Vietnam, as is the case in many other Asian countries, has been faced with inflationary pressures which are greater than in many other parts of the world. The region is close to overheating, with inflation climbing to levels which may be difficult to bring down again. Rising food prices and housing, transportation and energy costs are the main factors driving up inflation in Vietnam, as in other countries in the region. Prices for key commodities have also been soaring. Annual inflation in April was 17.5 percent, the highest level since December 2008, and up 3.3 percent over March 2011, according to the UN.
The UN affirmed that Vietnamese Government action since the Tet holidays to ensure macro-economic stability and contain inflation was to be commended. Resolution 11 is a turnaround not only in policy making, but also in policy thinking. For the first time in many years, growth is no longer a priority in the short term, reflecting growing consensus about the need to shift away from “quantity” to “quality” of growth and development.
The Government has been very proactive in using interest rates and currency devaluation to fight inflation. However, downward pressures on the exchange rate, low foreign reserves and the high trade deficit are of concern. The financial sector continues to be at significant risk due to a very high credit growth rate. Twenty percent is welcome but a specific, lower target should be set, and the focus should be on cutting credit growth in State enterprises, not the private sector and SMEs.
Much greater clarity is also needed about where the decision to cut ten percent from regular public expenditure will fall. Some poverty reduction and social assistance policies are funded from recurrent expenditure, so budget cuts here would directly hurt the poor. Greater efficiency of public investment is needed and this should be a short term priority.
In this respect, the Government’s strong commitment to cut back its investment in efficient state-owned enterprises while supporting agriculture, export and support industries and SMEs is a positive sign. However, even if much-needed cuts are made to inefficient public investment in infrastructure, we can expect to see job losses among construction workers.
The immediate impacts of inflation are felt by the urban poor, in particular poor migrant workers, pensioners and those on low incomes. They suffer from higher food prices and increased electricity and fuel costs. The phasing out of subsidies to the energy sector under Resolution 11 will only exacerbate this impact. As for the rural poor, they are also affected by rising prices. Some may be in a position to recoup some additional income as net food producers. However, in the long term, inflation has the potential to drive households back into poverty.
For example, studies on the impact of high inflation in 2008, when inflation rates rose as much as 19.9 percent, show the poverty rate increased by 2.1 percent. Poverty reduction slowed during 2006 – 2008 by only 1.5 percent compared to 3.5 percent from 2004 – 2006 and 19.5 percent from 2002 – 2004, largely due to high inflation in 2008. If we do see long-lasting inflation and lower growth rates Vietnam is also likely to experience a return of the higher rates of unemployment and underemployment experienced in the wake of the recent financial crisis.
Initiatives such as assistance to the poor to cover electricity costs are welcome. However, they may not reach those who are most in need, as poor migrants are not registered and therefore not eligible for these benefits. The United Nations is also concerned that unemployment insurance may not benefit those most in need, as was the case in the wake of the financial crisis when employers defaulted on job termination benefits.
The Government needs to very closely monitor the impact of inflation and macro-economic instability on the poor, including those in vulnerable employment. In this respect the United Nations welcomes more regular labour force surveys being conducted by GSO. The United Nations has supported rapid impact monitoring of the economic crisis over the past two years by VASS’s Center for Analysis and Forecasting. This will be repeated over the coming months and will give us important new data on the social impact of current inflation hikes.
Poverty reduction and social protection programs are also key elements. Experience from the Asian financial crisis and the recent global economic crisis shows that having a comprehensive social protection system in place is critical to provide immediate social protection and support to the poor. There is a need now to ensure gaps and overlaps in these programs are addressed and to expand coverage to newly vulnerable groups so that a universal system of social protection is available to all who need it, the UN concluded.
CPV
Vietnamese
