Low-incomers Hard Hit by Economic Instability

“Low incomers are hard hit by the unstable economic development”. This is the statement shared by many experts at an international conference titled “Impacts of unstable macro economy on social welfares: International experience and lesion for Vietnam” which was held by the Governmental Office and the World Bank (WB) in Hanoi.

 

According to economist Pham Chi Lan, poor people have not benefited from the national prices stabilisation program. Most of price-stabilizing products have only been sold in supermarkets and big shops where poor people rarely go, the expert attributed. To bring benefits to poor people and low-income earners, price-stabilizing products should be sold at rural markets, outlying districts and industrial parks…

According to Mr Will Martin, an expert of the World Bank (WB), low-income earners in the urban spend most of their monthly income on foodstuff. Therefore, they are so vulnerable to increases of foodstuff prices. In addition, farmers are also meeting with difficulties because of the rising input costs, including fertilizer, pesticide, animal feed... though prices of their finished products have not increased much. Increases of services, transport fees also affect farmers and local people.

 

Former Deputy Prime Minister Vu Khoan said, employees and farmers are the subjects who are mostly in need of social welfares and social security from the Government. Together with unstable economic development, other factors like climate change, and epidemics also affect quality of farm produce. Mr Khoan added that a lesson from the recent crisis for Vietnam is that development of agro production must go parallel with the national industrialisation process to ensure social welfares and social security. In fact, the quality of Vietnamese farm produce remains poor and weak. The country needs to carry out agriculture sector restructure as well as the national economic reshuffle.

 

Mr Tran Dinh Thien, Director of the Vietnam Socio- economic Institute, stressed, Vietnam should further focus on development of high-quality agriculture sector, as the high-quality agriculture will help the country’s production save costs, energy, water and better deal with energy scarcity.

 

Possible risks in macro-economic development

According to Dr. Vo Tri Thanh, Deputy Director of Central Institute for Economic Management (CIEM), the current situation of Vietnamese economy is uncertain. If only looking at indexes like Vietnam’s gross domestic product (GDP), industrial production values, export turnovers, and consumer price index (CPI)…, the national economy is developing well and not affected by series of policies of the State Bank of Vietnam on aggregate demand. Only inflation is rising. However, Mr Thanh said with slowing CPI growth rate, comments on the national economic development have been made: one is so pessimistic, while the other feels secure about the current administration policies.

 

Moreover, Thanh added certificates of deposit (CDS) of Vietnam by the end of May have strongly increased, while the country’s National Trust index remains low after three-time slips.

 

Meanwhile, shortcomings in the country’s monetary policies remain, including abuse of administrative procedures; asynchronous banking system. In fact, credit organisations seemed to prefer administrative tools to market ones…. Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Committee, said the ceiling interest rate for deposits is an administrative tool and that it is really not necessary. The central bank should rather focus its inter-banking interest rate policies on the open market that on deposit interest rate or lending interest rate at commercial banks.

 

Nghia also warned that besides the shortcomings in the monetary policies, bad debts of the banking system and rising Government debts are also risks, posing threats to the national macro economy development in the future.

 

Nghia explained that State-run enterprises and powerful groups borrow large loans from the banking system. However, due to their ineffective business operations, they have become big debtors of the banking system, putting high pressure on the banking system. In addition, the rising public debts in recent times, with rising interest rates and shorter terms would pose more threats to the national macro economy development in the upcoming time.

 

According to many economists, the Government of Vietnam is making big efforts to curb inflation. With the approval of Resolution 11, the country has seen positive signs. The country is likely to curb credit growth rate below 20 per cent and keep total payment growth at 16 per cent. Once inflation is curbed, the national economy will be more stable and develop more strongly in years to come.