Vietnam may cut 2012 growth target, government advisers say

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Vietnam may be forced to cut its 2012 growth target to as low as 5 percent from 6 percent after the economy expanded at the slowest pace since 2009 in the first quarter, two government advisers said.

The full-year target could be cut to "about 5 to 5.5 percent," Tran Hoang Ngan, a member of the National Financial and Monetary Policy Advisory Council, said by telephone today. "With first-quarter growth at only 4 percent, it will be extremely hard to reach 6 percent for the full year," Vo Tri Thanh, a member of the same council that advises the prime minister, also said today by telephone.

A lower growth target would ease pressure on the central bank to further reduce interest rates after doing so in March and April, according to Ngan, who is also deputy headmaster of the University of Economics Ho Chi Minh City. The actions led the International Monetary Fund to say that officials should have waited longer between cuts.

"The government needs to sacrifice its growth target and prioritize macroeconomic stability," said Ngan. "Prolonged high inflation rates in the last few years have also exhausted businesses and consumers, so how can you expect the economy to expand that fast?"

The International Monetary Fund cut Vietnam's 2012 growth forecast to 5.6 percent from 6.3 percent in its world outlook report on April 17.

Vietnam's annual inflation slowed to an 18-month low of 10.54 percent this month, down from 14.15 in March, according to an estimate released by the General Statistics Office in Hanoi yesterday. That may give the government room to ease further, according to Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co.

"Slower inflation and greater macroeconomic stability will lead to lower policy rates," he wrote in a report released today. The State Bank of Vietnam is likely to cut borrowing costs by another 200 basis points to 300 basis points, he wrote.

The government must still take measures to fight inflation because of the risk of price increases toward the end of the year, Ngan said. Higher gasoline prices, rising salaries of state workers and potentially higher electricity and coal prices may contribute, he said.

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