Economist weighs in on inflation, GDP, and interest rate ceilings

Published: 24/03/2010 05:00



LookAtVietnam – If you want a high GDP growth rate, you have to accept high inflation, said economist

Ngan recently spoke with Tien Phong newspaper about economic issues in 2010 and about what Vietnam should do to curb inflation, keep the dong stable and stimulate economic growth.

He commented that there are some large concerns this year. The first is the high budget deficit. The normal budget deficit is five percent of the GDP, while Vietnam’s is now above seven percent. Another big worry are rapid price increases.

Tien Phong: What do you think we should do to deal with largest concerns and what should be the top priority?

Tran Hoang Ngan: The CPI in the first three months of 2010 increased by 4.25 percent, while the National Assembly requested inflation rate be curbed to below 7 percent. However, it is really very difficult to rein in inflation at below 7 percent.

I think that if we could curb inflation at below 10 percent for 2010, this would be a great success. It is possible to keep the inflation rate at below 7 percent, but this means that we will have to sacrifice the GDP growth rate. If you want GDP growth to stay at 6-6.5 percent, you must accept inflation rates at 9-10 percent.

Dr Tran Hoang Ngan

Tien Phong: What should we do to keep petroleum prices stable to avoid its negative effect on the prices of other goods and services?

Ngan: I think that we need to reserve a sum of money to compensate losses incurred by petroleum companies. (When the world price increases, petroleum companies do not raise prices in accordance with the world prices, but keep their prices unchanged. They incur losses for selling below the market price and their loss will be compensated by the state budget – VNNB).

If the petroleum price does not increase, the prices of other goods and services will remain stable. If so, we will be able to curb inflation at below 10 percent.

Tien Phong: Why do you think that we should not have removed the deposit interest rate ceiling?

Ngan: Under the current conditions, when we still cannot place commercial banks under strict control, we need to keep the ceiling plan. We should remove it only when the situation improves. I think that the deposit interest rate ceiling could be removed by the end of 2010.

If inflation is kept below 10 percent, the interest rate ceiling could decrease to 10 percent in the coming months, possibly in early October or November 2010. If so, the lending interest rate would be 12-13 percent, which businesses like.

Tien Phong: Do you think that the dong/dollar rate exchange rate adjustment can help boost exports and help curb the trade deficit?

Ngan: I think that we should not devaluate the local currency, but keep it stable for a long time. When the dong depreciates, it cannot help boost exports. Our exports decreased, not because of the currency’s value, but because world demand decreased. Meanwhile, devaluing the currency will lead to imbalances in international payments and decreases in foreign currency reserves.

VietNamNet/Tien phong

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