This is Dr Le Dang Doanh’s opinion on wide year-end price fluctuations and inflation in Vietnam, on the sideline of the Consultative Group 2007 meeting.
The soaring oil price has pushed up the price of other commodities. What are your viewpoints on the market movements?
The gasoline price rise is attributable to the soar in global oil price. Not only gasoline but oil related products like fertilizers, plastics and authentic fibres are also affected by the oil price. The public is very concerned about the petrol price and its effects on other industries. Before that, the Government tried its best to keep petrol price low to avoid domino effects on other industries. However, this measure was only a temporary option.
Oil price is forecast to continue rising in the coming time, and the price of other commodities will also be affected. In my opinion, the Government should introduce medium- and long-term comprehensive policies. Accordingly, Vietnam will have to have new sources of materials and speed up the construction of hydropower plants.
Could you give any advice to stabilise market price and eliminate oil subsidies?
For this issue, the Government has introduced a clear programme and roadmap to end subsidies for petroleum sales. Regarding market price stabilisation, Vietnam may consider setting up a price stabilisation fund to regulate the market in the event of global oil price fluctuations. I think the fund should not be financed by State Budget, but by enterprises.
Increasing inflation is now a top concern of the Government. What is your take on this?
Inflation results from various factors. First, Vietnam is affected by the world price jump. However, it also impacts the rest of the world. In developed nations where 65 per cent of energy is generated by nuclear reactors, they are not worried much about world oil price. But, this is a thorny issue for countries with energy generation relying primarily on oil.
In Vietnam, 51 per cent of energy is generated by power plants while 49 per cent comes from other sources such as gas, coal and fuel oil, thus, Vietnam is strongly affected by the global oil price. This heavy reliance, together with acts of god like floods and epidemics, pushed up the consumer price.
Besides, Vietnamese monetary policy is now facing problems. Vietnam oversupplied cash to increase foreign exchange reserve, pushing up the consumer price. The consumer price index in Vietnam is rather high in comparison with regional countries.
Vietnam has chosen to increase deposit interest rates to absorb idle cash from the public. Banks then will try to lend out their deposits at reasonable interest rates. Besides, the government can issue bonds to absorb idle money from the public. However, the proceeds from government bond sales usually finance state-owned projects which need a long time to balance investment capital. Then, the State Budget has to compensate bond yields. As a result, bond issuance sometimes cannot completely control inflation, but only delays it.
Vietnam has drawn a large amount of FDI capital. However, the disbursement result is unsatisfactory. What will the Government do to resolve this issue?
The foreign direct investment capital in Vietnam is forecast to reach US$16 billion this year, a sharp increase from US$10.2 billion in 2006 and 2.4 billion in 2000. However, disbursed FDI in 2000 was US$2.2 billion, over 90 per cent of the total registered volume, while disbursement in 2006 was only US$4.1 billion, or 40 per cent of the total, and only US$4.5 billion in 2007, or less than 30 per cent.
Vietnam should have better infrastructure systems and human resources to tackle this issue. The Ministry of Education and Training signed agreements with companies to train employees for them. In my opinion, Vietnam should widely apply this policy and call foreign investment capital for education.
Tram - Chi
Vietnamese
