Inflation Taming: Joint Efforts Needed

The Vietnamese sugar industry has 40 big plants and more than 100 small factories with input from 310,000 hectares of sugarcane. Annually, these facilities turn out some 1.3 million metric tonnes, enough for domestic demand.

 

The current price fluctuation affects business operations of this industry. Input costs of sugarcane cultivation soared as prices of farming materials, petroleum, labour and other factors rose. According to the calculation of the Vietnam Sugar and Sugarcane Association, materials make up 60-70 per cent of the sugar price. Mr Ha Huu Phai, General Secretary of the Vietnam Sugar and Sugarcane Association, said the sugar price is deemed low in comparison with that of other commodities. A kilo of refined white sugar is now sold at VND8,000; thus, processing plants cannot raise the buying price of materials. Farmers cannot make a profit at the current selling price of VND350,000-400,000 per tonne. Meanwhile, smuggled sugar from Thailand is entering the Vietnamese market through the south-western border and Lao Bao border gate. Illegally imported Thai sugar is estimated at 400-500 tonnes per annum. Local products cannot compete with smuggled Thai sugar in terms of selling price.

 

Price increases of petroleum and other essential products leads to perfunctory operation of production companies. Mr Luong Cong Huynh, General Secretary of Ho Chi Minh City Electric Cable and Wire Association, said, an enterprise with more than 30 years of operation had to sell off its electric wire and cable production line because of losses.

The construction material market is also hurt by soaring prices. Many construction projects have come to a standstill because of unbearable material prices. Contractors are suffering heavy losses and may face bankruptcy. The price of construction materials rose by 10 - 20 per cent, some even by 30 per cent. A brick was sold at VND600 before the Tet, but it is VND780-800 now.

 

Exchange rate fluctuation between the local dong and the US dollar also hurt exporting enterprises. Exporters get USD from selling goods and services but use VND to buy domestic materials; thus, when the USD depreciates, the companies will be seriously stricken. Many are in capital shortage because banks do not buy their foreign currencies. Moreover, tightened lending policy narrows enterprises’ access to bank loans. Without sufficient capital for production and material purchase, many companies are downsizing operations and passing up business opportunities.

 

Many experts said the Government should resolutely stabilise the price of input materials and essential commodities. In the short term, the Government should postpone or cancel ineffective projects and financially support trading enterprises to stockpile foods and materials to ensure adequate supply for production firms. In the long term, enterprises must have their own strategies to take the initiative in material sources.

 

Mr Do Van Tam, Director of Binh Dinh Importing and Exporting Joint Stock Company, proposed that enterprises should access other capital sources and diversify export markets to access other currencies. Besides, they also carefully weigh the selection of payment currencies for imported and exported goods, and lending currencies. Strong currencies like the euro and Japanese yen are good alternatives to USD to reduce the foreign exchange risk. He also proposed relevant bodies to regulate USD/VND exchange rate that brings more benefits to exporters. At the same time, the Government should create a legal corridor for the participation of non-banking financial units in providing capital for enterprises, thus, reducing reliance on bank loans.

Regarding the difficulty of converting foreign currencies to VND, Mr Nhan Huc Quan, General Director of New Toyo Aluminium Paper Packing Co. Ltd, proposed that the Government support and instruct banks to buy USD from export sources at the government-set exchange rate and not to collect additional FX fees. He also expected the Government to stabilise lending rates. According to him, this helps enterprises to calculate production costs and control as well as forecast product price changes in the short-term. This, in return, helps curb inflation.

Inflation is a global issue; even Europe has encountered it. However, inflation is worse in several developing nations because the demand here is increasingly high. In many parts of the world, the food price has also increased by 40-50 per cent.

Inflation cannot be curbed in one or two days. All measures take time to reach full effectiveness. In my opinion, the Government does not need to solve all issues, but business associations and enterprises must jointly seek measures. Vietnam already entered the WTO, the intervention of the government should be at a moderate level and only in key fields. I see that many industries in Vietnam lack competition.

The retail system is not transparently developed; thus, the selling price rose 15-20 per cent in a short time. The Vietnamese Government should have policies to reduce intermediaries, speculation and stockpiling to shorten the gap between producers and consumers. Many European countries used to successfully open places for producers and consumers to meet each other. This may lead to profit shrinkage of many enterprises, but clearly this is a good solution to deal with inflation.

The garment and textile industry is a victim of inflation. Prices of all inputs jumped, even banking interest rates. Meanwhile, we cannot hike prices of many products because that would subsequently cut their competitiveness.

We completely agreed on the package of solutions proposed by the government and applauded the State Bank’s regulation on a ceiling lending interest rate of 12 per cent. These will help tackle inflation to a certain extent.

In the current context, I think, to deal with inflation, the market should have more goods. As a result, we need to boost production and export. At the same time, opportunism and speculation must be resolutely put to an end.

 

In the first three months this year, the steel price nearly doubled because of soaring input prices. This has forced many projects to a standstill.

The steel industry is a basic industry. If the price continues increasing, it will absolutely have a negative impact on the national economy. Thus, each steel enterprise must understand their responsibility toward this issue. We have gathered together to reach a consensus: Strictly follow the Government’s instruction on ending steel price increases. Besides, we will publicise prices and distribution units at major cities and provinces to ensure that consumers buy at original prices. At the same time, we will provide better services. Our solutions have begun to be effective.

At present, all steel ingot production plants are operating at full capacity to reduce the reliance on high priced imported ingot. We are also stepping up the construction of projects to increase domestic steel ingot supply to 50 per cent by the end of this year and to 70-80 per cent in a new few years.

 

All members of our association proposed the Government consider postponing the increase in electricity price and fuel oil (FO, heavy oil) price because these are main inputs for the glass production industry and they constitute 40-50 per cent of product price. The increasing FO price heavily affects the price and competitiveness of Vietnamese glass products in both domestic and international markets. If the FO price rises by VND100 per kilo, a medium glass plant will suffer a loss of VND3-5 billion a year. A similar situation will occur if the prices of electricity and other inputs rise.

One of many reasons leading to the price fluctuation of construction materials, glass in particular, is smuggling and trade fraud. The association proposed that competent organs quickly introduce measures to prevent and control these behaviours to protect producers and stabilise the building material market.