IMF Forecasts Vietnam's Inflation at 7 per cent in 2005

IMF Forecasts Vietnam's Inflation at 7 per cent in 2005 

Vietnam's inflation rate is likely to stand at 7 per cent in 2005, International Monetary Fund (IMF) experts forecasted during a conference held by the Institute for Market Price last week in Hanoi.

The group of IMF experts also gave a scenario for Vietnam’s economy, in which the gross domestic product (GDP) growth rate will reach 7.5 per cent, while the inflation rate will hit 7 per cent.

That scenario differs markedly from expectations by the Vietnamese government, which plans 8.5 per cent GDP growth and 6.5 per cent inflation.

Till now, the 8.5 per cent GDP growth rate goal remains a controversial issue among analysts and government officials.

Economic experts have called on the government to reduce spending and tighten monetary policy to control inflation, which is anticipated to jump this year.

Vo Tri Thanh, Head of the Department for Trade Policy and International Integration Studies under the Central Institute for Economic Management (CIEM) pointed out that it was a very heavy task to attain three goals simultaneously: high GDP growth rate 8.5 per cent, effective investment deals, and stable inflation.

Vietnam should accept missing one goal to focus on the others, he said.

Mr. Thanh pointed out that the overly high GDP growth rate would lead to a macro economic imbalance that may weaken the economy in the long term.

Susan Adams from IMF agreed, saying that the 7.5 per cent GDP growth rate forecast by IMF is quite a good figure, while the 8.5 per cent plan is considered ‘ambitious’, which IMF does not recommend the Vietnamese Government to obtain at any cost.

Vietnam should learn the lesson from China, where economic growth is held down by high inflation, she said.

High inflation is not just a story from last year, when the rate reached 9.5 per cent. Economists have warned of a continued risk of high inflation if nothing is done to control the consumption price index (CPI).

Susan Adams, Chief Representative of the International Monetary Fund (IMF) Hanoi office said that Vietnam should use more monetary tools to check the upswing in prices.

Raising the compulsory reserve ratio, for example, would have a direct impact on the credit market, serving as a tool for tightening monetary policy as it helps reduce the volume of cash on circulation.

Vietnamese experts also urged the Government to take actions to cut state spending. Citing rising prices, Tran Dinh Thien, Economist from the Vietnam Economic Institute, said that the State has dragged its feet on the issue.

Nguyen Thi Hien, Member of the Prime Ministerial Research Team shared this view, adding that Vietnam should focus on this rather than on attempting to define prices for products.

The Ordinance on Pricing has been effective for two years, and it is high time for the Government to manage the market with market rules instead of administrative orders, Ms Hien said.

• B.T