Resonance of inflation and speculation must be avoided

Friday, May 16, 2008
High inflation, ballooning trade deficits, and the Government's economic management are among big issues highlighted at the ongoing National Assembly sitting in Hanoi. Le Quoc Dung, vice chair of the NA Economic Committee, talks with The Saigon Times Daily on the sidelines of the sitting on such issues. Excerpts follow.

Many people have voiced concerns that prices of certain essential commodities will leap up after June as the period of price control initiated by the Government is out. How do you comment on such a possibility?

As far as I know, prices of certain commodities will be revised after June, possibly petrol prices. The local economy is still facing big challenges. Although the inflation has shown signs of a slow-down, prices of some key commodities on the world market remain high, especially crude oil.

There are several problems in the local economy to address such as market pricing, export and competitiveness. If local prices are well linked to the global prices, then such prices should have been revised up.

However, if prices go up further, the inflation will move upwards, thus having adverse impacts on the people's livelihood. I am now keeping a close watch on the banking system.

The lending interest rate has been high while credits are tightened, leading to high capital cost for enterprises, especially exporters. In the region, the lending rate is much lower than in Vietnam, so local competitiveness is a difficult problem.

Some experts have warned against speculation, saying many enterprises have stocked commodities to wait for higher prices after June. How the NA Economic Committee will monitor and address this phenomenon?

That situation may be real. There may be the activity of speculative stocking as people foresee the high inflation and keep back goods for sales when prices move up. The National Assembly will only monitor the Government's administration, while the Government itself will have to tighten control over State-owned corporations, groups and enterprises, especially those producing essential goods so that the supply of goods remains steady. The Economic Committee will dispatch inspection teams to work alongside the Government. If speculative trading is combined with the inflation, the resonance will be dangerous.

The trade deficit in the first four months of the year has exceeded US$11bil, equivalent to 60.7% of the total export revenue. In your opinion, what should the Government do to reduce the trade gap, and whether boosting export is the optimum measure?

It is clear that the trade deficit is widening. But if enterprises boost imports to hedge against the rising price on the world market, we should have a more objective, considerate view. The increasing trade deficit will prompt more difficulties for the trade balance and payment balance.

Nevertheless, the State should ensure sufficient foreign currency supply. The dollar is in short supply now due to rising import, but the State should use part of the foreign reserve to guarantee liquidity for enterprises. However, such a move must be done in a cautious manner. Another measure is to tighten control on luxury goods and consumer goods.

The proportion of consumer goods and luxury goods including automobiles makes up a mere 1% in the total import expenditure, while up to 92% of imports are machinery and materials for local production. Is it possible to control the rising import with such a measure of curbing consumer goods and luxury goods?

The most important job now is to restructure local production, especially to develop the supporting industry. This should have been done a long time ago. For farm produce, we have mainly shipped raw materials rather than value-added products. We should have had a strategy to add value to such products. Most of rubber and coffee are now exported as raw materials.

Many are of the opinion that the State intervention by means of administrative measures should be short-lived, and the basic thing is to let prices driven by market forces?

That's correct. Deep intervention by the State will distort the market. But such measures are necessary under certain circumstances. If such measures are maintained for long, the market will go wrong, leading to a bubble economy.

So what should be the right time to stop such intervention?

I understand that the Government also want to stop such measures as soon as possible, but due to the limited resources and capacity, caution will be taken in choosing a point of time to stop such intervention. The NA Economic Committee will raise its voice to ask for stopping intervention as soon as the situation is back to normal. Prices should be in line with the market principle. (SGT)