Vietnam’s inflation crisis is caused by long-term global problems, not WTO membership, a senior economic expert and former head of the Central Institute for Economic Management Le Dang Doanh says in an interview.
At the conference “The Impact of WTO participation on Vietnamese Economics and Society,” which you recently attended, several economic experts agreed that the country’s participation in the WTO should not be blamed for inflation. What are your thoughts?
Le Dang Doanh: We should look at the country’s economic picture as a whole, and not peel off one leading cause of this situation – either Vietnam’s participation in the World Trade Organization (WTO) and ASEAN Free Trade Area (AFTA) or its bilateral trade agreement with America.
It’s important to realize that Vietnam had initiated a series of economic reforms before joining WTO and we did not see their effects until after the country’s admittance to the organization.
It’s unfortunate that following Vietnam’s accession to the WTO, the world crude oil price topped US$110 per barrel and rice prices also jumped.
The prices of essential raw materials climbed as well, many people mistakenly thought that Vietnam had suffered the consequences of export inflation because of the WTO.
I certainly disagree.
Without being admitted to the WTO, the magnitude of these problems could even be even worse.
We might have just continued importing gasoline and oil products while watching prices climb and it would have been even more difficult to battle inflation.
You mentioned at least twice before that we have been slow in reacting to this type of economic turmoil. How do you assess the government’s reactions to inflation this time around?
I think in 2007, we did not respond quickly and effectively enough and that’s why inflation has risen this high.
By the first quarter of 2008, we realized that it was time to act but there weren’t any coordinated measures among government agencies and ministries.
Some of the measures were counter productive, including the central bank’s request for interest rate hikes, the increase of banks’ reserve requirements and the issuance of compulsory Treasury bills while not buying US dollars from local exporters.
I’ve realized that the government has made some changes, however, it’s critical for government officials to consult companies before fixing any policy.
In this inflation battle, no monetary policy can satisfy all components of the economy.
The government must lead the way by example.
It could do this by saving, through lowering the amount of public funds being poured into stalled state projects.
The flow of such funds should be announced to the National Assembly, to each people’s committee and to the public.
We should strive to stabilize our growth rate instead of continuing with growth we can’t keep up with.
Can you comment on reducing our growth rate from 9 percent to 7.5 percent?
I want to emphasize that a large number of world economies are slumping.
Even the world’s biggest economic player, the United States, has adjusted its growth rate goal, so it’s inevitable that we adjust ours.
Since our economy depends 70 percent on exporting, we are obviously hurt when our export markets are hurt.
I think the maximum growth rate we could strive for is 7.5 percent – not 8 or 8.5 percent.
The public should sympathize with the government in its efforts.
It’s possible that the situation could get worse over the second quarter.