Vietnamese policymakers insist they can tackle the country’s alarming inflationary pressures, but have conceded that previous targets may be beyond them.
Vietnam’s National Assembly had set a full-year target for inflation growth in 2011 of below 7%, which looks ambitious in the light of April’s 17.5% year-on-year consumer price index (CPI) growth. Some analysts put food inflation as high as 24%.
“The targets have not been revised officially,” said Nguyen Van Giau, Governor of the State Bank of Vietnam, the country’s central bank. “However, I think that Vietnam, and other countries, are now facing difficulties in realizing the targets.
“They were set four or five months ago and new issues have arisen,” he said, highlighting global commodity price increases, Middle East politics and the Japan tsunami.
Vietnam’s minister of planning and investment, Vo Hong Phuc, said on Tuesday that “in 2011 our top priority is to combat against inflation”. He conceded that the previous policy, that prioritised growth at all costs, had to be revised.
“The economic growth rate is no longer the number one priority,” he said. “We will try to sustain rapid economic growth, but not at any cost.” He said he hoped for 6.5% economic growth in 2011.
Plans to combat inflation and improve macroeconomic stability were set out in Decree 11 in February, which envisaged tighter monetary control, maximum credit growth of 15% in 2011, reduction of imports and changed pricing mechanisms.
Governor Giau told Emerging Markets of his “strong belief that Vietnam will be able to control inflation in future” through the measures – which have coincided with a drop in the value of Vietnam’s currency, the dong.
Ayumi Konishi, the ADB’s country director for Vietnam, said the measures in Decree 11 were correct, but would need time to work. “Economic policies always take time to have an impact. It’s not like poison: you don’t see the result overnight.
“We hope the government will continue to be determined to follow this policy, and we hope the Vietnamese people will be patient,” he added. “Controlling inflation means there will be some pain.”
Some analysts see Vietnam as the architect of its own inflation problems. “Up until February this year, Vietnam still had a very clear policy objective: growth at all costs,” Tai Hui, regional head of research for southeast Asia at Standard Chartered, said. “Last year inflation started to pick up but they refused to raise rates – in fact, cut rates to boost growth. It was an amazing response.”
Hui said that the February measures, along with interest rate rises, were a “major turning point. [...] The government and central bank are now aligned to fight inflation – but the key is execution.”
He expects inflation to get worse before it gets better, probably hitting 18%.
Many feel problems have arisen because of a lack of independence of the central bank, but Governor Giau denied this. “Even though we are a member of the government, [...] our law allows the State Bank of Vietnam [...] a certain level of independence in exercising our monetary policy.”