Inflation Control Must Be Top Priority

First of all, the Prime Minister briefed the implementation of social and economic development tasks in 2007 and the first four months of 2008. The economic growth was 8.48 per cent on year in 2007. Most socioeconomic goals were reached. However, since late 2007, the complicated movement of the global economy and the soaring price of crude oil, foods, materials and machines put higher pressure on economic management and had negative impacts on macroeconomic stability. The consumer price index (CPI) soared in the third quarter, pushing up the growth rate to 12.63 per cent in 2007. The import value rose 39.6 per cent and the trade deficit was equal to 29 per cent of total export value, more than 2.7 times higher than 2006. 

 

The Prime Minister said there are a lot of objective reasons: the weakening US dollar, the US economic slowdown, the global economic slowdown, the soaring price of crude oil, foods, materials and fuels triggered negative impacts on the economy and pushed up inflation in most nations. In our country, the opening of the economy is rapid (total import and export value in 2007 was 150 per cent bigger than GDP), thus, the influence is strong. In addition, repeated natural calamities and epidemics caused hardships in many production sectors, especially agriculture.

 

The government weaknesses in economic management were grouped in five issues, presented by Prime Minister Nguyen Tan Dung.

 

Firstly, the loosening of monetary policies in many years, especially in 2007, drove the rise of general means of payments and total outstanding credits, leaving direct pressure on inflation. Tightened monetary policies are necessarily prioritised to curb inflation but unsound policies and lax cooperation of relevant organs caused new difficulties. State management over the operation of banking and credit organisation system, especially in examination and supervision over commercial banks, is ineffective. The very high ratio of outstanding credits, the usage of short-term capital for long-term lending, the securities investment lending and property investment lending caused difficulty in macroeconomic management and stability. The foreign exchange management, especially VND-USD, is not flexible or suitable.

 

Secondly, the consecutive overspending rates of 5 per cent were maintained for years while the economy has been growing bigger and bigger, but we lack plans to reduce overspending of State Budget; this has not been helpful for controlling or cutting State budget expenditure. The investment for state-owned sector is big but the efficiency is very low. This situation is very common in the investment of state-owned enterprises and the use of soft loans from the State. Management policies and solutions have not directed social development investment. The incremental capital output ratio (ICOR) in our country is very high, driving down the growth quality and the competitiveness of the national economy.

 

Thirdly, the roles of the State in market management (including the stock market and real estate market), price management and export management are weak and improper. The pursuit of market price regime is necessary and sound, but the management was sometimes is irrational. The measures tackling speculation and smuggling are not actually effective.

 

Fourthly, adequate attention has not yet been given to market forecasting and study. Relevant agencies failed to generalise macro economy for management. As a result, the Government still submitted a report with high growth forecast in 2008 in late 2007 (GDP growth will be between 8.5 per cent and 9 per cent and the CPI is below the GDP growth rate). 

 

Fifthly, relevant agencies failed to provide prompt, clear and consistent explanations on new developments arising from the market and the issuance of policies which affect them. They did not effectively manage and instruct mass media to take part in pressing and important tasks of the nation.

 

To deal with the complicated development and to carry out the economic goals in the coming time, the Government has determined eight groups of major measures to control inflation, enhance pricing management and stabilise the monetary, securities and realty markets. In addition, the Government has also helped remove difficulties for production development and promoted exports and limited trade deficit, while ensuring a balance of essential goods and carried out social security policies.