrol and construction materials have also decreased after a long time of rising.

 

Meanwhile, the measures to curb inflation taken by the government, especially the policy on tightening the monetary policies have shown their effects. The tightened monetary policies have put difficulties on businesses, which has led to a decrease in the demand for consumption and investment, thus making prices decrease.

 

The slowdown in CPI increases in the last month followed the decrease in crude oil price. Meanwhile, the oil price now tends to increase again. Do you think that the price increase will lead to higher CPI increases in the next months?

 

 
The oil price depends on the greenback value, and as the greenback becomes weaker due to the financial crisis, the oil price increases. The price has risen by 16% in the last two days.

 

However, it is not very likely that the oil price will increase sharply. As the US and European economies are facing difficulties, the demand for oil will certainly decrease. An oil price increase, if it occurs, I think, will not cause serious impacts, as consumers are familiar with high petrol prices.

 

What do you think inflation will be like in the upcoming months?

 

In principle, prices go up in the first and fourth quarters of years. I think the most difficult period is over.

 

However, the government still needs to continue the policies on restraining inflation, while accepting lower growth rate. The inflation has been eased, but other problems will come: slower economic growth, unemployment and other social problems.

 

The government previously predicted that the inflation rate would be 25%, while the rate has reached 21% after nine months. With the happenings in September, the CPI increases will be less than 1% in each of the three last months, which means the inflation rate will be no more than 25%.

 

Do you think that it is the right time for Vietnam to loosen the monetary policies by lowering the basic interest rate?

 

No official figure has been released about the number of businesses dissolved due to the tightened monetary policies. However, I think at least 1/3 of businesses are facing bankruptcy. Therefore, as the inflation has been eased, the government will think of measures to help businesses overcome their difficulties in order to prevent a massive number of businesses from going bankrupt. I think adjusting the basic interest rate is something the government may think of

 

However, I have to remind you that the risks of high inflation still exist. The inflation rate of 20% is still a high rate. Therefore, the tightened monetary policies should be maintained.

 

Some experts say that the period of production stagnation will come after the period of high inflation. What is your comment about this?

 

Economic laws show that recession always comes after a high inflation period. Therefore, the government needs to have suitable measures to regain economic growth. I think the difficulties in the national economy will exist not only in 2008, but also in 2009 before bouncing back in 2010.



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