Price Stabilisation Fund Remains Unstable

 

Mr Nguyen Tien Thoa, Director of the Price Management Department under the Ministry of Finance, said: Funds of the Price Stabilisation Fund are taken from [participating] companies, retained in such companies, and accounted in separation and independence of the State Budget.

The Price Stabilization Fund has been applied in the past years by some sectors and localities for a good purpose. Once using interest-free loans from the Fund, companies must sell products at prices lower than market rates to create counterweights to ease prices. Like Vietnam, the Petroleum Price Stabilisation Fund is also being applied by some countries in the world like China, Thailand, the Philippines, Chile and Mexico, according to experts. In Vietnam, the Fund has served an important role in valorising petroleum prices in some sensitive periods with a moderate level. If the Fund did not exist, prices would be changed many times.

 

However, doubts have been cast over the efficiency of the Fund after it was brought into operation because market prices are hardly influenced by stabilisation-branded goods. There are a lot of reasons for such a reality and the keystone is the minority of stabilisation-branded goods. Hanoi City decided to spend VND400 billion for the Price Stabilisation Fund in 2011. Nonetheless, this value is too small in relation to the local consumer spending, estimated at VND5,000 billion a month. Because of limited capital source, categories of price-stabilised goods are very few. In addition, not many companies are allowed to join the Fund and the stabilisation network is also sparse. Although the capital city announced to open nearly 400 points of sales of price-stabilised goods in 2011, most of them were located in urban areas and supermarkets. Meanwhile, rural residents and industrial workers whose incomes are low have no access to price-stabilised goods.

 

Mr Nguyen Van Dong, Acting Director of Hanoi Trade Department, said: The operating mechanism of the Fund intensely carries direct administrative intervention which tends to contradict global market trends and distort market prices in the time of its funding. The dispersion of the Fund also requires administrative expenses from both companies and authorities.

 

Remarking on the Petroleum Price Stabilisation Fund, Dr Nguyen Minh Phong from the Hanoi Socioeconomic Development Research Institute said raising funds from gasoline prices do more harm than good to customers. Or in other words, they have to buy more expensive gasoline when the Fund accumulates finances and enjoy cheaper gasoline when the Fund spends on stabilisation. Indeed, they are always at a disadvantage because they give interest-free loans for oil traders. In the end, only oil traders are guaranteed benefits, Mr Phong added.

 

The aforesaid limitations diminish effects of price stabilisation. Meanwhile, applying the price stabilisation programme has caused unwanted corollaries to the market. In Hanoi, participating companies do not need to attend tenders to purchase goods for this programme. This reduces the opportunity of finding out sources of good products and creating best product prices. The absence of tendering mechanism spoils competition on the market. Moreover, the price stabilisation programme can create “give and take” mechanism because all companies want to use soft loans from this fund, particularly when interest rates are very high now.

 

Another subsequence is the creation of dual price mechanism. Small merchants scramble for goods in price-stabilised locations while poor people fail to access. In reality, the public has questioned whether companies sell price-stabilised goods to other merchants to take margin.

According to regulations, companies have to ask the Department of Industry and Trade for price hikes in case reference market prices climb too much.

According to experts, seeking market stabilisation solutions is very necessary but it is time the current method needs reviewing.

 

In the short term, if authorities want to support the poor through the Price Stabilisation Fund, they may consider giving them coupons to buy price-stabilised goods. Buyers with such coupons will enjoy direct discounts. These companies collect coupons in exchange for refunds from competent organs. This method will force supermarkets and distributors to compete on price to attract consumers.

 

Another solution is to directly transfer the money from the Price Stabilisation Fund to manufacturing companies. In this approach, we can pick out some products rather than dozens of products as now to impose price stabilisation policy. Goods made with preferential loans from the Fund will be closely managed and will be able to act as counterweights to corresponding products on the market.

 

In the long term, the market stabilisation needs to be carried out on the basis of promoting production development, ensuring fair competition, and reducing trade frauds. To do so, according to experts, we need to clarify regulations on interest rate earnings from [unused] money collected for the Fund and deposited at banks. At present, returns from deposits at banks have not been included to the Fund as we seriously lack regulations on supervision and examination. Perhaps, we should transform the current Fund to the National Energy Security Fund. However, it is critical to eliminate the present Fund management mechanism on account of inadequacies, ineffectiveness and unclear legal responsibility. It must be regarded as a national fund which is centrally and directly managed by the Interdisciplinary Fund Council and affiliated to a State organ, Mr Truong Dinh Tuyen, an economist, said.

 

Dr Pham Tat Thang affirmed that the establishment of the Price Stabilisation Fund necessarily originates from the real demand of the business community. Companies should set aside a sum of money at the good time to use it at the bad time. The finance for the Fund is not sourced from the State Budget or preferential credits for the public. Then, the nature of the Fund will be rather different from the current one. We also cannot deny the role of the State but it should function as a maker of mechanism and legal corridor. Direct intervention should be deployed only in special cases like using national reserves.