The Ministry of Planning and Investment has identified the cause of the present rising inflation and offered six solutions to the government in a report for curbing inflation and stabilizing the macro economy.
During the last five years, only in 2009 was the consumer price index (CPI) at 6.5 percent. The remaining years saw the CPI at over ten percent, 12.6 percent in 2007, 19.9 percent in 2008 and 11.8 percent in 2010.
This year will be lucky if the CPI stays at 18 percent, because it is already over 16 percent since September.
The report also pointed out reasons for the high inflation in Vietnam. Money supply in recent years has dwindled. Monetary growth in 2007 was 43.7 percent and credit growth was 53.9 percent. This was a record high during the 2001-2011 phase, now being considered as one of the main reasons for the high inflation in 2008.
By 2009, the situation repeated itself, but at a lower level than 2007, but it still caused high inflation in 2010 and 2011. The tightened monetary and fiscal policy set in early 2011 has worked, resulting in arrest of the speed of inflation, which peaked in April 2011 and gradually reduced (CPI in September grew 0.82 percent, the lowest level so far this year).
The ministry also pointed out other reasons for the cause of high inflation such as increase of production costs and some financial policies. Overspending during this period was always over 5 percent (except for 2008 when it was 4.6 percent).
If government bonds are included, overspending is much higher. Constant overspending has forced the government to mobilize capital from people through issue of bonds and treasury bills, which contributed to pushing up the interest rate as well as the prices.
According to the Ministry of Planning and Investment, ineffective economic and investment structure is the fundamental reason for the cause of unstable macro-economic balances which promotes higher inflation. The economy then develops laterally, mainly based on the increase of investment capital, outdated technology; with low investment effectiveness that impacts inflation.
Other than the above reasons, the ministry also blamed other reasons such as a poor distribution system, natural disasters and epidemics.
Six solutions to curb inflation
The ministry has offered six solutions to cope with the rising high inflation. First, the ministry should continue to tighten its financial policies but ensure sufficient capital for agriculture, electricity production and production of export goods; strictly control the gold market, the foreign currency market and restructure commercial banks.
Second, it should focus on solving the problem of pricing, the quality of growth and efficient use of capital.
Third, it is necessary to enhance competitiveness within the economy while also restructuring the economy.
Fourth, it should focus on applying science and hi-tech technology in production units to enhance competitiveness of products.
Fifth, the ministry should try to boost domestic production.
Lastly, it is necessary to continue to promote information and communication on policy measures to stabilise prices, curb inflation, stabilise macro-economy and ensure social security, create a consensus in society and minimise psychological factors.
This year’s inflation target is set at 18 percent and below ten percent in coming years and by 2015 inflation is expected to stabilise at around five percent.