Vietnam's government grapples with an unprecedented inflationary predicament
Construction workers have lunch on the sidewalks of a street in downtown Ho Chi Minh City
As consumer prices continue to rise, globally, fuel and energy have spiked at home.
Minister of Planning and Investment, Vo Hong Phuc, sat down with Thanh Nien Weekly to discuss some of the things the government is doing to address inflation and cut back on spending.
Thanh Nien Weekly: How is the government's anti-inflation strategy different today than it was during the 2008 economic crisis?
Vo Hong Phuc: Back then inflation was sparked mainly by a global rise in consumer prices. This time around prices are rising on both the global and domestic markets. Rising prices on the domestic market are being exacerbated by higher electricity rates.
Higher electricity prices have naturally made other goods and services more expensive, further fueling inflation. Ultimately, the government plans to allow these prices to be determined by market forces.
Tackling inflation will be harder this year due to our thinner foreign currency reserves. In 2008, our foreign currency reserves equaled 18 weeks of import turnovers. Right now, however, the reserve only equals approximately six weeks.
This scenario increases the role that the foreign exchange rate plays in Vietnam's economy. When the rate increases, it will put a lot of pressure on the price of consumer goods.
Vietnam has injected a lot of money into the economy, much of it through public works projects. Is that contributing to inflation?
Our credit is big.
The government targeted credit growth of less than 25 percent in 2010. By December, it had hit 31 percent.
We have poured a lot of money, mainly for investment, into the economy.
To reduce public investment, we had to cut the issuance of government bonds and limited expenditures drawn from the state budget. The government has set a VND45 trillion ceiling on bond issuance"”a drop of nearly 30 percent from the previous target.
Right now, we need to review the state's investment in state-owned enterprises.
So far, the outsized credit growth can mainly be attributed to an increased investment in state-owned enterprises.
Many economists have advised the government to cut back on public spending. How can we cut back and avoid hurting economic growth?
For the moment, the government has refrained from setting any specific economic growth targets.
We're still trying to boost growth as much as possible without relying on a specific target and the government has made inflation reduction its top priority.
When we lower our economic growth target, problems arise in the fields of employment, social welfare and local people's income. The government plans to further invest in social welfare programs to offset these difficulties.
Could the plan to reduce public investment lead to economic stagnation?
The plan will partly affect development, but it is not a major concern. We will take steps to maintain reasonable economic growth and curb inflation.
Some economists have criticized Vietnam's public works projects as wasteful and ineffective; how has the government addressed those concerns?
The Ministry of Planning and Investment has always managed investment in Vietnam's infrastructure. The National Assembly's surveillance teams have helped strengthen that oversight.
Right now, we're looking to practice thrift in regular spending, such as buying official vehicles or organizing festivals.
What is being done to ensure that public works projects are worthwhile?
We have worked hard to effectively implement the government's Resolution No. 11 (issued last month) under which only projects that are heavily vetted by government agencies are implemented. In the meantime, state-owned enterprises are also working to implement the decree and minimize investment in ineffective projects.
How can we monitor investments made by state-owned enterprises?
We should create an organization tasked with overseeing them.
At the moment, each ministry monitors a certain number of state-owned economic groups, and cannot keep a close eye on all of them.
We have to eliminate ineffective projects"”not just state-owned businesses but also foreign ones.
There are oversized FDI projects, which have sent large amounts of foreign currency abroad, increasing pressure on our foreign currency demand and contributing to inflation. Now, we are reviewing these projects as well.
Will the government agree to unscheduled spending in the coming year?
The government will not allow unscheduled spending. Additionally, we've cut advances from the state budget, which will help reduce public spending.