Vietnam prioritizes inflation as Asian concerns grow

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Vietnam said on Tuesday fighting inflation took precedence over growth and as a result GDP would miss the official target, underscoring a key concern for the region as Asian officials met in Hanoi to discuss ways to pursue a sustained upturn.

Rising prices across the region must be "carefully managed" via a mix of policies to minimize the impact on Asia's vast population of poor people, Asian Development Bank President Haruhiko Kuroda said at the start of the ADB's annual meeting.

All major economies in the region have tightened monetary policy to contain inflationary pressures that have built up during a strong recovery from the global crisis.

On Tuesday, the Reserve Bank of India said fighting inflation was the priority as it raised interest rates by a higher-than-expected 50 basis points. Volatile capital flows and surging commodity prices will be key topics of discussion when finance ministers from East Asia's top three economies -- China, Japan and South Korea -- meet with their Southeast Asian counterparts on Wednesday.

"The top priority is to fight inflation. We are no longer prioritizing GDP growth. We want to keep GDP growth at a reasonable level that is acceptable in this inflation situation," Vietnam's Minister of Planning and Investment Vo Hong Phuc said.

Growth was now expected to be 6.5 percent and inflation 11.75 percent in 2011, Phuc told a forum at the Asian Development Bank's (ADB) annual meeting in Hanoi.

The official targets, approved by parliament, are for 7-7.5 percent gross domestic product growth and inflation of 7 percent or less this year.

Vietnam's consumer price index rose 17.51 percent in April from a year earlier after rising an annual 13.89 percent in March, and is the highest among the major Asian economies.

Vietnamese authorities have raised various interest rates several times since mid-February, trimmed the official credit growth target for the year, cracked down on black market foreign currency trading and vowed fiscal spending cuts.

Carefully managed

Other Asian economies are also struggling with inflation pressures, particularly from rising oil and food prices.

"Inflation will need to be carefully managed using a mix of policy measures, especially given the harder impact of inflation on the poor which in Asia still number in the hundreds of millions," ADB President Haruhiko Kuroda said.

The ADB warned last month economic overheating and inflation threatened a sustained recovery in parts of developing Asia, and said a sustained rises in food prices could pull tens of millions into poverty.

India's central bank raised interest rates on Tuesday by a higher-than-expected margin and said fighting inflation was its priority even at the expense of short term growth.

The region's outperformance since the global financial crisis has also drawn large amounts of foreign capital seeking returns unavailable in most developed economies.

Those capital flows have seen currencies strengthen, something the export-driven region has traditionally resisted, and complicated policymaking by adding to domestic money supplies.

Stronger currencies have also mitigated the impact of higher dollar prices for food and fuel.

"Currency fluctuation has been a serious problem in Asia Pacific, particularly in east Asia, including southeast Asia," Kuroda said.

Kuroda, speaking to reporters at the ADB's annual meeting in Hanoi, said the bank's long-held position was that capital controls were acceptable in some circumstances, but should not be an "usual, ordinary or frequently used" tool.

South Korea's finance minister said the government was not considering restrictions on non-deliverable forwards or imposing new capital controls beyond recent steps.

 "We will focus on the existing three-way measures and are not considering introducing new measures," Yoon Jeung-hyun said in an interview.

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