Rising Concerns on the Economy

Many economists said that the decreasing CPI in May will fool the feeling of many that the government’s attempt to curb inflation will bring positive results and foster business growth. But the decline of the actual CPI is caused by the weakening of the core factors that decide the development of the economy. Those factors including the investment budget, credit and businesses from the beginning of the year were too weak.

 

According to Economist Truong Dinh Tuyen, low inflation rates in the first 3 months reflect the fact that the demand for consumption and investment of the economy are still very weak; besides, a large amount of bad debts are curbing the credit growth, leading a poor investment of the business sector. Moreover, the monetary policy in the past has not yet yielded the desired results.

 

In just the first quarter of 2013, the number of newly established businesses and the number of businesses being closed are equivalent (15,700 businesses was founded and 15,300 businesses stopped working). To this point, the government has not yet taken measures to rescue business, except an implementation of credit package and an establishment of a company purchasing bad debt. But the efficiencies of such measures need time to verify.

 

The paradox is that while the majority of businesses are thirsty for capital, the banks with excess liquidity are investing in government bonds, instead of loans for businesses, to avoid risk. As such, the currency policies are almost making no headway.

 

According to the calculations of the experts, CPI this year could fall to about 5.5 percent. According to the ANZ Bank in Vietnam, the inflation rate of the first 5 months this year only increased by 2.35 percent compared to December 2012, so inflation this year is likely to be at a low level.

 

However, controlling inflation at low levels may pose risks to the economy. The lesson learned in 2012 was such a case; the inflation rate in 2012 had been curbed at 6.81 percent compared to its objective of 8 percent, but this led to thousands of business going bankrupt or stopping their operation.

 

Low inflation rate at a period when the economy is experiencing too many difficulties will make many businesses encounter a lot of difficulties in business operations. Therefore, Vietnam needs to take measures to raise inflation to a reasonable level, helping the economy and businesses to recover.

 

According to Economist Hoang Van Manh, to promote economic development, the government should promote the policy of monetary easing, continue a policy of credit support for producers and consumers in order to limit the economic downturn, enable businesses to solve inventory problems, restore and expand production and help increase the total supply of goods and services. When there is a sudden increase in consumer demand, the opportunity to increase total demand will become more obvious. This will be a prerequisite to restore businesses and boost production.

 

How to rescue businesses also raises most concerns of the deputies at the 5th session of the National Assembly XIII. Deputy Tran Du Lich of Ho Chi Minh City said that the economic crisis will not cause inflation to rise again. Thus, the budget over-spending under the fiscal policy could be re-considered for a loosening to meet the current requirements.

 

Also according to Deputy Tran Du Lich, the Government should consider increasing the number of bonds, supporting businesses to pay the investment loans in construction, and creating capital circulation in the economy. This solution aims to combine with the loosening monetary policies to increase the total demand of the economy.

 

Not agreeing with Mr Lich, Dr Vu Dinh Anh argued that budget over-spending will erase all the achievements that the economy has gained over the past time.

 

Mr Nguyen Van Giau, Head of the Economic Committee of the National Assembly, also added that the theoretical and intuitive ideas should not be proposed at this time. He proposed that to increase total demand, the government could stimulate consumption by loosening the policies but the budget overspending, which is fixed at 4.8 percent GDP. Also for the budget overspending, it is necessary to seek funding sources domestically and internationally, particularly considering the fact that public debts are very stressful. 

 

Finding the solution to rescue the economy at the moment is really urgent. Only focusing on curbing inflation will pose risks of non-stop crisis to the economy and cause burdens on businesses and people. According to economists, stimulating demand is a good driving force for economic growth.