VIETNAM - Strict monetary policies to curb inflation

by lexie Fri Dec 02, 2011 9:04 pm

December 2, 2011

Strict monetary policies to curb inflation

Tighter controls on inflation and maintaining steady prices on essential items through the end of the year and during the upcoming holiday season were hot topics at yesterday's regular Government meeting.

The country would continue to need tight monetary policies to limit this year's inflation rate as targeted, said Prime Minister Nguyen Tan Dung.

The State Bank of Viet Nam would have to further lower the double-digit interest rates and prioritise loans for production, business, rural development, agriculture and exports, he said.

He emphasised that bold measures must be taken by the ministries of Industry and Trade, and Agriculture and Rural Development to ensure sufficient supply of essential goods to meet the rising demands towards the end of the year and the Tet (Lunar New Year) holiday.

"Prices must be controlled and kept stable to avoid any "price fever," he said.

Dung also asked his cabinet to strengthen controls over luxury goods to curb the trade deficit, which is about 10 per cent of export values this year.

At the two-day meeting which ended yesterday, the cabinet agreed that the monetary and credit policies applied so far had gradually slowed down price rises and the macro economy had become more stable in the last months of the year.

CPI (Consumer Price Index) growth was only 0.39 per cent in November, the forth consecutive month with an increase of less than 1 per cent. CPI for the first 11 months of the year increased by nearly 19 per cent against the same period last year.

In terms of fiscal policies, the Government cut its regular spending by 10 per cent.

Some VND81.5 trillion (US$3.7 billion) has been cut from State investment plans, which would help more than 1,000 on-going projects to finish by the end of this year.

The total export values as of the end of November reached more than $87 billion, up by 34.7 per cent against the same period last year whereas imports increased by 26.4 per cent to $96 billion. Export values for the year are expected to rise by 33 per cent year-on-year.

The Government forecast this year's Gross Domestic Product to grow by 6 per cent, a "pretty high growth rate in the context of curbing inflation."

Food production is expected to reach a historic high this year, with rice production expected to reach 41.5 million tonnes, a 1.5 million tonne increase over 2010.

Social security policies, including job generation and poverty reduction, had also posted good results, according to the cabinet.

2012 plan

High inflation and interest rates, bad debts that were showing signs of increasing, weak liquidity among some commercial banks, troubled exchange rates and weakening security and property markets were huge challenges that needed to be addressed next year, said Finance Minister Vuong Dinh Hue.

He suggested the inclusion of traffic safety and cost reduction management goals in the 2012 socio-economic development plan.

Minister of Public Security Tran Dai Quang said the State Bank of Viet Nam needed to step up inspections to prevent violations as bad debts were increasing.

Agreeing with next year's GDP growth target of 6 per cent, Minister of Construction Trinh Dinh Dung recommended the development of a road map to reduce the interest rate to 10 per cent by the end of 2012 and tighter State controls for the property market.

Economic restructuring

The 2011-15 economic restructuring plans for State-owned enterprises (SOEs), the commercial bank system and investment, which will be developed next year, were also discussed at the cabinet meeting.

The Government agreed that restructuring SOEs was an urgent task to improve their efficiency as enterprises and would serve as a tool to regulate the macro economy.

Under the SOEs reform plan, the Government will boost the scrutinisation of SOEs, restructure all State economic groups to make them more specialised, renew management methods over SOEs and State economic groups, and create a competitive and equal environment between different business sectors.

The State Bank of Viet Nam was asked to soon complete reforms of the credit organisation system to improve financial capacity and competitiveness.

In a discussion about investment restructuring, Construction Minister Dung and Minister of Resources and Environment Nguyen Minh Quang said the reforms must be accompanied by other tools, including financial and monetary policies, to minimise the current inefficient State investment.

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