Price stabilization program not proving effective: experts

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Help firms reduce input costs instead, they argue

Shoppers at a Saigon Co.op supermarket outlet in Ho Chi Minh City's District 1. Hanoi and Ho Chi Minh City have this year given nearly VND800 billion as interest-free loan to help 28 businesses sell essential goods at prices 10 percent lower than prevailing market prices.

Le Kim Thu, a retired worker living in Hanoi's Bach Mai Street, is not impressed with the much-vaunted price stabilization program being implemented in localities nationwide.

"I am not interested," she says.

Many localities including Hanoi and Ho Chi Minh City are spending hundreds of billions of dong to help low-income consumers deal with inflation and the customary rise in goods prices as the festival season approaches. Yet, the program remains out of reach for many, and questions are being raised about its effectiveness.

The program has participating firms sell essential goods at prices 10 percent lower than prevailing market rates in return for incentives like interest-free loans to stock the listed goods.

However, prices of these goods have continued to rise and there are very few shops selling state-subsidized goods in rural areas, making it difficult for poor rural residents to benefit from the program.

Under their price stabilization programs this year, Hanoi and Ho Chi Minh City have so far spent VND400 billion (US$19 million), and VND380 billion ($18.1 million), respectively. The money is mostly given as interest free loans to 28 participating businesses so they can stock and sell rice, meat, seafood, processed food, eggs, cooking oil, sugar and vegetables, at prices lower than in the market.

"I usually buy groceries from traditional street markets. I don't see any shops selling subsidized food around where I live." The subsidized goods are mainly found in participating supermarkets, but prices there are often higher than in traditional markets.

Nguyen Van Dong, deputy director of Hanoi Department of Industry and Trade, attributed the higher prices of goods in supermarkets to their better infrastructure and preservation conditions, as well as higher quality of goods and clear evidence of origins.

However, he also conceded that there were few shops selling the subsidized products in industrial parks, traditional markets, and rural areas, explaining that firms were finding it difficult to open outlets in these areas.

Said economist Pham Chi Lan: "Few low-income people are benefiting from the program because the capital source to help firms purchase products and maintain reserves is limited, and the firms are not big ones that dominate the market [leaving most enterprises outside the program, uninfluenced by it]."

Price subsidized goods under the programs are expected to meet just 10-30 percent of the local demand, so they cannot help keep consumer prices stable, Lan said.

The consumer price index stood at 11.1 percent in November, the highest level in nearly two years. Deputy Minister of Industry and Trade, Ho Thi Kim Thoa, recently said she expects full-year inflation to enter double digits on the back of higher commodity prices and a slide in the dong. The government had originally targeted containing inflation at 8 percent.

Shelve it

Some firms said they cannot help but hike prices despite commitments not to do so under the price stabilization programs. Producers often pressurize them to raise prices to account for higher input costs.

Le Hong Son, head of food processing company Thai Duong, said it was difficult to purchase rice now, with flooding in the central region having reduced supplies and increased prices.

His firm had registered retail prices for rice with the Hanoi Department of Industry and Trade when it signed up for the program. "We need to increase our selling prices if prices in the market rise by more than 5 percent. If not, it (the deal) would not be viable."

Economist Ngo Tri Long said the program is effective only in the short term, so it is necessary to take other measures to stabilize prices and improve investment effectiveness at the same time. "We can't offer capital support to firms and then ask them to sell products at fixed prices. Such a program is not viable in the long term."

Economist Lan said the state should strengthen measures to stabilize prices of goods and services that have a strong bearing on key sectors' input costs, like electricity, coal, steel, cement, medicines and milk, instead of subsidizing interest on loans.

"I think we should not continue the program. The best way to stabilize prices is to help firms reduce input costs. The interest rate is very high, raising firms' input costs," Lan said.

With Vietnam having high interest rates on deposits and loans, it is important to monitor input costs of firms, Lan said.

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