The credibility of Vietnam’s economic and monetary policy has been hurt by quickening inflation, plans for price controls and the nation’s currency regime, the American Chamber of Commerce said.
“The government’s approach to economic and monetary policy has raised credibility and confidence issues,” Amcham’s Vietnam chapter said in a statement read to government officials at a conference in Hanoi today. The business group said it is concerned about “the lack of an effective inflation policy.”
Consumer-price growth accelerated to a 20-month high last month, while the dong’s black-market exchange rate is about 10 percent weaker than the official figure. The central bank’s lack of independence and a “vague” monetary policy framework have allowed prices to rise, JPMorgan Chase & Co. said this week.
A government circular on price controls is a move toward ineffective and unproductive central planning, Amcham said. Focusing the controls on imports violates Vietnam’s commitments to the World Trade Organization, the chamber said.
Prime Minister Nguyen Tan Dung yesterday assigned the Ministry of Finance to coordinate with other government agencies to maintain the prices of coal, electricity and gasoline as part of an attempt to control inflation.
Any price-control measures imposed without also increasing interest rates and narrowing Vietnam’s budget deficit won’t work, according to London-based Capital Economics.
‘Further and Soon’
“For inflation to slow next year, monetary and fiscal policy has to be tightened further and soon,” Kevin Grice, an economist at Capital Economics, wrote in a note dated yesterday.
Stabilizing the economy and slowing inflation are now the administration’s top priorities, Minister of Planning and Investment Vo Hong Phuc told journalists after the conference. “So price-control measures are very necessary,” he said.
Regarding complaints that Vietnam’s economic and monetary policy is hurting the confidence of domestic and foreign investors, Phuc said the government has had to take “measures aiming to keep the macro-economy and prices stable, and especially to hold the dong steady. I think investors will understand.”
Phuc and his deputy didn’t immediately return telephone calls to their offices for further comment.
Inflation isn’t expected to exceed 7 percent in 2011 and the economy will probably expand 7 percent to 7.5 percent next year, Deputy Minister of Planning and Investment Dang Huy Dong said at the event. Vietnam’s government forecasts 6.7 percent growth this year.
In 2011, “if the economy does expand at a faster pace than this year, inflation, we judge, will be far higher, too,” wrote Grice of Capital Economics.
Consumer-price growth has accelerated since the State Bank of Vietnam devalued the dong in August to curb the nation’s trade deficit. The inflation rate climbed from 8.18 percent that month to 11.09 percent in November. The official exchange rate was also weakened in February this year and November 2009.
The dong traded at 19,498 per dollar as of 3:15 p.m. in Hanoi. In the so-called black market, the currency was trading from 21,370 to 21,450 this afternoon at money changers in Hanoi, according to an information service run by Vietnam Posts and Telecommunications.
“The upward pressure on prices is increasing across the board, which puts further downward pressure on the dong,” Amcham said. The currency is “day-by-day becoming less attractive as a store of value,” it said.
Vietnam’s central bank raised its so-called base rate on Nov. 5 to 9 percent from 8 percent, the first increase this year. The scrapping of a cap on borrowing costs that was linked to the rate means it’s not an effective benchmark and instead is a “mere signaling tool,” Standard Chartered Plc said in a note on Oct. 26.
The Southeast Asian nation now relies more on “moral suasion, administrative controls and regulation” rather than the base rate, Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase, said two days ago.
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