Controlling inflation was the main task of the Vietnamese government in 2011. Despite 18.5% inflation this year, well above the set target of 7%, signs of recovery during the last months of the year have rewarded the government’s efforts to manage the macro economy.
Inflation began to rise in September 2010 when the Consumer Price Index climbed by 1.31% after five months of increasing less than 0.3% per month. In the first four months of 2011, inflation increased dramatically hitting 9.64%. In April alone, the CPI rose 3.32%, the highest since May 2008. The inflation target of 7% had to be adjusted to 11.5% and later to 15%. By August, the CPI was nearly 15.7% and the target was bumped to 18%. "We failed to hold inflation to 7% and several later targets. Due to our limited ability to forecast price indexes and inflation, we had to adjust the target several times. As a result, the measures that we took to control inflation became ineffective, delivering a hard lesson in inflation control", said Vu Dinh Anh, Director of the Price Market Science Research Institute of the Ministry of Finance.
In February, the government issued a resolution on controlling inflation, stabilizing the macro economy and ensuring social security. To curb inflation, the government tightened its monetary and fiscal policies, reducing credit growth sharply from 30% to 20% and later to between 12 and 13%, the lowest level in the past 15 years. Meanwhile, lending interest rates were very high, 20% or even 25% a year. The government measures became effective in May, sending inflation to less than 1% in the last 4 months of 2011. "The government’s resolution on controlling inflation has resulted in remarkable achievements in monetary and credit management. It’s necessary to strengthen the management of public investment, state owned enterprises, and public spending to avoid wastefulness and increase investment efficiency", said economist Le Dang Doanh.
Efforts to rein in inflation, however, resulted in a drop of the GDP growth rate from 7% to 6% and had additional negative consequences. The tightened credit policies and high lending interest rates caused difficulties for enterprises. Credit organizations saw more defaults and reduced liquidity. Many economists say the burden of inflation control put a lot of pressure on monetary policies while the fiscal policies have not been as effective as hoped. Sanjay Kalra, Chief Representative of the International Monetary Fund in Vietnam says Vietnam needs to increase the coordination of monetary and fiscal policies to control inflation and stabilize the macro economy in the medium and long term. "Resolution 11 has made some progresses toward macro economic stabilization. Nevertheless, the key objective of the resolution, i.e, a significant reduction of inflation is yet to be achieved. Under this condition, monetary exchange policies need to remain to focus on reducing inflation and building confidence in the dong. As regards to policies mixed, fiscal policies need to do more in the fight against inflation by reducing inefficient public spending, thereby supporting exchange rates. There's also need of better coordination between monetary and fiscal policies and use fiscal policy as a tool for demand management in the short term besides a tool for growth over the long term", said Sanjay Kalra.
Though the inflation rate was much higher than the set target, the declining trend during the last months of 2011 created momentum for achieving next year’s target of keeping inflation below 10%. Economists say it’s crucial to sustain inflation controlling tools by tightening public investment and using investment funds more effectively.
Minh Ha- VOV News Center.